REG - Alternative Inc REIT - Results for the year ended 30 June 2024
02/10/2024 07:00
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RNS Number : 5246G Alternative Income REIT PLC 02 October 2024
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2 October 2024
ALTERNATIVE INCOME REIT PLC
(the "Company" or the "Group")
Annual Report and Financial Statements for the year ended 30 June 2024
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
2024.
Financial Highlights
At 30 June
2024 2023 Change
Net Asset Value ('NAV') £65.1 million £67.8 million -3.9%
NAV per share 80.90p 84.16p -3.9%
Share price 66.00p 64.70p 2.0%
Share price discount to NAV (A) 18.4% 23.1% -4.7%
Investment property fair value £102.7 million £107.0 million -4.0%
(based on external valuation)
Loan to gross asset value ('GAV') (A) 37.7% 36.8% -
Loan facility £41.0 million £41.0 million -
For the year ended 30 June
2024 2023 Change
EPRA earnings per share ('EPS') (A) 5.89p 6.75p -12.7%
Adjusted EPS (A) 5.99p 6.43p -6.8%
Total dividends per share 5.90p 6.045p -2.4%
Dividend cover (A) 101.5% 106.4% -4.9%
Dividend yield (A) 8.9% 9.3% -0.4%
Operating profit £6.8 million £6.9 million -1.5%
(including gain on sale of investment property but excluding fair value
changes)
Profit before tax £2.4 million loss £5.2 million 146.2%
Earnings per share 2.93p loss 6.51p 145.0%
Share price total return (A) 11.6% -14.2% -
NAV total return (A) 3.5% -6.7% -
Gross passing rental income £7.7 million £7.6 million 1.3%
Ongoing charges 1.46% 1.39% +7bps
Financial Highlights Overview
· The NAV decrease to 80.90 pence per share ("pps") was primarily due
to the £4.3 million (-4.0%) 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 5.9pps, which was in line
with the Board's 2024 target annual dividend, and are a 3.5% increase when
compared to the previous year target dividend of 5.7pps.
· Dividend yield decreased by 0.4% despite an increase in the target
dividend for the year. This was due to the total dividend being less that the
preceding year. Based on target dividends only, the dividend yield increased
marginally from 8.8% to 8.9%.
· Profit before tax of £2.4 million, equivalent to 2.93pps is after a
£2.9 million valuation reduction in the property portfolio.
· Loan to GAV of 37.7% and interest cover ratio of 611.3% gives
significant headroom on the lender's loan to value covenant of 60% and
interest cover covenant of 250%, respectively. The loan matures on 20 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 2024:
· The Group's property portfolio had a fair value of £102.7 million
across 19 properties (2023: £107.0 million across 19 properties).
· The EPRA Net Initial Yield (A) ('NIY') was 6.9% (2023: 6.6%).
· 95.8% of the Group's income is inflation linked to Retail Price Index
('RPI') or Consumer Price Index ('CPI').
· The assets were fully let at both the current and previous year end.
· The weighted average unexpired lease term ('WAULT') was:
- 16.5 years to the earlier of break and expiry (2023: 17.0 years) and
- 18.4 years to expiry (2023: 18.9 years).
Income and expense during the year
· Rent recognised was £7.4 million (2023: £8.1 million), of which
£0.1 million was accrued debtors for the combination of rental smoothing of
minimum uplifts and rent-free periods (2023: accrued debtors of £0.4
million).
· A total of 11 rent reviews took place during the year, which resulted
in a combined rental uplift of £294,000, which represents a 4.3% increase on
contracted rent across the portfolio.
Property transactions during the year
· In the year two property transactions were completed. The first was
the sale of Mercure Hotel in Glasgow which was disposed of on 8 August 2023
for £7.5 million at a 7.9% premium to its fair value. Part of the net
proceeds of sale, totalling £5.3 million, were reinvested in the Virgin
Active in Streatham on 18 December 2023.
Events after the reporting period
· On 8 August 2024, the Board declared an interim dividend for the
quarter ended 30 June 2024 of 1.625pps. As a result, the dividend target of
5.9pps for the year ended 30 June 2024 was met. This dividend was paid on 30
August 2024 to shareholders on the register at 16 August 2024. The ex-dividend
date was 15 August 2024.
· By 30 September 2024, the Group had collected 100% of rent for the
four rental quarters of the financial year being reported.
Proposed changes to the Company's Investment Policy
· The current Investment Policy originated in 2017 at the launch of the
Company and contains detailed and, at time, highly restrictive requirements.
In light of this, and following significant changes to property markets, the
Board believes that changing the Investment Policy will better place the
Company to deliver added value to shareholders. Further explanation of the
proposed changes is included in the Chairman's Statement below.
(A) Alternative Performance Measure, please see below for further details.
Simon Bennett, non-executive chairman of Alternative Income REIT plc,
comments:
"The period under review was characterised by high inflation, low rental
growth and rising interest rates. This has proved to be somewhat of a mixed
blessing for the Group. From an income standpoint the economic environment has
seen our portfolio continuing to perform well, benefitting from long dated and
high yielding leases with index-linked rental increases. 96.0% of the
portfolio's income stream is reviewed periodically. In the coming financial
year, approximately 46.5% of the Group's income will be subject to rent
reviews, 36.0% as annual index-linked rent reviews and the remaining 10.4%
being periodic 5 yearly index-linked rent reviews. During the past financial
year, a total of 11 rent reviews took place, which resulted in a combined
rental uplift of £0.3 million, which represents a 4.3% increase on contracted
rent across the portfolio on a like for like basis.
On the other hand, the portfolio suffered a relatively modest reduction of
£4.3 million, when compared with the Group's peers (2023: £10.9 million
reductions in value) and at 30 June 2024 was valued at £102.7 million (30
June 2023: £107.0 million).
I am pleased to report 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 and the acquisition of
Virgin Active, Streatham in December 2023 for £5.1 million.
During this financial year, the Company declared four interim dividends
totalling 5.9pps (2023: 6.045pps, which included 0.345pps of non-rental
income) which was in line with the previously announced dividend target of
5.9pps (2023: 5.7pps), representing a 3.5% increase on the previous year
target. I am pleased to report that these dividends were covered by cash
earnings.
The recent announcement by the Bank of England to reduce interest rates
together with the recent fall in inflation, might mark the bottom of the
property market. 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
Martley Capital Real Estate Investment Management Ltd 020 4551 1240
Richard Croft
Jane Blore
Panmure Liberum Limited 020 3100 2000
Alex Collins
Tom Scrivens
H/Advisors Maitland (Communications Adviser) 07747 113 930 / 020 7379 5151
James Benjamin aire-maitland@h-advisors.global
Rachel Cohen
Billy Moran
The Company's LEI is 213800MPBIJS12Q88F71.
Further information on Alternative Income REIT PLC is available
at www.alternativeincomereit.com (https://www.alternativeincomereit.com/) (1)
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.
NOTES
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.
The Company's Investment Adviser is Martley Capital Real Estate Investment
Management Limited ("Martley Capital"). Martley Capital is a full-service real
estate investment management platform whose activities cover real estate
investing, lending, asset management and fund management. It has over 40
employees across five offices in the UK and Europe. The team manages assets
with a value of circa £900 million across 19 mandates (at 30 June 2024).
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 2024.
The wider market for the year under review was characterised by high
inflation, low rental growth and rising interest rates. This has proved to be
somewhat of a mixed blessing for the Group. From an income standpoint, the
economic environment has seen our portfolio continuing to perform well,
benefitting from its long dated and high yielding leases with index-linked
rental increases. On the other hand, the portfolio suffered a relatively
modest reduction of £4.3 million (2023: £10.9 million reduction), including
the property transactions throughout the year, and at 30 June 2024 was valued
at £102.7 million (2023: £107.0 million). On a like-for-like basis, the
value of the Group's properties reduced from £100.1m to £97.6 million.
The portfolio should continue to perform relatively well during a period of
higher inflation, as 95.8% of its rental income is subject to index-linked
reviews and 32.3% of rental income is not subject to any cap on rental
increases. During the financial year, a total of 11 rent reviews took place,
which resulted in a combined rental uplift of £294,000, which represents a
4.3% increase on contracted rent across the portfolio.
During the year two property transactions were completed. The first was the
sale of Mercure Hotel in Glasgow which was sold on 8 August 2023 for £7.5
million at a 7.9% premium to its fair value. The second was the purchase of
Virgin Active in Streatham purchased on 18 December 2023 for £5.3 million.
The Investment Advisor has been actively seeking a further property in order
to invest the remaining proceeds.
The Board continues to keep costs under control and the Group also benefits
from both a low overhead base and fixed borrowing costs until 20 October 2025.
Together with the active asset management initiatives being undertaken, the
Board considers that the portfolio will continue to deliver an attractive
yield as a result of its secure and growing rental income. These factors,
together with the recent fall in the rate of inflation and the resulting cut
in UK interest rates will undoubtedly improve the sentiment towards the
property market.
At the year end, the portfolio has a slightly increased net initial yield of
7.1% compared to the previous year end of 6.6% and a WAULT to the first break
of 16.5 years and 18.4 years to expiry (2023: 17.0 and 18.9 years,
respectively).
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 are currently
no penalties projected for repaying the Group's loan facility, given the
corresponding gilt rate is lower than the contracted rate of interest.
Whilst the refinancing is some time in the future, the Board have recently
commenced an interview process to find a suitable debt adviser, with the
relevant expertise and proven accessibility to potential lenders, to assist
with the refinancing. The Board is confident that the requisite refinancing
will be achieved prior to the loan's due date.
