REG - Alternative Inc REIT - Results for the year ended 30 June 2023
02/10/2023 07:00
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RNS Number : 2557O Alternative Income REIT PLC 02 October 2023
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REPUBLIC OF SOUTH AFRICA.
29 September 2023
ALTERNATIVE INCOME REIT PLC
(the "Company" or the "Group")
Annual Report and Financial Statements for the year ended 30 June 2023
The Board of Directors of Alternative Income REIT PLC (ticker: AIRE), the
owner of a diversified portfolio of UK commercial property assets
predominantly let on long leases with index-linked reviews, is pleased to
announce its annual report and financial statements for the year ended 30 June
2023.
Financial Highlights
At 30 June
2023 2022 Change
Net Asset Value ('NAV') £67.8 million £77.6 million -12.7%
NAV per share 84.16p 96.40p -12.7%
Share price 64.70p 82.10p -21.2%
Share price discount to NAV (A) 23.1% 14.8% 8.3%
Investment property fair value £107.0 million £117.9 million -9.2%
(based on external valuation)
Loan to gross asset value ('GAV') (A) 36.8% 33.7% -
Loan facility £41.0 million £41.0 million -
For the year ended 30 June
2023 2022 Change
EPRA earnings per share ('EPS') (A) 6.75p 6.27p 7.7%
Adjusted EPS (A) 6.43p 5.57p 15.4%
Total dividends per share 6.045p 5.50p 9.9%
Dividend cover (A) 106.4% 101.3% 5.1%
Dividend yield (A) 9.3% 6.7% 2.6%
Operating profit £6.9 million £6.6 million 4.5%
(including gain on sale of investment property but excluding fair value
changes)
(Loss)/ profit before tax (£5.2) million £13.2 million -139.4%
(Loss)/ earnings per share (6.51p) 16.36p -139.8%
Share price total return (A) (14.2%) 24.3% -
NAV total return (A) (6.7%) 22.5% -
Gross passing rental income £7.6 million £7.2 million 5.6%
Ongoing charges 1.39% 1.42% -3bps
Financial Highlights Overview
· The NAV decrease to 84.16 pence per share ("pps") was primarily due
to the £10.9 million (9.2%) reduction in the fair value of the investment
properties which were impacted by an upward yield movement across the wider UK
real estate sector, driven primarily by rises in interest rates and inflation
during the year.
· Dividends in respect of the year totalled 6.045pps, a 9.9% increase
from the previous year and in excess of the Board's 2023 target annual
dividend of at least 5.70pps.
· Dividends declared and paid for the year were 106.4% covered by EPRA
earnings per share.
· Dividend yield has increased to 9.3%, a 2.6% increase from the prior
year as a result of market conditions negatively impacting the share price of
the Company.
· Loss before tax of £5.2 million, equivalent to 6.51pps, is primarily
due to the £10.9 million (9.2%) reduction in the fair value of the investment
properties.
· Loan to GAV of 36.8% and interest cover ratio of 614.50% gives
significant headroom on the lender's loan to value covenant of 60% and
interest cover covenant of 250%. The loan matures in October 2025 and is fixed
at a weighted average interest cost of 3.19%.
Operational Overview
At the Group's year end of 30 June 2023:
· The Group's property portfolio had a fair value of £107.0 million
across 19 properties (2022: £117.9 million across 19 properties).
· The EPRA Net Initial Yield (A) ('NIY') was 6.6% (2022: 5.7%).
· 97.0% of the portfolio's income stream is reviewed periodically (45%
annually) on an upward only, inflation linked basis to Retail Price Index
('RPI') or Consumer Price Index ('CPI').
· The portfolio remained fully let at the year end..
· Weighted average unexpired lease term ('WAULT'):
- 17.0 years to the earlier of break and expiry (2022: 17.5 years) and
- 18.9 years to expiry (2022: 19.4 years).
Income and expense during the year
· Rent recognised was £8.1 million (2022: £7.5 million), of which
£0.4 million was accrued debtors for the combination of rental smoothing of
minimum uplifts and rent-free periods (2022: accrued debtors of £0.5
million).
· A total of 14 rent reviews took place during the year, which resulted
in a combined rental uplift of £346,000, which represents a 4.8% increase on
contracted rent across the portfolio.
· Ongoing charges decreased from 1.42% to 1.39% which is a result of
the Board successfully continuing its effort to manage costs effectively.
· The Group received £825,000 during the year, in full and final
settlement of litigation to recover costs incurred in respect of works to
replace defective cladding on the Travelodge Hotel, Swindon. This one-off
receipt has been proportionally allocated as £606,000 to capital, as a
reduction in acquisition costs and £219,000 to revenue, recognised as other
property income. Further detail is contained in note 15.3 of the financial
statements.
Property transactions during the year
· There were no property transactions in the year, however, shortly
after the year end the Group completed the disposal of a property in Glasgow
at a 7.9% premium on the book value at 30 June 2023, as detailed below.
Post balance sheet highlights
· On 2 August 2023, the Board approved the interim dividend for the
quarter ended 30 June 2023 of 1.92pps. As a result, the dividend target of
5.70pps for the year ended 30 June 2023 was met. The 1.92pps interim dividend
included an additional 0.345pps in respect of non-rental income that was
received in the year following the successful settlement of a historical legal
case. This dividend was paid on 25 August 2023 to shareholders on the register
at 11 August 2023. The ex-dividend date was 10 August 2023.
· By 29 September 2023, the Group had collected 100% of rent due for
the four rental quarters of the financial year being reported.
· On 8 August 2023, the Group completed the disposal of Mercure Hotel,
Ingram Street, Glasgow to the occupier for £7.5 million, a 7.9% premium on
the book value at 30 June 2023. The Board intends to reinvest the net proceeds
from the sale as soon as practical.
(A) Alternative Performance Measure, please see below for further details.
Simon Bennett, non-executive chairman of Alternative Income REIT plc,
comments:
"During the period under review, the global economy has been impacted by high
inflation and central banks have responded by aggressively raising interest
rates. In general terms, the impact of these rising interest rates has
affected real estate valuations and share prices detrimentally, with a
significant downward movement in valuations particularly in the first half of
the financial year, although valuations of the Group's portfolio have now
stabilised. I am also pleased to report that post year end, the sale of the
Group's hotel in Glasgow was achieved at a 7.9% premium to its book value as
at 30 June 2023.
The current UK economic woes plays to the strengths of the Group's resilient
and diversified portfolio, which is let on long-dated and higher yielding
leases with index-linked rental increases. Dividends declared for the year
totalled 6.045pps, a 9.9% increase from the previous year and in excess of the
Board's 2023 target annual dividend of at least 5.7pps and were fully covered
by earnings.
The Group's portfolio is expected to perform relatively well during a period
of higher inflation, as 97.0% of the portfolio's income stream is reviewed
periodically. In the coming financial year, approximately 58.0% of the Group's
income will be subject to rent reviews, 45.0% as annual index-linked rent
reviews and the remaining 13.0% being periodic 5 yearly index-linked rent
reviews. Accordingly, the Board remains confident that the Company is
well-positioned for the future, with a resilient portfolio well-placed to
continue to provide secure, index-linked income with the potential for capital
growth."
ENQUIRIES
Alternative Income REIT PLC via H/Advisors Maitland below
Simon Bennett - Chairman
M7 Real Estate Ltd +44 (0)20 3657 5500
Richard Croft
Jane Blore
Panmure Gordon (UK) Limited +44 (0)20 7886 2500
Alex Collins
Tom Scrivens
H/Advisors Maitland (Communications Adviser) +44(0) 7747 113 930
James Benjamin aire-maitland@h-advisors.global
The Company's LEI is 213800MPBIJS12Q88F71.
Further information on Alternative Income REIT PLC is available
at www.alternativeincomereit.com (about:blank) (1)
About the Group
Alternative Income REIT PLC aims to generate a sustainable, secure and
attractive income return for shareholders from a diversified portfolio of UK
property investments, predominately in alternative and specialist sectors. The
majority of the assets in the Group's portfolio are let on long leases which
contain index-linked rent review provisions, which help to underpin income
distributions to shareholders with the potential for income and capital
growth.
The Company's Investment Adviser is M7 Real Estate Limited ("M7"). M7 is a
leading specialist in the pan-European, regional, multi-tenanted real estate
market. Majority owned by its senior managers, it has over 200 employees in 15
countries across Europe. The team manages over 620 properties with a value of
circa €6.9 billion.
Notes
1 Neither the content of the Company's website, nor the content of
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.
CHAIRMAN'S STATEMENT
Overview
I am pleased to present the annual audited results of Alternative Income REIT
plc (the 'Company') together with its subsidiaries (the 'Group') for the
financial year ended 30 June 2023.
The current UK economic environment with high levels of inflation and interest
rates, and low growth plays to the strengths of the Group's resilient
portfolio, which is let on long-dated and higher yielding leases with index
linked rental increases.
During the period under review the global economy has been impacted by high
inflation rates. Central banks have responded by aggressively raising interest
rates. In the UK, the Bank of England has increased base rates from 1% in June
2022 to 5.25% currently. In general terms, the impact of these rising interest
rates has affected real estate valuations and share prices detrimentally, with
a significant downward movement in valuations particularly in the first half
of the financial year, although valuations of the Group's portfolio have now
stabilised. I am also pleased to report that post year end, the sale of the
Group's hotel in Glasgow was achieved at a 7.9% premium to its book value at
30 June 2023.
In summary, the value of the Group's properties showed a fall of £10.9
million to £107.0 million (30 June 2022: £117.9 million), when compared to
the previous financial year. The portfolio is expected to perform relatively
well during a period of higher inflation, as 97.0% of its rental income is
subject to index-linked reviews and 31.0% of this rental income is not subject
to any cap. During the financial year, a total of 14 rent reviews took place,
which resulted in a combined rental uplift of £346,000, which represents a
4.8% increase on contracted rent across the portfolio.
The Group also benefits from a low overhead base and fixed borrowing costs
until October 2025. Together with the active asset management initiatives
being undertaken, the Board expects that the portfolio will continue to
deliver an attractive yield as a result of its secure and growing rental
income.
Portfolio Performance
At 30 June 2023, the Group's property portfolio had a fair value of £107.0
million (2022: £117.9 million). The portfolio had a net initial yield of 6.6%
(2022: 5.7%), and a WAULT to the first break of 17.0 years, 18.9 years to
expiry (2022: 17.5 years to first break, 19.4 years to expiry).
Financing
The Group has fully utilised its £41.0 million loan facility with Canada Life
Investments throughout the year. The weighted average interest cost of the
facility is 3.19% and it is repayable on 20 October 2025. There would be no
penalties for repaying the Group's loan facility ahead of maturity, provided
the corresponding gilt rate is lower than the contracted rate of interest.
Dividends and Earnings
During this financial year the Group declared four interim dividends meeting
the dividend target of 5.70pps, together with an extra 0.345pps declared which
represented non-rental income that was received, the majority of this arising
from the successful settlement of a historical legal case. This means that the
total dividends declared for the year amounted to 6.045pps, representing an
increase of 9.9% on the dividends declared in the previous year (2022: total
dividends declared of 5.5pps). The increased dividends declared for this year
reflect the resilience of the Group's underlying property portfolio and the
strength of its quarterly collection of rent due, which remains 100%.
As set out in Note 8 to the Consolidated Financial Statements, these dividends
were covered by both EPRA Earnings (A) of 6.75pps (2022: 6.27pps), and the
Group's Adjusted EPS (representing cash) of 6.43pps (2022: 5.57pps). Note 9
sets out all dividends paid and payable in the year. All dividends were paid
as Property Income Distributions ('PIDs').
Historically the Board has paid dividends in four equal instalments each
financial year. The Board intends to continue with this practice by making
dividend payments in November, February, May and August each year. In order to
do this, all dividends need to be declared and paid as interim dividends. The
Board, however, recognises that this precludes shareholders from having the
opportunity to vote on a final dividend. Recognising this, and although not
required to do so, resolution 9 in the AGM notice gives shareholders the
opportunity to vote on this dividend policy.
Discount
The discount of the Company's share price to NAV at 30 June 2023 widened to
23.1% from 14.8% at the previous year end. The Board monitors the discount
level throughout the year and has the authority to both issue and buy back
shares. Although these powers have not been used to date, the Board believes
these authorities are important powers for it to have available, if required,
and therefore recommends that shareholders vote in favour of their continuance
at the forthcoming AGM.
Property Transaction After the Year End
Subsequent to the year end, on 8 August 2023, the Company completed the sale
of the Mercure City Hotel, Ingram Street, Glasgow, for a total consideration
of £7.5 million to the current tenant S Hotels & Resorts (UK) Limited.
This property represented 6.5% of the Group's portfolio at 30 June 2023. The
disposal represents a 7.9% premium on the book value at that date and a next
exit yield of 8.9%. The sale will enable the proceeds to be recycled into one
or more properties as the Group seeks to achieve further diversification of
the portfolio's tenants and assets.
Board Composition
During the year, I joined the Board as an independent non-executive director
and chairman-designate. The previous chairman Alan Sippetts retired at the
conclusion of the Company's AGM on 30 November 2022 and I succeeded him. I
would like to take this opportunity to thank Alan Sippetts for the significant
contribution he made to the Group during his tenure as a director and latterly
as chairman.
AGM
The Company will hold its AGM at 10am on Wednesday 15 November 2023 at The
Monument Building, 11 Monument Street, London EC3R 8AF. As usual, the
Investment Adviser will give a presentation on the Group prior to the AGM.
I always welcome engagement with shareholders and they should be aware that if
they are unable to attend in person, they can submit questions to the Board by
emailing the Company Secretary at cosec@hanwayadvisory.com
(mailto:cosec@hanwayadvisory.com) or by writing to me at Alternative Income
REIT plc, 1 King William Street, London EC4N 7AF.
Outlook
The Board remains confident that the Company is well-positioned for the
future, with a resilient portfolio well-placed to continue to provide secure,
index-linked income with the potential for capital growth.
The Company exceeded its target annual dividend of at least 5.7pps for the
year ended 30 June 2023 and the dividends were fully covered by earnings. In
the coming financial year, approximately 58.0% of the Group's income will be
subject to rent reviews, 45.0% as annual index-linked rent reviews and the
remaining 13.0% being periodic five-yearly index-linked rent reviews.
I would like to thank my colleagues on the Board, the Investment Adviser, the
Company Secretary and our other advisers and service providers, who have
provided professional support and services to the Group during this financial
year. We have a good team, to whom a large proportion of the Group's success
can be attributed.
Simon Bennett
Chairman
29 September 2023
BUSINESS MODEL AND STRATEGY
Introduction
Alternative Income REIT plc is a real estate investment trust listed on the
premium segment of the Official List of the Financial Conduct Authority
('FCA') and traded on the Main Market of the London Stock Exchange. As part of
its business model and strategy, the Group has maintained and intends to
maintain its UK REIT status.
Investment Objective
The investment objective of the Group is to generate a secure and predictable
income return, sustainable in real terms, whilst at least maintaining capital
values, in real terms, through investment in a diversified portfolio of UK
properties, in alternative and specialist sectors.
Investment Policy
In order to achieve the investment objective, the Group invests in freehold
and long leasehold properties across the whole spectrum of the UK property
sector, but with a focus on alternative and specialist real estate sectors.
Examples of alternative and specialist real estate sectors include, but are
not limited to, leisure, hotels, healthcare, education, logistics, automotive,
supported living and student accommodation.
In the event of a breach of the investment policy or the investment
restrictions set out below, the Alternative Investment Fund Manager ('AIFM'),
as advised by the Investment Adviser, shall inform the Board upon becoming
aware of the same and, if the Board considers the breach to be material,
notification will be made to a Regulatory Information Service and the AIFM, as
advised by the Investment Adviser, will look to resolve the breach.
Any material change to the investment policy or investment restrictions of the
Group may only be made with the prior approval of shareholders.
