Annual Financial Report

Mailbox REIT PLC

05 September 2023

Mailbox REIT Plc

("Mailbox REIT" or the "Company")

FULL YEAR 2022 RESULTS

Mailbox REIT, which owns Mailbox, a prime regional office-led, mixed-use asset in Birmingham (the "Mailbox" or the "Property"), is pleased to announce audited Annual Report (the "Report") and Consolidated Financial Statements of the Group for the year ended 31 December 2022.

The Company has also separately announced today that it has been notified by the International Property Securities Exchange ("IPSX") that the platform has commenced the process of winding down operations. Mailbox REIT has been investigating alternative platforms for listing and trading its shares to improve liquidity for investors and the Board expects to take a final decision shortly.

The Company's strategy is to reposition Mailbox in the regional Birmingham market from an office lead asset to a 'Live Work Play' destination, whilst attracting both tenants and visitors to the building. Mailbox is an office asset focusing on media, technology and innovation, with ancillary associated amenities, leisure and retail, leading to the creation of a prime work leisure destination. This strategy includes the conversion of 36,000 sq ft of lower level retail units into 50,000 sq ft of serviced office accommodation, managed by IWG under its "Spaces" brand.

The Company recognises that the current market is challenging, however the implementation of the proactive asset management initiatives at Mailbox will support future growth, and income generation.

Financial and Operational Highlights

	31 December 2022	31 December 2021
Net Asset Value ("NAV")	£47.98 million	£85.95 million
NAV per share	56.55 p	101.30 p
Fair value of investment property	£157.00 million	£185.83 million
Loan Facility	£108.50 million	£108.50 million
Loan to Value ("LTV") on external valuation	69.11%	58.39%

	Year ended 31 December 2022	Year ended 31 December 2021
(Loss)/earnings per share ("EPS")	(39.00 p)	3.37 p
Adjusted EPS	4.58 p	2.21 p
Dividend cover (on Adjusted EPS)	115.50%	50.00%
Total dividends	4.00 p	4.42 p
Operating profit before fair value changes	£9.10 million	£7.78 million
Interest coverage ratio	177.50%	183.44%
(Loss)/profit before tax	(£33.07 million)	£1.83 million
Ongoing charges	2.88%	1.17%

Financial highlights

• Loss per share of 39.00 p for the year (31 December 2021: earnings per share of 3.37 p) is largely attributable to a fall in the valuation of investment property.

• Adjusted EPS improved to 4.58 p (31 December 2021: 2.21 p), highlighting the strength of Mailbox's operational performance.

• 16.97% growth in operating profit before fair value changes to £9.10 million (31 December 2021: £7.78 million) is driven by increased lettings and the subsequent reduction in void space, primarily due to the conversion of retail space to co-working space.

• 20.66% increase in recognised rent and other income (before service charges) during the year to £12.38 million (31 December 2021: £10.26 million).

• Mailbox valuation reduced by 15.51% to £157.00 million in the year to 31 December 2022 (31 December 2021: £185.83 million), reflecting the market wide rerating seen in the final quarter of 2022. Despite this reduction in value, the Company is confident that through its various asset management initiatives, the fall in value will be regained over time. The valuation shows a net equivalent yield of 7.26% (31 December 2021: 6.22%).

• The change in valuation also impacted NAV, which was £47.98 million or 56.55 p at year end (31 December 2021: £85.95 million and 101.30 p) and led to an increase in the loan to value ratio of the Group's £108.50 million loan facility to 69.11% (31 December 2021: 58.39%) against a covenant of 60.00%. More details are given below.

Operational highlights show strong rent collection and asset management progress

• In line with the strategy detailed at the time of the IPO, the new flexible workspace operating under IWG's Spaces brand opened in May 2022. By December 2022, 55% of total IWG space was occupied, of which 63% of enterprise office space had been let. The strength of demand for these offices is such that IWG plans to reconfigure the accommodation during 2023 to provide further enterprise office accommodation to meet demand.

• Advanced Business Software and Solutions made Mailbox its UK HQ, occupying 45,691 sq ft of space.

• Castle Fine Art leased 8,799 sq ft of additional office space and also made Mailbox its UK HQ, with a total of 14,620 sq ft.

• Various other lettings and lease renewals have been completed with a range of tenants, particularly in the retail and leisure sectors.

• The BBC indicated its intention to vacate on lease expiry in 2026. Work has begun on a re-leasing and repositioning strategy for the space, taking advantage of the opportunity to accelerate progress on the Company's ambition for Mailbox to be carbon neutral by 2030.

• Occupancy was 94% by sq ft occupied at the end of December 2022 (December 2021: 95%) with 38 tenants (31 December 2021: 40), with office and car park tenants representing 69% (31 December 2021: 67%) of the gross rent receivable and the balance comprising retail and leisure operators.

• The weighted average unexpired lease term ("WAULT") is 12 years, 3 months to break and 12 years and 10 months to expiry (2021: 13 years, 5 months to break and 13 years and 11 months to expiry).

Reduction in dividend target following change in market sentiment

• The dividend per share quoted at the time of the IPO was 7.00 p however this has reduced in 2022 to total dividends of 4.00 p (31 December 2021: 7.00 p (annualised)) which have been declared for the year.

• The reduction in dividends has primarily been driven by an increase in financing costs arising from the rises in interest rates at the end of 2022 and through 2023, however the operational performance of Mailbox has shown sustained year-on-year growth.

• Dividends paid for the year total £4.88 million (31 December 2021: £2.27 million) which includes the dividend declared for the period ended 31 December 2021 of £1.48 million, paid on 25 February 2022.

• The Directors have made the decision to suspend future dividend payments while debt negotiations with the lender syndicate are ongoing. This position will be re-evaluated following the conclusion of these conversations.

Delivery of ESG strategy already driving returns

• Mailbox has achieved a 15% reduction in both electricity and gas consumption, respectively, as compared to the previous year to date in line with ongoing strategy to improve onsite sustainability.

• Strategy for the asset to achieve net zero by 2030 has been approved and is in line to be achieved.

• Mailbox has achieved the Carbon Trust standard for Zero Waste to Landfill accreditation recognising leadership in waste management.

• Participation in community and social partnerships has continued, including work with Birmingham City Council and the Commonwealth Games committee surrounding activities to celebrate and support the Commonwealth Games. This involved Mailbox hosting a large outdoor screen that was used to broadcast the Commonwealth Games on the Canalside, creating a community space for the city.

Debt Extension

Following a lender called valuation in November 2022, the Group was informed by the lender syndicate that the debt was in breach of the LTV covenant and a cure of £27.5 million would be required, prior to the agreement of the expected debt extension. On 20 April 2023, the lender syndicate reserved its rights and announced that the debt had fallen into default which was subsequently announced publicly on 24 April 2023. The implication of this is that the Group are now being charged default interest on the borrowings balance up to the date that the default has been fully cured.

The Group are in the process of raising a loan note of up to £30.0 million which will principally be used to cure the default, reducing the LTV to 60.0% based on the November 2022 lender valuation. Following final settlement of the cure, which will reduce the senior debt facility to £81.0 million, an extension with the lender is expected to be agreed and the duration of the extension will be known in parallel with settlement.

The Directors acknowledge that the ongoing debt negotiations and property valuation are an area of material uncertainty and that future valuations may be influenced by market forces outside of the Group's control that could lead to a reduction in value, and further subsequent breaches of the LTV covenant. However, based on the fact that the debt yield covenant remains well within parameters at 10.1% (default: 6.75%), the continued rent collection rates, the operational strength and financial performance of the asset and the ability to continue servicing debt obligations during a turbulent borrowing market, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements of the Company and Group.

The lengthy discussion with the lender syndicate, together with raising the cure for the senior debt led to the delay in approval of the consolidated financial statements for the year ended 31 December 2022 which were signed on 4 September 2023.

Stephen Barter, Non-Executive Chairman of Mailbox REIT plc, commented:

"We continue to be encouraged by the operational resilience of Mailbox and the long-term strength of its rental income and occupier portfolio.

Some £11.00 million of annualised rental income is being received from a diverse mix of high quality tenants occupying 94% of the building's floor area. The Company continues to benefit from strong quarterly rental collections, with 99% of the half-year rents of 2023, and 99% of the full-year rents of 2022 now received. As a result, the Company's debt service obligations continue to be well covered.

Despite the impact which the recent turbulence in financial markets and interest rate increases have had on the property's shorter-term capital value, and hence its current NAV and LTV, its continued, long-term operational resilience reflects the purposeful asset management and sustainability plan which M7 Real Estate Ltd has been implementing since before the IPO."

ENQUIRIES

Mailbox REIT PLC

Stephen Barter - Chairman via FTI Consulting below

M7 Real Estate Ltd

Richard Croft +44 (0) 20 3657 5500

WH Ireland (Lead Advisor &

Corporate Broker) +44 (0) 20 7220 1666

Chris Hardie

FTI Consulting (Communications

Adviser) +44 (0) 20 3727 1000

Richard Sunderland MailboxREIT@FTIConsulting.com

Eve Kirmatzis

Alter Domus (UK) Limited

(Company Secretary) +44 (0) 207 645 4800

The Company's ISIN is GB00BM9BWM32.

Further information on Mailbox REIT plc is available at www.themailboxreit.com¹.

NOTES

Mailbox REIT PLC Mailbox REIT is a single asset REIT offering shareholders exposure to the performance of Mailbox which is a prime regional office-led, mixed-use asset offering long-term secure income and the potential for value enhancement.

The Company's asset manager is M7 Real Estate Limited ("M7"). M7 is a leading specialist in the pan-European, regional, multi-tenanted real estate market. It has over 220 employees in 15 countries and territories. The team manages almost 610 assets with a value of circa €6.9 billion.

¹ Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published on a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.

ANNUAL REPORT AND Consolidated Financial statements

31 December 2022

Strategic Report

(the "Company" or "Mailbox REIT", together with its subsidiaries, the "Group")

The Board of Directors of Mailbox REIT, which owns Mailbox, a prime regional office-led, mixed-use asset in Birmingham (the "Mailbox" or the "Property"), is pleased to present the audited Annual Report (the "Report") and Consolidated Financial Statements of the Group for the year ended 31 December 2022.

The Company is listed on the Wholesale Market of the International Property Securities Exchange ("IPSX").

Company Strategy and Purpose

The Company's strategy is to reposition Mailbox in the regional Birmingham market from an office lead asset to a 'Live Work Play' destination, whilst attracting both tenants and visitors to the building. Mailbox is an office asset focusing on media, technology and innovation, with ancillary associated amenities, leisure and retail, leading to the creation of a prime work leisure destination. This strategy includes the conversion of 36,000 sq ft of lower-level retail units into 50,000 sq ft of serviced office accommodation, managed by IWG under its "Spaces" brand.

The Company recognises that the current market is challenging, however the implementation of the proactive asset management initiatives at Mailbox will support future growth, and income generation.

Financial and Operational Highlights

	31 December 2022	31 December 2021
Net Asset Value ("NAV")	£47.98 million	£85.95 million
NAV per share	56.55 p	101.30 p
Loan to Value ("LTV") on external valuation	69.11%	58.39%
Loan Facility	£108.50 million	£108.50 million

	Year ended 31 December 2022	Year ended 31 December 2021
(Loss)/earnings per share ("EPS")	(39.00 p)	3.37 p
Adjusted EPS¹	4.58 p	2.21 p
Dividend cover (on Adjusted EPS)	114.50%	50.00%
Total dividends declared	4.00 p	4.42 p
Operating profit before fair value changes	£9.10 million	£7.78 million
(Loss)/profit before tax	(£33.07 million)	£1.83 million
Ongoing charges	2.88%	1.17%

Financial highlights

• Loss per share of 39.00 p for the year (31 December 2021: earnings per share of 3.37 p) is largely attributable to a fall in the valuation of investment property.

• Adjusted EPS improved to 4.58 p (31 December 2021: 2.21 p), highlighting the strength of Mailbox's operational performance.

¹Adjusted EPS is considered to be an Alternative Performance Measure ("APM") and a reconciliation can be found in the Appendices.

• 20.66% increase in recognised rent and other income (before service charges) during the year to £12.38 million (31 December 2021: £10.26 million).

• Mailbox valuation reduced by 15.51% to £157.00 million in the year to 31 December 2022 (31 December 2021: £185.83 million), reflecting the market wide rerating seen in the final quarter of 2022. Despite this reduction in value, the Company is confident that through its various asset management initiatives, the fall in value will be regained over time. As a result, the valuation shows a net equivalent yield of 7.26% (31 December 2021: 6.22%).

Operational highlights show strong rent collection and asset management progress

• In line with the strategy detailed at the time of the IPO, the new flexible workspace operating under IWG's Spaces brand opened in May 2022. By December 2022, 55% of total IWG space was occupied with open desk space at 32% and enterprise office space at 63%. The strength of demand for enterprise offices is such that IWG plans to reconfigure the accommodation during 2023 to provide further enterprise office accommodation to meet demand.

• Advanced Business Software and Solutions made Mailbox its UK HQ, occupying 45,691 sq ft of space.

• Castle Fine Art leased 8,799 sq ft of additional office space and also made Mailbox its UK HQ, with a total of 14,620 sq ft.

• Various other lettings and lease renewals have been completed with a range of tenants, particularly in the retail and leisure sectors.

• The BBC served notice of its intention to vacate on lease expiry in 2026. Work has begun on a re-leasing and repositioning strategy for the space, taking advantage of the opportunity to accelerate progress on the Company's ambition for Mailbox to be carbon neutral by 2030.

• The weighted average unexpired lease term ("WAULT") is 12 years, 3 months to break and 12 years and 10 months to expiry (2021: 13 years, 5 months to break and 13 years and 11 months to expiry).

Reduction in dividend target following change in market sentiment

Delivery of ESG strategy already driving returns

• Mailbox has achieved a 15% reduction in electricity and gas consumption, respectively, as compared to the previous year to date in line with ongoing strategy to improve onsite sustainability.

• Strategy for the asset to achieve net zero by 2030 has been approved and is in line to be achieved.

• Mailbox has achieved the Carbon Trust standard for Zero Waste to Landfill accreditation recognising leadership in waste management.

Stephen Barter, Non-Executive Chairman of Mailbox REIT plc, commented:

"We continue to be encouraged by the operational resilience of The Mailbox and the long-term strength of its rental income and occupier portfolio.

Debt Extension

Following a lender called valuation in November 2022, the Group was informed by the lender syndicate that the debt was in breach of the LTV covenant and a cure of £27.5 million would be required, prior to the agreement of the expected debt extension. On 20 April 2023, the lender syndicate served its rights and announced that the debt had fallen into default which was subsequently announced publicly on 24 April 2023. The implication of this is that the Group are now being charged default interest on the borrowings balance up to the date that the default has been fully cured (see Note 2).

The Group are in the process of raising a loan note of up to £30.0 million which will principally be used to cure the default, reducing the LTV to 60.0% based on the November 2022 lender valuation. At the date of signing these consolidated financial statements, £7.1 million has been raised and paid down, and £1.5 million has been paid out of reserves, leaving £18.9 million still payable. Following final settlement of the cure, which will reduce the senior debt facility to £81.0 million, an extension with the lender is expected to be agreed and the duration of the extension will be known in parallel with settlement.

The Directors acknowledge that the ongoing debt negotiations and property valuation are an area of material uncertainty and that future valuations may be influenced by market forces outside of the Group's control that could lead to a reduction in value, and further subsequent breaches of the LTV covenant. However, based on the fact that the debt yield covenant remains well within parameters at 10.1% (default: 6.75%), the continued rent collection rates, the operational strength and financial performance of the asset and the ability to continue servicing debt obligations during a turbulent borrowing market, the Directors continue to adopt the going concern basis in preparing these consolidated financial statements of the Company and Group.

Alternative Performance Measures ("APM")

When assessing the performance of the Group, the Board and Asset Manager use APMs. In particular, adjusted EPS, which is a measure used to assess the level of the Group's dividend payments as supported by cash flows.

Reconciliations between APMs can be found in the Appendices.

Chairman's Statement

Overview

Welcome to the Annual Report for 2022. It was the second year of Mailbox REIT's shares being traded on the Wholesale Market of the International Property Securities Exchange ("IPSX") following its admission on 14 May 2021.

Despite challenges faced by the market following recent political and economic instabilities, we are proud that we have continued to grow income at Mailbox through the year under review. The best defences against the upcoming challenges are the strong income streams that continue to be generated from Mailbox's blue-chip tenant base, and the rigorous asset management initiatives that the Group continue to progress with. These measures will both safeguard and enhance rental income, together with Mailbox's ESG credentials and its broad appeal to those who work in or visit the building.

While high occupancy levels at Mailbox leave little room for new lettings, three new leases were completed during the early part of 2023 which will further improve operational performance by increasing rental income and decreasing vacancy costs. Furthermore, there are additional asset management initiatives which are currently being explored to utilise advertising space within the asset.

At the same time, momentum continues to build at the new IWG-operated Spaces co-working facility, which opened in May 2022 and is now more than 55% occupied. This is ahead of target, and as the facility's popularity builds as we expect, its impact on total revenue will become stronger.

As reported in November 2022 the expected departure of the BBC in 2026 presents a good opportunity to enhance the building's rental income from the reversionary potential of the accommodation released and to make further progress towards our carbon neutral objective. A substantial dilapidations claim has been served on the BBC and is currently being negotiated as architects have been appointed to evaluate the potential use of the space. In the meantime, the Group will continue to receive the benefit of the BBC's income and presence within the building for almost four more years.

Borrowing rates are not expected to fall until inflation has reduced markedly and shows a more settled longer-term trend. This significantly affects the Group as the interest rate cap on borrowings expired on 20 January 2023 (with the senior debt) which means that the SONIA rate is now 100% floating. More information on this can be found in Note 2 and Note 13 to the consolidated financial statements.

Rising finance costs significantly constrain the Group's ability to make future dividend payments therefore a decision was made to suspend dividend payments in the final quarter of the year. This meant that the total dividends were 4.00 p (compared with an annualised dividend of 7.00 p in 2021). The Group will continue to review the capacity to pay future dividends as it progresses through 2023.

The Board is realistic about the many challenges which the coming year is likely to bring. There are many factors which the Group cannot control. The progressive asset management plan will help to ensure that the building retains its appeal for both employers and visitors, as well as further improving its ESG performance. These measures will continue to strengthen the diversified income streams which the asset delivers. The Directors are confident that the Group will remain responsive to and benefit from the vibrant local market dynamics of the West Midlands, always progressing as a stronger and more competitive investment.

Financial results

	Year ended 31 December 2022	Year ended 31 December 2021
NAV (£ million)	47.98	85.95
NAV per share (pence)	56.55	101.30
Operating profit before fair value changes (£'000)	9,097	7,776
Change in fair value of investment property (£'000)[1]	(36,438)	(35)
Operating (loss)/profit (£'000)	(27,341)	7,741
(Loss)/profit before tax (£'000)	(33,069)	1,828
(Loss)/earnings per share - basic and diluted (pence)	(39.00)	3.37
Adjusted EPS[2] - basic and diluted (pence)	4.58	2.21
Gearing ratio (%)	69.11	58.39

Valuation

Avison Young performed an independent external valuation of Mailbox as at 31 December 2022, which saw a decrease in the fair value of the property to £157.00 million (31 December 2021: £185.83 million). A breakdown of the valuation by sector is shown below.

Sector	Market Value (£)	% of Market Value
Office	80,000,000	50.95%
Car Park	32,200,000	20.51%
Food & Beverage	20,900,000	13.31%
Retail	19,100,000	12.17%
Other	4,800,000	3.06%
Total	157,000,000	100.00%

Shareholder Engagement

The Board has actively engaged with key stakeholders through public dissemination of business updates and dividend announcements, ESG, and other key Company initiatives that will drive long-term value to shareholders. As part of its ongoing investor engagement strategy over the coming calendar year, the Board will continue to actively engage with current and prospective investors by offering a virtual platform to meet and communicate with the Board. This includes organising direct meetings with investors of significant ownership and hosting an Investor Day.

Stephen Barter

Chairman

Asset Manager's Report

M7 Real Estate Limited, the Asset Manager, presents its report on the operations of the Group for the year ended 31 December 2022. At a property level, the asset is performing well with strong rent collection and occupancy of 94%.

Spaces

The most significant asset management initiative this year has been the successful opening of a serviced office centre on Level 1 operated by IWG under its "Spaces" brand. This initiative saw 36,000 sq ft of poorly performing retail space converted into a premium 50,000 sq ft serviced office centre providing a range of private "enterprise" offices, individual desks, meeting rooms and event space. By December 2022, 63% of the private "enterprise" offices were occupied at rents in line or higher than those set out in the business plan. The strength of demand for these offices is such that IWG is considering a reconfiguration of the accommodation to provide further private office accommodation to meet this excess demand. This will be at the expense of a number of the individual desk pods, however significant improvements to revenue from the enterprise space is expected.

Retail

A further key asset management strategy has been the repositioning of the retail offer on Level 2. In this respect, the focus has been on securing more service-led occupiers to support the office occupiers and help drive footfall for Harvey Nichols. Lettings have been completed to Impress Dental, Dermo Perfection Aesthetics and Future Health.

BBC

During the year the BBC served notice of its intention to vacate on lease expiry in 2026. Work has begun on a re-leasing and repositioning strategy for the space and taking advantage of the opportunity to accelerate progress on the company's ambition for Mailbox to be carbon neutral by 2030. In the meantime, the outstanding rent review with the BBC has been settled.

Offices

During the year Advanced Business Software and Solutions made Mailbox their UK HQ. Castle Fine Art leased an additional 8,700 sq ft of office space within the building to make Mailbox their UK HQ. One vacant suite of 8,765 sq ft remains on Level 7 which is being actively marketed by joint agents Avison Young and Colliers International.

