CO2 GRO Inc. - Management Reports 2022

PADLOCK PARTNERS UK FUND II

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

FOR THE PERIOD FROM APRIL 16, 2021 (DATE OF FORMATION) TO DECEMBER 31, 2021

APRIL 25, 2022

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following management’s discussion and analysis (“ MD&A ”) of the financial results of Padlock Partners UK Fund II (the “ Trust ”) and its subsidiaries, dated April 25, 2022 for the period from April 16, 2021 (date of formation) to December 31, 2021 should be read in conjunction with the Trust’s audited consolidated financial statements for the same period (the “ Trust’s Audited Financial Statements ”) and accompanying notes for the period. Additional information relating to the Trust can be found on the Trust’s issuer profile at www.sedar.com.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this MD&A constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information is provided for the purposes of assisting the reader in understanding the Trust’s financial performance, financial position and cash flows as at and for the periods ended on certain dates and to present information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information may relate to future results, performance, achievements, events, prospects or opportunities for the Trust or the real estate industry and may include statements regarding the financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, occupancy levels, taxes, and plans and objectives of or involving the Trust. Particularly, matters described as “Future Outlook” are forward-looking information. In some cases, forwardlooking information can be identified by terms such as “may”, “might”, “will”, “could”, “should”, “would”, “occur”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “seek”, “aim”, “estimate”, “target”, “goal”, “project”, “predict”, “forecast”, “potential”, “continue”, “likely”, “schedule”, or the negative thereof or other similar expressions concerning matters that are not historical facts.

Forward-looking information necessarily involves known and unknown risks and uncertainties, which may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, assumptions may not be correct and objectives, strategic goals and priorities may not be achieved. A variety of factors, many of which are beyond the Trust’s control, affect the operations, performance and results of the Trust and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results.

Information contained in forward-looking information is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management’s perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances, including the following: the inventory of self-storage and mixed-use properties in the United Kingdom (the “ UK ”); the timing of any improvements or fit-outs of the properties of the Trust; the terms of the new lease with the existing tenant of the Brentwood Property (as defined herein), the terms of the deferred consideration payable by the Buyer in connection with the Newmarket Loan Facility (each as defined herein), the departure of the existing tenant of the Brentwood Property, the availability of properties for acquisition and the price at which such properties may be acquired; the availability of mortgage financing and current interest rates; the extent of competition for properties; assumptions about the markets in which the Trust operates; the ability of Padlock Capital Partners II, LLC (the “ UK Manager ”), the UK manager of the Trust, to manage and operate the properties; the global and UK economic environment; foreign conflict; foreign currency exchange rates; and governmental regulations or tax laws.

Although the Trust believes the expectations reflected in such forward-looking information are reasonable and represent the Trust’s projections, expectations and beliefs at this time, such information involves known and unknown risks and uncertainties which may cause the Trust’s actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking information. Important factors that could cause actual results to differ materially from the Trust’s expectations include, among other things, the availability of suitable properties for purchase by the Trust, the availability of mortgage financing for such properties, the availability of mortgage refinancing for the Trust’s existing properties, and general economic and market factors, including interest rates, business competition and changes in government regulations or in tax laws. See “Risks and Uncertainties”. The reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking information, as there can be no assurance that actual results will be consistent with such forward-looking information.

The forward-looking information included in this MD&A relate only to events or information as of the date on which the statements are made in this MD&A. Except as specifically required by applicable Canadian securities law, the Trust undertakes no obligation to update or revise publicly any forward-looking information, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

BASIS OF PRESENTATION

The Trust’s Audited Financial Statements have been prepared in accordance with International Financial Reporting Standards (“ IFRS ”). Unless otherwise stated, amounts expressed in this MD&A are in UK pound sterling (£). The Trust’s Audited Financial Statements represent the activity and financial position of the Trust and its controlled subsidiaries. The Trust’s Audited Financial Statements are presented on a consolidated basis with any intercompany activity eliminated in accordance with IFRS.

NON-IFRS MEASURES

In this MD&A, the Trust uses certain non-IFRS financial measures, which include weighted average net achieved rent per square foot per annum (“ weighted average net achieved rent PSF PA ”) and net operating income (“ NOI ”). These terms are not measures recognized under IFRS as prescribed by the International Accounting Standards, do not have standardized meanings prescribed by IFRS and should not be compared to or construed as alternatives to net income and comprehensive income, profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Weighted average rate PSF PA and NOI, as computed by the Trust, may not be comparable to similar measures as reported by other trusts or companies in similar or different industries. The Trust uses these measures to better assess the Trust’s underlying performance and provides these additional measures so that investors may do the same. The IFRS measurement most directly comparable to NOI is net income. NOI should not be construed as alternatives to net income or cash flow from operating activities, determined in accordance with IFRS as indicators of the Trust’s performance.

Weighted average net achieved rent PSF PA is defined as Rental revenue for the period divided by average occupied square footage over the respective period, then annualized.

NOI is defined as all property revenue (Rental revenue and Ancillary fees and charges), less direct property operating costs such as utilities, supplies, local property taxes (i.e. business rate charge by the local council), repairs and maintenance, on-site salaries, bad debt expenses, rent and other property specific administrative costs. NOI is presented in this MD&A because management of the Trust considers this non-IFRS measure to be an important measure of operating performance and uses this measure to assess the Trust’s property operating performance on an unlevered basis.

For reconciliations of NOI and weighted average net achieved rent PSF PA to their respective nearest IFRS measures, refer to the “Financial Performance” section of this MD&A.