Investment Strategy
The Group focuses on properties which can deliver a secure income and preserve
capital value, with an attractive entry yield. The Group has an emphasis on
alternative and specialist property sectors to access the attractive value and
capital preservation qualities which such sectors currently offer.
The Group will supplement this core strategy with active asset management
initiatives for certain properties.
Subject at all times to the AIFM's (as advised by the Investment Adviser)
assessment of their appeal and specific asset investment opportunities,
permitted sectors include, but are not limited to the following: Healthcare;
Leisure; Hotels and serviced apartments; Education; Automotive; Car parks;
Residential; Supported living; Student accommodation; Logistics; Storage;
Communications; Supermarkets; and, subject to the limitations on traditional
sector exposures below, Offices; Shopping centres; Retail and retail
warehouses; and Industrial.
The Group is not permitted to invest in land assets, including development
land which does not have a development agreement attached, agriculture or
timber.
The focus will be to invest in properties to construct a portfolio with the
following minimum targets:
· a WAULT, at the time of investment, in excess of 18 years;
· at least 85% of the gross passing rent will have leases with rent
reviews linked to inflation (RPI or CPI) at the time of investment;
· investment in properties which typically have a value, at the
time of investment, of between £2 million and £30 million;
· at least 70% of the properties will be in non-traditional
sectors;
· less than 30% of the properties will be in the traditional
sectors of Retail, Industrial and Offices; and
· over 90% of properties will be freehold or very long leasehold
(over 100 years).
Once GAV is £250 million or greater, future investments will be made to
target a portfolio with at least 80% of the properties in non-traditional
sectors and less than 20% of the properties in traditional sectors.
Whilst each acquisition will be made on a case-by-case basis, it is expected
that properties will typically offer the following characteristics:
· existing tenants with strong business fundamentals and profitable
operations in those locations;
· depth of tenant/operator demand;
· alternative use value;
· current passing rent close to or below rental value; and
· long-term demand drivers, including demographics, use of
technology or built-for-purpose real estate.
The Group may invest in commercial properties or portfolios of commercial
property assets which, in addition, include ancillary or secondary
utilisations.
The Group does not intend to spend any more than 5% of the NAV in any rolling
12-month period on (a) the refurbishment of previously occupied space within
the existing Portfolio, or (b) the refurbishment of new properties acquired
with vacant units.
The Group may invest in corporate and other entities that hold property and
the Group may also invest in conjunction with third party investors.
Investment Restrictions
GAV of less than £250 million GAV of £250 million or greater
Investment in a single property limited to 15% of GAV (measured at the time of Investment in a single property limited to 10% of GAV (measured at the time of
investment). investment).
The value of assets in any sub-sector in one geographical region, at the time Investments will be made with a view to reducing the maximum exposure to any
of investment, shall not exceed 15% of GAV. sub-sector in one geographical region to 10% of GAV.
The value of assets in any one sector and sub-sector, at the time of
investment, shall not exceed 50% of GAV and 25% of GAV respectively.
Exposure to a single tenant covenant will be limited to 15% of GAV.
The Group may commit up to a maximum of 10% of its GAV (measured at the
commencement of the project) in development activities.
Investment in unoccupied and non-income producing assets will, at the time of
investment, not exceed 5% of Estimated Rental Value ('ERV').
The Group will not invest in other closed-ended investment companies.
If the Group invests in derivatives for the purposes of efficient portfolio
and cash management, the total notional value of the derivatives at the time
of investment will not exceed, in aggregate, 20% of GAV.
The Group will invest and manage its assets with the objective of spreading
risk through the above investment restrictions.
When the measure of GAV is used to calculate the restrictions relating to (i)
the value of a single property and (ii) the value of assets in any sub-sector
in one geographical region, it will reflect an assumption that the Group has
drawdown borrowings such that these borrowings are equal to 30% of GAV.
Borrowings
The Group has utilised borrowings to enhance returns over the medium term.
Borrowings have been utilised on a limited recourse basis for each investment
on all or part of the total portfolio and will not exceed 40% of GAV (measured
at drawdown) of each relevant investment or of the portfolio.
Dividend Policy
It is the directors' intention to pay dividends in line with the Company's
investment objective with interim dividends payable by four instalments
quarterly in November, February, May and August in respect of each financial
year to June. Additionally, the dividend policy allows for the payment of
further interim dividends should compliance with the REIT rules require.
KEY PERFORMANCE INDICATORS
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE
Net Initial Yield ('NIY') 6.58%
Annualised rental income based on the cash rents passing at the balance sheet The NIY is an indicator of the ability of the Group to meet its target At 30 June 2023
date, less non-recoverable property operating expenses, divided by the market dividend after adjusting for the impacts of leverage and deducting operating
value of the property, increased with purchasers' costs estimated by the costs. (2022: 5.70%)
Group's External Valuers.
Weighted Average Unexpired Lease Term ('WAULT') to break and expiry 17.0 years to break and 18.9 years to expiry
The average lease term remaining to expiry across the portfolio, weighted by The WAULT is a key measure of the quality of the portfolio. Long leases At 30 June 2023
contracted rent. underpin the security of our future income.
(2022: 17.5 years to break and 19.4 years to expiry)
Net Asset Value ('NAV') per share £67.75 million/84.16pps
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 At 30 June 2023
the assets and liabilities of the Group.
(2022: £77.60 million/96.40pps)
Dividend per share 6.045pps
Dividends declared in relation to the period are in line with the stated The Group seeks to deliver a sustainable income stream from its portfolio, For the year ended 30 June 2023
dividend target as set out in the Prospectus at IPO. Having achieved the which it distributes as dividends.
target dividend of 5.70 pence per Ordinary Share per annum, the aim now is to (2022: 5.50pps)
ensure an increasing dividend in line with the Company's Investment Objective.
Adjusted EPS 6.43pps
Adjusted EPS from core operational activities, as adjusted for non-cash items. This reflects the Group's ability to generate earnings from the portfolio For the year ended 30 June 2023
A key measure of a company's underlying operating results from its property which underpins dividends.
rental business and an indication of the extent to which current dividend (2022: 5.57pps)
payments are supported by earnings. See Note 8 to the financial statements.
Leverage (Loan-to-GAV) 36.76%
The proportion of the Group's assets that is funded by borrowings. The Group utilises borrowings to enhance returns over the medium term. At 30 June 2023
Borrowings will not exceed 40% of GAV (measured at drawdown).
(2022: 33.69%)
EPRA PERFORMANCE MEASURES
Detailed below is a summary table showing the EPRA performance measures (which
are all alternative performance measures) in the Group.
MEASURE AND DEFINITION PURPOSE PERFORMANCE
EPRA NIY(1) - unaudited 6.58%
Annualised rental income based on the cash rents passing at the balance sheet A comparable measure for portfolio valuations. This measure should make it At 30 June 2023
date, less non-recoverable property operating expenses, divided by the market easier for investors to judge themselves, how the valuation of two portfolios
value of the property, increased with (estimated) purchasers' costs. compare. (2022: 5.70%)
EPRA 'Topped-up' NIY(1) - unaudited 7.08%
This measure incorporates an adjustment to the EPRA NIY in respect of the A comparable measure for portfolio valuations. This measure should make it At 30 June 2023
expiration of rent-free periods (or other unexpired lease incentives such as easier for investors to judge themselves, how the valuation of two portfolios
discounted rent periods and step rents). compare. (2022: 6.41%)
EPRA NAV(2) £67.75 million /84.16pps
Net asset value adjusted to include properties and other investment interests Makes adjustments to IFRS NAV to provide stakeholders with the most relevant At 30 June 2023
at fair value and to exclude certain items not expected to crystallise in a information on the fair value of the assets and liabilities within a real
long-term investment property business. estate investment company with a long-term investment strategy. (2022: £77.60 million/96.40pps)
EPRA Net Reinstatement Value2 £74.71 million/ 92.80pps
The EPRA NRV adds back the purchasers' costs deducted from the EPRA NAV and A measure that highlights the value of net assets on a long-term basis. At 30 June 2023
deducts the break cost of bank borrowings.
(2022: £84.77 million/105.31pps)
EPRA Net Tangible Assets2 £67.75 million/ 84.16pps
The EPRA NTA deducts the break cost of bank borrowings from the EPRA NAV. A measure that assumes entities buy and sell assets, thereby crystallising At 30 June 2023
certain levels of deferred tax liability. The Group has UK REIT status and as
such no deferred tax is required to be recognised in the accounts. (2022: £77.11 million/95.79pps)
EPRA Net Disposal Value2 £67.75 million/ 84.16pps
The EPRA NDV deducts the break cost of bank borrowings from the EPRA NAV. A measure that shows the shareholder value if assets and liabilities are not At the year ended 30 June 2023
held until maturity.
(2022: £77.11million/95.79pps)
EPRA Earnings/EPS2 £5.43 million/ 6.75pps
Earnings from operational activities. A key measure of a company's underlying operating results and an indication of For the year ended 30 June 2023
the extent to which current dividend payments are supported by earnings.
(2022: £5.05 million/6.27pps)
EPRA Vacancy1 -- unaudited 0.00%
Estimated Rental Value ('ERV') of vacant space divided by ERV of the whole A 'pure' percentage measure of investment property space that is vacant, based At 30 June 2023
portfolio. on ERV.
(2022: 0.00%)
EPRA Cost Ratio1 - unaudited 15.23%
Administrative and operating costs (including and excluding costs of direct A key measure to enable meaningful measurement of the changes in a company's For the year ended 30 June 2023
vacancy) divided by gross rental income. operating costs.
(2022: 13.79%)
EPRA NNNAV (the EPRA NAV adjusted to include the fair value of hedging
instruments, financial debt and deferred taxes) is equal to EPRA NAV as there
are no adjusting items. As such this measure has not been presented.
(1)The reconciliation of this APM is set out in the EPRA Performance Measures
Calculations section following the Notes to the Consolidated Financial
Statements.
(2) The reconciliation of this APM is set out in Note 8 of the Notes to the
Consolidated Financial Statements.
INVESTMENT ADVISER'S REPORT
Introduction
The UK and indeed the Global real estate market have been through a
challenging period. As predicted in our 2022 Investment Adviser's Report,
persistently high inflation, increased debt costs and low consumer confidence
are driving the 2023 story.
Market Outlook
UK Economic Outlook
After a strong post COVID rebound the UK economy is now more challenging.
Output is declining; inflation remains elevated, above the long term average
and the labour market is showing signs of weakening. Whilst GDP slowed to 0.2%
in Q2 2023, there is a growing belief that the UK may avoid a recession, with
an expectation that the economy will slowly recover during 2024.
Businesses and consumers have limited their spending, faced with spiralling
prices and high interest rates on loans and mortgages. Retail sales have
declined as consumer confidence is hit due to the 'cost of living crisis'.
Consequently, businesses are expected to have to cut costs to preserve their
margins which are expected to lead to some job losses and higher unemployment
in 2023.
The key economic challenge is inflation which, having been in double digits
for 15 months and hitting levels not seen since the 1980s of 14.2% (RPI
October 2022), has now started to decrease, to 9.1% (RPI August 2023). Higher
interest rates, cooling domestic demand and lower wholesale import pricing
have started to take effect on the economy and inflation is widely predicted
to fall back to more sustainable levels by the end of 2023.
The August 2023 Bank of England base rate increase to 5.25% was the 14th
consecutive hike, but they chose to half rates at 5.25% at the September
meeting following better than expected falls in inflation indicators.
Financial markets expect the base interest rate to rise a little more. This is
widely forecast to peak at 5.5% in 2024, but some analysts predict a climb to
5.75%.
The UK economy is expected to return to low level economic growth in 2024,
thereby avoiding the long-term scarring of reduced business investment, high
long-run unemployment and a permanent decline in key sectors.
UK Real Estate Outlook
After rising substantially over the last two quarters of 2022, commercial
property yields effectively plateaued in early 2023. At that time, core
inflation data, on the upside of expectations, caused the market to think
again. Some were expecting that the previous 'yield peak' may be an inflection
point with some yield softening in the latter half of 2023, others suspected
an extended period of relative stability.
Forecasters' predictions for a peak in base rates went through a volatile
period in the first half of 2023, ranging from 6.0% to 6.5% This rate shift
from 5.0% is relatively small compared with the near doubling of the cost of
debt last year. Investors in a position to take a medium to long-term view,
with long-term drawn down facilities at below current debt pricing, may well
start taking key assets from leveraged investors. There is still a weight of
global capital seeking a home in UK real estate.
The gap between stronger and weaker assets with more vulnerable occupiers is
widening. Investment volumes are down, sellers are reluctant to dispose of
assets, and new development supply is slowing. Another summer of low activity
was expected.
It is income returns, rather than capital growth, which are expected to
continue to drive performance in 2023. Business insolvencies, property
defaults and consequently void rates are marginally increasing. However, where
businesses have requirements there is a focus on quality and sustainability,
reducing their occupational overheads and retaining staff. Moreover, the
ongoing lack of suitable development supply continues to underpin prime
markets particularly in comparison with secondary space.
The MSCI Capital Value Growth Index (June 2023) demonstrates the historical
movement in the investment market, showing the rerating in the second half of
2022 and the recent stability. The industrial sector, being the lowest
yielding, fell back more dramatically than the other main sectors, when rising
inflation and interest rates hit. This sector sits relatively favourably at
present, with a significant global weight of capital targeting the sector,
despite headwinds for occupiers. Void rates may rise somewhat over the short
term, but rental growth is expected to remain positive.
Both investors and occupiers have a renewed focus on the physical climate risk
after record temperatures which may be the new norm. Each are developing a
better understanding of the value of sustainability features, accurate
measurement of 'green' features and the impact of improved energy efficiency
on the corporate bottom line. More mandatory disclosure requirements are
expected, including net zero transition plans.
Portfolio Activity During the Year
The following asset management initiatives were undertaken during the year:
· Rent Reviews: A total of 14 rent reviews took place during the year
with a combined uplift of £346,000 representing a 4.79% increase in
contracted rent across the portfolio.
· Droitwich: Pets at Home have renewed their lease for a further five
years from 14 January 2023 at £113,000 per annum with a nine-month rent free
allowance.
· Bramall Court, Salford: Following an application from the tenant,
Mears Group, the Company has agreed to a change of use for the above property
from student accommodation to social housing. Following a surrender of the
original lease for a 345-bed secondary student accommodation block, a new,
institutionally acceptable, social housing lease has been agreed. This
incorporates a new undertenant, the Registered Provider, Plexus UK (First
Project) Limited, and a 10-year nomination agreement with Salford City
Council. Bramall Court is now almost 100% occupied by previously homeless
local families, as the 115 flats were recently refurbished by the tenant. The
rent, rent review period and lease length are unaltered.
NAV Movements
For the year ended 30 June 2023 2022
Pence per Pence per £ million
share £ million share
NAV at beginning of year 96.40 77.60 85.58 68.89
Change in fair value of investment property (13.26) (10.67) 9.97 8.02
Income earned for the year 10.76 8.66 9.81 7.90
Gain on sale of property - - 0.12 0.10
Finance costs for the year (1.77) (1.43) (1.77) (1.42)
Other expenses for the year (2.24) (1.80) (1.77) (1.43)
Dividends paid during the year (5.73) (4.61) (5.54) (4.46)
NAV at the end of the year 84.16 67.75 96.40 77.60
Valuation
At 30 June 2023 the Group owned 19 assets (30 June 2022: 19 assets). The 19
properties held for the year were valued at £107.0 million at 30 June 2023
(30 June 2022: £117.9 million).