F&B

Two new lettings were completed to Medicine restaurant and Medicine bakery significantly improving the food offer on Level 2. A lease has been completed to The Mayan who will bring a new South/Central American themed restaurant to the Canalside. Other lettings are agreed and in the pipeline.

Service Charge

A comprehensive review of the service charge was carried out to ensure a fairer split of costs. This has resulted in a saving of £160k in non-recoverable costs.

Market Outlook

UK Economic Outlook

The outlook for the UK economy appears to be relatively benign at this point in the 2023 calendar year, albeit there are potential risks attached to the future rate of inflation, interest rates and the Ukraine war particularly. The mini banking crisis towards the end of the first quarter which led to the failure of Silicon Valley Bank and the takeover of Credit Suisse by UBS appears to have subsided, at least for now.

The Bank of England increased base rates in August 2023, from 5.0% to 5.25%, to a now 15 year high, however inflation remains stubbornly high at 7.9% through to the end of June and Core Inflation (which strips out more volatile items such as energy and food costs) rose to 6.9%. Due to the uncertainty around the inflation forecast, further increases in interest rates cannot be discounted and whilst the UK economy has so far avoided a technical recession, economic growth remains subdued.

The principal risk to the UK economy still appears to be from the squeeze on disposable income, as a result of the increase in the cost of living. The speed at which inflation and interest rates will fall and the low rate of economic growth remain causes for concern in both the medium and long term.

UK Real Estate Outlook

The commercial property sector in the UK continues to navigate through a challenging period marked by higher interest rates and persistent, although declining, inflation.

Average prime yields edged slightly higher in May 2023 to an average of 5.75% vs 4.75% a year ago, according to Savills, but still well below the 7.25% average reached at the peak of the Global Financial Crisis in 2009. The investment market is hampered by lower volumes and deal count resulting in volume of c. £15 billion for the first half of 2023, 58% below the period to June 2022, and placing the period to June 2023 in the bottom five of the past 24 years. Offices accounted for 29% of all activity by value, industrial accounted for 16%, and retail for 11%, according to Colliers. They expect yields to have stabilised for now and investment activity to likely remain subdued in Q3 2023, with a pick-up in Q4. Similarly, CBRE do not anticipate any notable recovery in capital values in 2023, but specific market sectors with strong rental growth should perform better. Also, they expect a gradual recovery in transaction activity in the second half of the year as some investors will come under pressure to deploy capital as the year progresses.

Lower valuations, higher interest rates and risk aversion from the lending market will continue to limit investment volumes as levered buyers remain on the sidelines and current owners facing debt maturities need additional equity to meet leverage and coverage ratios.

Looking at individual sectors, office has seen a slowdown in leasing activity with a 20% decline in take-up for the first half of 2023 vs a year ago, according to CBRE. Transaction activity indicates a preference for best-in-class office space with limited leasing volumes for secondary, poorly located assets. Office investment volumes have fallen by c. 70% in the first half of 2023 from a year ago, and transaction activity for large ticket sizes has been severely constrained by the significant rise in debt costs. The logistics sector has experienced a decrease in take-up of 18% year on year, with third-party operators contributing over 50% of the volume. Vacancy rates continue to be near historical lows following the unprecedented growth in demand during the pandemic period. However, economic uncertainty and the pullback in lending markets have resulted in lower investment volumes. Lastly, retail has benefited from a steadily improvement in consumer confidence since the start of the year, with sales surprising to the upside. Yields have remained stable for high streets and shopping centres. Meanwhile, yields for retail parks have begun to improve, reflecting investor appetite for the sub-sector. However, overall economic uncertainty has damped investment activity with volumes down year on year.

M7 sees no let-up in the value placed by both occupiers and investors on assets and portfolios meeting sustainability criteria as global warming is increasingly being seen to impact upon our climate. Furthermore, more mandatory disclosure requirements are to be introduced in the UK and high energy prices will incentivise investment by reducing the payback period of energy saving measures. It is worth noting that the fall in the share price of UK REITS in 2022 was some time ahead of the subsequent fall in values in the conventionally traded property market. Investors will be looking to see if an improvement in listed property prices acts again as an indicator of change in market traded values.

Birmingham Office Market Outlook

The Birmingham office market is clearly an important consideration given the impact this has on the performance of Mailbox as an investment. The number of reported office leasing transactions increased by 22% as compared to the previous year with 115 transactions completing in 2022 as compared to 94 transactions in 2021, in addition being only 2.5% below the 10 year average of 118. Total take-up in 2022 was 5.47% greater than in 2021 with 692,700 sq ft of office space being let. Total take-up was only 4.17% below the 10 year average.

With a vacant suite of 8,765 sq ft on Level 7, the Company is particularly focused on requirements in the 7-10,000 sq ft size range. In this respect, the market was dominated by transactions in the sub 10,000 sq ft band which accounted for 44% of take-up. Looking forward, the Company expects a continuing divergence between the best quality space and "the rest", together with a continued willingness by occupiers to pay higher rent in order to secure their preferred office option. This will lead to greater rental growth for the best quality space and rental stagnation/decline for the remainder. The Company considers that the accommodation for Mailbox falls into the first category, despite some market commentary suggesting the location to be inferior to Colmore Row, which remains the prime address for offices in Birmingham. That said, in the key areas of sustainability, amenity and connectivity, Mailbox ranks highly.

With respect to the serviced office market - market dynamics are suggesting that there is clear demand for best-in-class flexible space. The main competitor operators are achieving high occupancy figures across their city centre locations, with average desk prices ranging from £395 - £460 per desk and rates of £125 per sq. ft being achieved across larger, enterprise deals.

Financial results

Total rental income earned from the portfolio for the year ended 31 December 2022 was £12.38 million, excluding service charge and direct recharge (31 December 2021: £10.26 million), contributing to a 16.97% increase in operating profit before fair value changes of £9.10 million (31 December 2021: £7.78 million).

Administrative and property operations expenses (excluding service and direct recharges), and other costs attributable to the running of the Group, were £3.43 million for the year (31 December 2021: £3.28 million).

The Group incurred finance costs of £6.41 million during the year (31 December 2021: £5.91 million) which were higher than the previous year due to an increase in the SONIA rate which activated the interest rate cap.

The loss before tax for the year to 31 December 2022 of £33.09 million (31 December 2021: profit of £1.83 million) equates to a basic loss per share of 39.00 p (31 December 2021: earnings of 3.37 p). The loss before tax is largely attributable to unrealised losses on the revaluation of investment property and does not reflect the operational performance of the Property.

Adjusted EPS for the year equates to cash generated from operations (and therefore excludes movements in accrued rent smoothing debtors, impairment of rent receivables, non-cash portion of interest expense, the impact of the loan modification and the amortisation of loan arrangement fees) was 4.58 p which, based on dividends declared of 4.00 p, reflects a dividend cover of 114.50% (please see appendix 1).

The Group's NAV as at 31 December 2022 was £47.98 million or 56.55 p (31 December 2021: £85.95 million or 101.30 p).

Valuation

As at 31 December 2022, the Group's property had a fair value of £157.00 million (31 December 2021: £185.83 million), a year-on-year decrease of 15.51%. The fair value decreased during the year due to an outward yield shift for regional office assets in the current market. Please refer to note 9 of the audited Consolidated Financial Statements for a reconciliation of the fair value movement.

Summary by Sector as at 31 December 2022

	Valuation (£)	Market Value (%)	Occupancy by ERV (%)	WAULT to break (years)	Gross Contracted Rental Income (£)
Sector
Office	80,000,000	50.95%	95.43%	6.81	5,896,956
Car park	32,200,000	20.51%	100.00%	30.50	1,937,988
Food and Beverage	20,900,000	13.31%	82.51%	9.10	1,914,691
Retail	19,100,000	12.17%	74.73%	16.77	1,207,645
Other	4,800,000	3.06%	93.17%	7.93	386,987
Total	157,000,000	100.00%	91.32%	12.34	11,344,267

Top Five Tenants

Tenant	Sector		% of Total Current Gross Rent
British Broadcasting Corporation	Office	19.35%
Q- Park Limited	Car Park	16.97%
Advanced Business Software and Solutions Limited	Office	11.68%
WSP UK Limited	Office	10.17%
Harvey Nichols and Company Limited	Retail		5.21%

Lease Expiry Portfolio

Year	Expiring contracted rent (£)	% of total
2023	63,781	0.61%
2024	-	0.00%
2025	312,702	3.01%
2026	2,493,049	24.00%
2027	-	0.00%
2028	-	0.00%
2029	476,425	4.59%
2030	422,775	4.07%
2031	1,415,039	13.62%
2032	434,583	4.18%
2033	1,378,016	13.26%
2034	111,500	1.07%
2035+	3,280,626	31.58%

M7 Real Estate Limited

4 September 2023

Environmental, Social and Governance ("ESG") matters

Overview

Mailbox is the UK's largest mixed-use asset outside London, incorporating Grade A office space, retail, leisure, hotels, residential apartments, public space and car parking. As the first asset to be listed on the IPSX, the world's first regulated commercial real estate stock exchange, Mailbox has an opportunity to take a unique place in the history of real estate capital markets investment. To be the No.1 'Live Work Play' location in Birmingham, Mailbox must keep delivering long-term value for investors and the people who live, work and enjoy Mailbox. This means establishing an effective, market-leading and outcome-focused approach to ESG that manages the environmental, social and governance (ESG) risks and opportunities that are material to the asset and its diverse stakeholders.

About This Report

This is Mailbox's second ESG report, covering the period from 1 January 2022 to 31 December 2022. It reflects the approach of Mailbox to managing ESG risks and opportunities across the four objectives where Mailbox is having the most significant impact through its core operations. It also shares Mailbox's performance and key activities in 2022 and communicates targets and areas of focus moving forward.

"Having a positive impact on the Birmingham community, providing a superior occupier experience and establishing an amenity-rich offering that fits local needs, is the essence of Mailbox. With increasing environmental regulation intended to create a sustainable built environment along with occupiers' own sustainability ambitions, we are taking a more strategic approach to how we manage ESG. Since acquiring the asset in late 2019, we've made good progress in establishing the governance needed to manage our approach and setting performance ambitions such as our net zero carbon commitment. Moving forward, we will continue to leverage our strong relationships with our occupiers, supply chain and local community actors and the expertise of our onsite team, to scale-up, measure and report on our impact."

- Ruth Miley, Asset Manager at M7 Real Estate Ltd

Mailbox's ESG Strategy

Located in the vibrant Birmingham city centre and home to diverse and renowned occupiers, Mailbox can have a substantial positive impact on its surrounding environment and local communities as well as the people who live, work and enjoy it. With a strong track record of community engagement, coupled with a nuanced understanding of its operating environment, Mailbox has established itself as a community hub with an active and loyal customer base.

Building on Mailbox's strengths and existing activities, in 2022, M7 worked with a third-party sustainability consultant to formalise our ESG approach and develop our ESG reporting. Throughout this process, our quarterly sustainability meetings with occupiers provided a forum for regular engagement on ESG topics, ensuring that we understand the strengths and weaknesses of our current approach as well as the issues that are most important to them. As a result, M7 identified four strategic objectives which can have a significant impact: minimising environmental impact, promoting health and wellbeing, engaging with occupiers and supporting local communities. Mailbox ESG objectives together with key initiatives are detailed below.

Aligning to the UN Sustainable Development Goals (SDGs)

The UN SDGs provide a shared blueprint to achieve a better and more sustainable future for all, addressing global challenges such as poverty, inequality, climate change, environmental degradation, peace and justice.

Six SDGs have been identified which aligned with the ESG approach and can have the most significant impact through Mailbox's core business activities.

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Mailbox implements fair living wage policies for all staff and has committed to ensuring all directly employed contractors are paid the national real Living Wage as a minimum.

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Mailbox offer wellness classes to occupiers and nurture a high-quality public realm, with canal-side at Mailbox recognised as one of Birmingham's favourite places to take a breath.

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Mailbox has committed to achieve net zero carbon for landlord-controlled areas by 2030 and 2040 for landlord and occupier areas. Mailbox procures 100% renewable energy and continuously seek energy efficiency measures.

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As well as providing the real Living Wage to direct contractors, Mailbox denounces all forms of modern slavery and undertakes due diligence to ensure such activities are not found within businesses or supply chain.

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Mailbox is committed to managing its buildings responsibly and helping the public realm to flourish. Mailbox prides itself on strong relationships with organisations such as the Artis Foundation, which delivers arts-integrated learning programmes for

young children.

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Mailbox has achieved the Carbon Trust Standard for Zero Waste to Landfill, which recognises best practice approaches to waste management and actively work with occupiers to realise waste and recycling commitments.

Establishing our ESG Governance

To embed accountability of ESG activities at Mailbox and support the transition to ESG reporting, in 2022, Mailbox began establishing an ESG Committee. The Committee will consist of a group of cross-functional employees, who will be responsible for steering the implementation of the ESG agenda. Specifically, the Committee will ensure ESG projects are aligned with organisational strategy, assist with resolving issues and risks, provide advice and guidance on business issues, assess progress and report on this to senior management and review and approve final deliverables.

After defining membership and producing clear Terms of Reference, Mailbox will be officially launching the Committee in Q1 of 2023, who will subsequently meet quarterly. Mailbox looks forward to sharing an update on the progress of the Committee in the 2023 ESG report.

In 2023, for the first time, Mailbox will be making a submission to GRESB, the world's leading ESG benchmark for real estate and infrastructure, which supports investors with informed decision-making. This submission will enable communication of our ESG performance to investors as well as evaluate, understand and improve performance against peers.

Operating Responsibly

Mailbox is committed to the highest standards of business conduct. The Corporate Social Responsibility Policy details the ESG approach as well as the standards and expectations required from Mailbox, its service and administrative providers, asset managers and Board of Directors. With no direct employees, it is vital that Mailbox works with service providers that share similar values and ethics. For example, all service providers must be compliant with the Equality Act 2010, promote wellbeing at work and diversity in all its forms and provide employees with an equal opportunity to move and progress at Mailbox. In 2023, Mailbox will publish its first Diversity and Inclusion Workplace Policy, to clearly define the approach for encouraging equality and eliminating discrimination.

Mailbox's Code of Ethics sets out the compulsory rules and standards of behaviour and business conduct demanded of directors and service providers. Integrity is paramount and Mailbox maintains a zero-tolerance position on bribery and corruption. As part of the due diligence process, all service providers must have internal policies relevant to their regulatory requirements, professional standards and operational practices, as well as policies regarding whistleblowing, staff training and other approaches to ensuring a fair and professional workplace.

Mailbox denounces modern slavery in all its forms and are committed to taking the necessary actions to ensure such activities are not found within its business or supply chains. Given the nature of its business and the services it procures - mainly other regulated professional services - the risk of modern slavery within its business and supply chain is low. However, Mailbox continually reviews procedures and considers appropriate due diligence for the size and nature of the business in respect to these relationships.

Mailbox commits to continually review and promote its policies to mitigate any risk within its own business or associated when selecting or engaging its service providers. Where possible, Mailbox will implement contractual clauses in supplier contracts to mitigate these risks.

Risk Management

The Board undertakes an annual risk review together with the Audit Committee to identify Mailbox's principal risks and uncertainties, the risk's potential impact and how it is managed. The most recent risk review highlighted the environment as a moderate principal risk, with moderate impact and an upward trend due to increasing regulation and the growing importance being placed on ESG credentials by occupiers, which could lead to difficulty in letting vacant space. Other risks relevant to Mailbox's ESG performance include disclosure obligations that may become mandatory such as the Task Force on Climate-related Financial Disclosures (TCFD) and health and safety. See page 27 for a full list of the risks identified.

Supporting Shared Value Through Stakeholder Engagement

Mailbox's success as a mixed-used asset relies on the strength of its relationships with diverse stakeholders. Mailbox and onsite teams promote continuous constructive two-way engagement to achieve mutual benefits. Mailbox's stakeholder groups are outlined below, along with some key engagement methods and issues of importance.

Minimising our Environmental Impact

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Mailbox recognises that the Property has an impact on the environment, from the resources it uses and produces, such as energy, water and waste, to the occupiers' business activities and how visitors travel to and from site. To manage carbon footprint, Mailbox has committed to reach net zero emissions in direct operations (landlord-controlled) by 2030 and indirect operations (landlord and occupier areas) by 2040 and are in the process of validating a roadmap to achieve this. Additionally, Mailbox actively seeks measures to reduce and adopt best practice approaches for managing waste and water consumption, supported by robust data monitoring and annual targets.

Project Net Zero

The net zero carbon target[3] aligns with the aim to position Mailbox as a first choice, premium, sustainable lifestyle destination. It will help Mailbox mitigate the impact towards the climate crisis, build resilience against some of the transition and physical climate-related risks such as the cost of energy and environmental regulation, attract high-quality occupiers and maintain and grow stakeholder returns.

In 2021, Mailbox engaged a third-party consultant to review the Property's carbon footprint and formalise a pathway to net zero, from which Mailbox has developed its net zero commitments. Building on their recommendations, in 2022 Mailbox commissioned a decarbonisation feasibility study for the landlord-controlled areas alongside the BBC's demise, to assess the technical viability of a range of interventions and implementation works, including timescale, complexity and cost. Examples of the interventions include optimising natural ventilation, upgrading the building management system and lighting improvements. Using the findings of the study, Mailbox will be delivering a range of decarbonisation interventions on a priority basis over the coming years to support the net zero goals.

In 2022, Mailbox focused on building the capacity to capture accurate performance data so that it can report on progress against a baseline and set annual targets. As 2022 will be the first full year of consumption unaffected by the consequences of COVID-19 restrictions and the repurposing of level 1 from a retail mall to offices, which removed some landlord-controlled energy uses, this will form the baseline year.

To govern our approach, Mailbox is creating a Net Zero Steering Group and are in the process of defining its membership. This group will oversee progress towards net zero and establish accountability for the achievement of its targets. Over the next year, Mailbox plans to further engage independent sustainability consultants to validate the net zero action plan including setting annual targets for landlord-controlled operations and assisting in reporting our Scope 3 emissions, which it aims to begin reporting in 2024.

Scope 3 emissions account for a significant proportion of the total carbon footprint, therefore engaging with occupiers on their environmental performance is essential for the achievement of net zero commitments. In 2022, Mailbox formalised the occupier engagement programme and now encourages occupiers to upload their energy data to the Occupier Portal every month.

Mailbox Priority Net Zero Actions

The following actions were identified as being the highest priority for Mailbox to address on net zero carbon pathway journey. In 2022, Mailbox made the following progress:

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Energy Performance

A grey background with white text Description automatically generated In 2022, the Energy Management System (EMS) was re-certified in accordance with ISO50001:2018, designed to promote and ensure continual improvement in energy performance. Landlord-controlled electricity supplies remained on 100% renewable tariffs and from March, landlord-controlled gas supplies were also switched to 100% green tariffs, both backed by Renewable Guarantee of Origin agreements. Mailbox is already experiencing the benefits of energy efficiency measures it has implemented, exceeding the original 4% electricity reduction target for 2022 by reducing consumption by 15% compared to 2021. This reduction was largely due to lighting improvement projects, for example, the conversion of 190 florescent light fittings in service corridors to LED equivalents containing integrated movement sensors. This has resulted in annual energy savings of 94%, over £13,000 annual cost savings and a predicted saving of £81,705 over the project's life. Mailbox has repeated this procedure in core stairwells, converting 347 fittings to LED, leading to 54% annual energy savings. Mailbox has also tightened management control of energy consuming plant, equipment and services by defining and documenting clear operating criteria for all significant energy uses. In addition, Mailbox has introduced regular management checks to verify energy uses, operating in accordance with agreed criteria.

Likewise, gas consumption fell by 15% in 2022, compared to 2021, outperforming a forecasted increase of 7%. This was due to the automation of the building's air handling unit controls, based on external temperature readings, internal temperature readings and time of day, alongside a milder winter in 2021/22, which resulted in reduced heating requirements.

Through these interventions, in 2022, our total Scope 1 and 2 greenhouse gas (GHG) emissions reduced by 22% compared to 2021.

Environmental Management

Mailbox made significant headway in developing our environmental management approach in 2022, building capacity to accurately report waste and water data for the first time. This data will act as a baseline upon which it can reflect measurable changes in consumption performance and develop targets for 2023.

Environmental Management System (EMS) was re-certified this year, as confirming with ISO14001:2015, demonstrating the effective and continual improvement of the approach to managing all environmental issues relevant to operations.

In the first year of reporting, on average 42% of waste removed from Mailbox was recycled and a target has been set to achieve 55% in 2023. In 2022, Mailbox introduced two new waste streams - food and dry mixed recycling - which supports better segregation of waste and therefore recycling, in line with occupier needs. In recognition of its efforts, Mailbox received a Green Apple Award for environmental best practice, as well as the Carbon Trust Standard for Zero Waste to Landfill for leadership in diverting non-hazardous waste streams from landfill, typically through a combination of reducing waste, finding ways to reuse materials, increasing recycling or sending waste to energy recovery. Mailbox manages the below waste streams of occupiers, diverting 100% of this waste from landfill.

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Mailbox clearly communicates waste protocols and expectations within the occupier guide and through the Occupier Portal, to ensure participation from occupiers in the effective and sustainable management of collective waste.

In 2022, Mailbox also introduced a bottle refill station, which has prevented the use of an extra 4,500 500ml plastic bottles since being installed in September. Furthermore, in replacing all cleaning products with eco-friendly BioHygiene equivalents, it is estimated that Mailbox will reduce plastic waste from this stream by 76%. In 2023, Mailbox aims to introduce one additional waste stream, to further reduce the proportion of waste sent to landfill.