Dividends and Earnings
During this financial year, the Company declared four interim dividends
totalling 5.9pps (2023: 5.7pps), with the total dividends declared for 2023
being 6.045pps, which included 0.345pps relating to monies received following
the successful settlement of a historic legal case), which was in line with
the previously announced dividend target of 5.9pps (2023: 5.7pps),
representing a 3.5% increase on the previous year. I am pleased to report that
these dividends were covered by cash earnings.
As set out in Note 8 to the consolidated financial statements, these dividends
were covered by the Group's Adjusted EPS (representing cash) of 5.99pps (2023:
6.43pps). Furthermore, 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 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 8 in the AGM notice gives shareholders the
opportunity to vote on this dividend policy.
Discount
The discount of the share price to NAV at 30 June 2024 narrowed to 18.4% from
23.1% 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.
Change of Investment Adviser
During the year, the Board undertook a review of the Group's investment
advisory arrangements. This review included proposals from a number of select
third party investment managers with the relevant property expertise.
Following this review, in February 2024 the Board approved the appointment of
Martley Capital Real Estate Investment Management Ltd ('Martley Capital') as
the Group's Investment Adviser, with the appointment effective on 15 March
2024. Martley Capital Group (of which Martley Capital is a subsidiary)
launched in December 2023 as a new venture, whereby key members of the
previous advisory team at M7 Real Estate continue to service the Group as part
of the Martley Capital team. The appointment of Martley Capital was by way of
a deed of novation of the Group's investment advisory agreement (and
subsequent minor changes thereto) leaving the parties on substantially the
same terms and at an unchanged fee.
Proposed Changes to the Company's Investment Policy
The current Investment Policy originated in 2017 at the launch of the Company,
and contains detailed and, at times, highly restrictive requirements. Many of
these restrictions were required to differentiate the Company's Investment
Policy from that of other investment vehicles managed by the Company's former
investment manager. The Board believes that in light of this, and following
significant changes to the property markets since launch, that the Company
will be better placed to deliver added value to shareholders with a changed
Investment Policy which better serves the Company's Investment Objective of
generating predictable income returns whilst maintaining capital values by
means of investment in a diversified UK portfolio.
The principal changes to the Investment Policy include a reduction in the
minimum WAULT of the portfolio from 18 to 10 years, a reduction in the
percentage of leases required to be linked to inflation from 85% to 75% of
gross passing rent, and a reduction in the requirement for properties to be in
non-traditional sectors (and thus in alternative and specialist sectors) from
70% to at least 50%. At the same time, the Board has taken the opportunity to
simplify the language used in the Investment Policy, to make it far easier to
understand.
The proposed changes to modernise the Investment Policy should provide the
Investment Adviser with additional flexibility to invest in attractive
opportunities, without changing the Company's core nature and objective.
Therefore, the Company will be proposing an ordinary resolution at its AGM on
12 November 2024 to seek permission from shareholders to change the Company's
Investment Policy. The proposed changes to the Company's Investment Policy are
set out in more detail in the Notice of Meeting dated 1 October 2024 and sent
to shareholders with the Annual Report and Financial Statements. An
explanation of both the current and proposed Investment Policy is set out in
the Notice of Meeting. The Board believes that the changes are in the best
interests of the Company and shareholders as a whole and it is unanimous in
recommending that shareholders should vote in favour of all resolutions, as
the Directors will in respect of their own beneficial holdings.
AGM
The Company will hold its AGM at 10am on Tuesday 12 November 2024 at the
offices of Panmure Liberum, Ropemaker Place, Level 12, 25 Ropemaker Street,
London EC2Y 9LY. As usual, the Investment Adviser will give a presentation on
the Group prior to proceeding with the business of 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 hanwayadvisory@jtcgroup.com or by writing
to me at the Group's registered office, namely, Alternative Income REIT plc,
The Scalpel 18th Floor, 52 Lime Street, London EC3M 7AF.
Outlook
The recent announcement by the Bank of England to reduce interest rates
together with the recent fall in the rate of inflation might mark the bottom
of the property market and will undoubtedly improve investor sentiment towards
the sector. The Group's index-linked portfolio, with its properties let on
predominantly long dates and high yielding leases, has continued to perform
relatively well, when compared with its peer group. In the coming financial
year, approximately 46.5% of the Group's income will be subject to rent
reviews (36.0% as annual index-linked rent reviews and the remaining 10.4%
being periodic five yearly index-linked rent reviews). Together with the
active asset management initiatives being undertaken, the Board considers that
the portfolio will continue to deliver an attractive yield as a result of its
secure and growing rental income.
I would like to take this opportunity 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. The Group has a good team, to whom a large
proportion of the Company's success can be attributed.
Simon Bennett
Chairman
1 October 2024
Business Model and Strategy
Business Model
Alternative Income REIT plc is a real estate investment trust listed on the
closed-ended investment funds category 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.
The Company is governed by a Board of non-executive directors (the 'Board')
and has no employees. The Board is responsible for determining the Company's
investment objective and investment policy. Like many other REITs and
investment companies, the day-to-day management and administration of the
Company is outsourced by the Board to third party providers, including Martley
Capital as investment adviser, Langham Hall Fund Management LLP as AIFM and
Hanway Advisory Limited as Company Secretary.
Proposed changes to the Investment Policy and Investment Objective
Shareholder approval is being sought at the forthcoming Annual General
Meeting, under ordinary Resolution 10, to change the Company's Investment
Policy. The proposal is explained in the Notice of Meeting which is included
within the Annual Report.
The current investment objective and policy is set out below. The minor change
to the investment objective of "in" to "predominantly within the" alternative
and specialist sectors, is shown below, and does not require shareholder
approval.
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, predominantly within the 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') 7.06%
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 2024
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. (2023: 6.58%)
Group's External Valuers.
Weighted Average Unexpired Lease Term ('WAULT') to break and expiry 16.5 years to break and 18.4 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 2024
contracted rent. underpin the security of our future income.
(2023: 17.0 years to break and 18.9 years to expiry)
Net Asset Value ('NAV') per share £65.12 million / 80.90pps
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 2024
the assets and liabilities of the Group.
(2023: £67.75 million / 84.16pps)
Dividend per share 5.90pps
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 2024
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 (2023: 6.045pps)
ensure an increasing dividend in line with the Company's Investment Objective.
Adjusted EPS 5.99pps
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 2024
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 (2023: 6.43pps)
payments are supported by earnings. See Note 8 to the financial statements.
Leverage (Loan-to-GAV) 37.67%
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 2024
Borrowings will not exceed 40% of GAV (measured at drawdown).
(2023: 36.76%)
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 6.94%
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 2024
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. (2023: 6.58%)
EPRA 'Topped-up' NIY(1) - unaudited 7.29%
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 2024
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. (2023: 7.08%)
EPRA NAV(2) £65.12million /80.90pps
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 2024
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. (2023: £67.75 million/84.16pps)
EPRA Net Reinstatement Value2 £71.79 million/ 89.18pps
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 2024
deducts the break cost of bank borrowings.
(2023: £74.71 million/ 92.80pps)
EPRA Net Tangible Assets2 £65.12 million /80.90pps
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 2024
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. (2023: £67.75 million/ 84.16pps)
EPRA Net Disposal Value2 £65.12 million /80.90pps
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 2024
held until maturity.
(2023: £67.75 million/ 84.16pps)
EPRA Earnings/EPS2 £4.74 million/ 5.89pps
Earnings from operational activities. A key measure of a company's underlying operating results and an indication of For the year ended 30 June 2024
the extent to which current dividend payments are supported by earnings.
(2023: £5.43 million/ 6.75pps)
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 2024
portfolio. on ERV.
(2023: 0.00%)
EPRA Cost Ratio1 - unaudited 16.36%
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 2024
vacancy) divided by gross rental income. operating costs.
(2023: 15.23%)
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
Both the UK and global real estate markets are showing signs of a much
brighter 2024 after a tough year for the wider market in 2023, which was
marked by persistent inflation, rising borrowing costs and shaky consumer
confidence. Yields are stabilising, activity is picking up steadily and
interest rates have started to fall.
Market Outlook
UK Economic Outlook
The UK economy is finding its footing in 2024 after a robust post-pandemic
recovery. Though the initial surge has subsided, the short recession of late
2023 seems to be over and a more stable period is taking hold. The slowdown in
GDP growth is expected to level off, with gradual improvement expected
throughout the remainder of the year. Political stability in the UK could
further bolster economic growth following the Labour Party's win of the
General Election with a sizeable majority. Consequential changes to the
Government's policies will likely have implications for the UK economy, and
thus real estate. Additionally, inflation, while still relatively high, is
projected to continue its decline and it is expected to settle at more
manageable levels.
The cost-of-living crisis continues to cast a shadow, with consumers remaining
cautious about spending despite some recent signs of improvement. This could
lead to stagnant, or even slightly declining, retail sales in the coming
months. To maintain profitability, businesses may still consider cost-cutting
measures, potentially impacting employment levels and making unemployment a
bigger concern in the latter half of 2024.
Curbing inflation remains a key priority, but there are positive developments
in this regard. High inflation rates have subsided over the past year, falling
to 2.0% (CPI, June 2024), bringing inflation in line with the Bank of
England's long-term target. The Bank's aggressive interest rate hikes in 2023,
culminating in the 14th consecutive increase to 5.25% in August 2023, are
credited with helping to cool domestic demand and influence import prices,
ultimately bringing inflation under control.