BUSINESS OVERVIEW, OBJECTIVES, STRATEGY AND PORTFOLIO SUMMARY

The Trust is an unincorporated investment trust established under and governed by the laws of the Province of Ontario pursuant to a declaration of trust dated April 16, 2021, as amended and restated on May 25, 2021 (the “ Declaration of Trust ”). The registered and head office of the Trust is located at 199 Bay Street, Suite 4000, Commerce Court West, Toronto, Ontario, Canada, M5L 1A9. The Trust was established for the primary purpose of indirectly acquiring, owning and operating a portfolio primarily comprised of value-add, income producing self-storage and mixed use real estate properties in the UK. The Trust is managed by Clear Sky Capital Inc. (the “ Canadian Manager ”) and the UK Manager (collectively, the “ Managers ”), whose address is 2398 E Camelback Rd, Suite 615, Phoenix, AZ 85016 and telephone number is 1 (877) 643-1257.

The beneficial interest in the net assets and net income of the Trust is divided into four classes of units (the “ Units ”). The Class A Units, Class F Units and Class C Units are denominated in Canadian dollars and Class U Units are denominated in UK pound sterling. All of the Units are unlisted. As of the date of this MD&A, the Trust had 2,452,540 Class A Units, 409,450 Class F Units, nil Class C Units, and 302,550 Class U Units issued and outstanding

Investment Objectives

The Trust’s investment objectives are to:

(a) provide holders of Units (“ Unitholders ”) with an opportunity to invest in a portfolio of diversified incomeproducing commercial real estate properties in the UK, with a particular focus on self-storage and mixeduse properties;
(b) provide Unitholders with sustainable and growing quarterly cash distributions; and
(c) enhance the potential for long-term growth of capital through rental escalations in tenant leases, acquisition and conversion opportunities from the Trust’s unique position in the market, and a liquidity event by way of an exit into the public markets or other transaction.

Investment Strategy

The Trust was established for the purposes of sourcing and acquiring:

(a) existing self-storage assets that are held by owners that lack the capital, patience or expertise to improve cash flow and value;
(b) existing value-add multi-purpose assets through lease or purchase and improve cash flow and value through the appropriate use of capital, patience and expertise; and
(c) vacant and/or under-utilized industrial and commercial assets, obtain necessary titles to such assets, substantially improve such assets and reposition such assets through lease-up processes and marketing.

Investment Restrictions

The Trust is subject to certain restrictions and practices contained in securities legislation. In addition, the Trust is subject to the following investment restrictions which limit the assets that the Trust can invest in:

(i) the Trust may only invest, directly or indirectly, in interests (including fee ownership and leasehold interests) in commercial real estate properties located in the UK, with a focus on self-storage and mixeduse properties (i.e. a property with self-storage, retail and multifamily components) and assets ancillary thereto necessary for the operation of such real estate and such other activities as are consistent with the other investment restrictions;
(ii) the Trust may invest, directly or indirectly, in vacant land and development properties located in the UK where such investment is made for the purpose of developing new self-storage and mixed-use facilities and assets ancillary thereto necessary for the operation of such real estate and such other activities as are consistent with the other investment restrictions;
(iii) the Trust may, directly or indirectly, invest in a joint venture arrangement for the purposes of owning interests or investments otherwise permitted to be held by the Trust, including, for greater certainty, joint venture arrangements with affiliates of Clear Sky Capital Inc. (“ Clear Sky ”); provided that such joint venture arrangement contains terms and conditions which, in the opinion of the trustees of the Trust (the “ Trustees ”), are commercially reasonable, including without limitation such terms and conditions relating to restrictions on the transfer, acquisition and sale of the Trust’s and any joint venturer’s interest in the joint venture arrangement, provisions to provide liquidity to the Trust, provisions to limit the liability of the Trust and its Unitholders to third parties, and provisions to provide for the participation of the Trust in the management of the joint venture arrangement. For purposes hereof, a “joint venture arrangement” is an arrangement between the Trust and one or more other persons (including, for greater certainty, affiliates of Clear Sky) pursuant to which the Trust, directly or indirectly, conducts an undertaking for one or more of the purposes set out in the investment guidelines of the Trust and in respect of which the Trust may hold its
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interest jointly or in common or in another manner with others either directly or through the ownership of securities of a corporation or other entity;

(iv) except for temporary investments held in cash, deposits with a Canadian chartered bank or trust company registered under the laws of a province of Canada or a UK chartered bank, short-term government debt securities or money market instruments maturing prior to one year from the date of issue and except as permitted pursuant to the investment restrictions and operating policies of the Trust, the Trust may not hold securities of a person other than to the extent such securities would constitute an investment in real property (as determined by the Trustees);
(v) the Trust shall not invest in rights to or interests in mineral or other natural resources, including oil or gas, except as incidental to an investment in real property;
(vi) the Trust shall not invest, directly or indirectly, in properties whose primary business is that of a hotel, retirement home or senior care facility;
(vii)notwithstanding anything else contained in the Declaration of Trust, the Trust shall not make any investment, take any action or omit to take any action that would result in the Trust not qualifying, at all times, as a “unit trust” and a “mutual fund trust” within the meaning of the Income Tax Act (Canada) (“ Tax Act ”);
(viii) notwithstanding anything else contained in this Declaration of Trust, the Trust shall not, and shall not permit any of its subsidiaries to, make any investment, take any action or omit to take any action that would result in the Trust or any subsidiary being a SIFT or result in the Trust holding any “non-portfolio property”, as defined in the Tax Act;
(ix) notwithstanding anything else contained in this Declaration of Trust, the Trust shall not any time hold any property that is “taxable Canadian property” within the meaning of the Tax Act;
(x) the Trust shall not invest more than 10% of Investable Funds (as such term is defined in the Trust’s final prospectus dated May 25, 2021 (the “ Prospectus ”)) in securities of a publicly traded entity;
(xi) the purchase price for any one property acquired by the Trust shall not exceed the greater of £12 million (less any debt obligations) and 10% of the Net Asset Value (as such term is defined in the Prospectus) of the Trust; and
(xii)if the Trust invests, directly or indirectly, in securities of an issuer managed by a Clear Sky entity, there will be no duplication of fees chargeable in connection with such investment.