Summary by Sector at 30 June 2023
Gross
WAULT Passing
Market Occupancy to Rental
Number of Valuation Value by ERV break Income ERV ERV
Sector Properties (£m) (%) (%) (years) (£m) (£m) (%)
Industrial 4 24.5 22.9 100.0 23.8 1.7 1.6 22.9
Hotel 3 20.1 18.8 100.0 12.9 1.7 1.4 20.6
Healthcare 3 18.0 16.8 100.0 25.5 1.2 1.1 15.6
Automotive & Petroleum 3 15.0 14.0 100.0 12.9 1.1 1.0 14.0
Residential 1 12.0 11.2 100.0 18.1 0.7 0.7 9.5
Retail 1 5.4 5.1 100.0 6.2 0.3 0.4 5.4
Leisure 2 5.4 5.0 100.0 6.3 0.5 0.4 5.5
Power Station 1 4.8 4.5 100.0 8.7 0.3 0.3 4.7
Education 1 1.8 1.7 100.0 20.6 0.1 0.1 1.8
Total/Average 19 107.0 100.0 100.0 17.0 7.6 7.0 100.0
Summary by Geographical Area at 30 June 2023
Gross
WAULT Passing
Market Occupancy to Rental
Geographical Number of Valuation Value by ERV break Income ERV ERV
Area Properties (£m) (%) (%) (years) (£m) (£m) (%)
West Midlands 4 26.2 24.5 100.0 12.1 1.8 1.9 26.6
The North West & Merseyside 2 23.3 21.7 100.0 34.4 1.5 1.2 17.5
South East excluding London 5 21.8 20.3 100.0 10.4 1.4 1.4 19.2
South West 2 12.4 11.7 100.0 21.6 0.9 0.8 11.6
Scotland 1 6.9 6.5 100.0 13.2 0.8 0.6 8.7
Yorkshire and the Humber 2 6.2 5.8 100.0 18.6 0.4 0.4 6.2
London 2 5.4 5.0 100.0 6.3 0.5 0.4 5.5
Eastern 1 4.8 4.5 100.0 8.7 0.3 0.3 4.7
Total/Average 19 107.0 100.0 100.0 17.0 7.6 7.0 100.0
The table below illustrates the weighting of the Group's contracted rental
income, based on the type of rent review associated with each lease.
Income Allocation by Type
Inflation linked - RPI 71.0% (2022: 69.6%)
Inflation linked - CPI 26.0% (2022: 26.3%)
Expiry or Open Market Value Reviews 3.0% (2022: 4.1%)
% of Passing Rent by Rent Review Type
% of Passing Rent by Review Frequency
% of Passing Rent by Cap Band
Property Portfolio at 30 June 2023
Property Sector Region Market
Value
(£m)
Bramall Court, Salford Residential North West & Merseyside 12.0
Pocket Nook Industrial Estate, St Helens Industrial North West & Merseyside 11.2
Premier Inn, Camberley Hotel South East 7.5
excluding London
Grazebrook Industrial Estate, Dudley Industrial West Midlands 7.3
Mercure City Hotel, Glasgow Hotel Scotland 6.9
Motorpoint, Birmingham Automotive & Petroleum West Midlands 6.9
Silver Trees, Bristol Healthcare South West 6.8
Prime Life Care Home, Solihull Healthcare Yorkshire and the Humber 6.7
Travelodge, Duke House, Swindon Hotel South West 5.6
Droitwich Spa Retail Park, Droitwich Retail West Midlands 5.4
Hoddesdon Energy, Hoddesdon Power Station Eastern 4.8
Prime Life Care Home, Brough Healthcare Yorkshire and the Humber 4.4
Volvo Slough, Slough Automotive & Petroleum South East 4.3
excluding London
Unit 2, Dolphin Park, Sittingbourne Industrial South East 4.2
excluding London
Applegreen Petrol Station, Crawley Automotive & Petroleum South East 3.9
excluding London
Pure Gym, London Leisure London 3.6
YMCA Nursery, Southampton Education South East 1.9
excluding London
Snap Fitness, London Leisure London 1.8
Unit 14, Provincial Park, Sheffield Industrial Yorkshire and the Humber 1.8
Top Ten Tenants at 30 June 2023
% of
Annual Portfolio
Contracted Total
Rental Passing WAULT to break
Income Rental (Years)
(£'000) Income
Tenants Property
Jupiter Hotels Ltd Mercure City Hotel, Glasgow 761.0 10.1% 13.2
Meridian Steel Ltd Grazebrook Industrial Estate, Dudley and Provincial Park, Sheffield 744.3 9.8% 3.9
Mears Group Plc Bramall Court, Salford 734.6 9.7% 18.1
Prime Life Ltd Lyndon Croft Care Centre, Solihull and Westerlands Care Village, Brough 728.7 9.6% 25.4
Premier Inn Hotels Ltd Premier Inn, Camberley 503.5 6.7% 8.7
Motorpoint Ltd Motorpoint, Birmingham 500.0 6.6% 14.0
Handsale Ltd Silver Trees, Bristol 455.7 6.0% 25.6
Travelodge Hotels Ltd Duke House, Swindon 403.1 5.3% 17.9
Hoddesdon Energy Ltd Hoddesdon Energy, Hoddesdon 332.7 4.4% 8.7
Biffa Waste Services Ltd Pocket Nook Industrial Estate, St Helens 314.4 4.2% 110.1
Total 5,478.0 72.4% 20.6
Tenancy Schedule
Tenant Property Annual Contracted Break Date Expiry Date
Rental Income
(£ '000)
Jupiter Hotels Ltd Mercure City Hotel 741.0 23/08/2036
Mears Group Plc Bramall Court 734.6 16/08/2041
Premier Inn Hotels Ltd Premier Inn 503.5 25/03/2032 24/03/2037
Motorpoint Ltd Motorpoint 500.0 24/06/2037
Handsale Ltd Silver Trees 455.7 14/01/2049
Prime Life Ltd Prime Life Care Home 426.3 21/11/2048
Travelodge Hotels Ltd Duke House 403.1 31/05/2041
Meridian Steel Ltd Grazebrook Industrial Estate, Works 1 & 2 361.4 21/05/2027
Hoddesdon Energy Ltd Hoddesdon Energy 332.7 27/02/2032 26/02/2050
Prime Life Ltd Prime Life Care Home 302.4 21/11/2048
Pure Gym Ltd Pure Gym 286.9 11/12/2027 10/12/2032
Volvo Car UK Ltd Volvo Slough 281.1 16/03/2037
B&M Bargains Droitwich Spa Retail Park 272.4 31/08/2029
Dore Metal Services Southern Ltd Unit 2, Dolphin Park 261.8 13/09/2028 12/09/2033
Petrogas Group UK Ltd Applegreen Petrol Station 255.9 16/07/2033
Meridian Steel Ltd Grazebrook Industrial Estate, Works 1 & 2 241.3 21/05/2027
Biffa Waste Services Ltd Pocket Nook Industrial Estate 203.1 24/02/2133
Sec. of State for Communities & Local Government Pocket Nook Industrial Estate 199.9 30/01/2033 29/01/2048
MSG Life Realty Ltd Snap Fitness 158.2 28/03/2033
BGEN Ltd Pocket Nook Industrial Estate 145.0 05/04/2025 04/04/2027
Meridian Steel Ltd Unit 14, Provincial Park 141.6 21/05/2027
YMCA Fairthorne Group YMCA Nursery 129.5 17/02/2044
Pets at Home Droitwich Spa Retail Park 112.5 13/01/2028
Biffa Waste Services Ltd Pocket Nook Industrial Estate 111.3 31/03/2134
BGEN Ltd Pocket Nook Industrial Estate 63.8 05/04/2024 04/04/2025
The Salvation Army Trustee Company Duke House 27.2 17/07/2032
Jupiter Hotels Ltd Mercure City Hotel (Conference Suite) 20.0 31/08/2036
Kingscrown Land & Commercial Ltd Pocket Nook Industrial Estate * 28/09/2045
Camberley Properties Ltd Premier Inn * 23/06/3010
Southern Electric Parcel Distribution Plc Premier Inn * 20/02/2111
Westlea Housing Association Ltd Duke House * 17/09/3006
Total 7,692.2
* Ground rents less than £150 per annum.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
The Group recognises that Environmental, Social and Governance ('ESG') matters
are of utmost importance to sustainable investment and a focus for the
business and investor community. The Group is committed to understanding how
best to consider ESG factors in all facets of its business, from business
strategy to investment decisions and company operations.
In order to meet investors' expectations relating to ESG matters, the Group
and its advisers adopt both financial and non-financial strategies to drive
long-term value with an innovative yet disciplined and conscientious approach
to ESG in respect of the property portfolio management including but not
limited to:
Environmental
· A proactive approach to procurement of Energy Performance
Certificate ('EPC') reassessments ahead of Minimum Energy Efficiency Standards
2023, maintaining quarterly reviews of EPC schedules, identification of
opportunities to improve energy efficiency, the reduction of greenhouse gas
('GHG') emissions and working closely with tenants who occupy under full
repairing and insuring leases.
· Ongoing environmental reviews and audits as part of regular due
diligence, including regular asset inspections to avoid any breach in
environmental legislation.
· Responsible refurbishment in respect of all works to assets with
consideration of the best approach to improving the EPC rating against
potential spend, liaising with tenants in respect of any fit-out or
alterations to carry out sustainable development and reuse of existing
materials where feasible to reduce waste.
· 'Green lease' terms being incorporated into leases where
feasible.
· Assets being operated in a manner to reduce overall energy and
water consumptions as well as waste production, while maintaining tenant
comfort and needs.
· Leverage technology for data management being used to monitor and
drive improvement across environmental and social metrics.
Social
· Commitment to occupier engagement.
· Incorporation of social improvements to each asset such as
installing defibrillators & electrical charging points.
· Provision of regular training and awareness to all managers on
social issues, such as wellbeing and mental health.
Governance
· Client checks being completed on all tenants as well as new
suppliers and contractors.
· Regular tenant engagement and inspections to ensure assets are
used as agreed within leases.
· Effective tracking of legislative requirements to assess and
monitor risks and opportunities.
Diversity
As an externally managed business, the Company does not have any employees or
office space. As such, the Group does not operate a diversity policy with
regards to any administrative, management and supervisory functions. A
description of the Board's policy on director diversity can be found in the
Corporate Governance Report of the Annual Report.
Employees
The Group has no employees and accordingly no requirement to report separately
in this area as the management of the portfolio has been delegated to the AIFM
and Investment Adviser.
The AIFM and Investment Adviser are equal opportunities employers who respect
and seek to empower each individual and the diverse cultures, perspectives,
skills and experiences within their workforce.
Human Rights
The Group is not within the scope of the Modern Slavery Act 2015 because it
has not exceeded the turnover threshold and therefore no further disclosure is
required in this regard.
Business Relationships
As well as the critical day-to-day portfolio management, the Group has service
providers that ensure the smooth running of the Group's activities. The
Group's key service providers are listed in the Annual Report, and the
Management Engagement Committee annually review the effectiveness and
performance of these service providers, taking into account any feedback
received.
The Group, AIFM and Investment Adviser and other third-party service providers
maintain high standards of business conduct by acting in a collaborative and
responsible manner with all business partners that protects the reputation of
the Group as a whole.
Greenhouse Gas Emissions
As an investment company, the Group's own direct environmental impact is
minimal and greenhouse gas ('GHG') emissions are negligible, and as such the
Company has not introduced measures to achieve energy efficiency. Information
on the GHG emissions in relation to the Group's property portfolio is
disclosed below.
The Group has followed UK Government environmental reporting guidelines and
used the UK Government 2023 greenhouse gas reporting conversion factors for
company reporting to identify and report relevant GHG emissions over which it
has Operational Control (where data is available) for the 12-month period to
30 June 2023.
An independent consultancy specialising in the application of sustainability
in commercial real estate was appointed to calculate the GHG statement and
provide verification on the approach used.
Scopes
GHG emissions have been reported against the following 'Scopes', as defined by
the GHG Protocol and where relevant:
Scope 1 (not relevant to AIRE): 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 Company and
consumed within real estate assets owned by the Company.
Scope 3: Indirect emissions from electricity and gas purchased/consumed within
AIRE assets, by tenants, where the tenant is counterparty to the energy
supply.
Statement of GHG emissions
The table below sets out the emissions per sector and for the Group overall in
the year ended 30 June 2023. The approach taken follows guidance provided by
the GHG Reporting Guidelines (BEIS, 2019) and EPRA Best Practice
Recommendations of Sustainability Reporting 2017.
Sector Scope Absolute tonnes of carbon dioxide equivalent (tCO(2)e) Like-for-like comparison of carbon dioxide equivalent (tCO(2)e)*
2022/23 2021/22 Difference (tCO(2)e) % change
Retail park Scope 2 0.13 1.44 -1.31 -91%
Industrial warehouse Scope 3 - Elec. 93.71 82.21 11.5 14%
Total Scope 2 & 3 93.84 83.65 10.19 12%
*Like-for-like requires 24 months of data for the current and previous
reporting year (July 2021 - June 2023). Both assets provided 24 months of data
therefore like-for-like calculations were possible.
Statement of Energy Usage
The table below sets out the energy use per sector and for the Group overall.
The approach follows guidance provided by the GHG Reporting Guidelines (BEIS,
2019) and the EPRA Best Practice Recommendations on Sustainability Reporting
2017.
Sector Energy Source Absolute energy usage (kWh) Like-for-like energy usage (kWh)
2022/23 2021/22 Difference (kWh) % change
Retail park Electricity 646 7,454 -6,809 -91%
Industrial warehouse Electricity 452,531 425,106 27,425 6%
Total Electricity 453,177 432,560 20,616 5%
Intensity Ratios
In addition to reporting relevant absolute GHG emissions (per scope and per
sector), the Group has chosen to report intensity ratios, where appropriate.
An intensity measure is reported for assets within the like-for-like
portfolio, where:
• No major renovation or refurbishment has taken place i.e.
affecting more than 50% of the building by area or number of occupants
• Occupancy is at least 75%
• At least 24 months data is available
• Emissions reported relate to an indoor area
Whilst no landlord meters reflect the above criteria for an intensity metric,
the Group has applied an intensity figure for one asset, Pocket Nook, where
the landlord procures the energy and directly recharges this to the tenant. An
intensity metric has not been produced for Droitwich Spa retail park on the
basis that the landlord-controlled meter does not reflect the above criteria
(emissions reported relate to an indoor area).
No normalisation factors have been considered for this annual report.
Assurance Statement
The Group's GHG emissions have been calculated and verified by an independent
third-party in accordance with the principles of ISO 14064. A full copy of the
methodology used, including scope, source or data and conversion factors, is
available on request.
Property Portfolio ESG activity
During the year ended 30 June 2023, the Group has worked closely with its
tenants to encourage and facilitate improvements in ESG activities within the
property portfolio.
Two new EPCs have been carried out; Motorpoint, Birmingham improved from C75
to C62; Travelodge Hotel, Swindon improved from C62 to B42. These improvements
are mainly as a result of tenant's internal refurbishment works.
Following inspections by EPC assessors, works have been identified at six
properties to improve EPC levels in the year to 30 June 2024 including new LED
lighting, replacement of an oil-fired boiler, solar panels and installation of
secondary glazing. The costs of these enhancements will be borne by the
occupiers.
Future projects are being developed with three other occupiers.
In the histogram above, the highest EPC rating of G applies to the Mercure
Hotel, Glasgow. This property was sold subsequent to the year end. The
remaining properties in the portfolio have an EPC rating of E or above with
the majority, 72% based on the remaining 18 properties, falling within B and
C.
SECTION 172(1) STATEMENT
The following disclosure describes how the directors have had regard to the
matters set out in section 172(1)(a) to (f) of the Companies Act 2006, in
promoting the success of the Company for the benefit of members as a whole.
This section describes how the Board has regard to the likely consequences of
any decision in the long term, the need to foster the Company's business
relationships with suppliers, customers and others, the desirability of the
Company maintaining a reputation for high standards of business conduct, and
the need to act fairly as between members of the Company. The Company does not
have any employees and therefore s172(1)(b) is not applicable to the Company.