Financial markets were betting on a rate cut by the Bank of England, which
materialised in August 2024 when rates were cut by 0.25% to 5%, with Capital
Economics predicting a further drop to 3% by the end of 2025. However, the
Bank faces a balancing act: to curb inflation without restraining economic
growth. The modest 0.7% growth in the first four months of 2024 underscores
the importance of finding the right balance. Stalling economic activity could
lead to adverse long-term consequences, including a reduction in business
investment, higher long-term unemployment and a decline in key sectors.
UK Real Estate Outlook
Despite a difficult global real estate market, with declining values for the
past two years, prime yields have remained steady in the first half of 2024.
This suggests most markets may be nearing the bottom of the cycle, prompting
cautious investor re-entry.
Previous forecasts for steeper interest rate hikes (up to 5.75%) have been
overshadowed by strong expectations for further rate cuts in 2024 and 2025.
This shift in sentiment, along with a more optimistic outlook, could make real
estate a highly attractive investment proposition. However, several risks
remain unaddressed, including borrowers facing stricter lending conditions,
and structural challenges persisting. An additional factor to consider is the
growing availability of distressed assets. Banks are increasingly taking
ownership of properties where long-term borrowers have defaulted. This
presents a significant opportunity for global capital seeking to diversify
through UK real estate.
Investors are seizing the moment to reposition assets to align with changing
occupier demand. This comes as the gap between asking prices and offers
narrows. UK Investment volume in Q2 2024 surged 11% compared to an already
strong Q1, reaching £11.1bn. As market conditions strengthen, we can expect
activity to pick up further. However, the focus for 2024 is likely to remain
on generating and securing stable income, rather than chasing capital
appreciation.
Tough economic conditions further emphasise the importance of sustainability,
quality, location and flexibility for attracting tenants. These factors remain
crucial for occupiers who are still focused on complying with regulations,
retaining staff and minimising operational costs. This focus, coupled with
limited supply due to rising construction and borrowing costs, is contributing
to a rise in nominal rental prices across most sectors.
The MSCI UK Monthly Capital Value Index continued its downward trend in Q2
2024. While office values saw slight declines, retail and industrial sectors
showed more resilience. As economic stability appears likely on the horizon,
this decline could signal the beginning of a cyclical buying opportunity as
new properties become available later this year.
Rising temperatures are driving renewed focus on physical climate risks from
both investors and occupiers. This has led to a growing appreciation for the
value of sustainable features in buildings. Investors and occupiers are
increasingly interested in accurate measurement of these "green" features and
how they translate to improved energy efficiency, ultimately impacting the
corporate bottom line. As a result, we can expect stricter regulations,
including mandatory disclosure of net zero transition plans.
Portfolio Activity During the Year
The following asset management initiatives were undertaken during the year:
· Rent Reviews: A total of 11 rent reviews took place during the year
with a combined uplift of £294,000, representing 4.3% increase in contracted
rent across the portfolio.
· Transactions: The sale of the Mercure Hotel in Glasgow completed on
8 August 2023 for £7.5 million at a 7.9% premium to its fair value. On 18
December 2023, the acquisition of Virgin Active, Ockley Road, Streatham was
completed for a cost of £5.3 million.
NAV Movements
For the year ended 30 June 2024 2023
Pence per Pence per £ million
share £ million share
NAV at beginning of year 84.16 67.75 96.40 77.60
Change in fair value of investment property (3.71) (2.98) (13.26) (10.67)
Income earned for the year 9.82 7.90 10.76 8.66
Gain on sale of property 0.74 0.60 - -
Finance costs for the year (1.75) (1.41) (1.77) (1.43)
Other expenses for the year (2.17) (1.75) (2.24) (1.80)
Dividends paid during the year (6.19) (4.99) (5.73) (4.61)
NAV at the end of the year 80.90 65.12 84.16 67.75
Valuation
At 30 June 2024 the Group owned 19 assets (2023: 19 assets) and the portfolio
was valued at £102.7 million (2023: £107.0 million).
Summary by Sector at 30 June 2024
Gross
WAULT Passing
Market Occupancy to Rental
Number of Valuation Value by ERV break Income ERV ERV
Sector Properties (£m) (%) (%) (years) (£m) (£m) (%)
Industrial Warehouse 4 25.4 24.7 100.0 23.9 1.8 1.7 24.3
Automotive & Petroleum 3 14.8 14.4 100.0 12.0 1.1 1.0 14.2
Healthcare 3 16.9 16.5 100.0 24.5 1.2 1.1 16.4
Leisure 3 10.2 9.9 100.0 8.0 1.0 0.8 11.2
Hotel 2 12.9 12.6 100.0 13.0 0.9 0.8 12.1
Residential 1 10.9 10.6 100.0 17.1 0.8 0.7 9.6
Retail Warehouse 1 5.1 5.0 100.0 4.7 0.4 0.4 5.6
Power Station 1 4.6 4.5 100.0 7.7 0.3 0.3 4.7
Education 1 1.9 1.8 100.0 19.6 0.2 0.1 1.9
Total/Average 19 102.7 100.0 100.0 16.5 7.7 6.9 100.0
Summary by Geographical Area at 30 June 2024
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 25.7 25.0 100.0 10.8 2.0 1.9 27.6
The North West & Merseyside 2 22.4 21.8 100.0 34.7 1.6 1.2 17.7
Rest of South East 5 21.6 21.1 100.0 9.3 1.5 1.4 20.0
South West 2 12.2 11.9 100.0 22.0 0.9 0.9 12.4
London 3 10.2 9.9 100.0 8.0 0.9 0.8 11.2
Yorkshire and the Humber 2 6.0 5.8 100.0 17.6 0.5 0.4 6.4
Eastern 1 4.6 4.5 100.0 7.7 0.3 0.3 4.7
Total/Average 19 102.7 100.0 100.0 16.5 7.7 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 69.0% (2023: 71.0%)
Inflation linked - CPI 26.9% (2023: 26.0%)
Expiry or Open Market Value Reviews 4.1% (2023: 3.0%)
% of Passing Rent by Rent Review Type
% of Passing Rent by Review Frequency
% of Passing Rent by Cap Band
Property Portfolio at 30 June 2024
Property Sector Region Market
Value
1. Pocket Nook Industrial Estate, St Helens Industrial The North West & Merseyside £11.55m
2. Bramall Court, Salford Residential The North West & Merseyside £10.85m
3. Grazebrook Industrial Estate, Dudley Industrial West Midlands £7.65m
4. Premier Inn, Camberley Hotel Rest of South East £7.43m
5. Motorpoint, Birmingham Automotive & Petroleum West Midlands £6.75m
6. Silver Trees, Bristol Healthcare South West £6.68m
7. Prime Life Care Home, Solihull Healthcare West Midlands £6.15m
8. Duke House, Swindon Hotel South West £5.50m
9. Droitwich Spa Retail Park, Droitwich Retail West Midlands £5.13m
10. Virgin Active, Streatham Leisure London £5.10m
11. Hoddesdon Energy, Hoddesdon Power Station Eastern £4.62m
12. Unit 2, Dolphin Park, Sittingbourne Industrial Rest of South East £4.35m
13. Volvo Slough, Slough Automotive & Petroleum Rest of South East £4.15m
14. Prime Life Care Home, Brough Healthcare Yorkshire and the Humber £4.10m
15. Applegreen Petrol Station, Crawley Automotive & Petroleum Rest of South East £3.85m
16. Pure Gym, London Leisure London £3.37m
17. YMCA Nursery, Southampton Education Rest of South East £1.87m
18. Unit 14, Provincial Park, Sheffield Industrial Yorkshire and the Humber £1.85m
19. Snap Fitness, London Leisure London £1.70m
Total £102.65m
Top Ten Tenants at 30 June 2024
% of
Annual Portfolio
Contracted Total
Rental Passing WAULT to break
Income Rental (Years)
(£'000) Income
Tenants Property
Mears Group Plc Bramall Court, Salford 793 10.2% 17.1
Meridian Steel Ltd Grazebrook Industrial Estate, Dudley & Provincial Park, Sheffield 769 9.9% 2.9
Prime Life Ltd Prime Life Care Home, Brough & Solihull 754 9.7% 24.4
Motorpoint Ltd Motorpoint, Birmingham 568 7.3% 13.0
Virgin Active Health Clubs Ltd Virgin Active, Streatham 536 6.9% 10.3
Premier Inn Hotels Ltd Premier Inn, Camberley 504 6.5% 7.7
Handsale Ltd Silver Trees, Bristol 474 6.1% 24.6
Travelodge Hotels Ltd Duke House, Swindon 403 5.2% 19.9*
Biffa Waste Services Ltd Pocket Nook Industrial Estate, St Helens 352 4.6% 109.2
Hoddesdon Energy Ltd Hoddesdon Energy, Hoddesdon 333 4.3% 7.7
Total 5,486 70.7% 20.2**
*The WAULT calculations includes an additional 3 years reflecting a landlord's
option to extend until 31 May 2044.
**This WAULT calculation, which considers income solely from the top 10
tenants, differs from the portfolio-wide WAULT of 16.5 years.