In 2022, Mailbox collected occupiers' water performance data for the first time, through the new Occupier Portal (see further details on page 20). Mailbox will continue to request that occupiers share the water data for their demise every month and using this data, Mailbox aims to identify appropriate efficiency measures to reduce water consumption. This could include implementing submetering within individual outlets and low-flow fixtures. In 2023, Mailbox will target reducing monthly water consumption by 3% from the 2022 baseline of 41 m³ a month.

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Environmental Data

Energy Consumption (Mailbox Estate Common Areas)

Mailbox experienced a total 15% reduction in electricity and gas consumption in 2022 compared to 2021, through the implementation of energy saving measures and reduced heating requirements. This included a 15% reduction in electricity consumption (compared to a 4% reduction target) and 15% reduction in gas consumption (compared to a forecasted increase of 7%).

Energy consumption (MWh)	2021	2022	2022 target	% change (2022 vs. 2021)	2023 target
Electricity	2,061	1,746	-4%	-15%	-6%
Gas	223	190	+7%	-15%	-1%
Total	2,284	1,936		-15%

Greenhouse Gas Emissions (Mailbox Estate Common Areas)

Mailbox has followed the UK Government environmental reporting guidelines and used the UK government's 'Conversion Factors 2022: Condensed Data Set (for most users)' document to calculate the 2022 GHG emissions over which it has operational control.

GHG emissions have been reported against the following scopes, as defined by the GHG Protocol and where relevant:

· Scope 1 - direct emissions from owned vehicles, controlled boilers and fugitive emissions from air conditioning systems under landlord control

· Scope 2 - indirect emissions from electricity purchased by the Group and consumed within real estate assets owned by the Company

The table below shows Scope 1 and 2 GHG emissions for Mailbox's common areas in the year to 31 December 2022. Mailbox has followed the guidance provided by the GHG Reporting Guidelines (BEIS, 2019) and EPRA Best Practice Recommendations on Sustainability Reporting 2017.


	2021	2022	% change (2022 vs. 2021)
Energy consumption used to calculate emissions (kWh)	2,284,270	1,936,144	-15%
Gas Consumption	223,156	190,502	-15%
Electricity	2,061,114	1,745,642	-15%

Scope 1 - Gas (tCO₂e)	41	35	-15%
Scope 2 - (Location-Based) Electricity (tCO₂e)	438	338	-23%
Scope 2 - (Market-Based) Electricity^{^[4]} (tCO₂e)	0	0	0%
Total Scope 1 & 2 (Location-Based)	479	373	-22%
Total Scope 1 & 2 (Market-Based)	41	35	-15%
tCO₂e per sq.ft (Scope 1 & 2 Location-Based)⁵	0.00126927	0.00098839	-22%
tCOշe per sq. ft (Scope 1 & 2 Market-Based)	0.00010864	0.00009274	-15%

Occupier Engagement

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Mailbox is home to diverse occupiers, first-tier customers, spanning the office, retail and leisure sectors, including some of the UK's most renowned brands. This approach centres on building trusted relationships supported by continuous engagement to ensure that Mailbox understands their current needs and future requirements. With a growing number of occupiers setting their own ESG commitments and expanding research demonstrating the link between sustainable real estate and rental values, Mailbox knows that it must strive to exceed their expectations in this space to keep attracting high-quality occupiers and deliver value to shareholders.

Through the Occupier Guide, Mailbox sets high expectations for occupiers. Occupiers are obliged to act in accordance with Mailbox protocols outlined in this guide, which Mailbox frequently updates to ensure they remain in line with the evolving sustainability landscape and regulations.

Mailbox requires occupiers to:

· Provide information regarding energy consumption, water usage and waste generation on a regular basis

· Manage waste in accordance with the guidance set out in the Occupier Guide

Mailbox encourages occupiers to:

· Actively participate in Mailbox's environmental sustainability engagement initiatives/events

· Consider energy efficiency when undertaking refurbishment projects and when procuring replacement energy consuming plant equipment and services

· Switch to 100% renewable energy tariffs

· Turn non-essential energy consuming plant and equipment off outside of core operating hours

· Use more energy efficient fittings and/or lamps (e.g., LED) when replacing existing lighting

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A grey background with white text Description automatically generated Mailbox takes a collaborative approach to occupier engagement across multiple communication channels to facilitate constructive feedback on offerings and service and engage them in sustainability initiatives. In 2022, Mailbox formalised the occupier engagement programme as a platform to review key ESG impact areas. Recognising that occupier activities form a significant proportion of Scope 3 emissions and managing them will be vital to achieving net zero carbon by 2040 in occupier areas, Mailbox launched an Occupier Portal to engage them on their environmental performance. The portal allows remote access to property data in an entirely secure and mobile fashion. This includes a sustainability module, through which occupiers can access energy, waste and water consumption for Mailbox's common areas and upload environmental data for their own demise on at least a monthly basis. This will enable Mailbox to collect actual data to measure our Scope 3 emissions and progress to net zero and other upcoming targets. Alongside this, Mailbox introduced quarterly occupier sustainability meetings and a bi-monthly occupier newsletter to share performance highlights, initiatives and best practice and ensure all approaches to sustainability are aligned. Mailbox clearly communicates ESG protocols with occupiers through a comprehensive Occupier Guide and through the Occupier Portal, to ensure their support and participation in acting responsibly.

In 2022, Mailbox also continued the series of exclusive occupier events and initiatives. These included two 'Meet the Community' events with food and drink for occupiers to network and get to know each other alongside wellness classes, live music performances to enjoy at lunch and a Mailbox Community Card scheme, which offers a range of discounts from outlets within Mailbox whilst increasing footfall. Similarly, all the activities Mailbox hosts for visitors are designed with opportunities for occupier participation in mind.

In 2023, Mailbox is looking forward to building upon the occupier engagement programme and integrating findings into operations to continually enhance its approach.

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Health and Wellbeing

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Mailbox supports the concept of total health, which means catering for both the physical and mental wellbeing of those who spend time at Mailbox. Whether its ensuring that shared spaces inspire and enhance healthy behaviours or providing wellness initiatives to occupiers, Mailbox wants to be a high-quality environment for everyone to enjoy, a sanctuary for recreation and relaxation.

The goal of enhancing air quality and the natural landscape forms part of Mailbox's ambition to provide amenity space for the health and wellbeing of all members of the community. In 2022, Mailbox was recognised for the second year as one of Birmingham's favourite breathing spaces by the Taskforce for Lung Health. This is part of an ongoing campaign to promote the importance of good lung health in Birmingham, where levels of air pollution are amongst the worst in England. The campaign highlights actions needed to ensure good respiratory health for all, with an estimated 171,000 people in Birmingham living with asthma and 15,000 others with chronic lung conditions.

A grey background with white text Description automatically generated We have also installed a 'hydration station' on level 2 of Mailbox, allowing visitors to refill their water bottle with magnesium mineralised water. This has many health benefits as magnesium is a vital mineral that stimulates the cardiovascular system, mental capacity and good muscle condition. Mailbox continues to offer free weekly yoga classes to occupiers, alongside secure cycle storage complete with a bike repair station to support and encourage active travel to and from work. In March, Mailbox hosted a Dr Bike workshop at the Canalside in partnership with the BBC and Cycling UK, exclusively for occupiers, offering free bike servicing and repairs. In 2023, Mailbox will extend the occupier offering by introducing a free 6-week HIIT programme in partnership with an external provider, Lets Go Wellbeing.

The first occupier survey provided feedback on issues relating to how safe the occupiers feel at Mailbox, how proud they are to work here and how appealing they find the design of the space. This will guide the work in continuing to deliver a high-quality environment in 2023. Furthermore, Mailbox Team Survey, which is circulated every year, collects their feedback on Mailbox's management and leadership, development and career ambitions, recognition and overall job satisfaction. The findings ensure Mailbox creates a positive working culture and supports occupier wellbeing.

Given the success of the external living wall on the Canalside, Mailbox is currently installing a living wall on level 3 of Mailbox, with biophilic design having proven benefits to human health and wellbeing. Mailbox has also conducted surveys to assess the feasibility of wildlife gardens on the roof including bug hotels and beehives, as well as additional locations for other living walls. Mailbox also welcomed 'Our Future Health' to Mailbox this year, the UK's largest ever health research programme involving millions of participants across the country, in collaboration with public, private and charity sectors and in close partnership with the NHS. Our Future Health is creating a detailed picture of UK health, using new technologies to detect, prevent and treat diseases and reduce the time and cost of developing new treatments. By locating at Mailbox, Our Future Health will ensure the community of Birmingham are represented in this significant country-wide programme.

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Supporting our Communities

Mailbox has been an iconic asset to the city of Birmingham for over 50 years. While its use has evolved, from the UK's biggest postal sorting office in the 1970s, to one of the country's largest mixed-use assets today, it remains a much-loved destination at the heart of the city. Mailbox's ambition is to ensure that its offerings support and reflect the vibrant communities we serve, positioned in the most culturally diverse city in the UK outside of London. In aligning objectives with Birmingham's Future City plan, Mailbox is uniquely placed to help transform Birmingham into an exciting, innovative and green city.

Mailbox supports communities through a packed programme of events and prides itself on strong relationships with community organisations in the city and beyond. The adjacency to the Birmingham Canal Old Line makes Mailbox an important amenity and social space for the community and anchors events as highly popular.

Significantly, in 2022, Mailbox re-evaluated its marketing strategy with diverse occupiers, visitors and local community in mind, to ensure activities were relevant and impactful and that everyone feels represented. In doing so, Mailbox celebrated Diwali in October with dhol drumming workshops and performances. For the first time, Mailbox supported Birmingham Pride in September through a colourful ribbon installation on the Canalside, donating to Birmingham LGBT, a charity advocating for LGBT communities locally. Within Property, Mailbox also created an 'Artist in Residence' feature wall on level 3, working with local artists to showcase Birmingham's brightest talent to the public and helping cultivate a sense of community and increased footfall.

A grey background with white text Description automatically generated Other activities included raising over £25,000 for LandAid, who help combat youth homelessness through a charity SleepOut in Mailbox Q-Park, involving dozens of property professionals. The money raised from the SleepOut went to the St Basils Live and Work Village, which provides accommodation and employment opportunities for young people at risk of homelessness. The second sell-out charity Dragon Boat Race commenced in June, with 41 teams representing some of Birmingham's biggest businesses, competing over two days and raising over £200,000 for Birmingham Women's and Children's hospital. This exceeded last year's total as the biggest non-partnered fundraising event in the history of the charity. Mailbox also provided a vacant unit to a local charity, Networkfour, who support vulnerable children, supporting their Life & Sole project, which distributes donated shoes to children in the city centre.

Leading by example, in April 2022 Mailbox began paying the real Living Wage as a minimum to all our directly employed contractors. This is particularly important in the context of today's cost of living crisis, and Mailbox wants to play our part in addressing poverty and inequality in the city.

In 2023, Mailbox will add to its calendar of community events by celebrating Chinese New Year in January and Eid al-Fitr in April. Mailbox looks forward to continuing to support our communities and will be working to streamline our approach to charitable giving, ensuring it is partnered with charities where it can have the greatest impact.

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Mailbox and the City

As the largest city economy in the UK outside of London, Birmingham is a key driver of growth in the national economy, with plans in place through Our Future City Plan (OFCP) for adaptations that will make Birmingham green, equitable, liveable and distinctive by 2040. Through the unique position in the city centre and a five-minute walk from Birmingham New Street Station, Mailbox can play a key role in facilitating these future ambitions.

Mailbox is supporting Birmingham's target to be a net zero city by 2030, 20 years ahead of the UK government's target of 2050, through its own net zero targets. In 2023, Mailbox will continue to leverage opportunities to align with Birmingham's priorities. For example, Mailbox is conducting feasibility studies of integrating natural biophilic features into two vacant roof spaces to support plans to recover nature and reconnect communities with the natural environment and improve health and wellbeing whilst reducing air pollution and boosting storm water inception. In 2022, Mailbox hosted a Christmas Penguin Trail in association with Birmingham BID, to help attract visitors to the city centre as part of a wider plan to boost the local economy by making the city an exciting place to live, work, visit or invest.

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Alternative Performance Measures ("APMs")

APM and Definition	Relevance to Strategy	Performance
1. Equivalent Yield ("EY")[5]		7.26%
EY (true and nominal) is a weighted average of the Net Initial Yield and Reversionary Yield and represents the return a property will produce based upon the timing of the income received. The true equivalent yield assumes rents are received quarterly in advance.	The EY is an indicator of the ability of the Group to meet its target dividend after adjusting for the impacts of leverage and deducting operating costs.	At 31 December 2022 (2021: 6.22%)
2. Weighted Average Unexpired Lease Term ("WAULT") to break and expiry		12 years, 3 months to the earlier of break or expiry and 12 years, 10 months to expiry
The average lease term remaining to expiry across the portfolio, weighted by contracted rent.	The WAULT is a key measure of the quality of the portfolio. Long leases underpin the security of our future income.	At 31 December 2022 (2021: 13 years, 5 months to the earlier of break or expiry; and 13 years, 11 months to expiry)
3. Net Asset Value ("NAV")		£47.98 million (56.55 p)
NAV is the value of an entity's assets minus the value of its liabilities.	Provides stakeholders with the most relevant information on the fair value of the assets and liabilities of the Group.	At 31 December 2022 (2021: £85.95 million or 101.30 p)
4. Dividend per share		4.00 p
The Company has targeted an initial dividend of 7.00 p per annum but has since been reduced the target to 4.00 p in 2022.	The Company seeks to deliver a sustainable income stream from its portfolio, which it distributes as dividends.	For the year ended 31 December 2022 (2021: 4.42p, equivalent to annualised dividends of 7.00 p)
5. Adjusted EPS		4.58 p
Adjusted EPS from core operational activities, as adjusted for non-cash items. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. See note 8 to the consolidated financial statements.	This reflects the Group's ability to generate earnings from the portfolio which underpins dividends.	For the year ended 31 December 2022 (2021: 2.21 p)
6. Leverage (Loan to Value)		69.11%
The proportion of the Group's property that is funded by borrowings.	The Company utilises borrowings to enhance returns over the medium term. Borrowings will not exceed 60% of the Property value.	At 31 December 2022 (2021: 58.39%). Following lender called valuation in November 2022, the Company has fallen into a default position regarding the LTV covenant. This is in the process of being resolved and £8.58 million of debt has been repaid post year end.

Principal Risks and Uncertainties

The Group owns a single asset, Mailbox, which is a mixed-use asset located in Birmingham. Its principal risks are therefore related to the commercial property market in general, but also to the circumstances of the individual property and the tenants within the property.

The Board has overall responsibility for reviewing the effectiveness of the system of risk management and internal control, which is operated by the Alternative Investment Fund Manager ("AIFM") and, where appropriate, the Asset Manager. The Group's ongoing risk management process is designed to identify, evaluate and mitigate the significant risks that the Group faces.

The Board undertakes a risk review, at least annually, with the assistance of the Audit Committee, to assess the adequacy and effectiveness of the AIFM's and, where appropriate, the Asset Manager's risk management and internal controls processes.

An analysis of the principal risks and uncertainties is set out in the tables below which reflects the latest annual review carried out on 1 December 2022 for the financial year 2022. This does not purport to be exhaustive as some risks are not yet known some risks are not deemed material but could turn out to be material in the future.

PRINCIPAL RISKS AND THEIR POTENTIAL IMPACT	HOW RISK IS MANAGED	RISK ASSESSMENT
1. Breach of borrowing covenants
The Group has entered into a term loan facility. Material adverse changes in valuations and net income may lead to breaches in the LTV and debt yield covenants. If the Group is unable to operate within its debt covenants, this could lead to default and the loan facility being recalled. This may result in the Group selling property to repay the loan facility and this is likely to lead to a fall in its NAV.	The Group monitors the use of borrowings on an ongoing basis through periodic cash-flow forecasting and quarterly risk monitoring to monitor compliance with financial covenants.	Probability: High Impact: High Following a lender called valuation from November 2022, the Group breached its LTV covenant with a ratio of 80.37%. Please refer to note 21 for more information.
2. Interest rates
There may be an adverse effect on the Group's performance, profitability and cash flow as a result of rising interest rates.	The AIFM uses interest rate hedges to mitigate the impact of rising interest rates.	Probability: High Impact: High The existing arrangement matured in January 2023 and the AIFM is exploring alternative hedging arrangements to replace the expired cover. The debt is currently 100% floating.
3. Property Defects
Due diligence may not identify all the risks and liabilities in respect of an asset (including any environmental, structural or operational defects) that may lead to a material adverse effect on the Company's profitability, the NAV and the Group's share price. Furthermore, there is a reliance on third party property and facility managers to ensure property defects are identified and rectified.	The Group's due diligence and ongoing maintenance relies on the work (such as legal reports on title, property valuations, environmental, building surveys) outsourced to third parties that have appropriate Professional Indemnity cover in place.	Probability: Low Impact: Moderate
4. Property Market
Any property market recession or future deterioration in the property market could, inter alia, (i) lead to an increase in tenant defaults, (ii) make it harder for the Group to attract new tenants for its property and (iii) lead to a lack of finance available to the Group. Any of these factors could have a material adverse effect on the ability of the Group to achieve its investment objective. Furthermore, the wider market developments, the addition of new properties to the local market and tenants' intentions to relocate could also have adverse effects on the Group.	The underlying property is made up of various sub-sectors, whose performance are uncorrelated, therefore spreading, and mitigating risk. Furthermore, M7 as the Asset Manager is actively engaging with tenants to ensure their needs are met and that they are satisfied with the space.	Probability: Moderate Impact: Moderate
5. Property Valuations
The valuation of the Property is inherently subjective and uncertain and based on assumptions which may prove to be inaccurate.	The Group uses an independent external valuer (Avison Young) to value the property on a semi-annual basis at fair value in accordance with accepted RICS appraisal and valuation standards.	Probability: Moderate Impact: High
6. Investments will be illiquid
The Group invests in property. Such investments are illiquid; they may be difficult for the Group to sell and the price achieved on any revaluation may be at a discount to the prevailing valuation of the relevant property.	The Group holds a long let, secure income generating asset, so has the option to hold for income.	Probability: Moderate Impact: Moderate
7. Environment
The Group is subject to environmental regulations that could impose liability on the Group. In addition to regulatory risk, there is a growing importance being placed on ESG credentials by tenants, which could lead to difficulty in letting vacant space.	The current regulations require annual mandatory GHG reporting, which has been carried out by the Asset Manager as part of the Annual Report. Furthermore, the Asset Manager has prepared an ESG strategy for Mailbox to ensure it meets legal requirements and remains an attractive destination to potential tenants. Please see the section called 'Environmental, social and governance matters' for further information.	Probability: Moderate Impact: Moderate
8. Development
Redevelopment, expansion and/or the refurbishment of the Property may be necessary in the future to preserve rental income and could be adversely affected by a number of factors. Asset management initiatives may be more expensive than anticipated and take longer to implement.	The Asset Manager would require Board approval prior to executing any redevelopments, expansions, or refurbishments. Prior to seeking Board approval, the appropriate analysis would be undertaken and a thorough tender process would be executed to ensure any works are competitively priced. Additionally, the Asset Manager would ensure the suitable insurance is in place. The Asset Manager will work with brokers to widely market the space, including the use of online platforms.	Probability: Low Impact: Moderate
9. Tenant default
Failure by tenants to comply with their rental obligations could affect the income that the property generates and the ability of the Group to pay dividends to its shareholders.	Our maximum exposure to any one tenant (calculated by contracted rental income) was 19.35% at 31 December 2022.	Probability: Moderate Impact: High
10. Property Location
The Property is in Birmingham and the Group will, therefore, have greater exposure to political, economic and other factors affecting the Birmingham real estate market than more geographically diversified businesses.	The Birmingham Big City Plan is well underway, having started in 2010 and running for 20 years. The intention is to create a regenerated and rejuvenated city to rival London. This is further reinforced by infrastructure investments, such as (HS2).	Probability: Low Impact: Moderate
11. Use of service providers
The Group has no employees and is reliant upon the performance of third-party service providers. Failure by any service provider to carry out its obligations to the Group in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Group.	The performance of service providers in conjunction with their service level agreements is monitored via regular calls and face- to-face meetings and the use of KPIs where relevant.	Probability: Moderate Impact: Moderate
12. Dependence on the AIFM and Asset Manager
The Asset Manager is responsible for providing investment advisory services together with asset management, operational advice, budgeting and planning for the Group's property. The future ability of the Group to successfully pursue its investment objective, among other things, depend on the ability of the Asset Manager to retain its existing staff and/or to recruit individuals of similar experience and caliber.	The Board meets regularly with the AIFM and Asset Manager to ensure it maintains a positive working relationship.	Probability: Moderate Impact: Moderate
13. Ability to meet objectives
The Group may not meet its investment objective to deliver an attractive total return to shareholders from investing predominantly in a single asset. Poor relative total return performance may lead to an adverse reputational impact that affects the Group's ability to raise new capital and new funds.	The Group will have quarterly and ad hoc Board meetings where performance will be reviewed along with the Asset Manager.	Probability: Low Impact: High
14. Group REIT status
In 2021, the Group obtained UK REIT status that provides a tax- efficient corporate structure. If the Group fails to remain a REIT for UK tax purposes, its profits and gains will be subject to UK corporation tax. Any change to the tax status or in UK tax legislation could impact on the Group's ability to achieve its investment objectives and provide attractive returns to shareholders.	The Group will monitor REIT compliance, asset and distribution levels through the Asset Manager; the Registrar and Broker on shareholdings and third-party tax advisors to monitor REIT compliance requirements.	Probability: Moderate Impact: High
15. Political / Economic Risk
Political and macroeconomic events present risks to the real estate and financial markets that affect the Group and the business of our tenants. For example: (i) any potential impact or inflationary pressures arising from the war in Ukraine and any future developments; (ii) any arrangements made (or lack thereof) between the UK and the EU that could impact the ability of the Group to raise capital and/or increases the regulatory compliance burden on the Group; and (iii) any "cost of living" pressures, reducing free transactional cash flow in circulation, potentially affecting the turnover of tenants.	As the Group is wholly UK based, the Group remains relatively insulated from the impact of Brexit. As the Group has no direct exposure outside of the UK, the potential impact of the war in Ukraine may be limited to factors such as higher energy costs or other inflationary pressures. There is regular re-evaluation by the AIFM and Asset Manager as the conflict evolves and all material decisions are made with the approval of the Board.	Probability: Moderate Impact: Moderate
16. Health and Safety Risk
Tenants or other users of the asset may experience health and safety incidents that could lead to an adverse effect on the Group's reputation, profitability, the NAV and the Company's share price. Furthermore, there is a reliance on third party property and facility managers to ensure property defects are identified and rectified.	The Group has a robust Health & Safety Management system in place that is externally assessed and audited on an annual basis. The third-party property & facilities management providers who work onsite are continuously trained in health & safety protocols to ensure health & safety risks are always minimized, and any possible incident is escalated, logged and reported immediately.	Probability: Moderate Impact: Low
17. Disclosure Risk
Failure to properly disclose information to investors or regulators in accordance with various disclosure rules and regulations. Examples include AIFMD investor disclosures, annual reporting requirements, marketing/promotion disclaimers, data protection regulations etc. Examples that are not currently required but may become so include PRIIPS regulations and TCFD disclosures.	Service providers including AIFM, Asset Manager, Company Secretary and Legal Advisers monitor disclosure obligations and liaise with the Board to ensure requirements are met.	Probability: Moderate Impact: Moderate

Going Concern

This report has been prepared on a going concern basis. Note 2 of the consolidated financial statements sets out the Board's consideration.

