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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Aew Uk Long Lease Reit Plc | LSE:AEWL | London | Ordinary Share | GB00BDVK7088 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 72.50 | 72.00 | 73.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2022 to Apr 2024
TIDMAIRE
RNS Number : 0817B
Alternative Income REIT PLC
29 September 2022
THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED STATES OF AMERICA, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA.
29 September 2022
ALTERNATIVE INCOME REIT PLC
(the "Company" or the "Group")
Annual Report and Financial Statements for the year ended 30 June 2022
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, is pleased to announce its annual report and financial statements for the year ended 30 June 2022.
Financial Highlights
As at 30 June
Hot Features
Premium
2022 2021 Change
Net Asset Value ('NAV') GBP77.6 million GBP68.9 million +12.6%
---------------- ---------------- -------
NAV per share 96.4 p 85.6 p +12.6%
---------------- ---------------- -------
Share price 82.1 p 71.0 p +15.6%
---------------- ---------------- -------
Loan to gross asset value
('GAV') (A) 33.7 % 36.3 % -
---------------- ---------------- -------
Loan Facility GBP41 million GBP41 million -
---------------- ---------------- -------
For the year ended 30 June
2022 2021 Change
EPRA earnings per share
(A) 6.27 p 5.55 p +13.0%
----------------- ----------------- --------
Adjusted earnings per share
(A) 5.57 p 5.07 p +9.9%
----------------- ----------------- --------
Dividend cover (A) 101.27 % 98.6 % +2.7%
----------------- ----------------- --------
Total dividends per share 5.5p 5.14 p +7.0%
----------------- ----------------- --------
Dividend yield (A) 6.7% 7.2% -0.5%
----------------- ----------------- --------
Operating profit (including
gain on sale of investment
property) GBP6.6 million GBP 6.3 million +4.8%
----------------- ----------------- --------
Profit before tax GBP 13.2 million GBP 5.6 million +135.7%
----------------- ----------------- --------
Earnings per share ('EPS') 16.36 p 6.92 p +136.4%
----------------- ----------------- --------
Share price total return
(A) 24.3 % 43.5 % -
----------------- ----------------- --------
NAV total return (A) 22.5 % 8.3 % -
----------------- ----------------- --------
Investment property fair
value (based on external
valuation) GBP117.9 million GBP109.2 million +8.0%
----------------- ----------------- --------
Annualised passing rent GBP7.2 million GBP7.0 million +2.9%
----------------- ----------------- --------
Ongoing charges (A) (annualised) 1.42% 1.27% +15bps
----------------- ----------------- --------
(A) Alternative Performance Measure; full calculations are set out following the financial statements.
Highlight Notes
-- The majority of the NAV increase to 96.4 pence per share (pps) is due to the GBP8.7 million (8%) valuation uplift in investment properties, which primarily came from improved market conditions, following the last year's COVID-19 negative impact on valuations.
-- A healthy dividend yield of 6.7%; the 0.5% decrease from the prior year being a result of the Company's rising share price.
-- Dividends in respect of the year total 5.5pps: a substantial 7.0% increase from the previous year and in line with the Board's target annual dividend.
-- Profit before tax increased 135.7% to GBP13.2 million and earnings per share to 16.36pps for the year. The majority of this increase is due to the GBP8.7 million valuation uplift in investment properties.
-- Loan to GAV ratio of 33.7% with significant headroom on the lender's loan to value covenant of 60% and interest cover covenant of 250%. The loan matures in 2025 and is fixed at a weighted average interest cost of 3.19%.
Operational Overview
At the Group's Year End of 30 June 2022:
-- The Group's property portfolio had a fair value of GBP117.9 million across 19 properties (2021: GBP109.2 million across 19 properties).
-- On a like-for-like basis, excluding the newly acquired and disposed asset, the 18 properties held throughout the year were valued at GBP112.8 million at 30 June 2022 (2021: GBP103.9 million), a valuation increase of GBP8.9 million or 8.6%.
-- The EPRA Net Initial Yield (A) ('NIY') was 5.7% (2021: 5.9%).
-- The portfolio had Annualised Gross Passing Rental Income (A) of GBP7.2 million across 19 properties (2021: GBP7.0 million across 19 properties).
-- 96% 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:
- 17.5 years to the earlier of break and expiry (2021: 17.8 years)
- 19.4 years to expiry (2021: 19.8 years).
Income and Expense During the Year
-- Rent recognised was GBP7.5 million (2021: GBP7.2 million), of which, GBP0.5 million was accrued debtors for the combination of minimum uplifts and rent-free period (2021: accrued debtors of GBP0.5 million).