Tenancy Schedule
Tenant Property Annual Break Date Expiry Date
Contracted
Rental
Income
(£ '000)
Mears Group Plc Bramall Court 793 16/08/2041
Motorpoint Ltd Motorpoint 568 24/06/2037
Virgin Active Health Clubs Ltd Virgin Active 536 28/09/2034
Premier Inn Hotels Ltd Premier Inn 504 25/03/2032 24/03/2037
Handsale Ltd Silver Trees 474 14/01/2049
Prime Life Ltd Prime Life Care Home 441 21/11/2048
Travelodge Hotels Ltd Duke House 403 31/05/2044
Meridian Steel Ltd Grazebrook Industrial Estate, Works 1 & 2 373 21/05/2027
Hoddesdon Energy Ltd Hoddesdon Energy 333 27/02/2032 26/02/2050
Prime Life Ltd Prime Life Care Home 313 21/11/2048
Dore Metal Services Southern Ltd Unit 2, Dolphin Park 307 13/09/2028 12/09/2033
Pure Gym Ltd Pure Gym 287 11/12/2027 10/12/2032
Volvo Car UK Ltd Volvo Slough 281 16/03/2037
B&M Bargains Droitwich Spa Retail Park 272 31/08/2029
Petrogas Group UK Ltd Applegreen Petrol Station 256 16/07/2033
Meridian Steel Ltd Grazebrook Industrial Estate, Works 1 & 2 249 21/05/2027
Biffa Waste Services Ltd Pocket Nook Industrial Estate 203 24/02/2133
Sec. of State for Communities & Local Gov'mt Pocket Nook Industrial Estate 200 30/01/2033 29/01/2048
MSG Life Realty Ltd Snap Fitness 158 28/03/2033
Biffa Waste Services Ltd Pocket Nook Industrial Estate 150 31/03/2134
Meridian Steel Ltd Unit 14, Provincial Park 146 21/05/2027
BGEN Ltd Pocket Nook Industrial Estate 145 05/04/2025 04/04/2027
YMCA Fairthorne Group YMCA Nursery 145 17/02/2044
Pets at Home Droitwich Spa Retail Park 113 13/01/2028
BGEN Ltd Pocket Nook Industrial Estate 64 04/04/2025
The Salvation Army Trustee Company Duke House 27 17/07/2032
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
*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, 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, and working closely with tenants
who occupy under full repairing and insuring leases.
· Ongoing environmental reviews and audits as part of regular due
diligence, including regular asset inspections to avoid any breach in
environmental legislation.
· Responsible refurbishment in respect of all works to assets with
consideration of the best approach to improving the EPC rating against
potential spend, liaising with tenants in respect of any fit-out or
alterations to reuse existing materials where feasible to reduce waste.
· Leverage technology for data management being used to monitor and
drive efficiency.
Social
· Commitment to occupier engagement.
· Encourage improvements to each asset such as installing
defibrillators & electrical charging points.
· Provision of regular training and awareness to all managers on
issues, such as wellbeing and mental health.
Governance
· 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.
The Group is limited in its ability to influence ESG factors for the
properties because the properties are fully let on commercial full repairing
leases in accordance with the Group's strategy to hold long leases.
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. 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 2024.
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 2024. 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)*
2023/24 2022/23 Difference (tCO(2)e) % change
Retail park Scope 2 0.43 0.13 0.30 225%
Industrial warehouse Scope 3 - Elec. 84.43 93.71 -9.27 -10%
Total Scope 2 & 3 84.86 93.84 --8.97 -10%
*Like-for-like requires 24 months of data for the current and previous
reporting year (July 2022 - June 2024). Both assets provided 24 months of data
there 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 (DESNZ,
2024) and the EPRA Best Practice Recommendations on Sustainability Reporting
2017.
Sector Energy Source Absolute energy usage (kWh) Like-for-like energy usage (kWh)
2023/24 2022/23 Difference (kWh) % change
Retail park Electricity 2,100 646 1,455 225%
Industrial warehouse Electricity 407,792 452,531 -44,740 -10%
Total Electricity 409,892 453,177 -43,285 -10%
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 2024, the Group has worked closely with its
tenants to encourage improvements in ESG activities within the property
portfolio.
Three new EPC's have been carried out; Premier Inn, Camberley fell from B34 to
B38; Petrogas, Crawley improved from C56 to B32; Pure Gym, London improved
from C54 to B43. The improvements are mainly as a result of tenant's internal
refurbishment works.
Following inspections by EPC assessors, works have been identified at seven
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.
In the histogram above, the highest EPC rating of E applies to Unit 14
Provincial Park, Sheffield where the tenant is considering the cost efficiency
of replacing their oil-fired boiler to electric. The G rating applied to the
Mercure Hotel, Glasgow, which was sold in the year. The remaining properties
in the portfolio have an EPC rating of D or above. More than half of the
portfolio, at 55.6%, fall between A and B.
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. · Annual evaluation of key service providers. 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. · Culture set by the Board and communicated to all providers.
· Collaboration.
Tenants · Positive working relationship with the Board, Investment Advisor 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 our 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 · Rent reviews. · Focus on asset management initiatives to assist our tenants where
dividends to the Company's shareholders.
applicable.
· 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 during the year 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 on 20 October 2025.
Subsequent to the year end the Board has undertaken an interview process with
a number of debt advisers with the expertise, knowledge and potential lender
accessibility to secure appropriate refinancing for the Group.
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.
Change of Investment Adviser
As detailed in the Chairman's Statement, during the year the Board undertook a
review of the Group's investment advisory arrangements and appointed Martley
Capital as the Group's Investment Adviser effective on 15 March 2024. Key
members of the previous Investment Adviser transferred to Martley Capital and
continue to service the Group. The impact for the Company, and thus for
shareholders, was considered together with the impact on the staff of the
investment adviser.
Dividend and Dividend Policy
Given the Company's Investment Objective, dividends are a key matter for the
Board to consider and have a material impact on shareholders, as a key
stakeholder. During the year the Company declared four interim dividends
totalling 5.9pps (2023: 5.7pps, with the total dividends declared for 2023
being 6.045pps, which included 0.345pps relating to monies received following
the successful settlement of a historic legal case), which was in line with
the previously announced dividend target of 5.9pps (2023: 5.7pps),
representing a 3.5% increase on the previous 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.
Property Transactions
In the year two property transactions were completed. The first was the sale
of Mercure Hotel in Glasgow which was disposed of on 8 August 2023 for £7.5
million and part of the net proceeds of sale, totalling £5.3 million, were
re-invested in the Virgin Active in Streatham.
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 undertakes a risk review with the assistance of the
Audit Committee, to assess the adequacy and effectiveness of the AIFM's, and
where appropriate the Investment Adviser's, risk management and internal
control systems.
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 Probability: Moderate to high
Failure by tenants to comply with their rental obligations could affect the Our investment policy limits our exposure to any one tenant to 15% of Gross
income that the properties earn and the ability of the Group to pay dividends Asset Value. Our maximum exposure to any one tenant (calculated by GAV) is
to its shareholders. 10.6% at 30 June 2024. The Group benefits from a balanced portfolio with a Impact: High
diversified tenant base and is therefore not reliant on a single tenant or
sector.
Macroeconomic trends discussed through the report, including rising interest Movement: No change
rates, higher inflation and the possibility of recession have the ability to
materially impact on a tenant's business. This could result in tenants being In the due diligence process prior to acquiring a property, covenant checks
unable to comply with their rental obligations. are carried out on tenants which are repeated on a regular basis.
The Investment Adviser and Property Manager conduct ongoing monitoring and
liaise with tenants to manage potential bad debt risk.
2. Portfolio concentration Probability: Low to moderate
Any downturn in the UK and its economy or regulatory changes in the UK could The Group has investment restrictions in place to invest and manage its assets
have a material adverse effect on the Group's operations or financial with the objective of spreading and mitigating risk.
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
volatility in the value of the Group's investments, NAV and the Company's
share price. Having a diversified portfolio in respect of both sector and tenants provides
reduced potential volatility in the portfolio and the impact rating for this Movement: No change
risk is accordingly set at low to moderate.
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: No change
4. Rate of inflation Probability: Moderate
Rent review provisions may have contractual limits to the increases that may The inflation linked (RPI/CPI) leases in the portfolio have contractual rent
be made as a result of the rate of inflation. If inflation is in excess of review collars, with the lowest floor being 0%, and caps that range from 3% to
such contractual limits, the Group may not be able to deliver targeted returns no cap. The majority of caps are in excess of RPI and CPI forecasts during the Impact: Moderate
to shareholders. next five-year rent review cycle. Specifically:
- Majority of caps are 4.00% or above, including a number with no
caps Movement: Probability decreased as inflation has stabilised and long term
forecasts reduced.
- RPI forecast for next five years of 2.9%
- CPI forecast for next five years of 2.0%
The risk of inflation is somewhat mitigated by the leases that have no cap. In
addition, a total of seven leases undergo reviews annually which will allow
inflation changes to be reflected expeditiously.
5. Property market Probability: Moderate to high
Any recession or future deterioration in the property market could, inter The Group has investment restrictions in place to invest and manage its assets
alia, (i) lead to an increase in tenant defaults, (ii) make it difficult to with the objective of spreading and mitigating risk.
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
lower valuations; and (v) delay the timings of the Group's realisations.
Most of the leases provide a relatively long unexpired term and contain upward
only rent reviews which are linked to either RPI or CPI. Because of these Movement: No change.
factors, the Group expects that the assets will show less volatile valuation
Any of these factors could have a material adverse effect on the ability of movement over the long term.
the Group to achieve its investment objective.
6. Property valuation Probability: Low to moderate
Property is inherently difficult to value due to the individual nature of each The Group uses an independent valuer (Knight Frank LLP) to value the
property. properties on a quarterly basis at fair value in accordance with accepted RICS
appraisal and valuation standards. 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 Probability: Low
The Group invests in commercial properties. Such investments are illiquid; The Group aims to hold the properties for long-term income and all property
they may be difficult for the Group to sell and the price achieved on any investment / disinvestment is managed carefully to ensure there is no undue
realisation may be at a discount to the prevailing valuation of the relevant pressure on cash flow that would require a quick sale of assets. Impact: Moderate
property.
The Company's dividend is funded from net revenue and is not affected by the Movement: No change
portfolio's (il)liquidity.