Portfolio Summary

As at December 31, 2021, the Trust indirectly owned two properties (the “ Properties ”) located in the UK: (i) the Huntingdon Property and the Brentwood Property (each as defined herein). The Newmarket Property (as defined herein) was acquired by the Trust on March 31, 2022 subsequent to the financial year ended December 31, 2021. See “Subsequent Events” in this MD&A.

Property	Location	Primary Market	Rentable area (Sq Ft)	Property Type	Asset Type	Date Acquired
Huntingdon	Huntingdon, England, UK	London Adjacent	52,291	Self-Storage	Freehold	6/10/2021
Brentwood	Brentwood, England, UK	London Adjacent	43,417	Self-Storage	Freehold	6/25/2021
Newmarket	Newmarket, England, UK	London Adjacent	7,410	Self-Storage	Freehold	3/31/2022

Huntingdon

Huntingdon (the “ Huntingdon Property ”) was indirectly acquired by the Trust via a purchase of the shares of the controlling company.

The Huntingdon Property was converted from an existing warehouse into a self-storage facility in late 2019 and currently consists of warehouse, bulk, drive up, parking and interior self-storage units totaling 52,291 rentable square feet on a 1.235-acre site.

The Trust’s plans to add 7,487 net rentable square feet of new storage space is proceeding as expected and on schedule. The additional units have started to become available for lease up and are expected to be complete in Q3 2022. Occupancy for the Huntingdon Property, as of December 31, 2021, was 70.6% as compared to 74.2% as of September 30, 2021. Rental rates have increased from £11.91 per net rentable square feet at September 30, 2021 to £12.84 at December 31, 2021. In addition, the ancillary sales program has been implemented, including tenant insurance and merchandise sales which has grown substantially. The Huntingdon Property has achieved its highest quarter since acquisition in total income, with a 13% increase from the three months ended September 30, 2021. This is a result of higher rental rates and higher tenant insurance revenue. Going forward, the focus will be on improving occupancy, increasing rental rates and finalizing the bulk/warehouse space fit out.

Brentwood

Brentwood (the “ Brentwood Property ”) was indirectly acquired by the Trust via a purchase of the shares of the controlling company. The Brentwood Property was originally going to be acquired by an affiliate of Clear Sky. However, it was determined the affiliate of Clear Sky had insufficient funding to acquire and develop the Brentwood Property. As a result, the purchase agreement was assigned to the UK Manager with the expectation of transferring it to a subsidiary of the Trust upon successful completion of the Trust’s initial public offering (the “ IPO ”). Subsequent to the closing of the IPO, the affiliate of the UK manager transferred its right in the purchase agreement to the Trust and on June 25, 2021, the Trust indirectly closed on the acquisition of the Brentwood Property.

The Brentwood Property is located within the London MSA, just off the M25 and A12 motorways. Brentwood is an upscale community just northeast of central London. The Brentwood Property consists of a modern warehouse and offices currently totaling 43,417 square feet with a self-contained, secure yard with 29 parking spaces. Upon closing, the seller of the Brentwood Property signed a lease to “lease back” the Brentwood Property until December 31, 2021 at a rate of £275,000 per annum. The applicable tenant planned to move into its newly constructed warehouse by the end of 2021. However, in October 2021, the Trust was informed the tenant’s new warehouse construction was significantly delayed and they wished to remain on the Brentwood Property for a longer period of time. The Trust secured a lease extension which doubled the rent (to £550k per annum) for the first 4 months of 2022. The base rent would be increased even further to £750k per annum should they need to remain for an additional 4 months through August 2022. The Trust expects the tenant will vacate in Q2 2022 as their new warehouse construction is 85% completed.

Upon expiration of the lease, the Trust plans to fit out the current warehouse to develop a 53,000 square foot Class “A” facility in two phases. Management expects the first phase to be completed in Q4 2022, which enables the Brentwood Property to begin lease up while the second phase of the construction commences. To prepare for the development of the Brentwood Property, the Trust has secured materials, supplies, and necessary planning for the site conversion.

Newmarket

The Newmarket Property is a recently developed self-storage property that is located in an affluent suburban market approximately 50 miles northeast of London with no self-storage supply in the 1, 3, and 5 mile radii. On June 24, 2021 the completion of the warehouse being constructed on the Newmarket Property was completed. The office at the Newmarket Property was also completed during the financial year ended December 31, 2021. The indirect acquisition by the Trust of the Newmarket Property was completed on March 31, 2022. See “Subsequent Events” in this MD&A.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

This section includes highlights of the financial and operational performance of the Trust as at and for the period from April 16, 2021 (date of formation) to December 31, 2021 (the “ Reporting Period ”). Given the formation of the Trust was completed on April 16, 2021, there are no comparative operational results for this initial reporting period.

Initial Period Highlights

The Trust’s Rental revenue and Ancillary fees and charges combined totaled £408,107
The Trust had NOI[(1)] and Net income and comprehensive income of £246,192 and £126,787, respectively over the Reporting Period.
As calculated for the quarter ended December 31, 2021, the weighted average net achieved rent PSF PA[(1) ] across the properties was as follows:
Huntingdon: £12.70
Brentwood: £6.27
On June 8, 2021, the Trust completed the IPO and raised gross proceeds of C$33,800,000.
On June 10, 2021 the Trust completed its indirect acquisition of a freehold interest in Huntingdon for a purchase price of £5,125,000. The purchase price was satisfied using a portion of the net proceeds from the IPO.
On June 25, 2021 the Trust completed its indirect acquisition of a freehold interest in the Brentwood Property for a purchase price of £5,100,000. The purchase price was satisfied using a portion of the net proceeds from the IPO.