Viability Statement

Pursuant to Provision 36 of the AIC Code, the FRC 2018 Guidance on Board Effectiveness and the FRC Guidance on Risk Management and Internal Control and Related Financial and Business Reporting , the Board has considered the nature of the Group's assets and liabilities and associated cash flows and has determined that 3 years, up to 31 December 2025 is a realistic timescale over which the performance of the Group can be forecast with a degree of accuracy and so is an appropriate period over which to consider the Group's viability.

Considerations in support of the Company's viability over this three-year period include:

1. The unexpired term under the Group's debt facilities stands at under 1 year as at 31 December 2022, being £108.5 million with two options to extend by one year. At the date of signing these consolidated financial statements, the Group has repaid £8.6m of the principal balance, reducing the debt facility from £108.5m to £99.9m. The Group continues to negotiate with the lender and an extension will be tabled in parallel with the completion of the debt cure (see note 2 of the consolidated financial statements). Therefore, the balance of senior debt is floating and no formal extension has been agreed at the date of signing these financial statements - which is short of the viability statement period and represents a material uncertainty over the consideration period.

2. The Group's property had a WAULT to break of 12 years, 3 months and a WAULT to expiry of 12 years, 10 months as at 31 December 2022, representing a secure income stream for the period under consideration.

The three-year review considers the Company's cash flows, dividend cover and REIT compliance over the period. In assessing the Company's viability, the Board has carried out a thorough review of the Company's business model, including future performance, liquidity and banking covenant tests for a three-year period. In particular relating to the impact of the current political and economic uncertainties, the Directors have assessed the extent of any operational disruption; potential curtailment of rental receipts; potential liquidity and working capital shortfalls; and diminished demand for Company's asset going forward, in adopting a going concern preparation basis and in assessing the Company's longer-term viability.

These assessments are subject to sensitivity analysis, which involves flexing a number of key assumptions and judgements included in the financial projections:

§ tenant default;

§ dividend payments; and

§ property valuation movements.

As part of the sensitivity analysis performed, the cash flow was tested to see the level of reduction in net rental income (including tenant defaults) and property value which would be required to cause a breach in the relevant covenants. At current levels, there is headroom of 39.9% before the debt yield (calculated as a percentage of net rental income over borrowings) covenant would breach. Looking forward, acknowledging the material uncertainties that exist, the Group have assumed that the LTV default will be fully cured and that loan covenants and thresholds remain unchanged. Under this scenario, net rental income would need to reduce by 52.2% before a debt yield breach would occur. There is, however, no room for reduction of the LTV covenant as the anticipated final repayment of the default cure will take the LTV to 60.0%. Further breaches of the LTV covenant would likely result in additional default interest charges and a need for further cure payments. An independent external valuation from Avison Young as at 31 December 2022 found the value to be £157.0m, materially greater than the November 2022 lender valuation. This has provided some comfort to the Directors that further reduction in lender valuation is unlikely.

Based on the prudent assumptions within the Company's forecasts regarding tenant default, void rates and property valuation movements, the Directors expect that over the three-year period of their assessment:

§ the debt yield covenant will not be breached;

§ the LTV covenant, once cured, will not be breached;

§ REIT tests are complied with; and

§ that the Group and Company will be able to continue in operational existence and meet its liabilities as they fall due over the three-year period of their assessment.

The Board, supported by the Audit Committee, carried out a robust assessment of the principal risks and uncertainties, including those that would threaten its business model, future performance and solvency over the three-year period. The risk review process provided the Board with assurance that the mitigation and management systems are operating as intended. The Board believes the Group is well positioned to manage its principal risks and uncertainties successfully, notwithstanding the current political and economic risks and uncertainties. These risks, and other potential risks which may arise, will continue to be closely monitored by the Board.

Confirmation of Viability

The assessment of viability has been based on the assumption that the LTV covenant breach will be cured and on this basis, the Board confirms that it has reasonable expectation that the Group will be able to continue its operations and meet its liabilities as they fall due over the next three years. At the date of signing these consolidated financial statements, £8.6m of the £27.5m has been paid and while there is expectation that the remainder will be paid in due course, there is a scenario where the Group is unable to make these payments and the LTV covenant continues to be in default. While there is no expected breach in the debt yield covenant (as there is 39.9% of headroom at current levels), the continued breach of the LTV covenant would result in further application of default interest and the potential for the lender syndicate to call in the loan. Whilst this scenario is considered unlikely, the Board confirm that they have weighed all potential outcomes and consequences of the material uncertainty that exists surrounding the debt and its impact on going concern.

Section 172 Statement

This section of the Report covers the Board's considerations and activities in discharging their duties under s.172(1)(a) to (f) of the Companies Act 2006 (the "Act"), in promoting the success of the Company for the benefit of members as a whole and forms the Directors' statement required under section 414CZA of the Act 2006. This includes how the Board engages with its key stakeholders, what interests are of importance to them and how it has considered their interests when making its decisions. It also demonstrates how the Board takes into consideration the long-term impact of its decisions, and its desire to maintain a reputation for high standards of business conduct.

Board approach to discharge its duties under s.172(1)(a) to (f) of the Act

(a)the likely consequences of any decision in the long term: the Group business model is described in this Report and any deviation from or amendment to that strategy must be approved by the Board, and in certain instances also by the shareholders. The Board is committed to keeping in mind the long-term consequences of its decisions and relevant risks arising, including risks to the long-term success of the business. This approach resulted in the change to dividend policy in the last two quarters of the year to preserve cash resources in response to the political and market uncertainty. The Board also considered and approved the option to extend the debt facility prior initial maturity in January 2023, highlighting that an extension would be in the best interest of the Group. However, the subsequent LTV covenant breach delayed the extension option and led the Board to consider alternative financing - in particular, the raising of a loan note to cure the covenant breach before the extension can be formally agreed. This approach is ongoing and is considered to be in the best interest of the Group. The Board is supported by the Asset Manager to understand the views of the Company's key stakeholders and considers those stakeholders' interests and views in Board discussions and long-term decision-making.

(b)the interests of the Company's employees: the Group has no employees but the Directors have regard to the interests of the individuals responsible for delivery of the management and administration services to the Group to the extent that they are able to.

(c)the need to foster the Company's business relationships with suppliers, customers and others: the Asset Manager manages the relationship with suppliers, tenants and other counterparties and periodically reports to the Board. The Group pays its service providers in accordance with pre-agreed terms and the Board carries out annual evaluation of key service providers and discuss any issues arising to enable them to continue to provide high standard services. The Asset Manager engages with tenants to understand their businesses, reporting to the Board regularly, so tenants interests can also be regarded in the Board's decisions.

(d)the impact of the Company's operations on the community and the environment: The ESG section of this Report provides information on how the Group have engaged with the community and all the initiatives towards preservation of the environment taking place. The Board recognises the importance of supporting local communities and takes overall responsibility for the Group's impact on the community and the environment.

(e)the desirability of the Company maintaining a reputation for high standards of business conduct: The Board works along with the Asset Manager, the AIFM and key service providers to maintain a reputation for high standards of business. The Board gives high regard to the Group's reputation and thereby matters risking the Group's reputation are included in the Principal Risks and Uncertainties and in the relevant risk register which is reviewed annually. The principal risks and uncertainties facing the business are set out in that section of the Strategic Report.

(f)the need to act fairly as between members of the Company: The Company's shareholders are a relevant stakeholder group. The Chairman of the Company and other Non-Executive Directors make themselves available for meetings as appropriate and attend the Company's Annual General Meeting. The Asset Manager also supports the Board to identify the shareholders' interests and demands. The shareholder engagement is described in the Strategic Report.

Stakeholder engagement

The Board regularly reviews the Company's principal stakeholders and how we engage with them. The below section highlights how the Company engages with its key stakeholders:

STAKEHOLDER	ISSUES OF IMPORTANCE	ENGAGEMENT	EFFECT OF ENGAGEMENT ON KEY DECISIONS
Shareholders
· The Group's investment objective is to deliver an attractive total return to shareholders. · Shareholders are directly impacted by the performance of the Company both through equity growth and dividends.	· Strong total shareholder return, operational and financial performance. · Dividend cover and target. · Robust corporate governance structure and well-performing service providers. · Strategic direction of the Company. · ESG strategy and performance.	· Shareholder engagement is set out in the Strategic report. · ESG engagement matters are disclosed in the Strategic report. · Periodic updates are provided to the market with trading updates.	· Clear and effective communication leading to the Company meeting its objectives to deliver an attractive return to shareholders and boost the reputation of the Company.
Service Providers
· The Board has appointed a number of key service providers. The Board carries out annual evaluations of the key service providers and is confident that the appointments continue to strengthen its corporate governance processes and drive strategic progress.	· Reputation of the Company, including its impact on the community, environment, and maintaining high standards of business conduct. · Fair and transparent service agreements. · Effective relationship between the Board and other key service providers.	· Effective and consistent engagement both through formal Board meetings and regularly outside the meetings with the Board. · A formal annual evaluation process allows performance highlights and concerns to be identified and discussed.	· Service Providers continue to be competitive and to provide and demonstrate high standards of service.
Tenants
· Tenants with strong business fundamentals and profitable operations enhanced by the location, facilities, safety and security of the well-maintained Property. · The Asset Manager understands the businesses occupying Mailbox and seeks to create long-term partnerships and understand their needs to deliver fit for purpose real estate and develop opportunities to support long-term sustainable income growth and maximise occupier satisfaction.	· Working closely with tenants during cost of living crisis, offering assistance where required. · Fair lease terms. · Long-term strategy and alignment with the tenant's business operations. · Health and safety and property maintenance.	· Regular dialogue with the Asset Manager and other key service providers as appropriate. · The service providers have developed an effective working relationship with the Company's tenants aligning long-term strategy with the tenant's business operations to ensure a consistent income stream and ability to pay dividends to the Company's shareholders. · Asset Manager regularly following up on the work carried out by the property manager. · The Board receives regular updates from Asset Management team.	· The objective being to provide proportional assistance to those tenants whose operations were materially impacted. · Well-maintained property offering the desired features tenants look for in a property.
Lenders
· Lenders play an important role in the Group's business. The Asset Manager maintains close relationships with our lenders, based on openness, transparency and mutual understanding.	· The impact on rent collections and occupation (retail, leisure and food & beverage) as a consequence of the latest political events which resulted in the rising of interest rates and living costs as well as the effect these had on the lender covenants. · Good working and transparent relationship. · Management and subsequent mitigation of debt covenants.	· Engagement with the lender with detailed reporting and modelling. · Regular discussions and updates through the year, including monthly capex reporting to the lender.	· Demonstrative support from the lender. For example, allowing the Company to utilise capex funds towards the Castle Fine Art fit out works at level 2 in an amount of £0.4 million; allowing amendments to the facility agreement to permit us to incorporate net income from the IWG Spaces management contract into the definition of Net Rental Income and extending the agreed Practical Completion Date for the L1 works. In addition, they have granted consent on all new lease consent requests that have been made. · Working with the Group to reach a cure agreement following the default on the LTV covenant.
Government, Local Authorities and Communities
· The Company is committed to engaging with central and local government and to support the wider community as a responsible corporate citizen.	Considering impact on local community and ensuring good relations with surrounding occupiers and the wider city. · Noise and traffic. · Health and Safety. · Environmental performance. · Employment opportunities.	· Regular engagement with the government, City Council, community business groups and charities.	· Early insight into city plans and local business improvement and information schemes. · Decision making takes into account social and community considerations. · Examples of how we engage and support our local community can be found in the Strategic report.

The Strategic Report has been approved on 4 September 2023 and signed on behalf of the Board by:

Stephen Barter

Chairman

4 September 2023

Corporate Governance Statement

The Board recognises the importance of sound corporate governance and is committed to maintaining high standards of corporate governance. The Board has considered the principles and recommendations of the 2019 AIC Code of Corporate Governance (the "AIC Code"), which addresses the principles and provisions set out in the 2018 UK Corporate Governance Code as well as sets out additional principles and recommendations on issues that are of specific relevance to the Company as an investment company. The Board undertakes an annual review of its compliance with the principles and recommendations of the AIC Code. The AIC Code is available on the AIC website (www.theaic.co.uk).

The Board meets at least on a quarterly basis and has established the Audit Committee which also meets at least three times per year. Given the size of the Board, the Board has not established Nomination and Remuneration committees.

The Board of Directors

The Board of Directors, led by the Chairman, is collectively responsible for the long-term sustainable success of the Company, generating value for shareholders and contributing to the wider society. It establishes the purpose, values and strategic objectives of the Company and satisfies itself that these and the Company's culture are aligned. The Board ensures that the necessary resources are in place for the Company to meet its objectives and measure performance against them, fulfilling its obligations to shareholders within a framework of high standards of corporate governance and effective internal controls.

Board composition was unchanged during the year and comprises of non-executive members.

STEPHEN BARTER Chairman and Non-Executive Director

Date of Appointment: 06 July 2020

Skills and Experience:

§ Over 40 years' experience in real estate.

§ Until March 2018, he was Chairman of Real Estate Advisory at KPMG.

§ Previously, he was UK Chief Executive Officer of Qatari Diar, the property arm of the Qatar Investment Authority, Group Projects Director at Grosvenor, the Duke of Westminster's private international property company (and a member of its Executive Committee), Head of European Real Estate at Babcock & Brown and an equity partner at Richard Ellis (now CBRE).

§ Other appointments: Stephen is a director of Gabrieli Consort, a non-profitable organisation, H3 Tradeco Limited and Chairman of his own firm, Wilton Capital Advisers. He is also Chair of the West Midlands Combined Authority's Public Land Task Force and a Special Adviser to Transport for London, Network Rail and to the Foreign, Commonwealth & Development Office.

MICKOLA WILSON Non-Executive Director

Date of Appointment: 06 July 2020

Skills and Experience:

§ A highly accomplished senior executive with over 20 years' experience operating at board level in both executive and non-executive positions.

§ Prior to joining Seven Dials she was CEO of Teesland Plc, a listed property fund and asset management company, with over £5bn of funds under management across UK and Europe.

§ Other appointments: Mickola is co-owner and Director of Seven Dials Fund Management Limited and its group companies, and a Non-Executive Director of Kent and Medway NHS and Social Care Partnership Trust, and a member of the Mercers' Company Property Committee.

The Board of Directors (Continued)

IAN WOMACK Non-Independent Non-Executive Director

Date of Appointment: 06 July 2020

Skills and Experience:

§ Over 40 years' experience in the real estate sector and retired as Chief Executive of Real Estate at Aviva Investors in June 2015

§ Spent majority of his career at Aviva Investors in various roles within the Real Estate division before being appointed to lead the business in 1998

§ He is an active and engaged participant in the broader Real Estate community and was Chairman of the highly respected Investment Property Forum from 2006 to 2007

§ Other appointments: Ian is a director for Bennbridge group, Grosvenor Liverpool Limited, Bennelong Funds Management Group Pty Ltd and for his own consulting company Womack Partners Limited. He is also trustee of the charity, The Story of Christmas. Ian is also a non-independent non-executive director of M7 Regional E-Warehouse REIT plc and a non-independent member of the advisory board of M7 Box+ II LP, both of which are managed by the Asset Manager.

Structure of the Board

The Board consists entirely of non-executive directors, with no individual having unrestricted powers of decision. The Directors have a wide range of relevant business and financial expertise. The Board is satisfied that each Director commits sufficient time to the Company's affairs. Each Director was appointed for an initial three-year term, subject to re-election annually at each AGM. The Board has not stipulated a maximum term of any directorship, except that, subject to ensuring business continuity and with due regard for the need for regular refreshment and diversity on the Board, the Chairman will remain on the Board for a maximum period of nine years.

The Chairman leads the Board and is responsible for its overall effectiveness in directing the Company. The Chair promotes a culture of openness and constructive debate to ensure the effective contribution of all Directors, and facilitates a supportive, co-operative and open environment between the AIFM, Asset Manager and the Directors. The Chairman has no significant commitments other than those disclosed in his biography above.

Given the size of the Board and the Group, the Board has deemed that it is not necessary to appoint a Senior Independent Director, departing from provision 14 of the AIC Code. This provision is not deemed relevant to the Company as it is an externally managed real estate investment company, with an entirely non-executive board of directors. The other non-executive directors will, as necessary, serve as an intermediary between the shareholders and shall meet without the Chair present at least annually to appraise the Chair's performance.

Election/Re-election of Directors

Under the Company's Articles of Association, each Director shall retire from office at the third Annual General Meeting ("AGM") after the AGM or General Meeting (as the case may be) at which he/she was previously appointed or re-elected.

Beyond these requirements, and in line with corporate governance best practice and provision 23 of the AIC Code, the Board has determined that all Directors will seek annual re-election at the Company's AGMs.

Accordingly, all Directors stood for re-election at the 2022 and 2023 AGMs of the Company, with the latter held on 30th June 2023, and all were duly re-elected.

Independence of Directors

During the period under review, the Board consisted of three Non-Executive Directors. All directors were independent on appointment. Ian Womack was later regarded non-independent after his appointment later in 2021 as a director to another investment company managed by the Asset Manager In line with provision 10 of the AIC Code at least half of the Board, excluding the Chair, are non-executive directors whom the Board considers to be independent and the majority of the Board members are considered by the Board to be independent of the Asset Manager and the AIFM. In line with provision 13 of the AIC Code the Board members considered by the Board to be independent are Stephan Barter and Mickola Wilson.

Independence of Directors (Continued)

The Chair was independent on appointment and his independence continues to be reviewed annually in compliance with Provisions 11 and 12 of the AIC code.

Board Diversity

There were no new appointments to the Board during the year as all Directors continued to serve their initial three-year term, therefore Provision 25 of the AIC Code was not applicable to the Company.

The Board has due regard for the need for regular refreshment and diversity of its composition and regularly considers the balance of skills, knowledge, experience, independence, diversity and cognitive and personal strengths on the Board. The appointment of any new Director would be made based on the candidate's merits, and by measuring their skills and experience against the criteria identified by the Board as being desirable to complement the Board's composition and qualifications.

The Board maintains a skills matrix which maps the key skills required of the Directors. It assists with the identification of any gaps in the Board's skills and helps inform board recruitment activities.

Board Evaluation

The Board has undertaken a formal and rigorous annual evaluation of its own performance and of its committees and individual Directors in line with provision 26 of the AIC Code. This process included the Directors meeting without the Chair present to appraise the Chair's performance. The evaluation concluded that the Board continues to be effective in its role and has the requisite skills and experience necessary to discharge its duties and responsibilities. No material weaknesses or concerns were identified.

In light of the results of the evaluation, the Board determined that the Directors' initial three-year terms, due to expire on 5 July 2023, would be extended for a further three years, subject to the continuing policy of annual re-election of all Directors at the Company's AGM.

Board Responsibilities

The Board is responsible for the overall leadership of the Company, setting its values and standards, including approving the Group's strategic aims and objectives as well as oversight of the operations, including the control and supervision of the AIFM and Asset Manager. A copy of the schedule of matters reserved for the Board's decision is available on the Company's website at https://themailboxreit.com.

The Board conducts an annual review of effectiveness of the Company' risk management and internal control systems managed by the Asset Manager. The outcome of the review is documented in the Audit Committee report. The Board also undertakes an annual review of the Company's outsourced service providers as reported below.

The Directors are regularly provided with any relevant information from the Asset Manager and have access to the Company Secretary and independent advisors, as required.

Key Board activities during the year

The Board regularly reviews the required time commitment of Directors to fulfil their duties. The Directors continued to devote sufficient time to the Company's business through participation in both formal Board meetings and informal operational meetings.

The Company Secretary and the Asset Manager regularly provide the Board with financial information, briefing notes and papers in relation to changes in the Company's economic and financial environment, statutory and regulatory changes and corporate governance best practice. Representatives from the AIFM and the Asset Manager attend each Board meeting and continuously communicate with the Board between formal meetings.

A report from the Asset Manager is reviewed at the Board's quarterly meetings, which includes relevant matters to highlight since the previous meeting and details of business activity and financial performance.