8. Environment Probability: Moderate
The Group is subject to environmental regulations. In addition to regulatory The current regulations require annual mandatory Green House Gas (GHG)
risk, there is a growing importance being placed on ESG credentials by reporting, which will be carried out as part of the annual report and will
tenants, which could lead to difficulty in letting vacant space. result in minimal expenditure for the Group. Impact: Moderate
Properties could be impacted by extreme environment events such as flooding. Furthermore, the Investment Adviser has prepared an ESG strategy to ensure it Movement: No change
Climate change could accelerate more quickly leading to adverse physical meets legal requirements and remains attractive to current and future
impacts as well as regulatory change. tenants. Please see the 'Environmental, Social and Governance' section for
further information.
Failure by the Group to meet current or future environmental targets could
result in penalties, increased costs, a reduction in asset values and have an In depth research is undertaken on each property at acquisition. The
adverse effect on the Company's reputation, leading to loss of good quality Investment Adviser has adopted an environmental policy which it is in the
tenants. process of applying to all properties with the portfolio.
BORROWING RISKS
9. Breach of borrowing covenants Probability: Low to moderate
The Group has a fixed term loan facility, maturing 20 October 2025. The Group monitors the borrowing covenants on a regular ongoing basis by cash
flow forecasting, quarterly risk reports and a quarterly compliance
certificate. Impact: High
Material adverse changes in valuations and net income may lead to breaches in
the LTV and interest cover ratio covenants.
The Group's gearing at 30 June 2024 was 37.7%, materially below the covenant's Movement: No change
default LTV of 60%. On the same date the Group's interest rate calculation
(ICR) was 611.3%, materially above the covenant default ICR of 250%.
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
Group being forced to sell properties to repay the loan facility, possibly
resulting in a substantial fall in the NAV. Borrowing is carefully monitored by the Group, and action will be taken to
conserve cash where necessary to ensure that this risk is mitigated.
It is ensured that there is significant headroom in the LTV and interest cover
covenants as part of the monitoring process.
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.
10. Inability to refinance the current loan facility
The inability of the Group to obtain new borrowings - of the amount required The refinancing of the Company's current loan facility is a standing item on Probability: Low to moderate
at an aggregate finance cost and on acceptable terms - to refinance the the Board agenda. Regular discussions are held with the Investment Adviser
current £41m loan facility on 20 October 2025 will have a significant impact (and other advisers to the Board) concerning the makeup, amount, interest
on the ability of the Group to generate rental income and thus returns to rate, maturity etc of any future borrowings, and the impact this could have on
shareholders. returns to shareholders. Impact: High
Subsequent to the year end the Board has undertaken an interview process with Movement:
a number of debt advisers with the expertise, knowledge and potential lender
accessibility to secure appropriate refinancing for the Group. New separate risk (previously combined with risk 13)
CORPORATE RISKS
11. Failure of service providers Probability: Low
The Group has no employees and is reliant upon the performance of third-party The Board meets regularly with, and monitors, all of its key service
service providers. providers, including the Investment Adviser. The Management Engagement
Committee (MEC) reviews annually the performance of key service providers in Impact: Moderate
conjunction with their service level agreements, and makes use of Key
Performance Indicators where relevant.
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 Movement: No change
detrimental impact on the operation of the Group.
In addition, the Audit Committee's robust and ongoing review of risk
management and internal controls covers key service providers.
Should the Group pursue litigation against service providers, there is a risk
that the Company may incur costs that are irrecoverable if litigation is
unsuccessful.
12. Dependence on the Investment Adviser Probability: Moderate
The future ability of the Group to successfully pursue its investment The MEC performs a formal annual review of the Investment Adviser which covers
objective and investment policy may, among other things, depend on the ability the performance of the portfolio (both capital and income returns) and the
of the service providers to retain its existing staff and/or to recruit performance of and engagement with the Martley Capital fund manager and other Impact: Moderate
individuals of similar experience and calibre, and effectively carry out its supporting staff.
services.
Movement: No change
In addition, the Board meets regularly with Martley Capital and directors
The Group relies on the Investment Adviser to manage the assets and engage with them not only in Board meetings but also by email, telephone and
termination of the Investment Adviser agreement could severely affect the ad hoc meetings. This helps to maintain a good working relationship.
Group's ability to effectively manage its operations.
The dependence on Martley Capital is managed through segregating the roles of
AIFM and Investment Adviser.
The Board undertook significant work in the year with respect to the change of
Investment Adviser. This included scoping the role, evaluation of various
candidates for the role, interviews, due diligence work post interview and
before appointment, and review of the transition- including operations, data
and information security.
13. Ability to meet objectives Probability: Moderate
The Group may not meet its investment objective to generate a secure and The Group has an investment policy to achieve a balanced portfolio with a
predictable income, that is sustainable in real terms, and at least maintain diversified tenant base. This is reviewed by the Board at each scheduled Board
capital values in real terms, from investing predominantly in a portfolio of meeting. Impact: High
smaller commercial properties in the UK.
The Group's property portfolio has a WAULT to break of 16.5 years and a WAULT Movement: No change
Poor relative total return performance may lead to an adverse reputational to expiry of 18.4 years. Further, over 95.8% of leases have inflation-linked
impact that affects the Group's ability to raise new capital and new funds. upwards only rent reviews, representing a secure income stream on which to
deliver attractive total returns to shareholders.
An inability to refinance the Company's borrowings will impact the
sustainability of rental returns as set out in the Company's investment The maturity of the loan facility and its refinancing is a standing item on
objective. the Board agenda. Risk 10 addresses this in more detail.
TAXATION RISK
14. Group REIT status Probability: Low
The Group has UK REIT status that provides a tax-efficient corporate The Company monitors REIT compliance through the Investment Adviser and
structure. Administrator on acquisitions and disposals and distribution levels; the
Registrar and Broker on shareholdings; and third-party tax advisors to monitor Impact: High
REIT compliance requirements.
If the Group fails to remain a REIT for UK tax purposes, its profits and gains
will be subject to UK corporation tax.
Movement: No change
Processes are in place to ensure ongoing compliance with REIT regulations.
POLITICAL/ ECONOMIC RISK
15. Political and macroeconomic events. Probability: High
Such events present risks to the real estate and financial markets that affect The Group only invests in UK properties with strong alternative use values and
the Group and the business of our tenants. long leases, so the portfolio is well positioned to withstand an economic
downturn. Tenant default risk arising from political and macroeconomic events Impact: High
is managed as described above.
The negative economic effects from the deterioration of the global economy,
higher inflation and interest rates and the ongoing long-term effects of
Movement: No change
various armed conflicts could impact the portfolio, tenants and the ability The Investment Adviser monitors both the macro and micro economy with special
of the Group to raise capital. attention to those factors potentially impacting the Group, and reports to the
Board on a regular basis.
REGULATORY RISK
16. Disclosure Risk Probability: Low to moderate
Failure to properly disclose information to investors or regulators in Service providers including AIFM, Investment Adviser, Company Secretary,
accordance with various disclosure rules and regulations. Examples include auditor, and corporate broker monitor disclosure obligations and liaise with
AIFMD investor disclosures, annual reporting requirements, marketing/promotion the Board to ensure requirements are met. Impact: Moderate
disclaimers, data protection regulations etc.
Movement: No change
17. Regulatory Change Probability: Low
New regulations or changes to existing regulations (particularly in relation The Board receives regular updates on relevant regulatory changes (and
to climate change) could result in sub-optimal performance of the Group or, in prospective changes) from its professional advisers.
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 Movement: No change
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
works are carried out as appropriate, with tenant's agreement, to prevent
asset depreciation.
Emerging Risks
The Board takes account of and considers 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 £3.3 million (2023:
£3.5 million). The Group had borrowings of £41 million under a loan facility
repayable on 20 October 2025 (the 'Loan'), but no capital commitments or
contingent liabilities.
The Group is permitted to utilise up to 40% of GAV measured at drawdown with a
Loan to GAV of 37.7% at 30 June 2024. 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. In addition, if agreed by
the current lender, two properties not secured against the Loan and valued at
£8.55 million are available as additional security for the Loan.
The Loan also has a lender's interest cover covenant of 250%. At 30 June 2024
the Group's interest cover ratio was 611.3%, giving significant headroom. A
'severe but plausible downside' scenario has 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 adoption 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, with the Group generating
net cash flows from operating activities for the year being reported of £4.0
million. As a result, the directors believe that the Group is well placed to
manage its financing and other business risks.
The going concern statement is based on the reporting requirement that the
Group and the Company has adequate resources to continue in operational
existence for the foreseeable future, being a period of at least twelve months
from the date of these financial statements. In addition to looking ahead for
the twelve months, the Board has undertaken steps to ensure that it can have a
reasonable expectation that the Group will be able to refinance its borrowings
which become repayable shortly after this twelve-month period, and this is
explained both below and in the Viability Statement which follows.
The Board has commenced its debt refinancing plan. As part of this, the Board
has undertaken an interview process with a number of debt advisers with the
expertise, knowledge, and demonstrable potential lender accessibility to
secure refinancing for the Group. Following this, the Board has a reasonable
expectation to believe that the Group can refinance its debt by 20 October
2025 at an aggregate finance cost and on terms acceptable to the Board, taking
into account the investment objective of the Company.
Consequently, the Board is satisfied that the Group and the Company has
adequate resources to continue in operational existence for the foreseeable
future, and is 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 Board has assessed the
prospects of the Group over a period longer than the twelve 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, from the balance
sheet date up to 30 June 2027, is an appropriate and realistic timescale over
which the performance of the Group can be forecast with a degree of accuracy.