Note:

(1) Non-IFRS measure that does not have a standard meaning and may not be comparable with other industries or issuers. This data should be read in conjunction with the “Non-IFRS Measures” section of this MD&A. Please refer to the reconciliation of this Non-IFRS measure in the “Financial Performance” section of this MD&A.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Uncertain economic conditions resulting from the ongoing COVID-19 pandemic (including any variants thereto) or any escalation in the severity thereof may, in the short or long term, materially adversely impact: the Trust’s tenants and their ability to pay rent (credit risk); and/or, the debt and equity markets and the Trust’s ability to access debt and/or capital on acceptable terms, or at all (liquidity risk), all of which could materially adversely affect the Trust’s operations and financial performance. During the Reporting Period, COVID-19 has had a minimal impact on the Trust as collection rates for the Huntingdon Property and the Brentwood Property have not materially changed as compared to those experienced prior to COVID-19.

Impact of Foreign Conflict

Foreign conflict remains a low risk to the Trust’s business at this time as it is not expected to impact the UK selfstorage sector. Management is monitoring the Russia-Ukraine conflict and the potential economic, social, and political ramifications if the conflict escalates.

Initial Financial and Operational Highlights

(In UK Pound Sterling)

Summary Financial Information – For the three months For the period from April 16, Consolidated ended December 31, 2021 2021 to December 31, 2021 Rental revenue and Ancillary fees and charges £195,706 £408,107

Net operating income from properties(2)	£127,467	£246,192
Net income and comprehensive income	£101,732	£126,787
		As at December 31, 2021
Investment Properties		£11,198,660
Operational Information of Huntingdon and		As at December 31, 2021
Brentwood
Huntingdon Property
Total rentable square footage(1)		52,291
Total occupied square footage(1)		36,921
Occupancy %		70.6%
Weighted average net achieved rent PSF PA(2)		£12.70
Closing Weighted Average PSF PA(3)		£12.84
Brentwood Property
Total rentable square footage(4)		43,417
Total occupied square footage(4)		43,417
Occupancy %		100%
Weighted average net achieved rent PSF PA(2)		£6.27
Closing Weighted Average PSF PA(3)		£6.27

Operational Information of Huntingdon and Brentwood

Summary Financial Information - Properties	As at December 31, 2021
Investment properties
Huntingdon	£5,669,054
Brentwood	£5,529,606

Summary Financial Information - Properties	For the three months ended December 31, 2021	For the three months ended December 31, 2021
	Huntingdon	Brentwood
Rental Revenue	£118,668	£68,750
Ancillary fee and charges	£8,288	-
	From April 16, 2021 to December 31, 2021
	Huntingdon	Brentwood
Rental Revenue	£250,050	£142,021
Ancillary fee and charges	£12,764	£3,272

Notes:

(1) Included total current rentable area of built storage units, excluded bulk and open warehouse space.

(2) Non-IFRS measure that does not have a standard meaning and may not be comparable with other industries or issuers. This data should be read in conjunction with the “Non-IFRS Measures” section of this MD&A. Please also refer to the reconciliation of such Non-IFRS measure below.

(3) Weighted average annual rental rate charged per square foot on occupied space at the balance sheet date.

(4) Includes total current rentable area of warehouse leased to one tenant

Financial Performance

Trust’s financial performance for the period from April 16, 2021 (date of formation) to December 31, 2021 is summarized below:

	For the three months	For the period from April
(In UK Pound Sterling)	ended December 31, 2021	16, 2021 to December 31,
		2021
Rental revenue and Ancillary fees and charges	195,706	408,107
Direct OperatingExpenses	68,239	161,915
Net Operating Income	127,467	246,192
Interest Income	147,807	259,242
General and Administrative	(110,575)	(297,480)
Gain / (Loss) on foreign exchange	9,309	(8,891)
Income tax expense	(72,276)	(72,276)
Net income and other comprehensive income	101,732	126,787
Calculation of NOI Margin
(A) Net Operating Income	127,467	246,192
(B)Rental revenue and Ancillaryfees and charges	195,706	408,107
NOI Margin(A/B)	65.13%	60.33%

Quarterly Financial Highlights

(In UK Pound Sterling) Initial reporting period ended June 30, 2021	For the three months ended September 30, 2021	For the three months ended December 31, 2021
Rental revenue 28,207	176,446	187,418
Ancillary fees and charges 286 Direct OperatingExpenses 22,288	7,462 71,388	8.288 68,239
Net Operating Income 6,205 Interest Income 4,045 General and Administrative (24,915) Gain / (Loss) on foreign exchange (16,496) Income tax expense -	112,520 107,390 (161,990) (1,704) -	127,467 147,807 (110,575) 9,309 (72,276)
Net income (loss) and other comprehensive income (loss) (31,161)	56,216	101,732
Calculation of NOI Margin (C) Net Operating Income 6,205 (D)Rental revenue and Ancillaryfees and charges 28,493	112,520 183,908	127,467 195,706
NOI Margin(C/D) 21.78%	61.18%	65.13%

Reconciliation of Non-IFRS measures:

Calculation of Weighted average net achieved rent PSF PA for the three months ended December 31, 2021

Calculation of Weighted average net achieved rent PSF PA for the three months ended December 31, 2021	Calculation of Weighted average net achieved rent PSF PA for the three months ended December 31, 2021	Calculation of Weighted average net achieved rent PSF PA for the three months ended December 31, 2021
	Huntingdon	Brentwood
Rental revenue(IFRS)	£118,668	£68,750
Average occupied area(sq. ft)	37,131	43,417
Rentper square foot	£3.20	£1.58
Number of days	92	92
Weighted average net achieved rent PSF PA	£12.70	£6.27

For a reconciliation of NOI, refer to the subtotals presented in the above tables within Financial Performance.