The impact of the Company's operations on the community and the environment is
set out more fully in the Environmental, Social and Governance section above.
Stakeholder Issues of importance Engagement Effect of engagement on key decisions
Shareholders · Attractive and sustainable level of income, earnings and dividends. · Shareholder engagement is set out in the Corporate Governance The effect of shareholder engagement has fed into each aspect of the Board's
Report in the Annual Report. decision-making. The total aggregate dividends for the year have increased
The Group's investment objective is to deliver an attractive total return to · Long-term income stream linked to inflationary growth.
compared to the prior year and the Board has also worked to keep expenses
shareholders. Shareholders are directly impacted by changes to the Company's
· As a publicly listed Company, the Company is subject to Listing under control.
NAV and thus the share price and dividends. · Robust corporate governance structure and well-performing service Rules and other regulatory disclosure requirements which the Board abides by
providers. with the assistance of the Company Secretary and Corporate Broker.
· Strategic direction of the Company.
· Execution of investment objective.
· Value for money - low ongoing charges.
Service Providers · Reputation of the Company and maintaining high standards of · Effective and consistent engagement both through formal Board meetings Clear and effective strategic oversight and culture by the Board has been
business conduct. and regularly outside the meetings. crucial to enhancing the effectiveness of the Company's key service providers.
As an externally managed REIT, the Company conducts all its business through
The Board has worked closely with its service providers to maintain and
its service providers, the key ones being the Investment Adviser, Property · Productive working relationships with the Company. continually improve processes and to ensure that the Company's values are
Manager, Company Secretary, AIFM, depositary and corporate broker.
aligned with them.
· Fair and transparent service agreements. · Annual evaluation of key service providers.
· Collaboration. · Culture set by the Board and communicated to all providers.
Tenants · Positive working relationship with the Board, Investment Adviser and · To ensure the Investment Adviser and Property Manager generate and There is regular contact between the Property Manager and all the Group's
Property Manager. foster good relationships with the tenants. tenants. Rent reviews have all been completed on time and collection of rent
Tenants with strong business fundamentals and profitable operations are one of
at 100% is indicative of good tenant relations.
the key components to ensure a consistent income stream and ability to pay · Focus on asset management initiatives to assist the tenants where
dividends to the Company's shareholders.
applicable. Positive engagement is also reflected in the Investment Adviser's successful
· Rent reviews working with tenants for EPC and ESG improvements (see ESG report).
· Fair lease terms
· Long-term strategy and alignment with the tenant's business operations.
· Financial stability of tenants.
Debt provider · Compliance with loan covenants. · Ongoing engagement by the Investment Adviser throughout the year In addition to the Investment Adviser regular contact, the chairman engaged
and by the Board if required. directly with Canada Life post year end to ensure good communications are
The Group maintains a positive working relationship with its debt provider, · Responsible portfolio management. established and obtained helpful lender feedback prior to the maturing of the
Canada Life. loan in 2025.
Society and the environment · Responsible investing together with sustainability. · Starting regular engagement with tenants in respect of EPC The Board has encouraged both the Investment Adviser and Property Manager to
requirements. consider ESG on investment and on an ongoing basis.
As an investor in real estate, the Company's assets have an impact on the · Long-term strategy to take account of ESG considerations without
built environment. Environmental, Social and Governance ('ESG') factors negatively impacting financial returns. · Ensuring shareholder engagement covers ESG.
increasingly apply alongside of financial returns.
Principal Decisions
Principal decisions are those that have a material impact to the Group and its
key stakeholders. In taking these decisions, the directors considered their
duties under section 172 of the Act.
Directorate Changes
During the year, the Board welcomed Simon Bennett as an independent
non-executive director and chairman-designate on 10 November 2022, with the
search process supported by an independent recruitment consultant. Following
this on 30 November 2022, Alan Sippetts retired as an independent
non-executive director with Simon Bennett succeeding him as chairman on the
same date. In taking this decision, the Board considered that Simon Bennett's
skills and experience were suitable for the role and would complement the
skills and experience of the existing Board members.
Dividend and Dividend Policy
The dividend target of 5.70pps for the year ended 30 June 2023 was met. The
Board also agreed to distribute to shareholders an extra 0.345pps in respect
of non-rental income that had been received in the year. This brings the total
dividends for the year to 6.045pps, an increase of 9.9% on the 5.50pps
declared for the prior year.
As last year, the Board paid four interim dividends at quarterly intervals to
ensure shareholders received a steady stream of income on a timely basis.
However, this dividend policy prevents there being an opportunity for
shareholders to vote on a final dividend. Consequently, the Board are again
giving shareholders the opportunity to vote on the dividend policy of the
Company.
Settlement of Litigation
The Group received £825,000 during the year, in full and final settlement of
litigation to recover costs incurred on work to replace defective cladding on
the Travelodge Hotel, Swindon. Please refer to Note 15.3 for further details.
The Board were heavily involved in the litigation process and were focused on
ensuring an outcome which was in the best interests of the Company, its
shareholders and all stakeholders.
Property Transactions
On 8 August 2023 the Group completed the disposal of Mercure Hotel, Ingram
Street, Glasgow to the occupier for £7.5 million, a £550,000 (7.9%) premium
on the book value at 30 June 2023. The net proceeds from the sale will be
reinvested. In consideration of the disposal of this property, the interests
of shareholders had been taken into account by achieving a premium on the book
value of the asset alongside providing the Company with cash to take advantage
of beneficial opportunities for reinvestment.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's assets consist of UK commercial property. Its principal risks are
therefore related to the commercial property market in general, but also to
the particular circumstances of the individual properties and the tenants
within the properties.
The Board has overall responsibility for reviewing the effectiveness of the
system of risk management and internal control which is operated by the AIFM
and, where appropriate, the Investment Adviser. The Group's ongoing risk
management process is designed to identify, evaluate and mitigate the risks
the Group faces.
Twice each year the Board, assisted by the Audit Committee, undertakes a risk
review to assess the adequacy and effectiveness of the AIFM's, and where
appropriate the Investment Adviser's, risk management and internal control
systems. In addition, during the year the Audit Committee implemented
improvements to the Company's approach to risk management, detail on this is
provided in the Corporate Governance Report in the Annual Report.
The Board has carried out a robust assessment of the principal and emerging
risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity.
An analysis of the principal risks and uncertainties is set out in the table
below. This does not purport to be exhaustive as some risks are not yet known
and some risks are currently 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
REAL ESTATE RISKS
1. Tenant default The investment policy limits the exposure to any one tenant to 15% of Gross Probability: Moderate to high
Asset Value. The maximum exposure to any one tenant (calculated by GAV) is
Failure by tenants to comply with their rental obligations could affect the 10.8% at 30 June 2023. The Group benefits from a balanced portfolio with a
income that the properties earn and the ability of the Group to pay dividends diversified tenant base and is therefore not reliant on a single tenant or
to its shareholders. sector. Impact: High
Macroeconomic trends discussed through the report, including rising interest In the due diligence process prior to acquiring a property, covenant checks Movement: No change. However, the impact of different factors have changed the
rates, higher inflation and the possibility of recession have the ability to are carried out on tenants which are repeated on a regular basis. inflation/interest rate/cost pressures on tenants from the previous
materially impact on a tenant's business. This could result in tenants being
COVID/Market volatility pressures.
unable to comply with their rental obligations.
The Investment Adviser and Property Manager conduct ongoing monitoring and
liaison with tenants to manage potential bad debt risk.
2. Portfolio concentration The Group has investment restrictions in place to invest and manage its assets Probability: Low to moderate
with the objective of spreading and mitigating risk.
Any downturn in the UK and its economy or regulatory changes in the UK could
have a material adverse effect on the Group's operations or financial
condition. Greater concentration of investments in any sector or exposure to
Impact: Low to moderate
the creditworthiness of any one tenant or tenants may lead to greater Having a diversified portfolio in respect of both sector and tenants provides
volatility in the value of the Group's investments, NAV and the Company's reduced potential volatility in the portfolio and the impact rating for this
share price. risk is accordingly set at low to moderate.
Movement: No change
3. Property defects The Group's due diligence relies on the work (such as legal reports on title, Probability: Low to Moderate
property valuations, environmental, building surveys) outsourced to third
Due diligence may not identify all the risks and liabilities in respect of an parties that have appropriate Professional Indemnity cover in place.
acquisition (including any environmental, structural or operational defects)
that may lead to a material adverse effect on the Group's profitability, the Impact: Moderate
NAV and the Company's share price.
Movement: Probability decreased
The Investment Adviser has comprehensive due diligence processes in place. In
addition, the Investment Adviser now has an in depth knowledge of all the
properties that were in portfolio on their appointment.
4. Rate of inflation The inflation linked (RPI/CPI) leases in the portfolio have contractual rent Probability: Moderate to High
review collars, with the lowest floor being 0%, and caps that range from 3% to
Rent review provisions may have contractual limits to the increases that may no cap. The majority of caps are in excess of RPI and CPI forecasts during the
be made as a result of the rate of inflation. If inflation is in excess of next five-year rent review cycle and therefore based on forecasts.
such contractual limits, the Group may not be able to deliver targeted returns
Impact: Moderate
to shareholders.
The risk of inflation is somewhat mitigated by the leases that have no cap. In
addition, a total of eight leases undergo reviews annually which will allow Movement: Probability increased
inflation changes to be reflected expeditiously.
The rate of inflation has continued to increase significantly in the past
year. This has increased the possibility of caps limiting the level of rent
increases.
5. Property market The Group has investment restrictions in place to invest and manage its assets Probability: Moderate to high
with the objective of spreading and mitigating risk.
Any recession or future deterioration in the property market could, inter
alia, (i) lead to an increase in tenant defaults, (ii) make it difficult to
attract new tenants for its properties, (iii) lead to a lack of finance
Impact: Moderate to high
available to the Group, (iv) cause the Group to realise its investments at Most of the leases provide a relatively long unexpired term and contain upward
lower valuations; and (v) delay the timings of the Group's realisations. only rent reviews which are linked to either RPI or CPI. Because of these
factors, the Group expects that the assets will show less volatile valuation
movement over the long term. Movement: No change
Any of these factors could have a material adverse effect on the ability of
the Group to achieve its investment objective.
6. Property valuation The Group uses an independent valuer (Knight Frank LLP) to value the Probability: Low to moderate
properties on a quarterly basis at fair value in accordance with accepted RICS
Property is inherently difficult to value due to the individual nature of each appraisal and valuation standards.
property.
Impact: Moderate to high
There may be an adverse effect on the Group's profitability, the NAV and the
Company's share price in cases where properties are sold whose valuations have Movement: No change
previously been materially overstated.
7. Investments are illiquid The Group aims to hold the properties for long-term income and all property Probability: Low
investment / disinvestment is managed carefully to ensure there is no undue
The Group invests in commercial properties. Such investments are illiquid; pressure on cash flow that would require a quick sale of assets.
they may be difficult for the Group to sell and the price achieved on any
realisation may be at a discount to the prevailing valuation of the relevant Impact: Moderate
property.
The Company's dividend is funded from net revenue and is not affected by the
portfolio's (il)liquidity.
Movement: Probability decreased.
Turnover in the portfolio is, and is expected to remain, limited; therefore,
the probability of this risk materialising has been changed to low.
8. Environment The current regulations require annual mandatory Green House Gas (GHG) Probability: Moderate
reporting, which will be carried out as part of the annual report and will
The Group is subject to environmental regulations. In addition to regulatory result in minimal expenditure for the Group.
risk, there is a growing importance being placed on ESG credentials by
tenants, which could lead to difficulty in letting vacant space. Impact: Moderate
Furthermore, the Investment Adviser has prepared an ESG strategy to ensure it
meets legal requirements and remains attractive to current and future
Properties could be impacted by extreme environment events such as flooding. tenants. Please see the 'Environmental, Social and Governance' section for Movement: No change
Climate change could accelerate more quickly leading to adverse physical further information.
impacts as well as regulatory change.
In depth research is undertaken on each property at acquisition. The
Failure by the Group to meet current or future environmental targets could Investment Adviser has adopted an environmental policy which it is in the
result in penalties, increased costs, a reduction in asset values and have an process of applying to all properties within the portfolio.
adverse effect on the Company's reputation, leading to loss of good quality
tenants.
BORROWING RISKS
9. Breach of borrowing covenants The Group monitors the borrowing covenants on a regular ongoing basis by cash Probability: Low to moderate
flow forecasting, quarterly risk reports and a quarterly compliance
The Group has entered into a fixed term loan facility, maturing October 2025. certificate.
Impact: High
Material adverse changes in valuations and net income may lead to breaches in The Group's gearing at 30 June 2023 was 36.8%, below the maximum gearing (on a
the LTV and interest cover ratio covenants. GAV basis on drawdown) of 40% and materially below the covenant's default LTV
of 60%. On the same date the Group's interest rate calculation (ICR) was Movement: Probability increased
614.5%, materially above the covenant default ICR of 250%.
Increase is the result of:
If the Group is unable to operate within its debt covenants, this could lead
to default and the loan facility being recalled. This could result in the
· the likelihood that future borrowings will be at a higher
Group being forced to sell properties to repay the loan facility, possibly Borrowing is carefully monitored by the Group, and action will be taken to interest rate;
resulting in a substantial fall in the NAV. conserve cash where necessary to ensure that this risk is mitigated.
· to reflect the volatility in interest rates compared to when the
initial borrowings were negotiated; and
It is ensured that there is significant headroom in the LTV and interest cover · the decreasing timescale to the maturity of the current loan
covenants as part of the monitoring process. facility.
Diversification of both the portfolio and tenants limit the risk to the Group
of any one geographic or sector property event and any one tenant default.
CORPORATE RISKS
10. Failure of service providers The Board meets regularly with, and monitors, all of its key service Probability: Low
providers, including the Investment Adviser. The Management Engagement
The Group has no employees and is reliant upon the performance of third-party Committee (MEC) reviews annually the performance of key service providers in
service providers. conjunction with their service level agreements, and makes use of Key
Performance Indicators where relevant. Impact: Moderate
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 In addition, the Audit Committee's robust and ongoing review of risk Movement: Probability and impact decreased
detrimental impact on the operation of the Group. management and internal controls covers key service providers.
Strengthening of the Board's oversight of its service providers (via the MEC
Should the Group pursue litigation against service providers, there is a risk and audit committee) which in turn has confirmed the continued strong
that the Company may incur costs that are irrecoverable if litigation is performance of the Group's service providers.
unsuccessful.
11. Dependence on the Investment Adviser The MEC performs a formal annual review of the Investment Adviser which covers Probability: Moderate
the performance of the portfolio (both capital and income returns) and the
The future ability of the Group to successfully pursue its investment performance of and engagement with the M7's fund manager and other supporting
objective and investment policy may, among other things, depend on the ability staff.
of the service providers to retain its existing staff and/or to recruit
Impact: Moderate
individuals of similar experience and calibre, and effectively carry out its
services.
In addition, the Board meets regularly with M7 and directors engage with them
not only in Board meetings but also by email, telephone and ad hoc meetings. Movement: No change
This helps to maintain a good working relationship.
The Group relies on the Investment Adviser to manage the assets and
termination of the Investment Adviser agreement could severely affect the
Group's ability to effectively manage its operations.
The dependence on the M7 is managed through segregating the roles of AIFM and
Investment Adviser.
12. Ability to meet objectives The Group has an investment policy to achieve a balanced portfolio with a Probability: Moderate
diversified tenant base. This is reviewed by the Board at each scheduled Board
The Group may not meet its investment objective to generate a secure and meeting.
predictable income, that is sustainable in real terms, and at least maintain
capital values in real terms, from investing predominantly in a portfolio of Impact: High
smaller commercial properties in the UK.
The Group's property portfolio has a WAULT to break of 17.0 years and a WAULT
to expiry of 18.9 years. Further, over 97.0% of leases have inflation-linked
upwards only rent reviews, representing a secure income stream on which to Movement: Probability increased
Poor relative total return performance may lead to an adverse reputational deliver attractive total returns to shareholders.
impact that affects the Group's ability to raise new capital and new funds.