Key Board activities during the year (Continued)

The Board also holds periodic meetings with the AIFM and the Asset Manager for general updates on the day-to-day operations and business updates. During the year ended 31 December 2022, the number of Board meetings attended by each Director was as follows:

Director	Attendance[6]
Stephen Barter	5/5
Mickola Wilson	4/5
Ian Womack	5/5

Conflicts of Interest

The Articles of Association permit the Board to consider and, if it sees fit, to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the Group's interests. The Company Secretary keeps a register of disclosed interests which is regularly updated and reviewed by the Board at every Board meeting.

Board Committees

Audit Committee

Mickola Wilson and Stephen Barter are the members of the Company's Audit Committee ("the Committee"), chaired by Mickola Wilson. Ian Womack attends the Committee's meetings as an observer along with representatives of the Asset Manager and the AIFM. The Audit Committee report is included in this Annual Report. The Board considers that the members of the Committee have the requisite financial expertise and experience to fulfil the responsibilities of the Committee.

The Committee supports the Board in fulfilling its oversight responsibilities of the effectiveness of the Company's risk management and internal control systems led by the Asset Manager and the AIFM. The Committee also reviews the half-yearly and annual reports, approve the audit plan and receive information from the AIFM and the Asset Manager providing final recommendations for approval to the Board. It is also the responsibility of the Audit Committee to review the scope, results, cost effectiveness, independence and objectivity of the external auditor.

Other Board committees

Given the size of the Board, which comprises of two independent Non-Executive Directors and one non-independent Non-Executive Director, it is not deemed necessary to convene separate nomination or remuneration committees. Therefore, the Company has departed from provisions 22, 28, 37, 38, 39, 40, 41 and 42 of the AIC Code. Nomination and remuneration matters are dealt with by the Board of Directors as a whole. This is consistent with the market practice and in accordance with the AIC Code, which states that such committees are not required if, in view of the size and make-up of the Board, it is unnecessarily burdensome to establish separate committees.

As the Board is comprised only of Non-Executive Directors, there are no performance-related elements of the remuneration. The remuneration of Non-Executive Directors is determined in accordance with the Articles of Association and therefore there is limited scope for the exercise of discretion or judgement.

The Board will continue to monitor its requirements and if necessary, constitute separate committees to complete these functions.

Directors' Remuneration

The Company is not required to implement a remuneration policy or to prepare a directors' remuneration report in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Board is responsible for determining the remuneration of each Director and each Director abstains from voting on their own individual remuneration. There is limited scope for the exercise of discretion or judgement in respect to Directors' remuneration.

Following the recommendation of the AIC Code, the Non-Executive Directors' remuneration reflects the time commitment and responsibilities of the role. The Non-Executive Directors of the Company are entitled to such rates of annual fees as the Board at its discretion shall from time to time determine, subject to the aggregate annual fees not exceeding £500,000.

Directors' Remuneration (Continued)

No component of any Director's remuneration is subject to performance factors and reimbursement of reasonable expenses and fees are provided in accordance with Letters of Appointment.

In accordance with Letters of Appointment, Directors' fees from 1 January 2022 to 31 December 2022 were at a level of £35,000 per annum for the Chairman, £25,000 per annum for the chair of the Audit Committee and £25,000 per annum for the third Director.

No pension schemes or other similar arrangements have been established and no Director is entitled to any pension or similar benefits, although the Company's Articles of Association permit the Company to provide such pensions or similar benefits for Directors or employees of the Company.

The Directors' fees that have been approved for the year ending 31 December 2023 are:

· Non-Executive Chair: £40,000

· Non-Executive Audit Committee Chair: £35,000

· Non-Executive Director: £30,000

The Board will consider any views expressed by shareholders on the fees being paid to Directors.

Company Secretary

Alter Domus (UK) Limited was appointed on 26 August 2020 as the Company's Secretary. The Board has direct access to the advice and services of the Company Secretary, which is responsible for ensuring that the Board and committee procedures are followed and that applicable regulations are complied with. The Company Secretary is also responsible for ensuring timely delivery of information and reports to the Board and that the Company meets its statutory obligations.

Asset Manager

The Board has appointed M7 Real Estate Limited (the "Asset Manager") to provide day-to-day asset management and advisory services to the Group. More information about the Asset Manager and its strategy can be read at the Group's website (https://www.themailboxreit.com).

AIFM

The Board has appointed M7 Real Estate Financial Services Ltd (the "AIFM") to provide day-to-day discretionary portfolio and risk management of the Company's investments subject to the AIFM Agreement, the Company's Articles of Association, and the prospectus, and also subject to the overall supervision of the Directors. The AIFM also includes a dedicated Listed Markets team which is solely focussed on the management, analysis and performance of listed products.

The AIFM and the Asset Manager provide relevant support to the Board pursuant to the AIFM Agreement and the AMA. In particular, but without limitation, the AIFM provides to the Board the property business plan and any variation thereto.

The AIFM acts in accordance with the Company's code of ethics and with its own policies and procedures, that cover areas required under AIFMD such as risk management and valuation of the Company's assets. Conflicts management is handled under the AIFM's conflicts policy and recorded on the AIFM's conflicts register. Regulated complaints are dealt with under the AIFM's complaints management policy. These policies are overseen by the members of the AIFM relevant committees and reported annually to the Board. Further oversight is provided by the Depositary, Alter Domus, appointed under the rules of AIFMD.

The AIFM and the Asset Manager are entitled to receive an aggregate quarterly management fee of 0.5 per cent calculated quarterly in arrears as a percentage of the NAV on the relevant quarter day. There is no performance fee.

Depository

Alter Domus Depositary Services (UK) Limited (the "Depositary") has been appointed to provide services in accordance with the AIFMD Rules, including cash monitoring activities, custody and safe-keeping of assets and oversight duties.

Key Service Providers

The Company has a number of key service providers, each of which provides a vital service to the Company. The Company's key service providers are the Company Secretary, Auditor, Depositary, the AIFM, the Asset Manager, the Registrar, Tax Adviser, the Property Manager, the Facilities Manager, the Valuer, and the Fund Accountant. All service providers are required to act

Key Service Providers (continued)

in accordance with the Company's code of ethics. The Board monitors services providers on an ongoing basis providing feedback as applicable, including for areas of improvement.

The Board conducted an annual review of the performance of all key service providers to ensure an appropriate standard of support was being provided to the Company. The outcome of the evaluation for the period was that all of the key service providers met or exceeded performance expectations; all contracts were considered necessary and adequate in scope for the Company's requirements; and all contracts were delivering value for money. The Board determined further to this review that it would be for the benefit of the Company to retain all existing engagements.

The Board considered that it was unnecessarily burdensome to establish a separate management engagement committee to carry out the review of the AIFM given the size of the Board.

Internal control review

The Board is ultimately responsible for the Company's system of internal control and for reviewing the effectiveness of the Company's system of internal control in light of the risks identified.

In agreement with good corporate governance practice mentioned in the AIC Code and in the Financial Reporting Council publication, "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting", the Board has undertaken an assessment of the effectiveness of its risks and internal control processes.

In order to capture new and emerging risks and implications, the AIFM is responsible for the risk management function. Any such risks are reported to the Board. An initial analysis of key risks was prepared by the AIFM, reviewed by the Board before listing and continues to be monitored regularly by the AIFM and on an annual basis by the Board. The Board, supported by the Audit Committee, also carries out an annual review of the Company's risk management and internal control systems' effectiveness and reports on the review in the annual report in line with Provision 34 of the AIC code.

No internal audit function currently exists within the Company, AIFM or the Asset Manager. Existing governance, risk management and internal controls are considered adequate for the size and complexity of the business and the Board will continue to monitor and consider whether circumstances have changed such that it considers that the introduction of an internal audit function would be appropriate.

The Board has carried out a review of the effectiveness of the systems of internal control as they have operated over the period and up to the date of approval of the Report.

Shareholder Engagement

Mailbox Board has actively engaged with key stakeholders and a detailed report is provided in the Strategic Report.

The Company's Annual and Half-yearly Reports present a full and readily understandable review of the Company's performance. Copies are released through the Regulatory News Service and made available from the Registrar or the Company's website.

The Company's 2023 AGM was held on 30 June 2023 at the offices of the AIFM. Shareholders were invited to attend in person or to submit a proxy form in advance. All resolutions were passed on a poll, and these results were announced via a Regulatory Information Service and published on the Company's website.

There were no material dissenting comments or votes cast at the 2023 or prior AGM, therefore provision 4 of the AIC Code is not applicable to the Company.

Statement of Compliance

During the year ended 31 December 2022, the Company has complied with the AIC Code, except where the Board has concluded that adherence or compliance with any principle or provision would not have been appropriate to the Company's circumstances, in which case the reasons are fully explained in this Report.

Report of the Audit Committee

I am pleased to present the Audit Committee Report for the year ended 31 December 2022.

Committee Membership

The Audit Committee comprises Mickola Wilson (Chair) and Stephen Barter, both of whom are Independent Non-Executive Directors.

Ian Womack was a member of the Audit Committee for its first meeting of the year concerning the final review and recommendation of the Company's 2021 Annual Report. He has since stepped down but continues to attend the Audit Committee meetings as an invited attendee. As an invited attendee, Ian Womack is not counted as participating in the Committee's decision-making process for quorum and voting purposes.

Meetings

The Committee met three times during the year under review, and the meetings were attended by each member as follows:

Director	Attendance^{^[7]}
Mickola Wilson	3/3
Stephen Barter	2/3
Ian Womack	1/1

Role of the Committee

The Committee assists the Board in discharging its responsibilities with regard to financial reporting, external audit, risk management and internal controls, including:

1. monitoring the integrity of the financial statements of the Group, including its annual and half-yearly reports and reviewing significant financial reporting issues and the judgements which they contain;

2. reviewing the adequacy and effectiveness of the Group's risk management systems and reviewing and approving the statements to be included in the annual financial report concerning internal controls and risk management;

3. making recommendations to the Board in relation to the appointment/re-appointment or removal of the Auditor and approving its remuneration and terms of engagement;

4. reviewing and monitoring the Auditor's independence, objectivity and effectiveness; and

5. approving any non-audit services to be provided by the Auditor and monitoring the level of fees payable in this respect.

Performance Evaluation

The performance of the Audit Committee is evaluated annually by the Board during the Board evaluation. Further information is provided in the Corporate Governance Statement.

Activities

The Committee meets at least twice a year to consider the annual financial report and half-year report and to review and monitor the effectiveness of the Company's risk management and internal control systems as well as any other matters as specified under its terms of reference. During the year and up to the date of this report, the Audit Committee reviewed: the financial results for publication; the performance and effectiveness of the Auditor and considered its re-appointment, objectivity, independence and remuneration; the internal controls and risk management systems of the Group and its third-party service providers; and the Committee's terms of reference (which are available from the Company's website).

Significant issues considered by the Committee

Valuation

The Committee determined that a key area of consideration in relation to the audited Consolidated Financial Statements of the Group was the valuation of the investment property, as it is fundamental to the Group's consolidated statement of financial position and audited results.

Having reviewed and thoroughly challenged the year end valuation of the investment property, the Committee are satisfied that the conclusion represents an accurate depiction of value of the asset in the current economy. The Committee acknowledge that investment property valuations represent an area of material uncertainty and that future valuations may be influenced by market forces outside of the Group's control.

Risk Management and Internal Controls

The Committee carefully considers its risk management and internal control systems by monitoring the services and controls of its third-party service providers.

The Committee received reports on risk management, internal controls and compliance from the AIFM and the Asset Manager and reviewed the detail of the risk register. No significant internal control issues were identified, and the risk register was approved following careful review of its contents, including specific consideration of movements in interest rates and the impact of the breach of the Company's LTV covenant with the lender syndicate behind the Company's £108.50 million loan facility. The Company's Principal Risks have been included in this Annual Report.

Going concern and long-term viability of the Group

The Committee considered the Group's financial requirements for the next 12 months and concluded that it has sufficient resources to meet its commitments despite the challenges faced by rising interest rates and the material uncertainty surrounding the maturity of senior debt. Consequently, the Consolidated Financial Statements have been prepared on a going concern basis.

The Committee also considered the longer-term viability statement within this Annual Financial Report for the year ended 31 December 2022, covering a three-year period, and the underlying factors and assumptions which contributed to the Committee deciding that this was an appropriate length of time to consider the Group's long-term viability.

Independence and objectivity of the Auditor

It is the Committee's responsibility to monitor the performance, objectivity and independence of the Auditor and this is evaluated by the Committee each year. In evaluating BDO's performance, the Committee examines five main criteria - robustness of the audit process, independence and objectivity, quality of delivery, quality of people and service, and value-added advice. The Audit Committee has conducted a performance evaluation of the services provided by the Auditor including the review of their independence and objectivity and is satisfied that the external audit process is effective and takes into consideration relevant UK professional and regulatory requirements. The Audit Committee continues to monitor the external auditor's independence and objectivity.

External Audit Process

The Committee meets at least twice a year with the Auditor, once at the planning stage before the audit and again after the audit at the reporting stage. The Auditor provides a planning report in advance of the annual audit, and a report on the annual audit. The Committee has an opportunity to question and challenge the Auditor in respect of both of these reports and following the conclusion of the annual audit, the Committee reviews the audit process and consider its effectiveness.

Re-appointment of the Auditor

Following a review of its independence and objectivity, the Committee has agreed to recommend the re-appointment of BDO LLP as the Company's Auditor to the Board for proposal to shareholders at a general meeting due to be held in the coming months. BDO LLP has expressed its willingness to continue as the Company's Auditor.

Audit Fees and Non-Audit Services

The Committee has sole responsibility for agreeing the audit fee in consultation with the Asset Manager and taking into account the scope of the audit. The Committee has a policy on the engagement of the Auditor to provide non-audit services. All non-audit services are reviewed by the Committee which makes recommendations for the provision of each non-audit service and ensures that the statutory auditor is not engaged to perform work that is prohibited under EU law as adopted by the UK. The Auditor is permitted to provide non-audit related services where the work involved is closely related to the work performed in the audit. These include:

1. reviews of interim financial information;

2. reporting on internal financial controls when required by law or regulation;

3. reporting required by law or regulation to be provided by the Auditor; and

4. prospectus/capital markets reporting.

The policy was reviewed, and its application monitored by the Committee during the year. The Committee agreed that the policy remained appropriate for the Company.

Text Box: Governance An analysis of audit fees is set out below:

	Year ended 31 December 2022 £'000	Year ended 31 December 2021 £'000
Audit
Statutory audit of Annual Financial Report	90	68
Non-Audit services	-	56

Mickola Wilson

Audit Committee Chairperson

Directors' Report

The Directors present their Annual Report and audited Consolidated Financial Statements of Mailbox REIT Plc for the year ended 31 December 2022.

Principal activity

The principal activity of the Group is the ownership of the freehold of Mailbox.

Directors, Corporate Governance and Management Arrangements

The Directors in office during the year and at the date of this Report and the governance and management arrangements are provided in the Corporate Governance Statement forms part of the Directors' Report.

Results and dividends

The results for the year ended 31 December 2022 are shown in the Consolidated Statement of Comprehensive Income. The details on Dividends paid in respect to the year in review can be found in Note 17 of the audited Consolidated Financial Statements.

Qualifying indemnity insurance

The Directors have the benefit of the indemnity provisions contained in the Company's Articles of Association ("Articles"), and as such have arranged qualifying third-party indemnity agreements for the benefit of all the Directors in the Group in a form and scope which comply with the requirements of the Companies Act 2006 and which were in force throughout the year and remain in force.

Continuing Appointment of the AIFM and the Asset Manager

The Board has reviewed the appropriateness of the continuing appointment of the AIFM and the Asset Manager, ensuring the terms and conditions of the relevant agreements align with the objective of the Company. It is satisfied that the terms of the AIFM and the Asset Manager remain fair and competitive, and in the best interests of shareholders. In the opinion of the Directors, the continuing appointment of the AIFM and the Asset Manager is in the interests of shareholders as a whole as the AIFM and the Asset Manager have been successfully managing the Company's asset.

Administrator and Depositary

Alter Domus Fund Services (UK) Limited is the administrator and Alter Domus Depositary Services (UK) Limited is the depositary of the Company who were appointed on 26 August 2020.

Review of Service Providers

A review of all service providers was undertaken during the year which concluded that the services provided to the Company were satisfactory and that their continued appointments were in the best interests of the shareholders. Details are provided in the Corporate Governance Statement.

Social, Community and Employee Responsibility

The Company is an externally managed real estate investment trust and has no direct employees. The management of the single asset has been delegated to the Asset Manager who provide the employees that support the Company. The Asset Manager is an equal opportunities employer who respects and seeks to empower each individual and the diverse cultures, perspective, skills and experiences within its workforce.

The Company is not required to produce a statement on slavery and human trafficking pursuant to the Modern Slavery Act 2015 as it does not satisfy all the relevant triggers under that Act that required such a statement. The Company does, however, closely monitor the policies of its suppliers to ensure that proper provision is in place.

The Asset Manager embraces its responsibility in respect of ethical, social and environmental matters. The Asset Manager has policies and practices including a code of ethics, and a commitment to best practice environmental and sustainability policies. In accordance with the Modern Slavery Act 2015, the Asset Manager has made a statement concerning modern slavery and human trafficking. Further information can be found on the Asset Manager's website at www.m7re.eu/company/governance/corporate-social-responsibility/.

Packaged Retail and Insurance-based Investment Products ("PRIIPs")

As the Company is listed on IPSX Wholesale and is not available to retail investors, the PRIIPS regulation does not apply to the Company. The Company is therefore not required to publish a Key Information Document ('KID') on the Company's website.

Environmental, Social, and Governance Policy ("ESG")

The Asset Manager is committed to creating long-term value for investors and adheres to a policy of sustainable and responsible investment. The Asset Manager policy can be found within the Corporate Responsibility area on their website www.m7re.eu/company/governance. Please also refer to the 'Environmental, Social and Governance matters' section.

Internal control review

A report on internal control review is provided in the Corporate Governance Statement.

Internal control assessment process

Robust risk assessments and reviews of internal controls are undertaken regularly in the context of the Group's overall investment objective.

In arriving at its judgement of what risks the Group faces, the Board, through the Audit Committee, has considered the Group's operations in light of the following factors:

§ the nature and extent of risks which it regards as acceptable for the Group to bear within its overall business objective;

§ the threat of such risks becoming reality;

§ the Group's ability to reduce the incidence and impact of risk on its performance;

§ the cost to the Group and benefits related to the review of risk and associated controls of the Group; and

§ the extent to which third parties operate the relevant controls.

A risk register has been produced against which the risks identified and the controls in place to mitigate those risks can be monitored. The risks are assessed on the basis of the likelihood of their occurrence, the impact on the business if they were to occur and the effectiveness of the controls in place to mitigate against them. This risk matrix is reviewed twice a year by the Audit Committee and reported to the Board.

The principal risks that have been identified by the Board are set out in this Annual Report at Principal Risks and Uncertainties section.

The Board reviews financial information produced by the Asset Manager on a monthly basis.

Most functions of the day-to-day management of the Group are outsourced, and the Directors therefore obtain assurances and information from key third-party suppliers regarding the internal systems and controls operated in their respective organisations. In addition, the Asset Manager and the AIFM are requested to provide a copy of their report on internal controls each year, which are reviewed by the Audit Committee.

Financial Risk Management objective policies

The Group financial risk management objectives and policies are discussed in Note 18 of the Consolidated Financial Statements.

Share Capital

At 31 December 2022, and as at the date of this report, there are 84,850,001 Ordinary Shares in issue, none of which are held in treasury.

Business Relationships

The Group aims to foster close and collaborative relationships with both suppliers and customers. How we engage with the relevant stakeholders is covered in the Section 172 report.

Post balance sheet events

Subsequent events are disclosed in Note 21 of the Consolidated Financial Statements.

Substantial shareholdings

Shareholder	Number of Shares	%
M7 Real Estate Investment Partners MB LP acting via its general partner M7 Real Estate Investment Partners MB General Partner Limited	58,361,155	68.78
Warrington Borough Council	10,000,000	11.79
M7 Aggregator Fund LP	4,000,000	4.71
MB HOLDING (MC) LIMITED	3,325,000	3.92

Disclosure of information to auditors

Each of the persons who are Directors at the time of approval of this Directors' Report has confirmed that:

§ so far as that Director is aware, there is no relevant audit information that has not been brought to the attention of the audited Group; and

§ all necessary steps have been taken as a Director in order to be aware of any relevant audit information and to establish that the auditors are aware of that information.

Auditors

The Auditors were re-appointed as auditor in the period and will be proposed for re-appointment at the upcoming AGM. However, reflecting on competitive market conditions, the Audit Committee intend to undertake a re-tendering exercise so the auditor may potentially change for the 2023 financial year.

This report was approved by the Board on 4 September 2023 and signed on its behalf by:

Stephen Barter

Chairman

4 September 2023

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report and the Group and the Company Financial Statements for each financial year which give a true and fair view, in accordance with UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006, of the state of affairs of the Group and of the profit or loss for that period.

In preparing these Consolidated and Company Financial Statements the Directors are required to:

§ select suitable accounting policies and then apply them consistently;

§ make judgments and accounting estimates that are reasonable and prudent;

§ state whether applicable UK adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;

§ assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

§ use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

Website publication

The Directors are responsible for ensuring the annual Group and Company Financial Statements are made available on a website. Financial Statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

On behalf of the Board,

Stephen Barter

Chairman

Independent Auditor's Report to the Members of Mailbox REIT plc

Opinion on the financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2022 and of the Group's loss for the year then ended;

• the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;

• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Mailbox REIT plc (the 'Parent Company' or the 'Company') and its subsidiaries (the 'Group') for the year ended 31 December 2022 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Financial Position, the Company Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Material uncertainty related to going concern

We draw attention to note 2 in the financial statements which indicates that the Group has breached the loan to value covenant on its loan facility as a result of a lender instructed valuation. The Group is in the process of reducing the loan amount to cure the breach, but this has not yet been completed. Uncertainties related to future property valuations could result in a further breach of the loan to value covenant. Additionally, the Group's loan facility matured in January 2023. As stated in note 2, these events or conditions, along with the other matters as set forth in note 2, indicate that a material uncertainty exists that may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

For the reasons set out above and based on our risk assessment, we determined going concern to be a key audit matter.