As discussed above, the accounting policies adopted under IFRS have been applied in preparing the Trust’s Financial Statements.

Results of Operations

The results of the period ended December 31, 2021 reflect operations from April 16, 2021 to December 31, 2021. Since the Trust was not formed until April 16, 2021, there is not a comparative annual period, however, below, management has compared the three months ended December 31, 2021 to the three months ended September 30, 2021 for discussion purposes.

Rental revenues and Ancillary fees and charges

Rental revenues and Ancillary fees and charges includes the rent charges for the lease of storage units and other ancillary income, including office rent, parking, insurance, and packaging supplies.

Rental revenues and Ancillary fees and charges for the three months ended December 31, 2021 was £195,706. Revenues for the period consisted of £126,956 from the Huntingdon Property and £68,750 from the Brentwood Property. Included within revenues from property operations includes £118,668 and £68,750 from Rental Revenue and £8,288 and £nil from ancillary and other income from the Huntingdon Property and the Brentwood Property respectively.

As compared to the three months ended September 30, 2021, revenue from property operations increased by £11,798 as a result of additional square footage added at the Huntingdon Property and higher rental rates.

Direct operating expenses

Property operating costs for the three months ended December 31, 2021 was £68,239. This was primarily driven by £12,993 in property management and administrative expenses, £22,782 in property rates and insurance, and £17,816 in wages and benefits.

As compared to the three months ended September 30, 2021 direct operating expenses decreased by £3,149 as a result of slight decreases in property management and administrative expense, property rates and insurance, and wages and benefits.

Net Operating Income

NOI for the three months ended December 31, 2021 was £127,467, with an NOI margin of 65.13%, as calculated by dividing the NOI by the Revenue from Property Operations.

As compared to the three months ended September 30, 2021, NOI increased by £14,947.

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With the utilization of its third party property management, the Trust continues to focus closely on increasing occupancy and rate per square foot, while diligently managing operating costs to improve NOI results since acquisition of its properties.

General and administrative expense

General and administrative expenses include costs incurred by the Trust, its Canadian subsidiary, or a UK holding company that are not directly attributable to the properties. These costs include items such as legal and audit fees, director fees, investor relations expenses, professional advisory, directors’ and officers’ insurance premiums, expenses relating to the administration of the Trust’s distributions and other general and administrative expenses associated with the operation of the Trust and its subsidiaries. Also included in General and administrative expenses are asset management fees payable to the Managers (see “Related Party Transactions and Arrangements”).

For the three months ended December 31, 2021, General and administrative expense was £110,575. This consisted primarily of asset management fees of £78,307 and professional fees of £23,297.

Compared to the three months ended September 30, 2021, General and administrative expense decreased by £51,415 as a result of lower professional fees.

Capital Investments

Following the acquisitions of the Huntingdon Property and the Brentwood Property, the Trust has invested £186,796 in costs related to the conversion of bulk and unused space into additional storage units at the Huntingdon Property. In addition, the Trust plans to spend an approximate £3,500,000 on the Brentwood Property in order to fit out the existing warehouse to approximately 53,000 net rentable square feet. As of December 31, 2021, the Trust had deposited £738,022 with a contractor toward pre-funding the Brentwood development while the remaining commercial tenant still occupies the space.

Liquidity and Capital Reserves

The Trust’s cash flow from operating activities represents the primary source of liquidity to fund capital improvements and distributions. The Trust’s cash flow from operating activities is dependent upon occupancy levels, rental rates on its leases, the collectability from its tenants, the level of operating and other expenses and other factors. Material changes in these factors may adversely affect the Trust’s net cash flow from operating activities and liquidity.

The Trust expects to be able to meet all of its obligations, including distributions to Unitholders and property maintenance and capital expenditure commitments as they become due. The Trust has financing sources to fulfill its commitments including cash flow from its operating activities and reserves from proceeds from the IPO. The Trust also expects to obtain mortgage debt secured by investments properties and future funding from its first mortgages to assist with value-enhancing initiatives.

Cash Flows

The following table details the changes in cash during the Reporting Period:

(In UK Pound Sterling)	Three months ended December 31, 2021	April 16, 2021 to December 31, 2021
Cash from / (used in) operating activities Cash (used in) investing activities Cash from /(used in)financingactivities	5,522	(442,043)
	(634,945)	(16,859,320)
	(541,288)	18,868,052
Increase (decrease) in cash Cash,beginningofperiod	(1,170,711)	1,566,689
	2,737,400	0
Cash,end ofperiod	1,566,689	1,566,689

Cash on hand as at December 31, 2021 was £1,566,689.

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Distributions

The Trust declared its first distribution to Unitholders on July 15, 2021 (the “ July Distribution ”). The July Distribution was paid on July 15, 2021 to Unitholders of record as of the close of business on June 30, 2021. The distribution for each class was as follows:

C$0.03766 per Class A Unit
C$0.03886 per Class F Unit
£0.03734 per Class U Unit

The July Distribution constituted a return of capital. The Trust decided to declare the July Distribution using its own capital in order to satisfy the Trust’s investment objectives and ensure the Trust is able to achieve its targeted annual pre-tax distribution yield as set out in the Prospectus. The use of Invested Capital (as such term is defined in the Prospectus) to satisfy distributions is consistent with the Trust’s expectations that distributions will include a return of capital for the first three years of operations. As set out in the Prospectus, the Trust anticipates that upon stabilization of operations in year three, cash flows provided by the Trust’s operating activities will thereafter be sufficient to cover its distribution requirements. See “Risk Factors” in the Prospectus.