Inability to obtain new borrowings - of the amount required and at acceptable
The ability to ensure the real terms aspect of the objective will likely be
terms and rate(s) - on maturity of the current £41 million loan facility in The maturity of the loan facility is a standing item on the Board agenda, and impacted by refinancing being considerably more expensive than the current
2025, will be detrimental to the dividend return for shareholders. Also regular discussions are held with the Investment Adviser and other advisers to facility. And/or the possibility that the Group cannot obtain the required
disposal of several properties to repay borrowings. the Board concerning the make-up, amount etc of any additional or future amount of £41 million borrowings from an acceptable lender on acceptable
borrowings. terms.
TAXATION RISK
13. Group REIT status The Company monitors REIT compliance through the Investment Adviser and Probability: Low
Administrator on acquisitions and disposals and distribution levels; the
The Group has UK REIT status that provides a tax-efficient corporate Registrar and Broker on shareholdings; and third-party tax advisers to monitor
structure. REIT compliance requirements.
Impact: High
If the Group fails to remain a REIT for UK tax purposes, its profits and gains Processes are in place to ensure ongoing compliance with REIT regulations.
will be subject to UK corporation tax.
Movement: No change
POLITICAL/ ECONOMIC RISK
14. Political and macroeconomic events. The Group only invests in UK properties with strong alternative use values and Probability: High
long leases, so the portfolio is well positioned to withstand an economic
Such events present risks to the real estate and financial markets that affect downturn. Tenant default risk arising from political and macroeconomic events
the Group and the business of the tenants. is managed as described above.
Impact: High
The negative economic effects from the deterioration of the global economy, The Investment Adviser monitors both the macro and micro economy with special
higher inflation and interest rates, the ongoing long-term effects of the attention to those factors potentially impacting the Group, and reports to the Movement: No change
Russia-Ukraine war and secondary effects from COVID including supply Board on a regular basis.
constraints could impact the portfolio, tenants and the ability of the Group
to raise capital.
REGULATORY RISK
15. Disclosure Risk Service providers including AIFM, Investment Adviser, Company Secretary, Probability: Low to moderate
auditor, and corporate broker monitor disclosure obligations and liaise with
Failure to properly disclose information to investors or regulators in the Board to ensure requirements are met.
accordance with various disclosure rules and regulations. Examples include
AIFMD investor disclosures, annual reporting requirements, marketing/promotion Impact: Moderate
disclaimers, data protection regulations etc.
Movement: No change
16. Regulatory Change The Board receives regular updates on relevant regulatory changes (and Probability: Low
prospective changes) from its professional advisers.
New regulations or changes to existing regulations (particularly in relation
to climate change) could result in sub-optimal performance of the Group or, in
worst case, inability to continue as a viable business.
Impact: High
The Investment Adviser monitors the impact of emerging legislation across all
aspects of property investment and ESG has a particularly high profile at this
time. The Investment Adviser uses an ESG pre-acquisition checklist to review
purchases and also to ensure that the current portfolio is monitored, and that Movement: No change
works are carried out as appropriate, with tenant's agreement, to prevent
asset depreciation.
Emerging risks
The Board take account of and consider emerging risks as part of its risk
management assessment.
GOING CONCERN
The Group has considered its cash flows, financial position, liquidity
position and borrowing facilities.
The Group's unrestricted cash balance at the year end was £3.5 million (2022:
£2.5 million). The Group borrowings totalled £41 million under a loan
facility repayable on 20 October 2025 (the 'Loan'). The Group is permitted
to utilise up to 40% of GAV measured at drawdown with a Loan to GAV of 36.8%
at 30 June 2023. Therefore, the Group had headroom against its borrowing
covenant. The lender's loan to value covenant of 60% is significantly higher
than the Group's Loan to GAV. Lastly, if agreed by the current lender, two
properties not secured against the loan and valued at £8.73 million are
available as additional security for the Loan.
The Loan also has a lender's interest cover covenant of 250%. At 30 June 2023
the Group's interest cover ratio was 614.50%, giving significant headroom. A
'severe but plausible downside' scenario has also been projected. While rent
collections have been strong, this scenario projects rent deferrals and
write-offs for tenants with difficulty paying rents from operational cash
flows. In this scenario the Group still has adequate headroom against the
interest cover covenant and positive cash balances. Further detail of the
assumptions made in assessing the adaption of Group's going concern basis can
be found in Note 2.4.
The Group benefits from a secure, diversified income stream from leases which
are not overly reliant on any one tenant or sector. As a result, the directors
believe that the Group is well placed to manage its financing and other
business risks.
The Board is satisfied that the Group and the Company has adequate resources
to continue in operational existence for the foreseeable future, being a
period of at least 12 months from the date of these financial statements. The
Board is, therefore, of the opinion that the going concern basis adopted in
the preparation of the financial statements is appropriate.
VIABILITY STATEMENT
In accordance with provision 30 of the UK Code, the directors have assessed
the prospects of the Group over a period longer than the 12 months required by
the 'Going Concern' provisions.
The Board has considered the nature of the Group's assets and liabilities and
associated cash flows and has determined that three years, up to 30 June 2026,
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 Group's viability over this three-year period
include:
1. The current unexpired term under the Group's debt facilities stands at
just over two years. The Board has no reason to believe that the Group cannot
refinance its debt in October 2025.
2. The Group's property portfolio had a WAULT to break of 17.0 years and a
WAULT to expiry of 18.9 years at 30 June 2023, representing a secure income
stream for the period under consideration.
3. A major proportion of the leases contain an annual, three or five-year
rent review pattern and therefore three years allow for the forecasts to
include the reversion arising from most rent reviews.
The three-year review considers the Group's cash flows, future dividends and
dividend cover, REIT compliance and relevant key financial ratios over the
period. In assessing the Company's viability, the Board has carried out a
thorough review of the Group's business model, including future performance,
liquidity and banking covenant tests for a three-year period. The Board has
assessed the extent of any operational disruption; potential curtailment of
rental receipts; potential liquidity and working capital shortfalls; and
diminished demand for the Group's assets going forward, in adopting a going
concern preparation basis and in assessing the Group'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;
· Refinancing terms; and
· Property portfolio valuation movements.
Based on the prudent assumptions within the Group's forecasts regarding
refinancing of the debt, rent deferrals, tenant default, void rates and
property valuation movements, the directors expect that over the three-year
period of their assessment:
· LTV covenants will not be breached - at 30 June 2023, the asset
valuations and rental income of the properties secured to Canada Life would
need to fall by 16.7% and 46.3% respectively before breaching the Loan to
Value and Income Cover Cash Trap covenants;
· REIT tests are complied with; and
· That the Group and Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year period of
assessment.
Board Approval of the Strategic Report
The Strategic Report has been approved and signed on behalf of the Board by:
Simon Bennett
Chairman
29 September 2023
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND THE CONSOLIDATED FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the Group
and parent Company financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group and parent Company
financial statements for each financial year. Under that law they are required
to prepare the Group financial statements in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and in accordance with the UK adopted international accounting standards.
The directors have elected to prepare the parent Company financial statements
in accordance with UK accounting standards, including FRS 101 Reduced
Disclosure Framework and applicable law.
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and parent Company and of their profit or loss for that
period. In preparing each of the Group and parent Company financial
statements, the directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant,
reliable and prudent;
· for the Group financial statements, state whether they have been
prepared in accordance with Companies Act 2006 and in accordance with UK
adopted international accounting standards;
· for the parent Company financial statements, state whether
applicable UK accounting standards have been followed, subject to any material
departures disclosed and explained in the parent Company financial statements;
· assess the Group and parent Company'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 the parent Company, or to cease operations,
or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and the parent Company's
transactions and disclose with reasonable accuracy at any time the financial
position of the Group and the parent Company and enable them to ensure that
its 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 the parent Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
· the Consolidated Financial Statements, prepared in accordance
with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a whole;
· the Strategic Report and Directors' Report include a fair review
of the development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face; and
· that the Annual Report and the Consolidated Financial Statements,
taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group's position and
performance, business model and strategy.
On behalf of the Board
Simon Bennett
Chairman
29 September 2023
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2023
2023 2022
Notes £'000 £'000
Income
Rental and other income 3 8,660 7,901
Property operating expense 4 (755) (330)
Net rental and other income 7,905 7,571
Other operating expenses 4 (1,049) (1,101)
Operating profit before fair value changes and gain on sale 6,856 6,470
Change in fair value of investment properties 10 (10,671) 8,023
Gain on disposal of investment property 10 - 96
Operating (loss)/ profit (3,815) 14,589
Finance expenses 6 (1,425) (1,423)
(Loss)/profit before tax (5,240) 13,166
Taxation 7 - -
(Loss)/ profit and total comprehensive (loss)/ income attributable to (5,240) 13,166
shareholders
(Loss per share)/ earnings per share (basic and diluted) 8 (6.51p) 16.36p
EPRA EPS (basic and diluted) 8 6.75p 6.27p
Adjusted EPS (basic and diluted) 8 6.43p 5.57p
All items in the above statement are derived from continuing operations.
The accompanying notes 1 to 21 form part of these Consolidated Financial
Statements.
Consolidated Statement of Financial Position
As at 30 June 2023
2023 2022
Notes £'000 £'000
Assets
Non-current Assets
Investment properties 10 103,847 115,124
Current Assets
Receivables and prepayments 11 4,193 4,034
Cash and cash equivalents 3,484 2,542
7,677 6,576
Total Assets 111,524 121,700
Non-current Liabilities
Interest bearing loans and borrowings 13 (40,724) (40,620)
Lease obligations 14 (266) (299)
(40,990) (40,919)
Current Liabilities
Payables and accrued expenses 12 (2,751) (3,146)
Lease obligations 14 (33) (36)
(2,784) (3,182)
Total Liabilities (43,774) (44,101)
Net Assets 67,750 77,599
Equity
Share capital 17 805 805
Capital reserve 75,417 75,417
(Deficit)/ retained earnings (8,472) 1,377
Total equity 67,750 77,599
Net Asset Value per share (basic and diluted) 8 84.16p 96.40p
The accompanying notes 1 to 21 form part of these Consolidated Financial
Statements.
The Consolidated Financial Statements were approved by the Board of directors
on 29 September 2023 and were signed on its behalf by:
Simon Bennett
Chairman
Company number: 10727886
Consolidated Statement of Changes in Equity
For the year ended 30 June 2023
Share Capital Retained Total
capital reserve earnings equity
Notes £'000 £'000 £'000 £'000
For the year ended 30 June 2023
Balance at 30 June 2022 805 75,417 1,377 77,599
Total comprehensive loss attributable to shareholders - - (5,240) (5,240)
Dividends paid 9 - - (4,609) (4,609)
Balance at 30 June 2023 805 75,417 (8,472) 67,750
For the year ended 30 June 2022
Balance at 30 June 2021 805 75,417 (7,329) 68,893
Total comprehensive income attributable to shareholders - - 13,166 13,166
Dividends paid 9 - - (4,460) (4,460)
Balance at 30 June 2022 805 75,417 1,377 77,599
The accompanying notes 1 to 21 form part of these Consolidated Financial
Statements.
Consolidated Statement of Cash Flows
For the year ended 30 June 2023
Notes 2023 2022
£'000 £'000
Cash flows from operating activities
(Loss)/ profit before tax (5,240) 13,166
Adjustment for:
Finance expenses 6 1,425 1,423
Gain on disposal of investment property 10 - (96)
Change in fair value of investment properties 10 10,671 (8,023)
Operating results before working capital changes 6,856 6,470
Change in working capital
Increase in receivables and prepayments (159) (352)
(Decrease)/ increase in other payables and accrued expenses (312) 100
Net cash flow generated from operating activities 6,385 6,218
Cash flows from investing activities
Purchase of investment property 10 - (5,375)
Net proceeds from disposal of investment property 10 - 5,396
Reduction in acquisition costs 10 606 -
Net cash generated from investing activities 606 21
Cash flows from financing activities
Finance costs paid (1,321) (1,319)
Dividends paid 9 (4,692) (4,455)
Payment of lease obligation (36) (38)
Net cash used in financing activities (6,049) (5,812)
Net increase in cash and cash equivalents 942 427
Cash and cash equivalents at beginning of year 2,542 2,115
Cash and cash equivalents at end of year 3,484 2,542
The accompanying notes 1 to 21 form part of these Consolidated Financial
Statements.
Notes to the Consolidated Financial Statements
for the year ended 30 June 2023
1. Corporate Information
Alternative Income REIT plc (the 'Company') is a public limited company and a
closed ended Real Estate Investment Trust ('REIT') incorporated on 18 April
2017 and domiciled in the UK and registered in England and Wales. The
registered office of the Company is 1 King William Street, London, United
Kingdom, EC4N 7AF.
The Company's Ordinary Shares were listed on the Official List of the FCA and
admitted to trading on the Main Market of the London Stock Exchange on 6 June
2017.
The nature of the Group's operations and its principal activities are set out
in the Strategic Report of the Annual Report.
2. Accounting policies
2.1 Basis of preparation
These consolidated financial statements (the 'financial statements') are
prepared and approved by the directors in accordance with International
Financial Reporting Standards ('IFRS') adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union ('EU') and in accordance with
the Companies Act 2006 and Article 4 of the International Accounting Standards
('IAS') Regulations.
These financial statements have been prepared under the historical-cost
convention, except for investment properties that have been measured at fair
value.
The financial statements are presented in Sterling and all values are rounded
to the nearest thousand pounds (£'000), except where otherwise indicated.
Basis of consolidation
The financial statements incorporate the financial statements of the Company
and its subsidiaries (the 'Group').
Subsidiaries are the entities controlled by the Company, being Alternative
Income Limited and Alternative Income REIT Holdco Limited.
New standards, amendments and interpretations, and forthcoming requirements
The Group has applied the following amendments for the first time for their
annual reporting period
commencing 1 July 2022:
• Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12) (effective 1 January 2023)
• IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance
Contracts (effective 1 January 2023)
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2) (effective 1 January 2023)
• Definition of Accounting Estimates (Amendments to IAS 8)
(effective 1 January 2023)
• Initial Application of IFRS 17 and IFRS 9 - Comparative
Information (Amendments to IFRS 17) (effective 1 January 2023)
The amendments listed above did not have any impact on the amounts recognised
in prior periods and are not expected to significantly affect the current or
future periods.
Certain new accounting standards and interpretations have been published that
are not mandatory for annual periods beginning after 1 July 2022 and early
application is permitted; however, the Group has not early adopted the new or
amended standards in preparing these financial statements:
• Classification of liabilities as current or non-current
(Amendments to IAS 1) (effective 1 January 2024)
• Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
(effective 1 January 2024)
• Non-current Liabilities with Covenants (Amendments to IAS 1)
(effective 1 January 2024)
• Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) (effective date
deferred indefinitely).
Forthcoming requirements
The following are new standards, interpretations and amendments, which are not
yet effective, and have not been early adopted in this financial information,
that will or may have an effect on the Group's future financial statements:
• Amendments to IAS 1 which clarifies the criteria used to determine
whether liabilities are classified as current or non-current (effective 1
January 2023). These amendments clarify that current or non-current
classification is based on whether an entity has a right at the end of the
reporting period to defer settlement of the liability for at least 12 months
after the reporting period. The amendment is not expected to have an impact on
the presentation or classification of the liabilities in the Group based on
rights that are in existence at the end of the reporting period.
2.2 Significant accounting judgements and estimates
In the application of the Group's accounting policies the directors are
required to make judgements, estimates and assumptions that affect the
reported amounts recognised in the financial statements. However, uncertainty
about these assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of the asset or liability in the
future. The estimates and associated assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are outlined below:
Valuation of investment properties
The fair value of investment properties 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
Group's properties have been valued on an individual basis. The valuation
experts use recognised valuation techniques, applying the principles of both
IAS 40 and IFRS 13.