In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group and the Parent Company's ability to continue to adopt the going concern basis of accounting and our response to the key audit matter included:

· Using our knowledge of the Group and its market sector together with the current economic environment to assess the Directors' identification of the inherent risks to the Group's business and how these might impact the Group's ability to remain a going concern for the going concern period, being the period to September 2024, which is at least 12 months from when the financial statements are authorised for issue;

· Obtaining an understanding of the Directors' process for assessing going concern including an understanding of the key assumptions used;

· We have reviewed the forecasts that support the Directors' going concern assessment and:

o Assessed the Group's forecast cash flows with reference to budgeted and historic performance and challenging the forecast assumptions in comparison to the current performance of the Group;

o Agreed the inputs into the forecasts to supporting documentation for reasonableness based on contractual agreements, where available;

o Agreed the Group's available borrowing facilities and the related covenants to supporting financing documentation and calculations;

· Analysing the sensitivities applied by the Directors' stress testing calculations and challenging the assumptions made using our knowledge of the business and of the current economic climate, to assess the reasonableness of the downside scenarios selected;

· Obtaining covenant calculations and forecast calculations to test for any potential future covenant breaches;

· Reviewing the disclosures in the financial statements relating to going concern to check that the disclosure is consistent with the circumstances;

· Considering the covenant compliance headroom for sensitivity to both future changes in property valuations and the Group's future financial performance;

· Considering board minutes, and evidence obtained throughout the audit and challenged the Directors on the identification of any contradictory information in the forecasts and the resultant impact to the going concern assessment; and

· With regards the breach in the loan to value covenant, we obtained and reviewed the new loan note agreement and bank statements to verify receipts from funds raised and payments to the senior lender to date to cure the breach. Further, for the remaining fund raise, we have obtained a schedule of potential investors and the status of the fund raise for each investor.

In relation to the Parent Company's voluntary reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Overview

Coverage

99% (2021: 99%) of Group profit before tax

100% (2021: 100%) of Group revenue

99% (2021: 99%) of Group total assets

Key audit matters

2022

2021

Going concern

Valuation of Investment property

Materiality

Group financial statements as a whole

£1.66m (2021:£2.02m) based on 1% (2021: 1%) of gross assets

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

The Group operates solely in the United Kingdom, and all audit procedures were performed by the Group audit team. We identified one significant component, in addition to the Parent Company for which full scope audits were performed: The investment property component of the Group - Mailbox (Birmingham) Limited.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. In addition to the matter described in the material uncertainty related to going concern section of our report, we have determined the matter below to be the key audit matter to be communicated. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter

How the scope of our audit addressed the key audit matter

Valuation of investment property

Refer to note 2d and 2f in relation to accounting policies over significant estimates and judgements.

Refer to note 9 in relation to investment property

The Group's investment property comprises the Mailbox Birmingham asset. This property is currently let and has been valued based on the income capitalisation method.

The valuation of investment property requires significant judgement and estimates by the Directors and the independent external valuer Avison Young ("the Valuer") and is therefore considered a significant risk due to the subjective nature of certain assumptions inherent in each valuation.

Any input inaccuracies or unreasonable bases used in the valuation judgements (such as capitalisation yields and future lease income could result in a material misstatement of the investment property asset and therefore the financial statements.

There is also a risk that the Directors may unduly influence the significant judgements and estimates in respect of property valuations in order to achieve property valuation or other performance targets to meet market expectations or other financial targets.

The valuation of investment property was therefore considered to be a key audit matter.

We read the external valuation report, prepared by the Valuer appointed by the Directors and checked that the approaches used were consistent with the requirements of relevant accounting standards.

We assessed the Valuer's competence and capabilities and read their terms of engagement with the Group, to determine that there were no matters that affected their independence and objectivity, including any influence from Directors over the significant judgements and estimates, or imposed scope limitations upon their work.

We checked the data provided to the Valuer by the Group for consistency with the information we audited. This data included inputs such as current rent and lease terms, which we have agreed on a sample basis to executed lease agreements as part of our audit work.

We met with the Valuer and gained an understanding of the valuation methods and assumptions used. We challenged the assumptions utilised by the Valuer within the valuation by benchmarking the valuation to our expectations developed using independent data around the year end.

Key observation:

Based on the procedures performed there was no indication that the estimates and judgements used by the Directors in the valuation of the investment property was inappropriate.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

	Group financial statements		Parent company financial statements
	2022 £m	2021 £m	2022 £m	2021 £m
Materiality	1.66	2.02	0.70	0.82
Basis for determining materiality	1% of gross assets	1% of gross assets	10% of total expenditure	1% of gross assets
Rationale for the benchmark applied	We determined that gross assets would be the most appropriate basis for determining overall materiality as we consider it to be one of the principal considerations for users of the financial statements in assessing the financial performance of the Group.		Although gross assets was considered as a benchmark in 2021, during 2022, the approach was changed and 10% of total expenditure was considered as the benchmark. Since the Company is a holding company, it incurs listing costs while the investment is held at cost therefore total expenditure was considered to be the most appropriate benchmark.
Performance materiality	1.25	1.51	0.52	0.62
Basis for determining performance materiality	75% of materiality		75% of materiality
Rationale for the percentage applied for performance materiality	This was on the basis of our risk assessment, together with our assessment of the Group's overall control environment and our past experience of the audit which has indicated a low number of corrected and uncorrected misstatements in the prior period and Management's willingness to investigate and correct these.		This was on the basis of our risk assessment, together with our assessment of the Parent Company's overall control environment and our past experience of the audit which has indicated a low number of corrected and uncorrected misstatements in the prior period and Management's willingness to investigate and correct these.

Specific materiality

We also determined that for specific items affecting the calculation of EPRA earnings, a misstatement of less than materiality for the financial statements as a whole, specific materiality, could influence the economic decisions of users. As a result, we determined materiality for these items based on 5% of (2021: 5%) net rental income at £547k (2021:423k). We further applied a performance materiality level of 75% (2021:75%) of specific materiality to ensure that the risk of errors exceeding specific materiality was appropriately mitigated.

Component materiality

For the purposes of our Group audit opinion, we set materiality for the significant component of the Group, apart from the Parent Company whose materiality is set out above, based on a percentage of 90% (2021: 90% ) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality was set at £1.5m (2021: £1.8m). In the audit of that component, we further applied a performance materiality level of 75% (2021: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £100,000 (2021:£100,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Corporate governance statement

As the Group has voluntarily adopted the UK Corporate Governance Code 2018, we are required us to review the Directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Parent Company's compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements or our knowledge obtained during the audit.

Going concern and longer-term viability

· The Directors' statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on pages 60 and 61; and

· The Directors' explanation as to its assessment of the Group's prospects, the period this assessment covers and why they period is appropriate set out on page 31.

Other Code provisions

· Directors' statement on fair, balanced and understandable set out on page 47;

· Board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 26 to 30;

· The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 40; and

· The section describing the work of the Audit Committee set out on pages 41 to 43.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.

Strategic report and Directors' report

In our opinion, based on the work undertaken in the course of the audit:

· the information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

· the Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors' report.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

· adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

· the Parent Company financial statements are not in agreement with the accounting records and returns; or

· certain disclosures of Directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

Responsibilities of Directors

As explained more fully in the Directors' responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Non-compliance with laws and regulations

· Through our knowledge of the Group and its sector and obtaining an understanding of the legal and regulatory framework applicable to the Group and the sector in which it operates we considered the risk of acts by the Group that were contrary to applicable laws and regulations, including fraud. We performed our own checks of compliance with relevant laws and regulations including, but not limited to, the applicable accounting framework, the Companies Act 2006, the REIT tax regime requirements and legislation relevant to the rental of properties. We considered the Group's own control environment for monitoring its compliance with laws and regulation and obtained and reviewed their papers on compliance, in addition to performing our own review.

· We understood how the Group is complying with those laws and regulations by making enquiries of management concerning actual and potential litigation and claims.

· Our tests included agreeing the financial statement disclosures to underlying supporting documentation where relevant, review of Board and Committee meeting minutes and any correspondence with regulatory bodies and enquiries with management and the Audit Committee as to their identification of any non-compliance with laws and regulations.

Fraud

· We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur. This included obtaining an understanding of management's procedures relating to detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud. The areas identified were management override of controls, revenue recognition and valuation of investment property which has been addressed in the key audit matters section.

· We addressed the risk of management override of controls, by performing testing on a sample of journals processed during the year and evaluating whether there was evidence of bias in management judgements that represented a risk of material misstatement due to fraud. This included evaluating any management bias within the valuation of investment property, as mentioned under the key audit matters section, which we considered to be subject to the greatest risk of management manipulation.

· The fraud risk around revenue recognition was addressed by inspecting signed lease agreements to recalculate the annual turnover and agreeing cash receipts to bank statement to check the existence of customers and that the annual turnover agreed to that recorded for a sample of tenants.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were deemed to have the appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Richard Levy (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London

United Kingdom

4 September 2023

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2022

	Notes	Year ended 31 December 2022 £'000	Year ended 31 December 2021 £'000


Rental and other income	3	15,758	14,004
Property operating expense	4	(5,430)	(6,022)
Other income		152	798
Net rental and other income		10,480	8,780

Other operating expenses	4	(1,383)	(1,004)
Operating profit before fair value changes		9,097	7,776

Change in fair value of investment properties	9	(36,438)	(35)
Operating (loss)/profit		(27,341)	7,741

Finance income	6	680	-
Finance expense	6	(6,408)	(5,913)
(Loss)/profit before tax		(33,069)	1,828

Taxation	7	(21)	-

Total comprehensive (loss)/income for the year		(33,090)	1,828

(Loss)/earnings per share (pence) (basic and diluted)	8	(39.00)	3.37
Adjusted EPS (pence)	8	4.58	2.21

The accompanying notes form an integral part of these audited Consolidated Financial Statements.

All total comprehensive (loss)/income is attributable to the equity holders of the Company.

Consolidated Statement of Financial Position

As at 31 December 2022

		31 December	31 December
		2022	2021
	Notes	£'000	£'000
Assets
Non-current Assets
Investment property	9	157,000	185,825

Current Assets
Trade and other receivables	10	7,112	5,658
Cash and cash equivalents		1,904	10,046
Derivative financial instruments	11	389	69
		9,405	15,773

Total Assets		166,405	201,598

Liabilities
Non-current Liabilities
Interest bearing loans and borrowings	13	-	107,514

Current Liabilities
Trade and other payables	12	8,930	8,134
Interest bearing loans and borrowings	13	109,494	-
		118,424	8,134

Total Liabilities		118,424	115,648

Net Assets		47,981	85,950

Issued share capital and reserves
Share capital (net of share issue costs)	16	8,386	8,386
Retained earnings		39,595	77,564
Total reserves attributable to equity holders of the Group		47,981	85,950

Net Asset Value per share (pence)	8	56.55	101.30

The accompanying notes form an integral part of these audited Consolidated Financial Statements.

These audited Consolidated Financial Statements of Mailbox REIT plc were approved and authorised for issue by the Board of Directors on 4 September 2023 and signed on its behalf by:

Stephen Barter

Director

4 September 2023

Consolidated Statement of Changes in Equity

For the year ended 31 December 2022

					Total reserves
					attributable
					to equity
		Share	Share	Retained	holders of
		capital	premium	earnings	the Group
	Note	£'000	£'000	£'000	£'000

For the year ended 31 December 2022
Balance as at 1 January 2022		8,386	-	77,564	85,950
Dividends paid	17	-	-	(4,879)	(4,879)
Total comprehensive loss		-	-	(33,090)	(33,090)

Balance as at 31 December 2022		8,386	-	39,595	47,981

For the year ended 31 December 2021
Balance as at 1 January 2021		100	-	(8,245)	(8,145)
Contributions by and distributions to owners
Ordinary shares issued		8,385	75,465	-	83,850
Capital contribution - release from loan with Parent		-	-	10,781	10,781
Cancellation of share premium		-	(75,465)	75,465	-
Share issue costs		(99)	-	-	(99)
Dividends paid	17	-	-	(2,265)	(2,265)
Total comprehensive income		-	-	1,828	1,828

Balance as at 31 December 2021		8,386	-	77,564	85,950

The accompanying notes form an integral part of these audited Consolidated Financial Statements.

Consolidated Statement of Cash Flows

For the year ended 31 December 2022

		Year ended 31 December 2022		Year ended 31 December 2021
	Notes	£'000		£'000
Cash flows from operating activities
(Loss)/profit before tax		(33,069)		1,828

Adjustments for non-cash items:
Bank interest received	6	(4)		-
Interest received from financial instrument	6	(356)		-
Finance expense	6	6,408		5,913
Change in fair value of investment property	9	36,438		35
Change in fair value of financial instruments	16	(320)		-
Amortisation of lease incentives	9	(674)		(1,293)
Reversal of impairment provision on tenant receivables		(152)		(798)
Total adjustments for non-cash items		8,271		5,685

Income tax paid		(5)		-
(Increase)/decrease in trade and other receivables		(1,261)		144
Increase/(decrease) in trade and other payables		1,485		(115)

Net cash generated from operating activities		8,490		5,714

Cash flows from investing activities
Capital expenditure on investment property	9	(7,137)		(2,441)
Lease incentives - capital contributions	9	(548)		(158)

Net cash used in investing activities		(7,685)		(2,599)

Cash flows from financing activities
Proceeds from issue of share capital	16	-		25,850
Share issue costs	16	-		(99)
Loans received from Parent undertakings		-		700
Loans repaid to Parent undertakings		-		(1,723)
Repayment of external borrowings	13	-		(11,500)
Loan arrangement fees		(53)		(2,401)
Bank interest paid	13	(4,070)		(3,313)
Bank interest received		4		-
Interest received from financial instruments	13	51		-
Acquisition of interest rate cap		-		(63)
Dividends paid	17	(4,879)	(2,265)

Net cash (used in)/generated from financing activities		(8,947)		5,186

Net (decrease)/increase in cash and cash equivalents		(8,142)		8,301

Cash and cash equivalents at start of year		10,046		1,745

Cash and cash equivalents at end of year		1,904		10,046

The accompanying notes form an integral part of these audited Consolidated Financial Statements.

Notes to the Consolidated Financial Statements

1. Corporate information

Mailbox REIT plc is a public limited company which was incorporated on 18 March 2020 and is domiciled in the UK and registered in England and Wales. The registered office of the Company is c/o Alter Domus (UK) Limited, 30 Saint Mary Axe, 10th floor, London, EC3A 8BF. The principal activity of the Group is to provide its shareholders with an attractive level of income together with the potential for capital growth by investing in the Property.

On 14 May 2021, the Company was admitted to trading on the International Properties Securities Exchange (www.ipsx.com) on the Wholesale Market.

2. Significant accounting policies

2.1. Basis of preparation

The audited Consolidated Financial Statements of Mailbox REIT plc group have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. Statutory accounts for the year ended 31 December 2022 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The audited Consolidated Financial Statements have been prepared on the historical cost basis, except for investment properties and certain financial instruments which are measured at fair value, as appropriate.

Basis of consolidation

Control

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiary entities are fully consolidated from the date on which control is transferred to the Group, being the date on which the Group gains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Group using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra group transactions are eliminated in full.

Going concern

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in this report. The financial position of the Group, its cash flows, liquidity position and loan facility are described in the audited Consolidated Financial Statements and the accompanying notes.

The Directors have projected the Group's cash flows for the period to 30 September 2024 and beyond, challenging and sensitising inputs and assumptions, giving due consideration to the Group's cash resources, loan facility, rental income, property and other operating costs, capital expenditure and distributions.

The Directors note that the Group's loan facility of £108.5m matured on 20 January 2023 and that two one-year extension options were conditionally able to be utilised. Prior to approving the initial extension, the Group received notification from the lender syndicate that a cure be made in the sum of £27.5m, following a breach in loan to value ("LTV") covenant as a result of a lender-instructed valuation in November 2022. A subsequent reservation of rights letter to formally advise that the loan was in default was later announced on 24 April 2023.

Following receipt of the reservation of rights letter, M7, as Asset Manager to the Group, began raising a loan note of up to £30.0m. This would be used to repay £27.5m of senior debt and give the Group additional working capital of £2.5m. As at the date of signing these financial statements, £7.1m has been raised and subsequently paid down, and £1.5m has been paid out of reserves, reducing the balance of senior debt to £99.9m. Negotiations regarding a formal extension of the senior debt are ongoing and are expected to complete in parallel with the final cure payment. It is currently anticipated that there will be no change to the covenants or covenant levels as a result of the cure or extension.

Notes to the Consolidated Financial Statements (continued)

Going concern (continued)

Looking forward, evaluating the position of debt covenants is of paramount importance:

(i) Considering the debt yield ("DY") covenant, the Group has calculated and stress tested whether there is sufficient headroom above current revenue levels to maintain compliance within this covenant. Acknowledging this, the Group concluded that net revenues would need to drop by 52.2% on current levels to breach the DY covenant. As such, the Directors consider the likelihood of a DY covenant breach unlikely in the twelve months from the date of signing these consolidated financial statements, given the strength and consistency of the income profile.

(ii) Considering the LTV covenant, the cure is expected to reduce the loan facility to £81.0m which would represent an LTV of 60.0% on the lender-instructed valuation. This means that any reduction in valuation would lead to a further breach of the LTV covenant as there is no headroom. At the date of signing these consolidated financial statements, £8.6m of the cure has been paid which leaves an LTV of 74.0% on the lender-instructed valuation. While there is an expectation that the remaining £18.9m will be raised and paid in due course, there is a scenario where the Group is unable to make these payments and the LTV covenant continues to be in default. A continued breach of the LTV covenant would result in further application of default interest and the potential for the lender syndicate to call in the loan.

Moving to the valuation, the Directors consider a further reduction to be unlikely, given the conservative lender valuation from November 2022. It is noted that an independent external valuation, undertaken by Avison Young considered the value of the investment property to be materially higher, at £157.0m. The Directors acknowledge that the ongoing debt negotiations and property valuation are an area of material uncertainty and that future valuations may be influenced by market forces outside of the Group's control that could lead to a reduction in value and subsequent breaches of the LTV covenant.

Having paid due consideration to the Group's forecasts and projections, and the events and conditions discussed above, the Directors acknowledge that a material uncertainty exists that may cast significant doubt on the Group's and Company's ability to continue as a going concern and therefore that it may be unable to realise its assets and discharge its liabilities in the normal course of business. However, reflecting on the continued rent collection rates, the operational strength and financial performance of the asset (as can be seen in the DY covenant) and the ability to continue to servicing debt obligations during a turbulent borrowing market, the Directors continue to adopt the going concern basis of accounting in preparing the audited financial statements of the Company and Group. Therefore, these financial statements do not include adjustments that would be required, should the going concern basis of preparation no longer be appropriate.

New standards, amendments and interpretations

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2021. The Directors have considered all new standards, amendments and interpretations and none are expected to have a material impact on the Group. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

2.2. Critical accounting estimates and judgements

The preparation of financial statements requires the use of critical judgment, estimates and assumptions that affect the application of policies, the going concern position and the reported amount of assets and liabilities, income and expenses. Estimates and assumptions concerning the future, and the accounting results of those estimates will, by definition, rarely equal the related actual results.

i) Valuation of investment property

The Directors appointed Avison Young to perform the independent external valuation of the investment property. The fair value of investment property is determined by external property valuation experts to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. The valuation experts use recognised valuation techniques, applying the principles of both IAS 40 and IFRS 13.

Notes to the Consolidated Financial Statements (continued)

i) Valuation of investment property (continued)

The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors ('RICS') Valuation - Global Standards. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in note 9.

ii) Provision for expected credit losses ('ECL') of trade receivables

In determining the provision on a tenant-by-tenant basis, the Group considers both recent payment history and future expectations of the tenant's ability to pay or possible default in order to recognise an expected credit loss allowance. The Group also considers the risk factors associated by sector in which the tenant operates and the nature of the debt. Based on sector and rent receivable type, a provision is provided in addition to full provision for maximum risk tenants or known issues.

In addition, where the Group has negotiated a concession (such as rent forgiveness) with a tenant, and terms of the concession are considered a lease modification under the scope of IFRS 16, the Group has accounted for these as a new lease from the effective date of the modification. Any write offs of tenant receivables are at the discretion of the Asset Manager.

iii) Principal versus agent considerations - services to tenants

The Group arranges for certain services provided to tenants of investment property included in the contract the Group enters into as a lessor, to be provided by third parties. The Group has determined that it controls the services before they are transferred to tenants, because it has the ability to direct the use of these services and obtain the benefits from them. In making this determination, the Group has considered that it is primarily responsible for fulfilling the promise to provide these specified services because it directly deals with tenants' complaints, and it is primarily responsible for the quality or suitability of the services. In addition, the Group has discretion in establishing the price that it charges to the tenants for the specified services.

Therefore, the Group has concluded that it is the principal in these contracts. In addition, the Group has concluded that it transfers control of these services over time, as services are rendered by the third-party service providers, because this is when tenants receive and, at the same time, consume the benefits from these services.