The Trust declared a distribution on October 14, 2021 (the “ October Distribution ”). The October Distribution was paid on October 15, 2021 to Unitholders of record as of the close of business on September 30, 2021. The distribution for each class was as follows:

C$0.15065 per Class A Unit
C$0.15545 per Class F Unit
£0.15232per Class U Unit

The October Distribution constituted a return of capital. The Trust decided to declare the October Distribution using its own capital in order to satisfy the Trust’s investment objectives and ensure the Trust is able to achieve its targeted annual pre-tax distribution yield as set out in the Prospectus. The use of Invested Capital to satisfy distributions is consistent with the Trust’s expectations that distributions will include a return of capital for the first three years of operations. As set out in the Prospectus, the Trust anticipates that upon stabilization of operations in year three, cash flows provided by the Trust’s operating activities will thereafter be sufficient to cover its distribution requirements. See “Risk Factors” in the Prospectus.

Capital Management

The primary objective of the Trust’s capital management is to invest in a portfolio of well-located, quality revenueproducing properties with positive cash flows and to provide distributions to its Unitholders. The Trust is restricted in its use of capital to making investments in real property in the United Kingdom. The Trust manages its capital structure, and makes adjustments to it, in light of changes to prevailing economic conditions.

As at December 31, 2021, the capital structure consisted of the net liabilities attributable to Unitholders and noncontrolling interests of £18,994,839 and amounts due to related parties of £19,256.

Commitments and Contingencies

The Trust may be involved in litigation and claims in relation to the Trust’s investment properties that arise from time to time in the normal course of business. In the opinion of management, none of these, individually or in aggregate, would result in the recognition of a liability that would have a significant adverse effect on the financial position of the Trust. The Trust has agreed to indemnify, in certain circumstances, the trustees and officers of the Trust and its subsidiaries.

Net Liabilities Attributable to Unitholders

An unlimited number of Trust Units may be created and issued pursuant to the Declaration of Trust.

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Each Unit is redeemable and represents an equal undivided beneficial interest in and distributions from the Trust, whether of net income, net realized capital gains or other amounts and in the net assets of the Trust and in the event of a termination or winding up of the Trust. All Units have equal voting rights and privileges.

(In UK Pound Sterling) Balance, April 16, 2021 Capital contributions IPO costs – Agents’ fees IPO costs – Legal & other Return of capital Net income for the period Balance, December 31, 2021	Class A Units Class F Units Class U Units Net Liability Attributable to Unitholders
	- - - - 14,317,221 2,390,251 3,025,500 19,732,972 (823,240) (65,732) (173,966) (1,062,938) (337,155) (58,080) (71,247) (466,482) (271,440) (46,761) (57,381) (375,582) 83,810 14,437 17,710 115,957
	12,969,196 2,234,115 2,740,616 17,943,927

As of April 25, 2022, the Trust has fully deployed or committed its capital in current investments, committed capital expenditure and development, or for working capital.

RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Arrangements with the Managers

The Trust engaged the Managers to perform certain management services, as outlined below. The Managers are related parties to the Trust as each Manager is an affiliate of Clear Sky, a promoter of the Trust. In addition, Marcus Kurschat, a Trustee, is the principal and beneficiary of the UK Manager and John Stevenson, Matthew Collins and Matthew Mason, each an executive officer of the Trust, are officers of the UK Manager whose address is 2398 E Camelback Rd, Suite 615, Phoenix, AZ 85016 and telephone number is 1 (877) 643-1257.

Pursuant to the management agreement dated June 8, 2021 (the “ Management Agreement ”), the Managers are to provide financing services, asset management services, property management services and other general services to the Trust and its subsidiaries. As compensation for such services, the Management Agreement provides that the Trust will pay the following fees:

Type of Fee	Amount and Description
Asset Management Fee	An annual amount, equal to the greater of C$400,000 and 1.5% of the sum of the gross proceeds of the IPO and the gross proceeds raised by Padlock UK Holdco 2 Limited (“UK Holdco”), a subsidiary of the Trust, in connection with the issuance of its class B shares (the “Class B UK Holdco Shares”)
Acquisition Fee	An amount equal to 1.0% of the gross acquisition cost ofeachproperty (or interestina property).
Construction Management Fee	An amount equal to 3.0% of the gross costs and expenses directly associated or incurred in connection with, or related to, the demolition, renovation, construction,or development of theproperties.

The Management Agreement expires on the winding-up or dissolution of the Trust and certain of its subsidiaries. The Management Agreement can be terminated early in certain circumstances, including (i) upon the dissolution, liquidation, bankruptcy, insolvency or winding-up of the Managers; and (ii) breach of the Managers’ standard of care, which breach may be disputed by the Managers acting in good faith by referring the matter to arbitration, the decision resulting from such arbitration to be final.

For the period from April 16, 2021 to December 31, 2021, asset management fees charged to the UK Holdco by the Managers were £175,484.

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For the period from April 16, 2021 to December 31, 2021, acquisition fees of £54,223 and £53,772 were charged to the UK Holdco by the Managers in respect of the Trust’s indirect acquisitions of the Brentwood Property and the Huntingdon Property, respectively.