Even though the Group's contractual income extends beyond three years, the
Board considers this period (the 'Period') to be appropriate, given:
· 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;
· It is the period over which the Group's medium-term business plan
and cash flows are based; and
· It is often factors beyond the Board's control, such as market
uncertainty, that reduce the reliability of forecasting over a longer period.
In performing its viability review, the Board considers the Group's cash flows
(noting that the Group's property portfolio had a WAULT to break of 16.5 years
and a WAULT to expiry of 18.4 years at 30 June 2024, representing a secure
income stream for the Period), future dividends and dividend cover, REIT
compliance and relevant key financial ratios over the Period. The Board
carried out a thorough review of the Group's business model, including future
performance, liquidity and banking covenant tests for the Period and with
various debt finance cost scenarios based on refinancing the £41 million debt
(see below) in full at its maturity. 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;
· Financing and refinancing; and
· Property portfolio valuation movements.
Specifically with respect to the Group's borrowings:
· covenants - at 30 June 2024, the asset valuations and rental
income of the properties secured to Canada Life would need to fall by 17.4%
and 46.0%, respectively, before breaching the Loan to Value and Income Cover
Cash Trap covenants; and
· the Board has commenced its debt refinancing plan given that the
Group's borrowings are due to be repaid on 20 October 2025. As part of this,
the Board has undertaken an interview process with a number of debt
advisers with the expertise, knowledge and demonstrable potential lender
accessibility to secure refinancing for the Group. Following these
discussions, the Board has a reasonable expectation to believe that the Group
can refinance its debt by 20 October 2025 at an aggregate finance cost and on
terms acceptable to the Board, taking into account the investment objective of
the Company.
Based on the prudent assumptions within the Group's forecasts including
refinancing of the debt, rent deferrals, tenant default, void rates and
property valuation movements, the Board has a reasonable expectation that for
the Period:
· all current and future loan covenants will be complied with
throughout the Period;
· REIT tests will similarly be complied with; and
· the Group and the Company will be able to continue in operation
and meet its liabilities as they fall due over the Period.
Board Approval of the Strategic Report
The Strategic Report has been approved and signed on behalf of the Board by:
Simon Bennett
Chairman
1 October 2024
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
1 October 2024
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2024
2024 2023
Notes £'000 £'000
Income
Rental and other income 3 7,900 8,660
Property operating expense 4 (680) (755)
Net rental and other income 7,220 7,905
Other operating expenses 4 (1,066) (1,049)
Operating profit before fair value changes and gain on sale 6,154 6,856
Change in fair value of investment properties 10 (2,983) (10,671)
Gain on disposal of investment property 10 598 -
Operating profit/ (loss) 3,769 (3,815)
Finance expenses 6 (1,412) (1,425)
Profit/ (loss) before tax 2,357 (5,240)
Taxation 7 - -
Profit/ (loss) and total comprehensive income attributable to shareholders 2,357 (5,240)
Earnings/ (loss) per share (pence) (basic and diluted) 8 2.93p (6.51p)
EPRA EPS (basic and diluted) 8 5.89p 6.75p
Adjusted EPS (basic and diluted) 8 5.99p 6.43p
All items in the above statement are derived from continuing and total
operations. No operations were acquired or disposed of during the year.
The accompanying notes 1 to 20 form part of these consolidated financial
statements.
Consolidated Statement of Financial Position
At 30 June 2024
2024 2023
Notes £'000 £'000
Non-current Assets
Investment properties 10 99,083 103,847
Current Assets
Receivables and prepayments 11 6,464 4,193
Cash and cash equivalents 3,292 3,484
Total current assets 9,756 7,677
Total Assets 108,839 111,524
Current Liabilities
Payables and accrued expenses 12 (2,890) (2,751)
Lease obligations 14 - (33)
Total current liabilities (2,890) (2,784)
Non-current Liabilities
Interest bearing loans and borrowings 13 (40,828) (40,724)
Lease obligations 14 - (266)
Total non-current liabilities (40,828) (40,990)
Total Liabilities (43,718) (43,774)
Net Assets 65,121 67,750
Equity
Share capital 17 805 805
Capital reserve 70,431 75,417
Retained earnings (6,115) (8,472)
Total capital and reserves attributable to equity holders of the Company 65,121 67,750
Net Asset Value per share (basic and diluted) 8 80.90p 84.16p
8 80.90p 84.16p
EPRA Net Tangible Asset per share (basic and diluted)
The accompanying notes 1 to 20 form part of these Consolidated Financial
Statements.
The Consolidated Financial Statements were approved by the Board of directors
on 1 October 2024 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 2024
Share Retained Total
capital Capital reserve earnings equity
Notes £'000 £'000 £'000 £'000
For the year ended 30 June 2024
Balance at 30 June 2023 805 75,417 (8,472) 67,750
Total comprehensive income attributable to shareholders - - 2,357 2,357
Dividends paid 9 - (4,986) (4,986)
Balance at 30 June 2024 805 70,431 (6,115) 65,121
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
The accompanying notes 1 to 20 form part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
For the year ended 30 June 2024
Notes 2024 2023
£'000 £'000
Cash flows from operating activities
Profit/ (loss) before tax 2,357 (5,240)
Adjustment for:
Finance expenses 6 1,412 1,425
Gain on disposal of investment property 10 (598) -
Change in fair value of investment properties 10 2,983 10,671
Operating results before working capital changes 6,154 6,856
Change in working capital
Increase in receivables and prepayments (2,271) (159)
Increase/ (decrease) in other payables and accrued expenses 139 (312)
Net cash flow generated from operating activities 4,022 6,385
Cash flows from investing activities
Purchase of investment property 10 (5,304) -
Net proceeds from disposal of investment property 10 7,382 -
Reduction in acquisition costs 10 - 606
Net cash generated from investing activities 2,078 606
Cash flows from financing activities
Finance costs paid (1,306) (1,321)
Dividends paid 9 (4,986) (4,692)
Payment of lease obligation - (36)
Net cash used in financing activities (6,292) (6,049)
Net (decrease)/ increase in cash and cash equivalents (192) 942
Cash and cash equivalents at beginning of year 3,484 2,542
Cash and cash equivalents at end of year 3,292 3,484
The accompanying notes 1 to 20 form part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
for the year ended 30 June 2024
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 The Scalpel, 18th Floor, 52 Lime Street,
London, United Kingdom, EC3M 7AF.
The Company's Ordinary Shares are listed on the Closed-ended investment funds
category of the Official List of the Financial Conduct Authority ('FCA') and
have been traded on the Main Market of the London Stock Exchange since the
Company's IPO 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 UK adopted
International Financial Reporting Standards ('IFRS') and in accordance with
the Companies Act 2006 as applicable to companies reporting under those
standards and Article 4 of the UK adopted 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 new standards and amendments in this set
of condensed consolidated financial statements:
• Non-current liabilities with covenants - amendment to IAS 1 and
classification of liabilities as current or non-current - amendment to IAS 1
(effective 1 January 2024)
• Lease liability in a sale and leaseback - amendment to IFRS 16
(effective 1 January 2024)
• Supplier finance arrangements - amendments to IAS 7 and IFRS 7
(effective 1 January 2024)
The new standards and 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 2023 and early
application is permitted; however the Group has not early adopted the new or
amended standards in preparing these condensed consolidated financial
statements:
• Lack of exchangeability - amendment to IAS 21 (effective 1 January
2025)
• 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)
· Presentation and Disclosure in Financial Statements - IFRS 18
(effective 1 January 2027)
· Subsidiaries without Public Accountability: Disclosures - IFRS 19
(effective 1 January 2027)
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 IFRS13.
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 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 2025, 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. A longer-term projection had also been carried out up to 30 June
2027. 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 matures on 20 October 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. The Board has commenced its debt refinancing
plan given that the Group's borrowings are due to be repaid on 20 October
2025. As part of this, the Board has undertaken an interview process with a
number of debt advisers with the expertise, knowledge and demonstrable
potential lender accessibility to secure refinancing for the Group. Following
these discussions, the Board has a reasonable expectation to believe that the
Group can refinance its debt by 20 October 2025 at an aggregate finance cost
and on terms acceptable to the Board, taking into account the investment
objective of the Company.
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 twelve 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 processed 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
Dividends due to the Company's Shareholders are recognised when they become
legally payable, as a reduction in the Consolidated Statement of Changes in
Equity. Interim equity dividends are recognised when paid. Final equity
dividends will be recognised when approved by Shareholders at an AGM. The
Directors consider the aggregate of distributable reserves in considering the
recommendation and payment of a dividend.
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) Non-current assets held for sale
Non-current assets are classified as assets held for sale when their carrying
amount is to be recovered principally through a sale transaction and a sale is
considered highly probable. Investment properties classified as such are
measured at fair value.
o) 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 2024, audited EPS and NAV calculations
under EPRA's methodology are included in note 8 and further unaudited measures
are included following the financial statements.
p) 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 represents the cancelled share premium less dividends paid
from this reserve'; it is a distributable reserve. The share premium account
was cancelled in 2017 by Court Order and distributions can be made from this
reserve in accordance with the Companies Act 2006, including by way of
dividends or share buy backs.