2.3. Segmental information

Information on Mailbox held by the Group is reported to the chief operating decision maker individually. In the case of the Group, the chief operating decision maker is considered to be the Board of Directors. The internal financial reports received by the Directors do not differ from amounts reported in the financial statements. The Directors have treated Mailbox as one reportable segment under the provisions of IFRS 8.

2.4. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these audited Consolidated Financial Statements are set out below.

a) Functional and presentational currency

The audited Consolidated Financial Statements are presented in Sterling, which is the functional and presentational currency of the Group. The functional currency of the Group and its subsidiaries is principally determined by the primary economic environment in which it operates. The Group did not enter into any transactions in foreign currencies during the period.

b) Revenue recognition

(i) Rental income

Revenue comprises rental income, net of Value Added Tax ("VAT") and is recognised on a straight-line basis over the term of the lease.

Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term and is included in revenue in the Consolidated Statement of Comprehensive Income due to its operating nature, except for contingent rental income which is recognised when it arises.

Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to

Notes to the Consolidated Financial Statements (continued)

(i) Rental income (continued)

continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Where there has been a change in the scope of a lease or the consideration for a lease that was not part of the original terms and conditions of the lease, this is accounted for as a lease modification. This treatment applies to cases where rent reductions have been agreed. Such modifications are accounted for as new leases from the effective date of the modification. Any prepaid or accrued lease payments relating to the original lease at the date of modification are treated as part of the lease payments for the new lease. Future anticipated rental income is spread over the term of the lease on a straight-line basis, giving rise to a rent spreading adjustment in the event that rent is reduced for a period.

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Consolidated Statement of Comprehensive Income when the right to receive them arises.

(iii) Other income

Other income includes the revenue recovered from tenants which was previously a bad debt and hence unrecognised.

(iii) Service charges and direct recharges

Revenue from service charges and direct recharges are recognised in the Consolidated Statement of Comprehensive Income over time in the accounting period in which the service is rendered. For certain service contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously.

The Directors have reviewed the underlying agreements and determined that the Group is a principal under IFRS 15. As a result, the relevant income and expenses relating to service charges and direct recharges have been recognized and presented gross in the audited Consolidated Financial Statements. Please refer to Note 4 for relevant expenses incurred during the year.

(iv) Deferred income

Income received in advance is recognised in the Consolidated Statement of Financial Position as a deferred income liability.

c) Financing income and expenses

Financing income comprises interest receivable on funds invested. Financing expenses comprise interest and other costs incurred in connection with the borrowing of funds. Interest income and interest payable are recognised in profit or loss as they accrue. Interest payable from borrowings are calculated using the effective interest method.

d) Investment property

Investment property comprises completed property and property under construction or redevelopment that is held to earn rental income or for capital appreciation or both. Property held under an operating lease is classified as investment property when it is held to earn rental income or for capital appreciation or both, rather than for sale in the ordinary course of business or for use in production or administrative functions.

Investment property is measured initially at cost including transaction costs. Subsequent to initial recognition, investment property is stated at fair value.

Gains or losses arising from changes in the fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise, including any corresponding tax effect. For the purposes of these audited Consolidated Financial Statements, in order to avoid double counting, the assessed carrying value is adjusted by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments.

Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected. The difference between the net disposal proceeds and the carrying amount of the asset would result in either gains or losses on the retirement or disposal of investment property.

Notes to the Consolidated Financial Statements (continued)

e) Financial assets and liabilities

e.i) Financial assets

The Group classifies its financial assets into one of the categories set out below, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:

(i.i) Fair value through profit or loss

The Group may from time to time use derivative financial instruments such as interest rate caps and swaps to hedge its interest rate risk. Where it does, in the money derivatives and out of the money derivatives where the time value offsets the negative intrinsic value are classified as fair value through profit or loss. They are carried in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the Consolidated Statement of Comprehensive Income in the finance income or costs line.

The Group assets held for trading at fair value through profit or loss comprise the interest rate cap.

The Group does not apply hedge accounting.

(i.ii) Amortised cost

The Group's financial assets measured at amortised cost in the Consolidated Statement of Financial Position comprise trade and other receivables and cash and cash equivalents.

These assets arise principally from the leasing of property to tenants (e.g. rent and service charge receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest method, less provision for impairment. Interest income is recognised in the Consolidated Statement of Comprehensive Income using the effective interest method.

Impairment provisions for rent, service charge and direct recharge receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process, the probability of the non-payment of the rent, service charge and direct recharge receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for these receivables. For the receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within the Consolidated Statement of Comprehensive Income. On confirmation that the rent, service charge or direct recharge receivable will not be collected, the gross carrying value of the asset is written off against the associated provision.

Cash and cash equivalents includes cash in hand and deposits held at call with banks.

e.ii) Financial liabilities

The Group's accounting policy for financial liabilities is outlined below.

Financial liabilities include the following items:

§ Bank borrowings, which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

§ Upon amendment to the terms of bank borrowings, bank borrowings are assessed to be either substantially or non-substantially modified in accordance with IFRS 9. For non-substantial modifications, the liability is restated based on the net present value with a subsequent gain or loss recognised in profit or loss. For substantial modifications, extinguishment accounting is applied with the existing liability derecognised and new or modified liability recognised at fair value. Interest expense is then amortised over the remaining term of the loan at the effective interest rate.

Notes to the Consolidated Financial Statements (continued)

e.ii) Financial liabilities (continued)

§ Trade payables and other short term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

f) Fair value estimations

The Group measures certain financial instruments such as derivatives, and non-financial assets such as investment property, at fair value at the end of each reporting year. In addition, the fair value of financial instruments measured at amortised cost is disclosed in the financial statements.

Fair value is the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants, acting in their economic best interest, at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

§ in the principal market for the asset or liability; or

§ in the absence of a principal market, in the most advantageous market for the asset or liability.

The Group must be able to access the principal or the most advantageous market at the measurement date.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

In determining fair value, the Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available, maximising the use of relevant observable inputs significant to the fair value measurement as a whole. The fair values of financial assets and financial liabilities are determined as follows:

§ the fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices;

§ the fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments; and

§ the fair values of derivative financial instruments are calculated using a discounted cash flow analysis performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

Inputs used in determining fair value measurement are categorised into different levels based on how observable the inputs used are:

§ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;

§ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

§ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the audited Consolidated Financial Statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting year.

§ The fair value of investment properties is determined by using the direct capitalisation approach (yield). Direct capitalisation approach (yield method): This method is based on the relationship between the rate of return an investor requires and net income that a property produces. The estimated rate of return (i.e. the capitalisation rate)

Notes to the Consolidated Financial Statements (continued)

f) Fair value estimations (continued)

is applied to the property's net operating income to form an estimate of the property's value. The most significant input into this valuation is the capitalisation rate which takes into account the location, size and quality of the property valued as well as the market data at the valuation date.

There are inter relationships between unobservable inputs. Expected vacancy rates may impact the yield with higher vacancy rates resulting in higher yields. An increase in the future rental income may be linked with higher costs. If the remaining lease term increases, the yield may decrease.

g) Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred. The Group does not capitalise borrowing costs on qualifying investment properties.

h) Provisions

Provisions are recognised when:

§ the Group has a present legal or constructive obligation as a result of past events;

§ it is probable that an outflow of economic resources will be required to settle the obligation; and

§ the amount can be reliably estimated.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance costs.

i) Dividend payable to shareholders

Equity dividends are recognised when they become legally payable.

j) Share issue costs

The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity.

k) Current and deferred tax

Tax is recognised in the Consolidated Statement of Comprehensive Income, except to the extent that it relates to items recognised directly in other comprehensive income or equity, in which case, the tax is also recognised in other comprehensive income or equity. The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the Consolidated Statement of Financial Position.

The Company is registered in the United Kingdom and was subject to UK corporation tax at a rate of 19%. The Company obtained REIT status on 14 May 2021, from which time any gains or losses arising from property business are exempt from UK corporation tax.

Due to the Group's status as a REIT and the intention to continue meeting the conditions required to retain approval as a REIT in the foreseeable future, the Group has not provided deferred tax on any capital gains and losses arising on the revaluation of the investment property. The Group's subsidiaries are registered in Jersey and Guernsey, Channel Islands and are subject to local taxation at the standard rate of 0%. During the reporting period, Mailbox (Birmingham) Limited made a payment of £21,000 to HMRC for corporation tax relating to the pre-REIT period from 1 January 2021 - 13 May 2021.

l) Capital and reserves

Share capital

Share capital is the nominal amount of the Company's ordinary shares in issue.

3. Rental and other income

	Year ended 31 December 2022	Year ended 31 December 2021
	£'000	£'000

Gross rental income	11,096	8,879
Spreading of tenant incentives - tenant contributions	(136)	(81)
Spreading of tenant incentives - rent free periods	810	1,374
Lease surrender premium	487	-
Dilapidations income	110	73
Other property income	11	13
Total rental and other income before service charge	12,378	10,258

Service charge and direct recharges to tenants (see note 4)*	3,380	3,746
Total rental and other income	15,758	14,004

4. Expenses

		Year ended 31 December 2022		Year ended 31 December 2021
		£'000		£'000

Property operating expenses**	2,015		1,806
Write off of rent receivables	35		470
Service charge and direct recharges to tenants (see note 3)*	3,380		3,746
Total property operating expense	5,430		6,022

Other operating expenses
Operating costs	762		565
Investment management fee	422		261
Directors' remuneration (note 5)	109		102
Auditor remuneration	90		76
Total other operating expenses	1,383		1,004

Total expenses	6,813		7,026
Total expenses (excluding service charges and direct recharges)	3,433		3,280

Audit remuneration
Statutory audit of Annual Financial Report	90		68
Non-audit
Work performed on Initial Public Offering	-		48
Work performed on the half-year report	-		8
Total fees paid to BDO LLP	90		124

* All rental, service charge and direct recharge and other income is derived from the United Kingdom and from external parties. Service charge and direct recharges from tenants in the 2021 financial year includes an equal amount of non-recoverable income and expenditure of £1.02 million which had not been split out separately in the prior year due to materiality.

** Property operating expenses includes £0.2 million in respect of the claim served on M7 Arch Holdco Limited by Royal Arch Management Limited ("RAML"), the residential tenant of the residential block, to cover costs of providing an aesthetic solution to the RAML walkways. Please see Note 21 for further details.

5. Directors' remuneration

	Year ended 31 December 2022	Year ended 31 December 2021
	£'000	£'000

Directors' fees	101	95
Tax and social security	8	7
Total Directors' remuneration	109	102

The Group has no employees. The Non-Executive Directors are considered key management personnel and are disclosed in note 20.

6. Finance income and expenses

	Year ended 31 December 2022	Year ended 31 December 2021
	£'000	£'000

Bank interest received	4	-
Interest received from financial instrument	356	-
Change in fair value of financial instrument (note 11)	320	-
Total finance income	680	-

Interest payable on external loan (note 13)*	(5,125)	(4,239)
Interest payable on loan with Parent	-	(857)
Amortisation of loan issue costs (note 13)	(1,230)	(194)
Loss on loan modification (note 13)	-	(288)
Other finance costs	(53)	(335)
Total finance expenses	(6,408)	(5,913)


Net finance expenses recognised in Consolidated Statement of Comprehensive Income	(5,728)	(5,913)

* Interest payable on external loan is calculated by applying the effective interest rate of 5.35% at year end (31 December 2021: 4.47%. EIR adjustments amounted to an additional interest payable on external loan of £0.45 million (31 December 2021: £0.95 million).

7. Taxation

	Year ended 31 December 2022	Year ended 31 December 2021
	£'000	£'000
Tax charge comprises:
Analysis of tax charge in the year
(Loss)/profit before tax	(33,069)	1,828

Theoretical (tax credit)/tax charge at UK corporation tax standard rate of 19.00% (2021: 19.00%)	(6,283)	347

Non-taxable items	6,565	314
Expenses not deductible	309	77
Income not taxable	25	(119)
Corporate interest restriction	17	273
Utilisation of brought forward losses	-	(506)
Unutilised losses carried forward	62	-
Effects of tax-exempt items under REIT regime	(695)	(386)
Adjustments in respect of prior years	(21)	-
Total	(21)	-

The Group obtained REIT status on 14 May 2021, from which time any gains or losses arising from property business are exempt from UK corporation tax. During the current period, the Group made a £21,000 payment to HMRC for corporation tax relating to the pre-REIT period from 1 January 2021 - 13 May 2021.

Due to the Group's status as a REIT and the intention to continue meeting the conditions required to retain REIT status in the foreseeable future, the Group has not provided deferred tax on any capital gains and losses arising on the revaluation of the investment property.

8. (Loss)/earnings per share and NAV per share

	Year ended 31 December 2022	Year ended 31 December 2021
(Loss)/earnings per share:
Total comprehensive (loss)/income (£'000)	(33,090)	1,828
Weighted average number of shares (Number)	84,850,001	54,296,439
(Loss)/earnings per share (pence) (basic and diluted) *	(39.00)	3.37

Adjusted EPS:
Total comprehensive (loss)/income (£'000)	(33,090)	1,828
Adjustment to total comprehensive (loss)/income:
Change in fair value of investment property (£'000)	36,438	35
Change in fair value of financial instrument (£'000)	(320)	-
Rental income recognised in respect of tenant contributions (£'000)	136	81
Rental income recognised in respect of rent free periods (£'000)	(810)	(1,374)
Amortisation of loan issue costs (£'000)	1,230	194
Loss on loan modification (£'000)	-	288
Non-cash interest expense (£'000)	452	945
Reversal of impairment provision on tenant receivables (£'000)	(152)	(798)
Adjusted earnings (basic and diluted) (£'000)	3,884	1,199
Adjusted EPS (pence) (basic and diluted) **	4.58	2.21

NAV per share:
Net asset value (£'000)	47,981	85,950
Ordinary shares (Number)	84,850,001	84,850,001
NAV per share (pence)	56.55	101.30

* The Group does not have any diluting shares. Earnings per share are calculated by dividing profit/(loss) for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the period. The basic and diluted earnings per share are the same as there are currently no instruments either granted or in issue to dilute the earnings per share figure.

** The adjusted earnings exclude the effect of non-cash items including changes in the fair value of investment property and financial instruments, the straight lining of rental income in respect of rent free periods and tenant contributions deferred, non-cash portion of the interest expense and provisions for impairment on rent receivables. This is a measure used by the Board to assess the level of the Group's dividend payments and is supported by cash flows. This is an Alternative Performance Measure and is not directly comparable to other companies.

9. Investment property

	31 December	31 December
	2022	2021
	£'000	£'000
Investment property
At the beginning of the year	181,455	178,181
Additions and capital improvements	6,391	3,309
Revaluation of investment property	(36,438)	(35)
Fair value of investment property (excluding lease incentives)	151,408	181,455

Movement in lease incentives
Balance at beginning of the year	4,370	2,919
Adjustment to fair value of tenant contributions	548	158
Adjustment to fair value of rent smoothing	674	1,293
Balance at end of the year	5,592	4,370

Total fair value of investment property	157,000	185,825

9.1. Valuation of investment property

The property has five separate uses consisting of offices, retail units, leisure/restaurants, public car park, and other (storage, auto valeting etc.). The property is held on a freehold (four) and long leasehold (one) basis.

The fair value of investment property is determined using the direct capitalisation approach (yield method).

Independent professionally qualified external valuers, Avison Young, have performed the valuation of the investment property. Avison Young are an accredited valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued.

Further information on valuation methodologies applicable to investment property are provided in group note 2.4.f.

9.2. Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity's portfolios of investment properties are:

1) Estimated Rental Value ("ERV"); and

2) Equivalent yield.

Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the yield in isolation would result in a lower/(higher) fair value measurement.

9.2 Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy (continued)

The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the fair value hierarchy of the portfolio of investment property and investments are:

Class	Fair value £'000	Valuation technique	Significant unobservable inputs	Amount/Range

31 December 2022				£13,030,250 5.00% - 15.00%
Investment Property	157,000	Direct capitalisation	ERV Equivalent yield	£13,030,250 5.00% - 15.00%

31 December 2021
Investment Property	185,825	Direct capitalisation	ERV Equivalent yield	£13,514,334 4.25% - 10.00%

Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives.

	31 December 2022
	Change in ERV		Change in equivalent yield
	£'000	£'000	£'000	£'000
Sensitivity Analysis	+10%	-10%	+0.5%	-0.5%
Resulting fair value of investment property	166,094	148,381	146,120	169,542

	31 December 2021
	Change in ERV		Change in equivalent yield
	£'000	£'000	£'000	£'000
Sensitivity Analysis	+10%	-10%	+0.5%	-0.5%
Resulting fair value of investment property	198,484	173,932	170,194	204,605

Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.

10. Trade and other receivables

	31 December	31 December
	2022	2021
	£'000	£'000

Tenant receivables	883	1,244
Less: Provision for impairment of tenant receivables	(41)	(232)
Net tenant receivables	842	1,012

Other receivables	5,668	4,275
Prepayments	602	371
Total	7,112	5,658

Included within other receivables is £4.49 million (31 December 2021: £3.83 million) of cash collected and held with the property's managing agent which does not meet the criteria of cash and cash equivalents.

11. Derivative financial instruments

	31 December	31 December
	2022	2021
	£'000	£'000

Fair value of derivative financial instruments	389	69

The Group does not apply hedge accounting in accordance with IFRS 9. Nevertheless, interest rate caps are part of economic hedge relationships. Interest rate caps are used to fix the interest payments of variable debt instruments. The notional amount of the interest rate cap is £108.50 million with a strike rate of 1.50% with a term ending 20 January 2023 and was entered into on 7 July 2021. The Group has not entered into a new hedging arrangement following the expiry of the interest rate cap.

The Group uses widely recognised valuation models for determining fair values of over-the-counter interest rate caps and forward foreign exchange contracts. The models incorporate various inputs including counterparty and own credit risk, foreign exchange spot and forward rates and interest rate curves.

The valuation of the derivative instrument is performed on a quarterly basis by an external specialist. Significant inputs into models are market observable and are included within Level 2 of the fair value hierarchy.

The fair value gain on financial instruments in the year amounts to £0.32 million (2021: £0.03 million).

12. Trade and other payables

	31 December	31 December
	2022	2021
	£'000	£'000

Deferred income	5,041	4,744
Trade creditors	1,506	1,635
Accruals	1,084	632
VAT payable	888	576
Other creditors	411	547
Total	8,930	8,134

Trade payables are non‑interest bearing and are normally settled on 30 day terms.

13. Interest bearing loans and borrowings

	31 December		31 December
	2022		2021
	£'000		£'000
Principal balance of facility drawn
At the beginning of the year	108,500		120,000
Bank borrowings repaid in the year	-		(11,500)
Total facility drawn	108,500		108,500

Fair value of facility drawn
At the beginning of the year	107,514		120,000
Bank borrowings repaid in the year	-		(11,500)
Less: unamortised loan issue costs*	-		(1,001)
Less: loan issue costs incurred in the year*	-		(2,056)
Plus: loss on loan modification	-		288
Plus: amortisation of loan issue costs*	1,230		194
Plus: effective interest rate adjustments	452		-
Plus: movement in accrued interest	298		1,589
Total fair value of facility drawn	109,494		107,514


Interest bearing loans and borrowings < 1 year		108,500	-
Interest bearing loans and borrowings > 1 year		-	108,500
Total at end of period		108,500	108,500

Interest bearing loans and borrowings are initially recognised at cost but are subsequently measured at amortised cost using the effective interest method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated Statement of Financial Position. The difference between the £108.50 million loan facility outstanding and the £109.49 million fair value of the facility is due to the fair value measurement.

The Group has a £108.50 million loan facility which matured on 20 January 2023. Following the lender valuation in November 2022, the debt has breached the LTV covenant and is in default, requiring a cure of £27.50 million. The Group is in the process of raising a loan note of up to £30.00 million which will primarily be used to cure the default, reducing the LTV to 60.0%. At the date of signing these consolidated financial statements, £7.08 million has been raised and paid down, and £1.50 million has been paid out of reserves, leaving £18.92 million still payable. Following final settlement of the cure, which will reduce the senior debt facility to £81.00 million, an extension with the lender is expected to be agreed.

* Following the loan modification in 2021, the unamortised loan issue costs of £0.8m were crystallised into the fair value of the debt using the effective interest rate ("EIR") method where the balance of initial borrowings are discounted to present value based on fluctuations in the prevailing interest rate. Additional loan issue costs of £2.1m were then incurred as part of the re-financing of which amortisation of £0.76 million was included within interest expense in the 2021 financial year. In the 2022 financial year, amortisation of £1.23 million has been specifically shown separately and the prior year balance has not been adjusted on the basis of materiality.

13. Interest bearing loans and borrowings (continued)

	31 December	31 December
	2022	2021
	£'000	£'000

Reconciliation to cash flows from financing activities
At the beginning of the year	107,514	119,662

Loan repayments	-	(11,500)
Loan issuance costs paid	-	(2,056)
Interest received from financial instrument	51	-
Interest paid	(4,070)	(3,313)
Total changes from financing cash flows	(4,019)	(16,869)

Other changes:
Interest expense**	5,125	4,239
Interest receivable from financial instrument	(356)	-
Loss on loan modification	-	288
Amortisation of loan issue costs*	1,230	194
Total other changes:	5,999	4,721

At the end of the year	109,494	107,514

** Interest expense is calculated by applying an EIR of 5.35% at year end (31 December 2021: 4.47%) less interest paid in the period. EIR adjustments amounted to an additional interest expense of £0.45 million (31 December 2021: £0.95 million).