The valuations have been prepared in accordance with the Royal Institution of
Chartered Surveyors ('RICS') Valuation. Factors include current market
conditions, annual rentals, the contractual terms of the leases and their
lengths and location. The significant methods and assumptions used by valuers
in estimating the fair value of investment properties are set out in note 10.
Provision for expected credit losses ('ECL') of trade receivables
Rent collection rates since the start of the Group are in the region of 100%.
As a result, the Group does not have the data to establish historical loss
rates for the expected credit loss analysis.
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.
Principal versus agent considerations - services to tenants
The Group arranges for certain services to be provided to tenants. These
arrangements are included in the contract the Group enters into as a lessor.
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. The Group has determined that it
is primarily responsible for fulfilling these services as it directly deals
with tenants' complaints and is primarily responsible for the quality or
sustainability 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.
REIT status
The Group is a Real Estate Investment Trust (REIT) and does not pay tax on its
property income or gains on property sales, provided that at least 90% of the
Group's property income is distributed as a dividend to shareholders, which
becomes taxable in their hands. In addition, the Group has to meet certain
conditions such as ensuring the property rental business represents more than
75% of total profits and assets. Any potential or proposed changes to the REIT
legislation are monitored and discussed with HMRC. It is the Board's intention
that the Group will continue as a REIT for the foreseeable future.
Classification of lease arrangements - the Group as lessor (Note 14)
The Group has acquired investment properties that are leased to tenants. In
considering the classification of lease arrangements, at inception of each
lease the Group considers the economic life of the asset compared with the
lease term and the present value of the minimum lease payments and any
residual value compared with the fair value and associated costs of acquiring
the asset as well as qualitative factors as indicators that may assert to the
risks and rewards of ownership having been substantially retained or
transferred. The Group has determined that it retains all the significant
risks and rewards of ownership of its investment property and accounts for the
lease arrangements as operating leases.
2.3 Segmental information
Each property held by the Group is reported to the chief operating decision
maker. In the case of the Group, the chief operating decision maker is
considered to be the Board of directors. The review process for segmental
information includes the monitoring of key performance indicators applicable
across all properties. These key performance indicators include Net Asset
Value, Earnings per Share and valuation of properties. All asset cost and
rental allocations are also reported by property. The internal financial
reports received by the directors cover the Group and all its properties and
do not differ from amounts reported in the financial statements. The directors
have considered that each property has similar economic characteristics and
have therefore aggregated the portfolio into one reportable segment under the
provisions of IFRS 8.
2.4 Going concern
The financial statements have been prepared on a going concern basis.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
Report. The robust financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the financial statements
and the accompanying notes. The financial statements also include the Group's
objectives, policies and processes for managing its capital, its financial
risk management objective and its exposures to market price risk, real estate
risk, credit risk and liquidity risk.
The Investment Adviser on behalf of the Board has projected the Group's cash
flows for the period up to 30 September 2024, challenging and sensitising
inputs and assumptions to ensure that the cash forecast reflects a realistic
outcome given the uncertainties associated with the current economic
environment. The scenarios applied were designed to be severe but plausible,
and to take account of the availability of mitigating actions that could be
taken to avoid or reduce the impact or probability of the underlying risks.
The Group's debt of £41 million does not mature until 2025 and the Group has
reported full compliance with its loan covenants to date. Based on cash flow
projections, the directors expect the Group to continue to remain compliant.
The headroom of the loan to value covenant is significant and any reduction in
property values that would cause a breach would be significantly more than any
reduction currently envisaged.
Based on the above, the Board believes that the Group has the ability and
adequate resources to continue in operational existence for the foreseeable
future, being at least 12 months from the date of approval of the financial
statements.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below.
a) Functional and presentation currency
These financial statements are presented in Sterling, which is the functional
and presentational currency of the Group and its subsidiary undertakings. 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
Rental income under operating leases is recognised on a straight-line basis
over the term of the lease, except for contingent rental income, which is
recognised when it arises. For leases, which contain fixed or minimum uplifts,
the rental income arising from such uplifts is recognised on a straight-line
basis over the lease term.
Incentives for lessees to enter into lease agreements are spread evenly over
the lease term, even if the payments are not made on such a basis. The lease
term is the non-cancellable period of the lease together with any further term
for which the tenant has the option to continue the lease, where, at the
inception of the lease, the directors are reasonably certain that the tenant
will exercise that option.
Lease modifications, such as lease extensions and rent reductions, are
accounted for either as a separate lease or not a separate lease.
A modification will only be treated as a separate lease if it involves the
addition of one or more underlying assets at a price that is commensurate with
the standalone price of the increase in scope. All other modifications are not
treated as a separate lease.
If a modification is a separate lease, a lessee applies the requirements of
IFRS 16 to the newly added asset, due as a result of the modification,
independently of the original lease. The accounting for the original lease
continues unchanged.
If a modification is not a separate lease, the accounting reflects that there
is a linkage between the original lease and the modified lease. The existing
lease liability is remeasured with a corresponding adjustment to the
right-of-use asset on the effective date of the modification.
ii) Service charges and direct recharges
Revenue from service charges is recognised 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.
iii) Deferred income
Deferred income is rental income received in respect of future accounting
periods.
(iv) Dilapidation and lease surrender premium
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.
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, using the effective interest method which is
significantly the same as the contracted interest.
d) Investment property
Property is classified as investment property when it is held to earn rentals
or for capital appreciation or both. Investment property is measured initially
at cost including transaction costs. Transaction costs include transfer taxes
and professional fees to bring the property to the condition necessary for it
to be capable of operating. The carrying amount also includes the cost of
replacing part of an existing investment property at the time that cost is
incurred if the replacement of that part will prolong or improve the life of
the asset.
Subsequent to initial recognition, investment property is stated at fair
value. Gains or losses arising from changes in the fair values are included in
profit or loss.
Investment properties are valued by the external valuer. Any valuation of
investment properties by the external valuer must be undertaken in accordance
with the current issue of RICS Valuation - Professional Standards (the 'Red
Book').
The determination of the fair value of investment property requires the use of
estimates such as future cash flows from assets (such as lettings, tenants'
profiles, future revenue streams, capital values of fixtures and fittings,
plant and machinery, any environmental matters and the overall repair and
condition of the property) and yield applicable to those cash flows.
For the purposes of the financial statements, the assessed fair value is:
- reduced by the carrying amount of any accrued income resulting from
the spreading of lease incentives; and increased by the carrying amount of
leasehold obligations.
Investment property is derecognised when it has been disposed of or
permanently withdrawn from use and no future economic benefit is expected
after its disposal or withdrawal.
The profit on disposal is determined as the difference between the net sales
proceeds and the carrying amount of the asset at the commencement of the
accounting period plus capital expenditure in the period. Any gains or losses
on the retirement or disposal of investment property are recognised in profit
or loss in the year of retirement or disposal.
e) Cash and cash equivalents
Cash and short-term deposits in the Consolidated Statement of Financial
Position comprise cash at bank and short-term deposits with an original
maturity of three months or less.
f) Receivables and prepayments
Rent and other receivables are initially recognised at fair value and
subsequently at amortised cost. Impairment provisions are recognised based on
the process as described in note 2.2. Any adjustment is recognised in profit
or loss as an impairment gain or loss.
g) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised at fair value and
subsequently held at amortised cost.
h) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly
attributable transaction costs. After initial recognition, interest bearing
loans and borrowings are subsequently measured at amortised cost using the
effective interest method. Borrowing costs are amortised over the lifetime of
the facilities through profit or loss.
i) Provisions
A provision is recognised in the Consolidated Statement of Financial Position
when the Group has a present legal or constructive obligation as a result of a
past event that can be reliably measured and is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate
that reflects risks specific to the liability.
j) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
k) 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.
l) Lease obligations
Lease obligations relate to the head rent of investment property and are
capitalised at the lease commencement, at the lower of fair value of the
property and present value of the minimum lease payments and held as a
liability within the Consolidated Statement of Financial Position. The lease
payments are discounted using the interest rate implicit in the lease. Where
the Group is exposed to potential future increases in variable lease payments
based on an index or rate, these are not included in the lease liability until
they take effect. Lease payments are allocated between principal and finance
cost. The finance cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the remaining balance of
the liability for each period.
m) Taxes
Corporation tax is recognised in profit or loss except to the extent that it
relates to items recognised directly in equity, in which case it is recognised
in equity.
As a REIT, the Group is exempt from corporation tax on the profits and gains
from its investments, provided it continues to meet certain conditions as per
REIT regulations.
Taxation on the profit or loss for the period not exempt under UK REIT
regulations comprises current and deferred tax. Current tax is expected tax
payable on any non-REIT taxable income for the year, using tax rates
applicable in the year.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The amount of deferred tax that is provided is
based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantially
enacted at the period end date.
n) European Public Real Estate Association
The Group has adopted the European Public Real Estate Association ('EPRA')
best practice recommendations, which it expects to broaden the range of
potential institutional investors able to invest in the Company's Ordinary
Shares. For the year ended 30 June 2023, audited EPS and NAV calculations
under EPRA's methodology are included in note 8 and further unaudited measures
are included following the financial statements.
o) Capital and reserves
Share capital
Share capital is the nominal amount of the Company's Ordinary Shares in issue,
and is non-distributable.
Capital reserve
The capital reserve is a distributable reserve and represents the cancelled
share premium less dividends paid from this reserve.
Retained earnings
Retained earnings represent the profits of the Group less dividends paid from
revenue profits to date.
2.6 Fair value measurement
The Group measures financial and non-financial assets such as investment
properties at fair value at each reporting date.
A number of the Group's accounting policies and disclosures require the
determination of fair value, for both financial and non-financial assets and
liabilities. Fair value is defined in IFRS 13 Fair Value Measurement as the
price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Fair values have been determined for measurement and/or disclosure purposes
based on methods described below. Where applicable, further information about
the assumptions made in determining fair values is disclosed in the notes
specific to that asset or liability.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs significant to fair value measurement as a whole:
Fair value hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
For assets and liabilities that are recognised in the financial statements at
fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing categorisation (based
on the lowest level input that is significant to the fair value measurement as
a whole) at the end of each reporting period.
There were no transfers between any of the levels during the year.
Investment property
The valuation of investment property by valuers engaged by the Group who are
independently appointed and have the relevant professional qualifications and
with recent experience in the location and category of the investment property
being valued. Further information in relation to the valuers is provided in
note 10.
Property valuations are inherently subjective as they are made on the basis of
assumptions made by the valuer which may not prove to be accurate. For these
reasons, and consistent with EPRA's guidance, we have classified the
valuations of the property portfolio as Level 3 as defined by IFRS 13. The
inputs to the valuations are defined as 'unobservable' by IFRS 13 and these
are analysed in note 10.
3. Rental and other income
2023 2022
£'000 £'000
Gross rental income 7,429 7,036
Spreading of minimum contracted future rent - indexation 423 541
Spreading of tenant incentives - rent free periods (58) (73)
Other property income 294 1
Gross rental income (adjusted) 8,088 7,505
Service charges and direct recharges (see note 4) 572 396
Total rental and other income 8,660 7,901
All rental, service charges, direct recharges and other income are derived
from the United Kingdom.
Other property income for the year ended 30 June 2023 mainly relates to the
allocation to revenue of £219,000 arising from a settlement of the litigation
in respect of replacement of defective cladding for Travelodge, Swindon.
Further detail is provided in note
15.3.
4. Expenses
2023 2022
£'000 £'000
Property operating expenses 177 136
Service charges and direct recharges (see note 3) 572 396
Provision/ (reversal) of provision for impairment of trade receivables 6 (202)
Property operating expenses 755 330
Investment adviser fee 371 368
Auditor's remuneration 87 63
Operating costs * 481 588
Directors' remuneration (note 5) 110 82
Other operating expenses 1,049 1,101
Total operating expenses 1,804 1,431
Total operating expenses (excluding service charges and direct recharges) 1,232 1,035
* Included in the operating costs for year ended 30 June 2022 is £1,250 of
fees paid to Stephanie Eastment for due diligence incurred in advance of her
appointment as a director.
2023 2022
£'000 £'000
Audit
Statutory audit of Annual Report and Accounts 76 * 53
Statutory audit of Subsidiary Accounts 11 10
Total fees due to auditor 87 63
*Include £6,000 fees relating to year ended 30 June 2022.
Moore Kingston Smith LLP has not provided any non-audit services to the Group.
5. Directors' remuneration
2023 2022
£'000 £'000
Directors' fees 99 75
Tax and social security 11 7
Total fees 110 82
A summary of the director's remuneration is set out in the Directors'
Remuneration Report in the Annual Report.
The Group had no employees during the year.
6. Finance expenses
2023 2022
£'000 £'000
Interest payable on loan (note 13) 1,307 1,307
Amortisation of finance costs (note 13) 104 104
Other finance costs 14 12
Total 1,425 1,423
7. Taxation
2023 2022
£'000 £'000
Tax charge comprises:
Analysis of tax charge in the year
(Loss)/ profit before tax (5,240) 13,166
Theoretical tax (refund)/ charge at UK corporation tax standard rate of 20.50% (1,074) 2,502
(2022: 19.00%)
Effects of tax-exempt items under the REIT regime (1,074) (2,502)
Total - -
The Group maintained its REIT status and as such, no deferred tax asset or
liability has been recognised in the current year.
Factors that may affect future tax charges
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 or losses arising
on the revaluation or disposal of investments.
8. (Loss per share)/ Earnings per share (EPS) and Net Asset Value (NAV) per
share
2023 2022
(Loss per share)/ EPS:
Total comprehensive (loss)/income (£'000) (5,240) 13,166
Weighted average number of shares (number) 80,500,000 80,500,000
(Loss per share)/ EPS (basic and diluted) (6.51p) 16.36p
EPRA EPS (£'000):
Total comprehensive (loss)/income (5,240) 13,166
Adjustment to total comprehensive income:
Change in fair value of investment properties 10,671 (8,023)
Gain on disposal of investment property - (96)
EPRA earnings (basic and diluted) (£'000) 5,431 5,047
EPRA EPS (basic and diluted) 6.75p 6.27p
Adjusted EPS:
EPRA earnings (basic and diluted) (£'000) - as above 5,431 5,047
Adjustments (£'000):
Rental income recognised in respect of guaranteed fixed rental uplifts (note (423) (541)
3)
Rental income recognised in respect of rent free periods (note 3) 58 73
Amortisation of loan finance costs (note 6) 104 104
Write-off of rent 16 4
Reversal of provision for impairment of trade receivables (note 4) (10) (202)
Adjusted earnings (basic and diluted) (£'000) 5,176 4,485
Adjusted EPS (basic and diluted) * 6.43p 5.57p
* Adjusted EPS is a measure used by the Board to assess the level of the
Group's dividend payments. This metric adjusts EPRA earnings for non-cash
items in arriving at an adjusted EPS as supported by cash flows.
Earnings per share are calculated by dividing profit/(loss) for the year
attributable to ordinary equity holders of the Company by the weighted average
number of Ordinary Shares in issue during the year.