Retained earnings
Retained earnings represent the cumulative net gains and losses recognised in
the Consolidated Statement of Comprehensive Income less dividends paid from
this reserve. This reserve is distributable, except for any unrealised gains
on investment properties
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 our 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
2024 2023
£'000 £'000
Gross rental income 7,331 7,429
Spreading of minimum contracted future rent - indexation 74 423
Spreading of tenant incentives - rent free periods (49) (58)
Other property income 2 294
Gross rental income (adjusted) 7,358 8,088
Service charges and direct recharges (see note 4) 542 572
Total rental and other income 7,900 8,660
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
2024 2023
£'000 £'000
Property operating expenses 138 177
Service charges and direct recharges (see note 3) 542 572
Movement on provision for impairment of trade receivables - 6
Property operating expenses 680 755
Investment adviser fee 360 371
Auditor's remuneration 85 87
Operating costs* 508 481
Directors' remuneration (note 5) 113 110
Other operating expenses 1,066 1,049
Total operating expenses 1,746 1,804
Total operating expenses (excluding service charges and direct recharges) 1,204 1,232
* Included in the Operating Costs were abortive costs of £61,500.
2024 2023
£'000 £'000
Audit
Statutory audit of Annual Report and Accounts 73 76*
Statutory audit of Subsidiary Accounts 12 11
Total fees due to auditor 85 87
*Includes £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
2024 2023
£'000 £'000
Directors' fees 102 99
Tax and social security 11 11
Total fees 113 110
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
2024 2023
£'000 £'000
Interest payable on loan (note 13) 1,304 1,307
Amortisation of finance costs (note 13) 104 104
Other finance costs 4 14
Total 1,412 1,425
7. Taxation
2024 2023
£'000 £'000
Tax charge comprises:
Analysis of tax charge in the year
Profit/ (loss) before tax 2,357 (5,240)
Theoretical tax charge/ (refund) at UK corporation tax standard rate of 25.00% 589 (1,074)
(2023: 20.50%)
Effects of tax-exempt items under the REIT regime (589) 1,074
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. Earnings per share ('EPS')/ (loss per share) and Net Asset Value (NAV) per
share
2024 2023
EPS:
Total comprehensive income/ (loss) (£'000) 2,357 (5,240)
Weighted average number of shares (number) 80,500,000 80,500,000
EPS/ (loss per share) (basic and diluted) 2.93p (6.51p)
EPRA EPS (£'000):
Total comprehensive income/ (loss) 2,357 (5,240)
Adjustment to total comprehensive income:
Change in fair value of investment properties 2,983 10,671
Gain on disposal of investment property (598) -
EPRA earnings (basic and diluted) (£'000) 4,742 5,431
EPRA EPS (basic and diluted) 5.89p 6.75p
Adjusted EPS:
EPRA earnings (basic and diluted) (£'000) - as above 4,742 5,431
Adjustments (£'000):
Rental income recognised in respect of guaranteed fixed rental uplifts (note (74) (423)
3)
Rental income recognised in respect of rent free periods (note 3) 49 58
Amortisation of loan finance costs (note 6) 104 104
Write-off of rent - 16
Reversal of provision for impairment of trade receivables - (10)
Adjusted earnings (basic and diluted) (£'000) 4,821 5,176
Adjusted EPS (basic and diluted) * 5.99p 6.43p
* 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.
2024 2023
NAV per share:
Net assets (£'000) 65,121 67,750
Ordinary Shares (Number) 80,500,000 80,500,000
NAV per share 80.90p 84.16p
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 2024
Net assets value (£'000) 65,121 65,121
Estimated purchasers' cost (£'000) 6,672 -
Break cost on bank borrowings (£'000) - -
71,793 65,121
Ordinary Shares (Number) 80,500,000 80,500,000
Per share measure 89.18p 80.90p
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
9. Dividends
All dividends were paid as PIDs Quarter 2024 2023
Ended Rate £'000 £'000
Dividends in respect of year ended 30 June 2022
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
4th dividend 30-Jun-23 1.920p 1,545 -
Dividends in respect of year ended 30 June 2024
1st dividend 30-Sep-23 1.425p 1,147 -
2nd dividend 31-Dec-23 1.425p 1,147 -
3rd dividend 31-Mar-24 1.425p 1,147 -
Total dividends paid 4,986 4,609*
4th dividend** 30-Jun-22 1.600p - (1,288)
4th dividend** 30-Jun-23 1.920p (1,545) 1,545
4th dividend** 30-Jun-24 1.625p 1,308 -
Total dividends payable in respect of the year 4,749 4,866
Total dividends payable in respect of the year 5.90p 6.045p
* Dividends paid per Consolidated Statement of Cash Flows amount to
£4,692,000, 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
Freehold Leasehold 2024 2023
Investment
Investment
Total
Total
properties
properties
£'000 £'000 £'000 £'000
At the beginning of the year 73,825 33,200 107,025 117,905
Acquisition during the year 5,304 - 5,304 -
Reduction in acquisition costs (note 15.3) - - - (606)
Disposal during the year (6,784) - (6,784) -
Change in value of investment properties (1,295) (1,600) (2,895) (10,274)
Valuation provided by Knight Frank LLP 71,050 31,600 102,650 107,025
Adjustment to fair value for minimum rent indexation of lease income (note 11) (3,567) (3,542)
Adjustment for lease obligations - 364
Total investment properties 99,083 103,847
Change in fair value of investment properties
Change in fair value before adjustments for lease incentives and lease (2,895) (10,274)
obligations
Movement in lease obligations (63) (32)
Adjustment to spreading of contracted future rent indexation and tenant (25) (365)
incentives
(2,983) (10,671)
Disposal and acquisition of investment property
In the year, two property transactions were completed. The first was the sale
of Mercure Hotel in Glasgow which was disposed of on 8 August 2023 for £7.5
million. The gain recognised on disposal is shown in the Consolidated
Statement of Comprehensive Income; the gain on disposal includes changes in
fair value of the investment property and minimum rent indexation spreading
recognised in previous periods.
2024 2023
£'000 £'000
Gross proceeds on disposal 7,500 -
Selling costs (118) -
Net proceeds on disposal 7,382 -
Carrying value (6,784) -
Gain on disposal of investment property 598 -
On 18 December 2023, the Group acquired the Virgin Active in Streatham for
£5.3 million.
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 2024
Investment Properties* 102,650 Income capitalisation ERV £4.50 - £21.96
Net Initial yield
3.59% - 8.64%**
30 June 2023
Investment Properties* 107,025 Income capitalisation ERV £4.39 - £21.97
Net Initial yield
4.70% - 10.25%**
* Valuation per Knight Frank LLP
**Hotels, petrol stations, residential & healthcare are excluded from this
range
Sensitivity analysis below.
2024
Change in ERV Change in net initial yield
£'000 £'000 £'000 £'000
Sensitivity Analysis +10% -10% +10% -10%
Resulting fair value of investment properties 105,152 100,042 97,041 109,391
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
11. Receivables and prepayments
2024 2023
£'000 £'000
Receivables
Trade debtor 252 122
Less: Provision for impairment of trade receivables (2) (2)
Other debtors* 2,428 326
2,678 446
Spreading of minimum contracted future rent indexation 3,205 3,132
Spreading of tenant incentives - rent free periods 362 410
3,567 3,542
Tenant deposit asset (note 12) 118 118
Other prepayments 101 87
219 205
Total receivables and prepayments 6,464 4,193
* Other debtors at 30 June 2024 includes £2,155,000 (2023: £112,000) of net
proceeds from the sale of properties. This is held by the external lender,
Canada Life Investments.
The aged debtor analysis of receivables which are past due but not impaired is
as follows:
2024 2023
£'000 £'000
Less than three months due 2,672 464
Between three and six months due 6 (18)
2,678 446
12. Payables and accrued expenses
2024 2023
£'000 £'000
Deferred income 1,665 1,568
Trade creditors 21 24
Accruals 401 374
Tenant deposit liability (note 11) 118 118
Loan interest payable (note 13) 256 258
Other creditors 429 409
2,890 2,751
13. Interest bearing loans and borrowings
2024 2023
£'000 £'000
Facility drawn 41,000 41,000
Unamortised finance costs brought forward (276) (380)
Amortisation of finance costs (note 6) 104 104
At end of year 40,828 40,724
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 2024, 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 37.7% (2023: 36.8%). 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
(2023: £1.31 million), £0.26 million of which is outstanding as at 30 June
2024 (2023: £0.26 million).
2024 2023
£'000 £'000
Reconciliation to cash flows from financing activities
At beginning of the year 40,724 40,620
Non-cash changes
Amortisation of loan issue costs 104 104
Total at end of the year 40,828 40,724
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:
2024 2023
£'000 £'000
Within one year - 50
After one year but not more than five years - 150
More than five years - 463
Total undiscounted lease liabilities - 663
Less: Future finance charge on lease obligations - (364)
Present value of lease liabilities - 299
Lease liabilities included in the Consolidated Statement of Financial Position
Current - 33
Non-current - 266
- 299
15. Commitments
15.1. Operating lease commitments - as lessor
The Group has 19 commercial properties with 33 units in its investment
property portfolio. These non-cancellable leases have a remaining term of
between 10 months and 110 years (2023: 10 months to 111 years), excluding
ground leases.
Future minimum rentals receivable under non-cancellable operating leases as at
30 June 2024 are as follows:
2024 2023
£'000 £'000
Within one year 6,839 7,179
After one year, but not more than two years 6,528 6,804
After two years, but not more than three years 6,331 6,548
After three years, but not more than four years 5,746 7,034
After four years, but not more than five years 5,826 6,416
After five years, but not more than ten years 27,129 28,307
After ten years, but not more than fifteen years 20,398 24,085
More than fifteen years 47,712 50,689
126,509 137,062
During the year ended 30 June 2024 there were no material contingent rents
recognised as income (2023: £nil).
15.2. Capital commitments
There were no capital commitments at 30 June 2024 (2023: none).