14. Commitments and contingencies

Operating lease commitments - as lessor

The Group has entered into lease agreements on its property. The commercial property leases typically have remaining lease terms between 1 and 31 years and include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions. Some leases contain options to break before the end of the lease term.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December 2022 are as follows:

	31 December	31 December
	2022	2021
	£'000	£'000

Less than one year	10,311	9,807
One to two years	10,250	9,776
Two to three years	10,065	9,756
Three to four years	8,337	9,631
Four to five years	7,014	7,955
Five to ten years	32,491	32,942
More than ten years	81,431	84,233
Total	159,899	164,100

Contingencies

The Group has provided for certain costs relating to the ongoing RAML dispute for which a stay agreement is currently in effect. Due to the longevity of the dispute, an amount of £0.35 million has been included as a provision in the accounts to recognise legal fees that would potentially be payable should the dispute materialise unfavourably. Further information can be found in Note 21.

15. Investment in subsidiaries

The Company has one wholly owned subsidiary and three indirectly owned subsidiaries as disclosed below:

Name and company number	Country of registration and incorporation	Date of incorporation	Principal activity	Ordinary Shares held	Ownership %

M7 Real Estate Investment Partners MB Holdco Limited Registered number: 129132	Jersey	28-May-19	Holding of property investments via SPVs	81,747,165	100%
M7 Real Estate Investment Partners MB Propco Limited Registered number: 129133	Jersey	28-May-19	Holding of property investments via SPVs	79,985,832	100%
Mailbox (Birmingham) Limited Registered number: 53266	Guernsey	30-Mar-11	Property investment	79,985,831	100%
M7 Real Estate Investment Partners MB Archco Limited Registered number: 130428	Jersey	29-Nov-19	Property investment	2	100%

16. Share capital

	For the year ended 31 December 2022			For the year ended 31 December 2021
	For the year ended 31 December 2022			For the year ended 31 December 2021
		Number of Ordinary Shares			Number of Ordinary Shares
	£'000	Number of Ordinary Shares		£'000	Number of Ordinary Shares
Ordinary Shares issued and fully paid

At the beginning of the year	8,386		84,850,001	100	1,000,001
Additions - £0.10 par value shares	-		-	8,385	83,850,000
Less: Transaction costs arising on share issue	-		-	(99)	-
At the end of the year	8,386		84,850,001	8,386	84,850,001

17. Dividends paid

	31 December	31 December
	2022	2021
	£'000	£'000

Dividends declared in respect of the year
Dividend declared and paid in respect of the quarter ended 31 March 2022 of 1.75p per Ordinary share (2021: nil)	1,485	-

Dividend declared and paid in respect of the quarter ended 30 June 2022 of 1.75p per Ordinary share (2021: 0.92p)	1,485	781

Dividend declared and paid in respect of the quarter ended 30 September 2022 of 0.50p per Ordinary share (2021: 1.75p)	424	1,484

Dividend declared in respect of the quarter ended 31 December 2022 of 0.00p per Ordinary share (2021: 1.75p)	-	1,484

Total dividends declared in respect of the year	3,394	3,749
Dividends payable at year end
Dividend declared in respect of the quarter ended 31 December 2021 of 1.75p per Ordinary share	1,485	(1,484)

Total dividends paid during the year	4,879	2,265

18. Financial risk management and policies

The Group's principal financial liabilities comprise loans and borrowings and trade and other payables. The main purpose of the Group's loans and borrowings is to finance the acquisition, maintenance and improvement of the Group's property. The Group has various financial assets such as trade and other receivables and cash and cash equivalents that arise directly from its operations.

The Group's activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and further risks inherent to investing in investment property. The Group's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Group's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls.

The principal risks facing the Group in the management of its investment property are as follows:

18.1. Market price risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group's market risks in the reporting periods arose from open positions in interest bearing assets and liabilities, to the extent that these positions were exposed to general and specific market movements. Management sets limits on the exposure to interest rate risk that may be accepted, which are monitored on a regular basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

From time to time, the Group may enter into interest rate hedging agreements to manage the interest rate risks arising from the Group's operations and its sources of finance.

18.1. Market price risk (continued)

During the reporting periods the Group was exposed to price risk other than in respect of financial instruments, such as property price risk (which includes property rentals risk when the property is available for let). The Group was exposed to the risk that the revenue from properties and property values may be adversely affected by the general economic climate, local conditions such as oversupply of properties or a reduction in demand for properties in the market in which the Group operates, the attractiveness of the properties to tenants, the quality of the property management, competition from other available properties and increased operating costs (including real estate taxes). The Group manages the risk by monitoring the indicators of market direction and forward planning of investment decisions; where possible, selection of a large and diversified tenant base; review of tenant covenants before new leases are signed; long‑term leases and active credit control process; good relationships with tenants and property managers and active asset management of the properties to control the operating costs and ensure their continuing attractiveness to the market and existing tenants.

The Group does not have any exposure to foreign currencies and therefore is not exposed to foreign exchange risk.

The Group is not exposed to commodity or security price risk.

18.2. Real estate risk

Property investments are illiquid assets and can be difficult to sell, especially if local market conditions are poor. Illiquidity may also result from the absence of an established market for investments, as well as legal or contractual restrictions on resale of such investments.

There can be no certainty regarding the future performance of any of the investment property. The value of any property can go down as well as up.

Real property investments are subject to varying degrees of risk. The yields available from investments in real estate depend on the amount of income generated and expenses incurred from such investments.

There are additional risks in vacant, part vacant, redevelopment and refurbishment situations, although these are not prospective investments for the Group.

These aspects, and their effect on the Group from a going concern perspective are discussed in more detail in the Going Concern policy note 2.1.

18.3. Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group has no significant concentrations of credit risk. During the reporting periods the Group was exposed to credit risks from both its leasing activities and financing activities, including deposits held with banks and financial institutions. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparties.

The Group manages credit risk by requiring tenants to pay rentals in advance. The credit quality of the tenant is assessed at the time of entering into a lease agreement. Outstanding tenants receivables are regularly monitored. Cash balances are held and derivatives are agreed only with financial institutions with high credit ratings. The Group has policies that limit the amount of credit exposure to any financial institution. The utilisation of credit limits is regularly monitored.

All cash deposits are placed with approved counterparties, Royal Bank of Scotland International (credit rating: A) and Barclays (credit rating A+).

18.3 Credit risk (continued)

The table below shows the Group's exposure to credit risk:

	31 December	31 December
	2022	2021
	£'000	£'000

Debtors (excluding prepayments and derivatives)	6,551	5,519
Cash and cash equivalents	1,904	10,046
Total	8,455	15,565

18.4. Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its borrowings. It is the risk the Group will encounter difficulty in meeting its financial obligations as they fall due as the majority of the Group's assets are investment properties and therefore not readily realisable. The Group's objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by quarterly review/ monitoring of forecast and actual cash flows by the Asset Manager and Board of Directors.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and loans. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

The below table summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

Financial liabilities

	On demand	< 3 months	3 to 12 months	1 to 5 years	> 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
2022
Trade and other Payables	-	3,889	-	-	-	3,889
Interest bearing loans and borrowings	-	108,500	-	-	-	108,500
Interest payable on interest bearing loans	-	1,217	-	-	-	1,217
Total	-	113,606	-	-	-	113,606

Financial liabilities (continued)

	On demand	< 3 months	3 to 12 months	1 to 5 years	> 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
2021
Trade and other Payables	-	2,814	-	-	-	2,814
Interest bearing loans and borrowings	-	-	-	108,500	-	108,500
Interest payable on interest bearing loans	-	1,465	2,486	181	-	4,132
Total	-	4,279	2,486	108,681	-	115,446

18.5. Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Prior to their extinguishment, the Group was not exposed to interest rate risk on its intercompany loans as a result of the interest rate being a fixed percentage.

During the reporting period the Group was exposed to interest rate risk on its long-term borrowings (note 13). To mitigate this risk, on 20 July 2021, the Company entered into an Interest Rate Cap ('Cap') hedging agreement with the senior lender which subsequently expired on 20 January 2023 along with the senior debt. The principal balance of the senior debt is now floating which means that the Group is exposed to fluctuations in prevailing SONIA rate. This presents a significant risk to the Group and cash flows are being closely monitored through financial modelling.

The following table demonstrates the sensitivity to a reasonable change in interest rates on loans and borrowings, while holding all other factors constant. In practice, this is unlikely to occur, and changes in some of the factors may be correlated. The analysis is prepared assuming the amount of liability outstanding at the Consolidated Statement of Financial Position date was outstanding for the whole year. With all other variables held constant, the Group's profit before tax is affected through the impact on floating rate borrowings, as follows:

	Increase/ (decrease) in basis points	Effect on profit before tax 2022 £'000	Effect on profit before tax 2021 £'000
Interest basis:
SONIA	-100 bp (2021: -50 bp)	1,085	543
SONIA	-200 bp (2021: -25 bp)	2,170	271
SONIA	+100 bp (2021: +25 bp)	(1,085)	(271)
SONIA	+200 bp (2021: +50 bp)	(2,170)	(543)

19. Capital management

The Group's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

20. Transactions with related parties

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Entities within the same group of entities are also considered related parties, as well as entities under common control.

Asset Manager & Alternative Investment Fund Manager ("AIFM")

M7 Real Estate Ltd was appointed as Asset Manager and M7 Real Estate Financial Services Ltd was appointed AIFM on 22 September 2020. The Asset Manager and the AIFM are related to the Group by virtue of common ownership. Total fees of £422,000 (2021: £261,000) were accrued for the Asset Manager and AIFM during the period and remain unpaid.

Directors

Directors of the Group are considered to be the key management personnel. Directors' remuneration is disclosed in Note 5. The Directors hold 55,000 (2021: 55,000) shares in the Company with which they collectively received dividends during the year of £3,163 (2021: £1,468).

21. Events after reporting date

Debt extension

Following a lender valuation in January 2023, the debt has breached the LTV covenant and is in default, requiring a cure of £27.50 million. The Group is in the process of raising a loan note of up to £30.00 million which will primarily be used to cure the default, reducing the LTV to 60.0%. At the date of signing these consolidated financial statements, £7.08 million has been raised and paid down, and £1.50 million has been paid out of reserves, leaving £18.92 million still payable. Following final settlement of the cure, which will reduce the senior debt facility to £81.00 million, an extension with the lender is expected to be agreed.

RAML legal dispute

A long lease has been granted to RAML in connection with the 144 residential apartment development at roof level. Under the terms of the lease, the lessee is required, at its own expense, to keep the area demised under the terms of the lease in full repair. A number of apartments beneath these roof terraces have suffered damage resulting from rainwater ingress. The Group maintains that the demise includes certain "roof terraces" and the lessee has claimed that such roof terraces are outside of the demise and they are therefore not responsible for bearing the cost of repairs to the apartments. The lessee has also claimed that the lease requires the Group to take responsibility for the repair and replacement of the failed surface of the walkways which sit above the commercial areas which the Group denies. The Group's position is supported by opinions from Leading Counsel.

Proceedings were begun by RAML in Spring 2021. A stay of those proceedings was negotiated in September 2021 to enable the parties to try and reach a resolution through mediation channels. Despite both parties progressing resolution discussions, in March 2022, the lessee decided to cease discussions and proceed to court. However, satisfied that investigations would be undertaken to try to establish the cause of water damage to the surface of the walkways covering the commercial areas, the stay was reinstated until December 2022. No active steps have been taken by RAML to progress the claim since expiry of the stay.

Recently, RAML has indicated that it wishes to amend the basis of its claim in relation to the failed surface of the walkways. A limitation standstill agreement in relation to such amendment has been put in place while investigations continue into the underlying cause of the failure. These investigations are essential to determine where liability for the failure may lie.

IPSX

The International Property Securities Exchange ("IPSX"), the market on which the shares in the Company are quoted and traded, has started winding down operations. IPSX states that it has sufficient capital for an orderly wind-down, anticipating this to take several months and will continue trading through the wind-down period.

The Board, in consultation with its Asset and Investment Manager and its Corporate Broker, is in discussions with an alternative platform to move the shares of the Company to and expects to make a final decision shortly. A further announcement regarding the new trading and listing venue will be made in due course.

Company Statement of Financial Position

As at 31 December 2022

		31 December	31 December
		2022	2021
	Notes	£'000	£'000
Assets
Non-current Assets
Investments in subsidiary companies	3	48,063	81,797

Current Assets
Trade and other receivables	4	220	101
Cash and cash equivalents		164	453
		384	554

Total Assets		48,447	82,351

Liabilities
Current Liabilities
Trade and other payables	5	444	604


Net Assets		48,003	81,747

Issued share capital and reserves
Share capital (net of share issue costs)	6	8,386	8,386
Retained earnings		39,617	73,361
Total reserves attributable to equity holders of the Group		48,003	81,747

In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income in these financial statements. The Company results for the year include a loss after tax of £28.9 million (2021: £1.6 million) which is dealt within the Consolidated Financial Statements of the Group.

The accompanying notes form an integral part of these financial statements.

The financial statements of Mailbox REIT plc were approved and authorised for issue by the Board of Directors on 4 September 2023 and signed on its behalf by:

Stephen Barter

Director

4 September 2023

Company Statement of Changes in Equity

For the year ended 31 December 2022

				Total reserves
				attributable
				to equity
	Share	Share	Retained	holders of
	capital	premium	earnings	the Group
	£'000	£'000	£'000	£'000

For the year ended 31 December 2022
Balance as at 1 January 2022	8,386	-	73,361	81,747
Ordinary shares issued	-	-	-	-
Cancellation of share premium	-	-	-	-
Dividends paid	-	-	(4,879)	(4,879)
Share issue costs - current year	-	-	-	-
Total comprehensive loss	-	-	(28,865)	(28,865)

Balance as at 31 December 2022	8,386	-	39,617	48,003

For the period ended 31 December 2021
Balance as at 1 January 2021	100	-	(1,474)	(1,374)
Ordinary shares issued	8,385	75,465	-	83,850
Cancellation of share premium	-	(75,465)	75,465	-
Dividends paid	-	-	(2,265)	(2,265)
Share issue costs - current year	(99)	-	-	(99)
Total comprehensive income	-	-	1,635	1,635

Balance as at 31 December 2021	8,386	-	73,361	81,747

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements

1. Corporate information

The Company is a public limited company and incorporated on 18 March 2020 and domiciled in the UK and is registered in England and Wales. The registered office of the Company is located at 10^th floor, 30 St Mary Axe, London, EC3A 8BF, United Kingdom.

The Company is the ultimate parent company of its subsidiaries listed in the Group note 15. Its primary activity is to hold shares in subsidiary companies.

On 14 May 2021, the Company was admitted to trading on the IPSX (www.ipsx.com) on the Wholesale Market with 84.85 million shares in issue.

2. Significant accounting policies

2.1. Basis of preparation

These Company financial statements are prepared and approved by the Directors in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101").

In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of international accounting standards in conformity with the requirements of the Companies Act 2006 ("Adopted IFRSs"), but makes amendments where necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.

The financial statements have been prepared on the historical cost basis.

The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000), except when otherwise indicated.

The financial statements of the Company follow the accounting policies of the Group laid out in the Notes to the Consolidated Financial Statements.

For an assessment of going concern refer to the accounting policy 2.1 of the Group.

The current period is for the year to 31 December 2022 and the comparative period is for the year to 31 December 2021.

Financial reporting standard 101 - reduced disclosure exemptions

The Company has taken advantage of the following disclosure exemptions under FRS 101:

§ the requirements of IFRS 7 Financial Instruments: Disclosures;

§ the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134-136 of IAS 1 Presentation of Financial Statements;

§ the requirements of IAS 7 Statement of Cash Flows;

§ the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;

§ the requirements of paragraph 17 and 18A of IAS 24 Related Party Disclosures;

§ the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and

§ the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)-134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets.

Investments in Subsidiary Companies

Investments in subsidiary companies which are all 100% owned by the Company are included in the Statement of Financial Position at cost less provision for impairment.

2. Significant accounting policies (continued)

Impairment of non-financial assets

The carrying amounts of the Company's investment in subsidiaries are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell.

An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiary entities are fully consolidated from the date on which control is transferred to the Group, being the date on which the Group gains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the Group using consistent accounting policies. All intra group balances, transactions and unrealised gains and losses resulting from intra group transactions are eliminated in full.

3. Investments in subsidiary companies

	31 December	31 December
	2022	2021
	£'000	£'000

Opening balance	81,797	50
Investment in subsidiary companies - additions	-	81,747
Impairment of investment in subsidiaries	(33,734)	-
Closing balance	48,063	81,797

The Directors have considered the recoverability of investments in subsidiary companies by comparing the carrying value of the investment to the net asset value of the subsidiary. The Directors consider the net asset value of the subsidiary to be a reliable proxy to the recoverable amount as the investment property held by the Group are carried at fair value. As the net asset value of the subsidiary was below the carried amount of the investment, an impairment of £33.7 million has been recognised in the year.

4. Trade and other receivables

	31 December	31 December
	2022	2021
	£'000	£'000

Intercompany loans due from group undertakings	202	66
VAT receivable	16	13
Prepayments	2	22
Total	220	101

5. Trade and other payables

	31 December	31 December
	2022	2021
	£'000	£'000

Other payables	-	296
Trade payables	217	182
Accruals	227	126
Total	444	604

Trade payables are non‑interest bearing and are normally settled on 30 day terms. Amounts due to parent are unsecured, interest free and repayable on demand.

6. Share capital

	For the year ended 31 December 2022			For the year ended 31 December 2021
	For the year ended 31 December 2022			For the year ended 31 December 2021
		Number of Ordinary Shares			Number of Ordinary Shares
	£'000	Number of Ordinary Shares		£'000	Number of Ordinary Shares
Ordinary Shares issued and fully paid

At the beginning of the year	8,386		84,850,001	100		1,000,001
Additions - £0.10 par value shares	-		-	8,385		83,850,000
Less: Transaction costs arising on share issue	-		-	(99)		-
At the end of the year	8,386		84,850,001	8,386		84,850,001

7. Share premium

	31 December	31 December
	2022	2021
	£'000	£'000

At the beginning of the year	-	-
Share issue	-	75,465
Cancellation of share premium	-	(75,465)
At the end of the year	-	-

8. Events after the reporting date

There are no post balance sheet events for the Company.

Appendix 1. Alternative Performance Measure Calculations (unaudited)

APMs are numerical measures of the Group's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Group's applicable financial framework is IFRS. The Directors assess the Group's performance against a range of criteria which are reviewed as particularly relevant for a closed-end REIT.

Dividend cover

The ratio of Group's Adjusted EPS divided by the Group's dividends payable for the relevant year.

		Year ended 31 December 2022	Year ended 31 December 2021
		£'000	£'000

Adjusted EPS (note 8)	A	4.58	2.21
Dividend per share*	B	4.00	4.42
Dividend cover	A/B	114.50%	50.00%

LTV

LTV measures the value of loans and borrowings utilised (before adjustments for issue costs) expressed as a percentage of the combined valuation of the property (as provided by the independent external valuer).

		31 December 2022 £'000	31 December 2021 £'000

Borrowings (note 13)	A	108,500	108,500
Property value (note 9)	B	157,000	185,825
LTV	A/B	69.11%	58.39%

Ongoing charges

Ongoing charges compares non-property related operating expenses against the Net Assets of the Company to show a percentage of annual costs that aren't directly related to the income generation of the property.

		31 December 2022	31 December 2021
		£'000	£'000

Operating expenses	A	1,383	1,004
Net Assets	B	47,981	85,950
Ongoing charges ratio	A/B	2.88%	1.17%

* £3.36 million declared with respect to the year divided by total number of shares (84.85 million)

Share Information	Total Voting Rights: 84,850,001 SEDOL Number: BM9BWM3 ISIN Number: GB00BM9BWM32 Ticker/TIDM: MBOX
Share Prices	The Company's Ordinary Shares are traded on the Wholesale Market of the International Property Securities Exchange ("IPSX")
Directors	Stephen Barter (Independent Non-Executive Chairman) Mickola Wilson (Independent Non-Executive Director) Ian Womack (Non-Independent Non-Executive Director)
Company secretary	Alter Domus (UK) Limited 10th Floor, 30 St Mary Axe, London, EC3A 8BF, United Kingdom
Company number	12524041
Registered office	c/o Alter Domus (UK) Limited 10th Floor, 30 St Mary Axe, London, EC3A 8BF, United Kingdom
Alternative Investment Fund Manager	M7 Real Estate Financial Services Limited 10 Queen Street Place, London, United Kingdom, EC4R 1AG
Asset Manager	M7 Real Estate Limited 10 Queen Street Place, London, United Kingdom, EC4R 1AG
Communications Consultant	FTI Consulting LLP 200 Aldersgate, Aldersgate Street, London EC1A 4HD
Registrar	Equiniti Limited Aspect House, Spencer Road, Lancing, West Sussex, United Kingdom, BN99 6DA Helpline: 0371-384-2030 (UK) and +44(0)121-415-7047 (Overseas) Lines are open Monday - Friday 8.30am - 5.30pm, excluding UK Bank Holidays. Website: www.shareview.co.uk
Independent auditors	BDO LLP 55 Baker Street, London, W1U 7EU
Valuer	Avison Young (UK) Limited 3 Brindley Place, Birmingham B1 2JB
Property Manager	Jones Lang LaSalle Limited 45 Church Street, Birmingham, United Kingdom B3 2RT
Depositary	Alter Domus Depositary Services (UK) Limited 10th Floor, 30 St Mary Axe, London, EC3A 8BF, United Kingdom
Administrator	Alter Domus Fund Services (UK) Limited 10th Floor, 30 St Mary Axe, London, EC3A 8BF, United Kingdom
IPSX Lead Adviser and Broker	WH Ireland Limited 24 Martin Lane London EC4R 0DR
Legal Adviser	Simmons & Simmons LLP One Ropemaker Street London EC2Y 9SS
Property	Mailbox Birmingham, an office-led mixed-use asset located at Royal Mail St, Birmingham, United Kingdom, B1 1RS
Company website	https://www.themailboxreit.com