2023 2022
NAV per share:
Net assets (£'000) 67,750 77,599
Ordinary Shares (Number) 80,500,000 80,500,000
NAV per share 84.16p 96.40p
EPRA Net Reinvestment Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net
Disposal Value (NDV)
EPRA NRV EPRA NTA and EPRA NDV
At 30 June 2023
Net assets value (£'000) 67,750 67,750
Estimated purchasers' cost (£'000) 6,957 -
Break cost on bank borrowings (£'000) - -
74,707 67,750
Ordinary Shares (Number) 80,500,000 80,500,000
Per share measure 92.80p 84.16p
At 30 June 2022
Net assets value (£'000) 77,599 77,599
Estimated purchasers' cost (£'000) 7,664 -
Break cost on bank borrowings (£'000) (486) (486)
84,777 77,113
Ordinary Shares (Number) 80,500,000 80,500,000
Per share measure 105.31p 95.79p
9. Dividends
All dividends were paid as PIDs Quarter 2023 2022
Ended Rate £'000 £'000
Dividends in respect of year ended 30 June 2021
4th dividend 30-Jun-21 1.640p - 1,320
Dividends in respect of year ended 30 June 2022
1st dividend 30-Sep-21 1.300p - 1,047
2nd dividend 31-Dec-21 1.300p - 1,046
3rd dividend 31-Mar-22 1.300p - 1,047
4th dividend 30-Jun-22 1.600p 1,288 -
Dividends in respect of year ended 30 June 2023
1st dividend 30-Sep-22 1.375p 1,107 -
2nd dividend 31-Dec-22 1.375p 1,107 -
3rd dividend 31-Mar-23 1.375p 1,107 -
Total dividends paid* 4,609 4,460
4th dividend 30-Jun-21 1.640p - (1,320)
4th dividend 30-Jun-22 1.600p (1,288) 1,288
4th dividend** 30-Jun-23 1.920p 1,545 -
Total dividends payable in respect of the year 4,866 4,428
Total dividends per share payable in respect of the year 6.045p 5.50p
* Dividends paid per Consolidated Statement of Cash Flows amount to
£4,692,000 (2022: £4,455,000), the difference between the amount disclosed
above is due to withholding tax.
** Dividends declared after the year end are not included in the financial
statements as a liability.
10. Investment properties
2023
Freehold Investment properties Leasehold Investment properties Total 2022 Total
£'000 £'000 £'000 £'000
At the beginning of the year 80,980 36,925 117,905 109,230
Acquisition during the year - - - 5,375
Reduction in acquisition costs (note 15.3) (606) - (606) -
Disposal during the year - - - (5,300)
Change in value of investment properties (6,549) (3,725) (10,274) 8,600
Valuation provided by Knight Frank LLP 73,825 33,200 107,025 117,905
Adjustment to fair value for minimum rent indexation of lease income (note 11) (3,542) (3,177)
Adjustment for lease obligations* 364 396
Total investment properties 103,847 115,124
Change in fair value of investment properties
Change in fair value before adjustments for lease incentives and lease (10,274) 8,600
obligations
Movement in lease obligations (32) (109)
Adjustment to spreading of contracted future rent indexation and tenant (365) (468)
incentives
(10,671) 8,023
There were no acquisitions nor disposals of properties in the year being
reported. During 2022, the Group acquired the property known as Volvo, Slough
and disposed of the investment property known as Audi, Huddersfield. The table
below shows a reconciliation of the gain recognised on disposal through the
Consolidated Statement of Comprehensive Income.
2023 2022
£'000 £'000
Gross proceeds on disposal - 5,500
Selling costs - (104)
Net proceeds on disposal - 5,396
Carrying value - (5,300)
Gain on disposal of investment property - 96
Valuation of investment properties
Valuation of investment properties is performed by Knight Frank LLP, an
accredited external valuer with recognised and relevant professional
qualifications and recent experience of the location and category of the
investment property being valued. The valuation of the Group's investment
properties at fair value is determined by the external valuer on the basis of
market value in accordance with the internationally accepted RICS Valuation -
Professional Standards (incorporating the International Valuation Standards).
The determination of the fair value of investment properties requires the use
of estimates such as future cash flows from assets (such as lettings, tenants'
profiles, future revenue streams, capital values of fixtures and fittings,
plant and machinery, any environmental matters and the overall repair and
condition of the property) and yield applicable to those cash flows.
The right of use asset is valued at future lease payments discounted using the
net equivalent yield on the relevant asset.
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 of the fair value 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')
2) Net Initial 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.
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 Valuation technique Significant unobservable inputs Range
£'000
30 June 2023
Investment Properties* 107,025 Income capitalisation ERV £4.39 - £21.97
Net Initial yield
4.70% - 10.25%**
30 June 2022
Investment Properties* 117,905 Income capitalisation ERV £4.00 - £21.96
Net Initial yield
4.65% - 9.16%**
* Valuation per Knight Frank LLP
**Hotels, petrol stations, residential & healthcare are excluded from this
range
Sensitivity analysis below.
2023
Change in ERV Change in net initial yield
£'000 £'000 £'000 £'000
Sensitivity Analysis +10% -10% +10% -10%
Resulting fair value of investment properties 109,412 104,542 101,214 114,027
2022
Change in ERV Change in net initial yield
£'000 £'000 £'000 £'000
Sensitivity Analysis +10% -10% +10% -10%
Resulting fair value of investment properties 121,583 114,850 111,837 126,023
11. Receivables and prepayments
2023 2022
£'000 £'000
Receivables
Trade debtor 122 284
Less: Provision for impairment of trade receivables (2) (11)
Other debtors 326 244
446 517
Spreading of minimum contracted future rent indexation 3,132 2,709
Spreading of tenant incentives - rent free periods 410 468
3,542 3,177
Tenant deposit asset (note 12) 118 118
Other prepayments 87 222
205 340
Total receivables and prepayments 4,193 4,034
The aged debtor analysis of receivables which are past due but not impaired is
as follows:
2023 2022
£'000 £'000
Less than 3 months due 464 515
Between 3 and 6 months due (18) 2
Between 6 and 12 months due - -
446 517
12. Payables and accrued expenses
2023 2022
£'000 £'000
Deferred income 1,568 1,501
Trade creditors 24 51
Accruals 374 576
Tenant deposit liability (note 11) 118 118
Loan interest payable (note 13) 258 258
Other creditors 409 642
2,751 3,146
13. Interest bearing loans and borrowings
2023 2022
£'000 £'000
Facility drawn 41,000 41,000
Unamortised finance costs brought forward (380) (484)
Amortisation of finance costs 104 104
At end of year 40,724 40,620
Repayable between 1 and 2 years - -
Repayable between 2 and 5 years 41,000 41,000
Repayable in over 5 years - -
Total at end of the year 41,000
41,000
At 30 June 2023, the Group had utilised all of its £41 million fixed interest
loan facility with Canada Life Investments and was geared at a loan to Gross
Asset Value ('GAV') of 36.8% (2022: 33.7%). The weighted average interest cost
of the Group's facility is 3.19% and the facility is repayable on 20 October
2025. Interest expense incurred during the year amounted to £1.31 million
(2022: £1.31 million), £0.26 million was outstanding as at 30 June 2023
(2022: £0.26 million). The loan is secured against 17 properties in the
Group's portfolio.
2023 2022
£'000 £'000
Reconciliation to cash flows from financing activities
At beginning of the year 40,620 40,516
Non-cash changes
Amortisation of loan issue costs 104 104
Total at end of the year 40,724 40,620
14. Lease obligations
At the commencement date, the lease liability is measured at the present value
of the lease payments that are not paid on that date.
The following table analyses the minimum lease payments due under
non-cancellable leases:
2023 2022
£'000 £'000
Within 1 year 50 50
After 1 year but not more than 5 years 150 150
More than 5 years 463 513
Total undiscounted lease liabilities 663 713
Less: Future finance charge on lease obligations (364) (378)
Present value of lease liabilities 299 335
Lease liabilities included in the Consolidated Statement of Financial Position
Current 33 36
Non-current 266 299
299 335
15. Commitments
15.1. Operating lease commitments - as lessor
The Group has 19 commercial properties with 33 units on its investment
property portfolio. These non-cancellable leases have a remaining term of
between 10 months and 111 years (2022: 7 months to 112 years), excluding
ground leases.
Future minimum rentals receivable under non-cancellable operating leases as at
30 June 2023 are as follows:
2023 2022
£'000 £'000
Within 1 year 7,179 7,071
After 1 year, but not more than 2 years 6,804 7,015
After 2 years, but not more than 3 years 6,548 6,754
After 3 years, but not more than 4 years 7,034 7,011
After 4 years, but not more than 5 years 6,416 7,045
After 5 years, but not more than 10 years 28,307 29,896
After 10 years, but not more than 15 years 24,085 25,935
More than fifteen years 50,689 55,472
137,062 146,199
During the year ended 30 June 2023 there were no material contingent rents
recognised as income (2022: £Nil).
15.2. Capital commitments
There were no capital commitments at 30 June 2023 (2022: none).
15.3. Financial commitments
In the 2022 Annual Report, it was disclosed that the Group was involved in
litigation against two parties to recover £1.1 million of costs. The costs
were incurred for work in the period September to December 2020 to replace
defective cladding elements uncovered in the external walls of the top floors
and rear lift core of the Travelodge Hotel, Swindon. The defective cladding
was installed when the property was extended in 2007 and the Group's claims
were against the architect and cladding sub-contractor involved. During the
year, the Board engaged in mediation with both parties and agreed a full and
final settlement of £825,000. Consequent to the resolution of that
litigation, the Group have no financial commitments other than those arising
from its normal business operations.
The settlement was in respect of the Group's costs to replace the defective
cladding, which had been charged to capital, and in respect of the
professional fees incurred by the Group to undertake the litigation, which had
been charged to revenue. Accordingly, the settlement has been proportionally
allocated £606,000 to capital, as a reduction in acquisition costs (see note
10), and £219,000 to revenue, as other property income (see note 3).
There are no other commitments other than those shown above at the year end
(2022: same).
16. Investments in subsidiaries
The Company has two wholly owned subsidiaries as disclosed below:
Name and company number Country of registration and incorporation Date of incorporation Principal activity Ordinary Shares held
Alternative Income REIT Holdco Limited England and 7 Nov 2017 Real Estate Company 73,158,502*
Wales
(Company number 11052186)
Alternative Income Limited (Company number 10754641) England and 4 May 2017 Real Estate Company 73,158,501*
Wales
* Ordinary shares of £1.00 each.
Alternative Income REIT Plc as at 30 June 2022 owns 100% of Alternative Income
REIT Holdco Limited.
Alternative Income REIT Holdco Limited holds 100% of Alternative Income
Limited.
Both Alternative Income REIT Holdco Limited and Alternative Income Limited are
registered at 1 King William Street, London, United Kingdom, EC4N 7AF.
17. Issued share capital
2023 2022
Number of Number of
Ordinary Shares
Ordinary Shares
£'000 £'000
Ordinary Shares of £0.01 each issued and fully paid
At the beginning and end of the year 805 80,500,000 805 80,500,000
18. Financial risk management and policies
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 has limited exposure to foreign currency risk
as most of its transaction is in Sterling. 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
portfolio follows.
18.1 Market price risk
Market price risk is the risk that future values of investments in property
will fluctuate due to changes in market prices. To manage market price risk,
the Group diversifies its portfolio geographically in the UK and across
property sectors.
The disciplined approach to the purchase, sale and asset management ensures
that the value is maintained to its maximum potential. Prior to any property
acquisition or sale, detailed research is undertaken to assess expected future
cash flow. The Board and the Investment Adviser meet regularly and are
responsible for recommending investment purchases or sales to the AIFM which
makes the ultimate decision. In order to monitor property valuation
fluctuations, the Investment Adviser meets with the independent external
valuer on a regular basis. The valuer provides a property portfolio valuation
quarterly, so any movements in the value can be accounted for in a timely
manner and reflected in the NAV every quarter.
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
properties acquired for the Group. 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.
18.3 Credit risk
Credit risk is the risk that the counterparty (to a financial instrument) or
tenant (of a property) will cause a financial loss to the Group by failing to
meet a commitment it has entered into with the Group.
It is the Group's policy to enter into financial instruments with reputable
counterparties. All cash deposits are placed with an approved counterparty,
Barclays International.
In respect of property investments, in the event of a default by a tenant, the
Group will suffer a rental shortfall and additional costs concerning
re-letting the property. The Investment Adviser monitors tenant arrears in
order to anticipate and minimise the impact of defaults by occupational
tenants.
The table below shows the Group's exposure to credit risk:
2023 2022
£'000 £'000
Debtors 448 528
Cash and cash equivalents 3,484 2,542
Total 3,932 3,070
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 Investment Adviser and Board.
The below table summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments.
18.5 Fair value of financial instruments
There is no material difference between the carrying amount and fair value of
the Group's financial instruments.
18.6 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. The
Group's exposure to the risk of changes in market interest rates is minimal
because the Group's loan is at a fixed rate of 3.19% (note 13).
19. Capital management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and to maintain an optimal capital structure to reduce the cost
of capital.
To enhance returns over the medium term, the Group utilises borrowings on a
limited recourse basis for each investment or all or part of the total
portfolio. The Group's policy is to borrow up to a maximum of 40% loan to GAV
(measured at drawdown). Alongside the Group's borrowing policy, the directors
intend, at all times, to conduct the affairs of the Group so as to enable the
Group to qualify as a REIT for the purposes of Part 12 of the Corporation Tax
Act 2010 (and the regulations made thereunder). The REIT status compliance
requirements include 90% distribution test, interest cover ratio, 75% assets
test and the substantial shareholder rule, all of which the Group remained
compliant in both this and the prior year.
The monitoring of the Group's level of borrowing is performed primarily using
a Loan to GAV ratio. The Loan to GAV ratio is an alternative performance
measure and its calculation is shown below. The Group Loan to GAV ratio at the
year end was 36.8% (2022: 33.7%).
Breaches in meeting the financial covenants would permit the lender to
immediately call loans and borrowings. During the year, the Group did not
breach any of its loan covenants, nor did it default on any other of its
obligations under its loan agreements.
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.
Directors
Directors of the Group are related party. Directors' remuneration is disclosed
in note 5.
Investment Adviser
M7 Real Estate Limited
M7 Real Estate Ltd was appointed as Investment Adviser on 14 May 2020. The
Interim Investment Advisory agreement (amended with Deed of Variation dated 21
February 2021) specifies that from 1 October 2020, the annual management fee
is calculated at a rate equivalent of 0.50% per annum of NAV (subject to a
minimum fee of £90,000 per quarter), payable quarterly in advance, with no
fee payable from 14 May to 30 September 2020. During the year ended 30 June
2023, the Group incurred £371,000 (2022: £368,000) in respect of investment
advisory fees, none of which was outstanding at 30 June 2023 (2022: £98,000).
21. Events after reporting date
Dividend
On 3 August 2023, the Board approved the interim dividend for the quarter
ended 30 June 2023 of 1.92pps. This was paid on 25 August 2023 to shareholders
on the register at 11 August 2023. The ex-dividend date was 10 August 2023.
The dividend was paid as a PID. Details are disclosed in the Chairman's
Statement.
Sale of property
On 8 August 2023, the Group completed the disposal of Mercure Hotel, Ingram
Street, Glasgow to the occupier for £7.5 million, a 7.9% premium on the book
value at 30 June 2023. The net proceeds from the sale have been deposited to
the lenders bank account and the Board intends to reinvest this as soon as
practical.
Company Statement of Financial Position
As at 30 June 2023
Notes 2023 2022
£'000 £'000
Assets
Non-current Assets
Investments in subsidiary companies 2 73,158 73,158
Investment property 2 1,814 2,153
74,972 75,311
Current Assets
Receivables and prepayments 3 169 159
Cash and cash equivalents 525 66
694 225
Total Assets 75,666 75,536
Current Liabilities
Payables and accrued expenses 4 (8,979) (13,035)
Net Assets 66,687 62,501
Equity
Share capital 6 805 805
Capital reserve 75,417 75,417
Deficit (9,535) (13,721)
Total capital and reserves attributable to equity holders of the Company 66,687 62,501
Net Asset Value per share (pence per share) 82.84p 77.64p
As permitted by s408 Companies Act 2006, the Company's profit and loss account
has not been presented in these financial statements.
The Company's profit for the year was £8,795,000 (2022: £8,141,000).
The financial statements were approved by the Board on 29 September 2023 and
were signed on its behalf by:
Simon Bennett
Chairman
Company number: 10727886
The accompanying notes 1 to 8 form an integral part of these financial
statements.