15.3. Financial commitments
As disclosed in the Company's 2023 Annual Report (note 15.3), the Board
engaged in mediation for the one item of litigation that it was involved in,
which resulted in a full and final settlement of £825,000 being received.
As a result, the Group have no financial commitments other than those arising
from its normal business operations, and in the year ended 30 June 2023, the
settlement was 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 period end
(2023: nil).
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 (Company number 11052186) England and 7 Nov 2017 Real Estate Company 73,158,502*
Wales
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 2024 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 The Scalpel, 18th Floor, 52 Lime Street, London, United Kingdom,
EC3M 7AF.
17. Issued share capital and reserves
2024 2023
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:
2024 2023
£'000 £'000
Debtors 2,680 448
Cash and cash equivalents 3,292 3,484
Total 5,972 3,932
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.
2024 On demand £'000 < 3 months 3-12 1-5 years > 5 years Total
£'000 months £'000 £'000 £'000
£'000
Interest bearing loans and borrowings - - - 41,000 - 41,000
Interest payable - 327 980 652 - 1,959
Payables and accrued expenses 21 676 - - - 697
Lease obligations - - - - - -
Total 21 1,003 980 41,652 - 43,656
2023 On demand £'000 < 3 months 3-12 1-5 years > 5 years Total
£'000 months £'000 £'000 £'000
£'000
Interest bearing loans and borrowings - - - 41,000 - 41,000
Interest payable - 327 980 1,959 - 3,266
Payables and accrued expenses 24 651 - - - 675
Lease obligations - 13 38 200 413 664
Total 24 991 1,018 43,159 413 45,605
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 37.7% (2023: 36.8%)
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 and the Investment Adviser
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 are considered to be related parties. Their fees and interests in
shares are disclosed in the Remuneration Report in the Annual Report.
Investment Adviser
As reported in the Chairman's Statement, the Group's investment adviser was
changed on 15 March 2024 from M7 Real Estate Limited ('M7') to Martley Capital
Real Estate Investment Management Ltd ('Martley Capital'). The appointment of
Martley Capital was by way of a deed of novation of the Group's Interim
Investment Advisory agreement dated 14 March 2020 (as amended with Deed of
Variation dated 21 February 2021) with minor changes thereto but leaving the
parties on substantially the same terms and at an unchanged fee.
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. During the year ended 30 June 2024, the Group incurred
£360,000 (2023: £371,000) in respect of investment advisory fees of which
£253,000 was paid to M7 and £107,000 was paid to Martley Capital. No amounts
were outstanding at 30 June 2024 (2023: Nil).
Company Statement of Financial Position
As at 30 June 2024
Notes 2024 2023
£'000 £'000
Assets
Non-current Assets
Investments in subsidiary companies 2 73,158 73,158
Investment property 2 1,803 1,814
Total non-current assets 74,961 74,972
Current Assets
Receivables and prepayments 3 132 169
Cash and cash equivalents 475 525
Total current assets 607 694
Total Assets 75,568 75,666
Current Liabilities
Payables and accrued expenses 4 (14,721) (8,979)
Net Assets 60,847 66,687
Equity
Share capital 6 805 805
Capital reserve 70,431 75,417
Retained earnings (10,389) (9,535)
Total capital and reserves attributable to equity holders of the Company 60,847 66,687
Net Asset Value per share 75.59p 82.84p
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 loss for the year was £854,000 (2023: £8,795,000 profit).
The financial statements were approved by the Board on 1 October 2024 and were
signed on its behalf by:
Simon Bennett
Chairman
Company number: 10727886
The accompanying notes 1 to 7 form an integral part of these financial
statements.
Company Statement of Changes in Equity
For the year ended 30 June 2024
Capital Reserve
Share Retained Total
capital earnings equity
£'000 £'000 £'000 £'000
For the year ended 30 June 2024
Balance at 30 June 2023 805 75,417 (9,535) 66,687
Total comprehensive loss - - (854) (854)
Dividend reallocation 0
Dividends paid - (4,986) (4,986)
Balance at 30 June 2024 805 70,431 (10,389) 60,847
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
The accompanying notes 1 to 7 form an integral part of these financial
statements.
Notes to the Company Accounts
for the year ended 30 June 2024
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 2024.
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
2024 2023
£'000 £'000
At the beginning and end of the year 73,158 73,158
A list of subsidiary undertakings at 30 June 2024 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
2024 2023
£'000 £'000
At the beginning of the year 1,814 2,153
Revaluation of investment property - (325)
Adjustment to fair value for minimum rent indexation of lease income (11) (14)
1,803 1,814
3. Receivables and prepayments
2024 2023
£'000 £'000
Rent debtor - 5
Spreading of contracted future - rent indexation 72 61
VAT receivable 23 72
95 138
Other prepayments 37 31
132 169
4. Payables and accrued expenses
2024 2023
£'000 £'000
Due to subsidiaries 14,357 8,644
Deferred income 34 30
Trade creditors - 5
Accruals 328 300
Other creditors 2 -
14,721 8,979
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
2024 2023
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 2024 the Company had £nil contingent liabilities or capital
commitments (2023: £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.
EPRA Performance Measures (Unaudited)
EPRA Yield calculations 2024 2023
£'000 £'000
Investment properties wholly owned:
- by Company 1,875 1,875
- by Alternative Income Limited 100,775 105,150
Total - note 10 102,650 107,025
Allowance for estimated purchasers' costs - note 8 6,672 6,957
Gross up completed property portfolio valuation B 109,322 113,982
Annualised cash passing rental income 7,596 7,560
Annualised property outgoings (5) (55)
Annualised net rents A 7,591 7,505
Add: notional rent expiration of rent-free periods or other lease incentives 379 563
Topped-up net annualised rent C 7,970 8,068
EPRA NIY A/B 6.94% 6.58%
EPRA topped-up NIY C/B 7.29% 7.08%
EPRA Cost Ratios 2024 2023
£'000 £'000
Include:
EPRA Costs (including direct vacancy costs) - note 4 A 1,204 1,232
Direct vacancy costs - -
EPRA Costs (excluding direct vacancy costs) B 1,204 1,232
Gross rental income (adjusted) - note 3 C 7,358 8,088
EPRA Cost Ratio (including direct vacancy costs) A/C 16.36% 15.23%
EPRA Cost Ratio (excluding direct vacancy costs) B/C 16.36% 15.23%
EPRA Vacancy rate 2024 2024
£'000 £'000
Annualised potential rental value of vacant premises A - -
Annualised potential rental value for the completed property portfolio B 6,948 7,040
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.
2024 2023
NAV per Ordinary Share A 80.90p 84.16p
Share price B 66.00p 64.70p
Discount (A-B)/A 18.42% 23.12%
Dividend Cover
The ratio of Group's Adjusted EPS divided by the Group's dividends payable for
the relevant year.
2024 2023
Adjusted EPS A 5.99p 6.43p
Dividend per share B 5.90p 6.045p
Dividend cover A/B 101.53% 106.37%
Dividend Yield
The ratio of Group's annual dividends per share divided by the Group's share
price for the relevant year.
2024 2023
Annual dividends paid A 5.90p 6.045p
Share price B 66.00 64.70
Dividend yield A/B 8.94% 9.34%
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.
2024 2023
Borrowings (£'000) A 41,000 41,000
Total assets (£'000) B 108,839 111,524
Loan to GAV A/B 37.67% 36.76%
Dividend Cover
The ratio of Group's Adjusted EPS divided by the Group's dividends payable for
the relevant year.
2024 2023
Adjusted EPS A 5.99p 6.43p
Dividend per share B 5.90p 6.045p
Dividend cover A/B 101.53% 106.37%
Dividend Yield
The ratio of Group's annual dividends per share divided by the Group's share
price for the relevant year.
2024 2023
Annual dividends paid A 5.90p 6.045p
Share price B 66.00 64.70
Dividend yield A/B 8.94% 9.34%
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.
2024
2023
Borrowings (£'000)
A
41,000
41,000
Total assets (£'000)
B
108,839
111,524
Loan to GAV
A/B
37.67%
36.76%
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.
2024 2023
Other operating expenses for the year (£'000) A 1,066 1,049
One-off website costs (£'000) * B (16) (40)
One-off legal fees (£'000) ** C (20) -
Abortive costs (£'000)*** D (62) -
E=A+B+C+D 968 1,009
Average net assets (£'000) F 66,436 72,675
Ongoing charges ratio E/F 1.46% 1.39%
* 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.
*** Costs incurred on aborted property acquisition.
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 2023 A 64.70 84.16p
Closing at 30 June 2024 B 66.00 80.90p
Return C=(B/A)-1 2.01% (3.87%)
Dividend reinvestment * D 9.58% 7.36%
Total return for the year ended 30 June 2024 C+D 11.59% 3.49%
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%)
*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 or Martley Capital Martley Capital Real Estate Investment Management 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 (now the Closed-ended investment funds category) 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.
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
30 June Year end
September Announcement of annual results
November Annual General Meeting
31 December Half year end
March Announcement of interim results
Quarterly dividends are paid in November, February, May and August for each
financial year.
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
The Scalpel 18(th) Floor
52 Lime Street
London
EC3M 7AF
Company Secretary
Hanway Advisory Limited
The Scalpel 18(th) Floor
52 Lime Street
London
EC3M 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
Martley Capital Real Estate Investment Management Ltd
The Rookery, 4(th) Floor
2 Dyott Street
London
WC1A 1DE
Previously:
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 Liberum Ltd
Ropemaker Place, Level 12
25 Ropemaker Street
London
EC2Y 9LY
Communications Adviser
H/Advisors Maitland
3 Pancras Square
London
N1C 4AG
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