Carried Interest

The UK Manager, as a holder of all issued and outstanding Class B UK Holdco Shares, is entitled to receive, after (i) payment of all expenses of the Trust and its subsidiaries, (ii) payment of the UK Holdco Minimum Return (as such term is defined in the Prospectus) of 7% per annum by UK Holdco to holders of Class B UK Holdco Shares (the calculation of which, for greater clarity, includes repayment of the UK Holdco Invested Capital (as such term is defined in the Prospectus)), calculated in Canadian dollars based on the applicable exchange rate on the date such distributions are paid by UK Holdco, (iii) payment of the Minimum Return (as such term is defined in the Prospectus) of 7% per annum by the Trust to Unitholders (the calculation of which, for greater clarity, includes the repayment of Invested Capital), the UK Manager, as the holder of all issued and outstanding Class B UK Holdco Shares, will be entitled to receive 50% of all further distributions made by UK Holdco (i.e., a catch-up) until the amounts (calculated in Canadian dollars based on the applicable exchange rate on the date of any such payment), if any, distributable to the Trust as payment of interest and principal on the UK Holdco Notes (as such term is defined in the Prospectus) and to the holders of the class A shares of UK Holdco and Class B UK Holdco Shares (other than catch up payments) in excess of the sum of (i) Invested Capital, and (ii) the UK Holdco Invested Capital is equal to four times (i.e. 80%/20%) the catch-up payment receivable by the UK Manager, and thereafter the UK Manager will be entitled to receive, in addition to its pro rata share of distributions based on the UK Holdco Invested Capital, 20% of all further distributions made by UK Holdco.

As at December 31, 2021 the Trust had not recognized a liability to the UK Manager in relation to the carried interest described in the foregoing paragraph.

On June 25, 2021 the Trust indirectly completed its acquisition of a freehold interest in a development property located in Brentwood, UK (Brentwood Property) for £5,100,000. The Brentwood Property is located approximately northeast of London. The transaction was satisfied by way of cash from the IPO. The Trust intends to fit out the current warehouse in order to develop an 80,000 square foot gross lettable area self storage facility with 53,000 square feet of purpose built self-storage units. Prior to the IPO, an affiliate of the UK Manager entered into a sale and purchase agreement to acquire the Brentwood Property and made a deposit in the amount of £510,000. The sale and purchase agreement was later assigned to the Trust’s subsidiary, and the Trust agreed to reimburse the affiliate of the UK Manager for the deposit and other costs incurred. The reimbursement of £561,060 was paid by the Trust to the affiliate of the UK Manager on July 6, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

The Trust does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the financial performance, liquidity or capital resources of the Trust.

SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies is available in Note 3 in the Trust’s Audited Financial Statements. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at each financial statement date, and revenues and expenses for the periods indicated. Actual results could differ from those estimates.

Use of Estimates

The preparation of the Trust’s Audited Financial Statements in accordance with IFRS requires estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities at

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the date of the Trust’s Audited Financial Statements, and disclosure of the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.

Financial Instruments – Classification and Measurement

Financial assets and liabilities are recognized when the Trust becomes a party to the contractual provisions of the instrument.

The Trust classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (“FVTOCI”) or at amortized cost. The Trust determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Trust’s business model for managing the financial instruments and their contractual cash flow characteristics. Equity instruments that are held for trading (including all equity derivative instruments) are classified as FVTPL. On the day of acquisition, the Trust can make an irrevocable election (on an instrument-by-instrument basis) to designate other equity instruments as FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Trust has opted to measure them at FVTPL.

Classification and Measurement (Continued)

Subsequent to initial recognition, non-derivative financial instruments are measured as described below:

a) Financial assets at fair value through other comprehensive income

Elected investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income. No financial instruments have been classified in this category.

b) Financial assets and liabilities at amortized cost

Financial assets and liabilities at amortized cost are initially recognized at fair value, net of transaction costs, and subsequently carried at amortized cost less any impairment. Cash and cash equivalents, accounts receivable, deposits, other current assets, loan receivable, amounts due to related parties, accounts payable and accrued liabilities, tenant deposits, and net liabilities attributable to Unitholders are classified in this category.

c) Financial assets and liabilities at fair value through profit or loss

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statement of other income. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of other income in the period in which they arise. Where management has opted to recognize a financial liability at FVTPL, any changes associated with the Trust’s own credit risk will be recognized in other comprehensive income. No financial instruments have been classified in this category.

Impairment of Financial Assets at Amortized Cost

At each reporting date, each financial asset measured at amortized cost is assessed for impairment under an expected credit loss (“ ECL ”) model. The Trust applies the simplified approach which uses lifetime ECLs for accounts receivable and the general approach for notes receivable and other receivables.

The Trust uses an accounts receivable aging provision matrix to measure the ECL for trade receivable and applies loss factors to ageing categories greater than 30 days past due.

The following significant areas use estimates and assumptions made by management in the preparation of the Trust’s Audited Financial Statements.

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Investment Properties

The determination of the fair value of investment properties requires the use of estimates such as the estimated useful lives and related depreciation and amortization charges. The useful lives could change significantly as a result of technical innovations or other events. The depreciation and amortization charge will increase where the useful lives are less than previously estimated, or technically obsolete or non-strategic assets that have been abandoned or sold and will be written down.

Deferred Income Taxes

The amounts recorded for deferred income taxes are based on estimates as to the timing of the reversal of temporary differences and tax rates currently substantively enacted. They are also based on estimates of the probability of the Trust and its subsidiaries utilizing losses carried forward. To the extent assumptions regarding future probability change, there can be a change in the amounts recognized in respect if deferred tax assets as well as the amounts recognized in profit or loss in the period in which the change occurs. The Trust’s estimate of deferred taxes is based on the assumption that the Trust’s liquidating event occurs through a direct sale of the properties. Should the Trust’s liquidating event occur through a sale of the Trust’s Units, or a disposition of its ownership interests in its UK subsidiaries, the estimated deferred taxes may differ .