Company Statement of Changes in Equity
For the year ended 30 June 2023
Share Capital Deficit Total
capital reserve equity
£'000 £'000 £'000 £'000
For the year ended 30 June 2023
Balance at 30 June 2022 805 75,417 (13,721) 62,501
Total comprehensive income - - 8,795 8,795
Dividends paid - - (4,609) (4,609)
Balance at 30 June 2023 805 75,417 (9,535) 66,687
For the year ended 30 June 2022
Balance at 30 June 2021 805 75,417 (17,402) 58,820
Total comprehensive income - - 8,141 8,141
Dividends paid - - (4,460) (4,460)
Balance at 30 June 2022 805 75,417 (13,721) 62,501
The accompanying notes 1 to 8 form an integral part of these financial
statements.
Notes to the Company Financial Statements
for the year ended 30 June 2023
1. Accounting policies
Basis of preparation
These financial statements are prepared and approved by the directors in
accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101) and in accordance with applicable accounting standards.
As permitted by FRS 101, the Company has taken advantage of the following
disclosures exemptions which are permissible under FRS 101 as the equivalent
disclosures are contained within the Group's consolidated financial
statements:
- a cash flow statement and related notes;
- disclosures in respect of capital management;
- the effects of new but not yet effective IFRSs;
- the disclosures of the remuneration of key management personnel;
- disclosure of related party transactions with other wholly owned
members of the Ultimate Parent;
- the disclosure of financial instruments and other fair value
measurements.
The financial statements are presented in Sterling and all values are rounded
to the nearest thousand pounds (£'000), except when otherwise indicated. They
have been prepared on the historical cost basis.
The principal accounting policies adopted in the preparation of the Company's
financial statements are consistent with the Group which are described in note
2.5 of the Consolidated Financial Statements but makes amendments where
necessary in order to comply with the Companies Act 2006 and taking advantage
of the FRS 101 exemptions mentioned above.
New standards effective for the current accounting period do not have a
material impact on the financial statements of the Company.
The accounting policies used are otherwise consistent with those contained in
the Company financial statements for the year ended 30 June 2022.
Going concern
The financial statements have been prepared on a going concern basis.
For an assessment of going concern refer to the accounting policy 2.4 of the
Consolidated Financial Statements.
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.
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.
Deferred income
Deferred income is rental income received in respect of future accounting
periods.
2. Investments
2a. Investments in Subsidiary Companies
2023 2022
£'000 £'000
At the beginning and end of the year 73,158 73,158
A list of subsidiary undertakings at 30 June 2023 is included on note 16 of
the Consolidated Financial Statements.
The directors have considered the recoverability of the investment 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
properties held by the Company are carried at fair value. The net asset value
of the subsidiary company exceed the carrying amount of the investment in
subsidiary and the directors have concluded that no impairment is necessary.
2b. Investment property
2023 2022
£'000 £'000
At the beginning of the year 2,153 2,067
Revaluation of investment property (325) 100
Adjustment to fair value for minimum rent indexation of lease income (14) (14)
1,814 2,153
3. Receivables and prepayments
2023 2022
£'000 £'000
Rent debtor 5 32
Spreading of contracted future - rent indexation 61 40
VAT receivable 72 59
138 131
Other prepayments 31 28
169 159
4. Payables and accrued expenses
2023 2022
£'000 £'000
Due to subsidiaries 8,644 12,427
Deferred income 30 30
Trade creditors 5 35
Accruals 300 459
Other creditors - 84
8,979 13,035
Amounts due to subsidiaries are unsecured, interest free and repayable on
demand.
5. Dividends paid and payable
Details of dividends paid and payable in respect of the year are set out in
note 9 of the consolidated financial statements.
6. Issued share capital
2023 2022
Number of Number of
Ordinary Shares
Ordinary Shares
£'000 £'000
Ordinary Shares of £0.01 each issued
and fully paid
At the beginning and end of the year 805 80,500,000 805 80,500,000
7. Contingent liabilities, capital commitments and related party transactions
As at 30 June 2023 the Company had £nil contingent liabilities or capital
commitments (2022: £nil).
Related party transactions are the same for the Company as for the Group. For
details refer to note 20 of the Consolidated Financial Statements.
8. Events after reporting date
Events after the reporting date are the same as those disclosed in note 21 of
the consolidated financial statements.
EPRA Performance Measures (Unaudited)
EPRA Yield calculations 2023 2022
£'000 £'000
Investment properties wholly owned:
- by Company 1,875 2,200
- by Alternative Income Limited 105,150 115,705
Total - note 10 107,025 117,905
Allowance for estimated purchasers' costs - note 8 6,957 7,665
Gross up completed property portfolio valuation B 113,982 125,570
Annualised cash passing rental income 7,560 7,217
Annualised property outgoings (55) (55)
Annualised net rents A 7,505 7,162
Add: notional rent expiration of rent-free periods or other lease incentives 563 893
Topped-up net annualised rent C 8,068 8,055
EPRA NIY A/B 6.58% 5.70%
EPRA 'topped-up' NIY C/B 7.08% 6.41%
EPRA Cost Ratios 2023 2022
£'000 £'000
Include:
EPRA Costs (including direct vacancy costs) - note 4 A 1,232 1,035
Direct vacancy costs - -
EPRA Costs (excluding direct vacancy costs) B 1,232 1,035
Gross rental income (adjusted) - note 3 C 8,088 7,505
EPRA Cost Ratio (including direct vacancy costs) A/C 15.23% 13.79%
EPRA Cost Ratio (excluding direct vacancy costs) B/C 15.23% 13.79%
EPRA Vacancy rate 2023 2023
£'000 £'000
Annualised potential rental value of vacant premises A - -
Annualised potential rental value for the completed property portfolio B 7,040 6,987
EPRA Vacancy rate A/B 0.00% 0.00%
Alternative Performance Measures (APMs)
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.
Discount
The discount is the amount by which the share price is lower than the net
asset value per share, expressed as a percentage of the net asset value per
share.
2023 2022
NAV per Ordinary Share A 84.16p 96.40p
Share price B 64.70p 82.10p
Discount (A-B)/A 23.12% 14.83%
Dividend Cover
The ratio of Group's Adjusted EPS divided by the Group's dividends payable for
the relevant year.
2023 2022
Adjusted EPS A 6.43p 5.57p
Dividend per share B 6.045p 5.50p
Dividend cover A/B 106.37% 101.27%
Dividend Yield
The ratio of Group's annual dividends per share divided by the Group's share
price for the relevant year.
2023 2022
Annual dividends paid A 6.045p 5.50p
Share price B 64.70 82.10
Dividend yield A/B 9.34% 6.70%
Loan to GAV
Loan to GAV measures the value of loans and borrowings utilised (excluding
amounts held as restricted cash and before adjustments for issue costs)
expressed as a percentage of the combined valuation of the property portfolio
(as provided by the valuer) and the fair value of other assets.
2023 2022
Borrowings (£'000) A 41,000 41,000
Total assets (£'000) B 111,524 121,700
Loan to GAV A/B 36.76% 33.69%
Dividend Cover
The ratio of Group's Adjusted EPS divided by the Group's dividends payable for
the relevant year.
2023 2022
Adjusted EPS A 6.43p 5.57p
Dividend per share B 6.045p 5.50p
Dividend cover A/B 106.37% 101.27%
Dividend Yield
The ratio of Group's annual dividends per share divided by the Group's share
price for the relevant year.
2023 2022
Annual dividends paid A 6.045p 5.50p
Share price B 64.70 82.10
Dividend yield A/B 9.34% 6.70%
Loan to GAV
Loan to GAV measures the value of loans and borrowings utilised (excluding
amounts held as restricted cash and before adjustments for issue costs)
expressed as a percentage of the combined valuation of the property portfolio
(as provided by the valuer) and the fair value of other assets.
2023
2022
Borrowings (£'000)
A
41,000
41,000
Total assets (£'000)
B
111,524
121,700
Loan to GAV
A/B
36.76%
33.69%
Ongoing Charges
The ongoing charges ratio is the total for all operating costs expected to be
regularly incurred expressed as a percentage of the average quarterly NAVs of
the Group for the financial year.
2023 2022
Other operating expenses for the year (£'000) A 1,049 1,101
One-off website costs (£'000) * B (40) -
One-off legal fees (£'000) ** C - (64)
D=A+B+C 1,009 1,037
Average net assets (£'000) E 72,675 73,246
Ongoing charges ratio D/E 1.39% 1.42%
* Non-recurring website set up costs have been excluded in the amount for the
year presented.
**Non-recurring legal and professional costs have been excluded in the amount
for the year presented.
Share Price and Net Asset Value (NAV) Total Return
Share price and NAV total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against FTSE EPRA Nareit UK and FTSE Small Cap,
respectively.
Share price NAV
Opening at 30 June 2022 A 82.10 96.40p
Closing at 30 June 2023 B 64.70 84.16p
Return C=(B/A)-1 (21.19%) (12.69%)
Dividend reinvestment * D 6.97% 5.97%
Total return for the year ended 30 June 2023 C+D (14.22%) (6.72%)
Opening at 30 June 2021 A 71.00 85.58p
Closing at 30 June 2022 B 82.10 96.40p
Return C=(B/A)-1 15.63% 12.64%
Dividend reinvestment* D 8.70% 9.88%
Total return for the year ended 30 June 2022 C+D 24.33% 22.52%
*Share price total return involves reinvesting the net dividend in the share
price of the Company on the date on which that dividend goes ex-dividend. NAV
total return involves investing the net dividend in the NAV of the Company
with debt at fair value on the date on which that dividend goes ex-dividend.
Glossary
Alternative Investment Fund Manager or AIFM or Investment Manager Langham Hall Fund Management LLP.
Company Alternative Income REIT plc.
Contracted rent The annualised rent adjusting for the inclusion of rent subject to rent-free
periods.
Earnings Per Share ('EPS') Profit for the period attributable to equity shareholders divided by the
weighted average number of Ordinary Shares in issue during the period.
EPRA European Public Real Estate Association, the industry body representing listed
companies in the real estate sector.
Estimated Rental Value ('ERV') The external valuer's opinion as to the open market rent which, on the date of
the valuation, could reasonably be expected to be obtained on a new letting or
rent review of a property.
External Valuer An independent external valuer of a property. The Group's External Valuer is
Knight Frank LLP.
Fair value The estimated amount for which a property should exchange on the valuation
date between a willing buyer and a willing seller in an arm's length
transaction after proper marketing and where parties had each acted
knowledgeably, prudently and without compulsion.
Fair value movement An accounting adjustment to change the book value of an asset or liability to
its fair value.
FCA The Financial Conduct Authority.
Gross Asset Value ('GAV') The aggregate value of the total assets of the Group as determined in
accordance with IFRS.
Gross Passing Rental Income The gross passing rent is the rent roll at the reporting date, taking account
of any in-place rent free incentives or step rents on a straight-line basis
over the following 12-month period.
IASB International Accounting Standards Board.
IFRS International financial reporting standards. On 31 December 2020 EU-adopted
IFRS was brought into UK law and became UK-adopted international accounting
standards, with future changes to IFRS being subject to endorsement by the UK
Endorsement Board.
Investment Adviser M7 Real Estate Limited.
IPO The admission to trading on the London Stock Exchange's Main Market of the
share capital of the Company and admission of Ordinary Shares to the premium
listing segment of the Official List on 6 June 2017.
Lease incentives Incentives offered to occupiers to enter into a lease. Typically, this will be
an initial rent-free period, or a cash contribution to fit-out. Under
accounting rules, the value of the lease incentive is amortised through the
Consolidated Statement of Comprehensive Income on a straight-line basis until
the lease expiry.
Loan to Value ('LTV') The value of loans and borrowings utilised (excluding amounts held as
restricted cash and before adjustments for issue costs) expressed as a
percentage of the combined valuation of the property portfolio (as provided by
the valuer) and the fair value of other investments.
Net Asset Value ('NAV') Net Asset Value is the equity attributable to shareholders calculated under
IFRS.
Net Asset Value per share Equity shareholders' funds divided by the number of Ordinary Shares in issue.
Net equivalent yield Calculated by the Group's External Valuers, net equivalent yield is the
internal rate of return from an investment property, based on the gross
outlays for the purchase of a property (including purchase costs), reflecting
reversions to current market rent and items as voids and non-recoverable
expenditure but ignoring future changes in capital value. The calculation
assumes rent is received annually in arrears.
Net Initial Yield ('NIY') The initial net rental income from a property at the date of purchase,
expressed as a percentage of the gross purchase price including the costs of
purchase.
Initial yield does not include cost of purchase.
Net rental income Rental income receivable in the period after payment of ground rents and net
property outgoings.
Ordinary Shares The main type of equity capital issued by conventional Investment Companies.
Shareholders are entitled to their share of both income, in the form of
dividends paid by the Company, and any capital growth.
REIT A Real Estate Investment Trust. A company which complies with Part 12 of the
Corporation Tax Act 2010. Subject to the continuing relevant UK REIT criteria
being met, the profits from the property business of a REIT, arising from both
income and capital gains, are exempt from corporation tax.
Reversion Increase in rent estimated by the Company's External Valuers, where the
passing rent is below the ERV.
Share price The value of a share at a point in time as quoted on a stock exchange. The
Company's Ordinary Shares are quoted on the Main Market of the London Stock
Exchange.
Weighted Average Unexpired Lease Term ('WAULT') The average lease term remaining for first break, or expiry, across the
portfolio weighted by contracted rental income (including rent-frees).
Company Information
Share Register Enquiries
The register for the Ordinary Shares is maintained by Computershare Investor
Services PLC. In the event of queries regarding your holding, please contact
the Registrar on 0370 707 1874 or email: web.queries@computershare.co.uk
(mailto:web.queries@computershare.co.uk) .
Changes of name and/or address must be notified in writing to the Registrar,
at the address shown below. You can check your shareholding and find practical
help on transferring shares or updating your details at
www.investorcentre.co.uk. Shareholders eligible to receive dividend payments
gross of tax may also download declaration forms from that website.
Share Information
Ordinary £0.01 shares 80,500,000
SEDOL Number BDVK708
ISIN Number GB00BDVK7088
Ticker/TIDM AIRE
Share Prices
The Company's Ordinary Shares are traded on the Main Market of the London
Stock Exchange.
Frequency of NAV publication
The Group's NAV is released to the London Stock Exchange on a quarterly basis
and is published on the Company's website www.alternativeincomereit.com
(http://www.alternativeincomereit.com) .
Annual and Interim Reports
Copies of the Annual and Half-Yearly Reports are available from the Group's
website.
Financial Calendar 2023
30 June 2023 Year end
October 2023 Announcement of annual results
15 November 2023 Annual General Meeting
31 December 2023 Half year end
March 2024 Announcement of interim results
Shareholder Information
Directors
Simon Bennett (independent non-executive chairman)
Stephanie Eastment (independent non-executive director)
Adam Smith (non-executive director)
Company Website
https://www.alternativeincomereit.com/ (http://www.aewukllreit.com)
Registered Office
1 King William Street
London
EC4N 7AF
Company Secretary
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
AIFM
Langham Hall Fund Management LLP
1 Fleet Place
8(th) Floor
London
EC4M 7RA
Depositary
Langham Hall UK Depositary LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
Legal Adviser to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Investment Adviser and Administrator
M7 Real Estate Limited
3(rd) Floor
The Monument Building
11 Monument Street
London
EC3R 8AF
Property Manager
Mason Owen and Partners Limited
7(th) Floor
20 Chapel Street
Liverpool
L3 9AG
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditor
Moore Kingston Smith LLP
9 Appold Street
London
EC2A 2AP
Corporate Broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Communications Adviser
H/Advisors Maitland
3 Pancras Square
London
N1C 4AG
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. END FR EAPNNADNDEFARecent news on Alternative Income REIT
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