RISKS AND UNCERTAINTIES

There are certain risks inherent in an investment in the Units and in the activities of the Trust. Risks and uncertainties are disclosed in the Prospectus under the heading “Risk Factors” available under the Trust’s issuer profile at www.sedar.com. If any of the risks outlined in the Prospectus occur or if others occur, the Trust’s business, operating results and financial condition could be seriously harmed and investors may lose all of their investment. Risks affecting the Trust will affect its ability to make distributions on its Units. Other than set out or contemplated herein, management is not aware of any significant changes in risks and uncertainties since May 25, 2021, the date of the Prospectus.

DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGERS

The name and municipality of residence of each of the directors and executive officers of the Managers and their principal occupation are as follows:

Name and Municipality of Residence	Date Individual became a Director or Officer	Position with Manager	Principal Occupation in the Last Five Years
Marcus Kurschat Scottsdale, AZ, USA	February 23, 2009 as to Clear Sky Capital Inc. and April 18, 2018 as to the UK Manager	Director of Canadian Manager and Manager of UK Manager	Founder and Chief Executive Officer of Clear Sky Capital Inc.
John Stevenson Tempe, AZ, USA	April 18, 2018	Chief Executive Officer of the UK Manager	Chief Executive Officer and Managing Director of the UK Manager Managing Director, Self Storage, Clear Sky Capital Inc.
Matthew Collins Phoenix, AZ, USA	April 18, 2018	Chief Financial Officer of the UK Manager	Chief Financial Officer, Clear Sky Capital Inc.
Matthew Mason Phoenix, AZ, USA	April 18, 2018	General Counsel of the UK Manager	General Counsel, Clear Sky Capital Inc.

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FUTURE OUTLOOK

The objective of the Trust is to generate stable cash flows, while maximizing the Trust’s value through active management and value enhancing initiatives such as the fit out of bulk space into additional storage and the development of new self-storage and mixed use facilities. The UK Manager estimates that there is an opportunity to increase the NOI over the short to medium term by raising market rental rates after improving the property, fitting out additional storage space, and by reducing operating expenses through more prudent management controls.

The Trust is focused on acquiring additional self-storage and mixed-use properties utilizing the undeployed proceeds from the IPO. In addition, the Trust intends to carry out the following development and redevelopment activities with respect to the Properties:

The Trust intends to continue to expand the Huntingdon Property to add approximately 7,487 net rentable square feet by converting unused warehouse space and adding additional drive up storage units.
The Trust intends to fit out the current warehouse at the Brentwood Property in order to develop an 80,000 square foot gross lettable area self-storage facility with 53,000 net rentable square feet of purpose built, selfstorage units across three floors. The development of the Brentwood Property is expected to be completed in two phases and at an estimated aggregate cost of approximately £3,500,000.

SUBSEQUENT EVENTS

Distributions to Unitholders

The Trust declared a distribution on January 14, 2022 (the “ January Distribution ”). The distribution for each class was as follows:

C$0.15065 per Class A Unit
C$0.15545 per Class F Unit
£0.15091 per Class U Unit

The Trust declared a distribution on April 18, 2022 (the “ April 2022 Distribution ”). The distribution for each class was as follows:

C$0.14738 per Class A Unit
C$0.15207 per Class F Unit
£0.15402 per Class U Unit

The January 2022 Distribution and April 2022 Distribution constituted a return of capital. The Trust decided to declare the January 2022 and April 2022 Distribution using its own capital in order to satisfy the Trust’s investment objectives and ensure the Trust is able to achieve its targeted annual pre-tax distribution yield as set out in the Prospectus. The use of Invested Capital to satisfy distributions is consistent with the Trust’s expectations that distributions will include a return of capital for the first three years of operations. As set out in the Prospectus, the Trust anticipates that upon stabilization of operations in year three, cash flows provided by the Trust’s operating activities will thereafter be sufficient to cover its distribution requirements. See “Risk Factors” in the Prospectus.

Newmarket Property

On April 4, 2022, the Trust announced that it had successfully completed the indirect acquisition of a newly developed self-storage property (the “ Newmarket Property ”) from a subsidiary (“the Seller ”) of Padlock Partners UK Fund I (“ Padlock I ”) on March 31, 2022 for an aggregate purchase price of approximately £6,680,000. The Newmarket Property was sold by the Seller to a subsidiary of the Trust (the “ Buyer ”) pursuant to a share purchase agreement, whereby the Buyer agreed to acquire 100% of the outstanding shares of a subsidiary of the Seller holding the Newmarket Property (“ Acquired Subsidiary ”).

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Prior to the sale, on June 24, 2021, the Buyer entered into a £4,700,000 loan agreement with the Acquired Subsidiary for the purposes of funding the development of the Newmarket Property (the “ Newmarket Loan Facility ”). The Newmarket Loan Facility could have been drawn on at any time during the term of the Newmarket Loan Facility and provided the Buyer, as lender, with a purchase option to allow the Buyer to purchase an interest in the Acquired Subsidiary, which was exercised by the Buyer in order to pursue the acquisition of the Newmarket Property.

After giving effect to working capital adjustments and the balance owed per the Newmarket Loan Facility in the amount of approximately £5,441,122 (inclusive of accrued interest), the adjusted purchase price of approximately £735,940 was satisfied by way of deferred consideration due and payable by the Buyer to the Seller on or before June 24, 2022. Such deferred consideration may be further adjusted for additional working capital adjustments as agreed to between Buyer and Seller. As a result, the Newmarket Property and the associated risks and rewards from ownership of the property will be consolidated into the Trust in subsequent periods.

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