-- Ongoing charges increased from 1.27% to 1.42%. The Board has continued in its effort to carefully control costs, and a significant part (0.13%) of the 0.15% increase was as a result of the Investment Adviser's waiver of fees in the prior year.
Property Transactions During the Year
-- On 1 December 2021, the Group completed the disposal of the freehold interest in the Audi car showroom in Huddersfield to the occupier for GBP5.50 million, representing a 3.80% premium on the book value at 30 June 2021 and a net exit yield of 6.75%.
-- On 28 January 2022, the Company completed the acquisition of the Volvo car showroom in a prime location on the A4 Bath Road, Slough for GBP5.0 million with a materially longer WAULT of 15 years. This acquisition redeployed the net proceeds from the Group's disposal of its Audi car showroom in Huddersfield.
Operational highlights after the year end
-- On 2 August 2022 the Board declared an interim dividend of 1.60pps in respect of the quarter ended 30 June 2022. This was paid on 26 August 2022 to shareholders on the register at 12 August 2022. The ex-dividend date was 11 August 2022.
-- By 22 September 2022, the Group had collected 100% of rent for the 4 rental quarters of the financial year being reported. All rent deferred due to COVID-19 has been paid.
Outlook
-- The Group is continuing to deal with a backdrop of global and recent UK-centred economic headwinds impacting the UK commercial property sector .
-- The Company's resilient portfolio of 19 investment properties continues to provide investors with long-dated higher yielding income, of which 96% is linked to inflationary growth, and with a weighted average unexpired lease term to break of 17.5 years. The portfolio also provides investors with exposure to a diverse range of alternative investment sectors and its existing Canada Life senior debt facility eliminates the Group's exposure to increasing debt costs.
-- Over the next 12-month financial period, 66% of the Group's incomes will be reviewed (44% annual index-linked rent reviews and 21% periodic index-linked rent reviews (5 years since the previous reviews)), helping to support our focus on delivering an increasing dividend that is fully covered.
Alan Sippetts, Non-Executive Chairman of Alternative Income REIT plc, comments:
"Against a backdrop of global and recent UK-centred economic headwinds impacting the UK commercial property sector, t he Board remains convinced by the fundamentals of the Group's resilient diversified portfolio of long-dated higher yielding income, which is 100% let and benefits from 100% rent collection. We are committed to further enhancement of both income and capital growth supported by 96% of the Group's income having inflation linked upwards only rent reviews, active asset management opportunities and opportunistic transactions.
We have met our 5.5pps fully covered dividend target and achieved an NAV increase of 12.6%, which equates to an NAV total return of 22.5% and a share price return of 24.3% in the period. Our focus is on generating an increasing dividend which is fully covered, and our recent dividend increase is testament to the Board's confidence in the long-term value we expect to deliver to our shareholders."
ENQUIRIES
Alternative Income REIT PLC
Alan Sippetts - Chairman via H/Advisors Maitland
below
M7 Real Estate Ltd
Richard Croft +44 (0)20 3657 5500
Panmure Gordon (UK) Limited +44 (0)20 7886 2500
Alex Collins
Tom Scrivens
Chloe Ponsonby
H/Advisors Maitland (Communications Adviser) +44(0) 7747 113 930
James Benjamin aire-maitland@maitland.co.uk
The Company's LEI is 213800MPBIJS12Q88F71.
Further information on Alternative Income REIT plc is available at www.alternativeincomereit.com (1) .
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 M7 Real Estate Limited ("M7"). M7 is a leading specialist in the pan-European, regional, multi-tenanted real estate market. It has over 220 employees in 15 countries across Europe. The team manages over 570 properties with a value of circa EUR4.9 billion.
1 Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published on a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
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 2022.
Following the successful vaccination programme which allowed the government to ease COVID-19 restrictions, the Russia-Ukraine war has had wide-ranging macroeconomic effects, increasing inflationary pressures and supply chain disruption to many industries, which have been recently exacerbated in the UK. Throughout these challenges, our 100% let portfolio has demonstrated its resilience, and the Directors are pleased that we have been able to pay an increased dividend of 5.5pps (2021: 5.14pps), meeting the target of a 5.5pps fully covered dividend for the year ended 30 June 2022. Furthermore, through increases in the portfolio valuation and income earned during the year, the Net Asset Value ('NAV') per share has increased by 12.6% to 96.40pps.
We are very pleased to report a share price total return of 24.3% and a NAV total return of 22.5% to shareholders for the year, demonstrating that the Company continues to provide our shareholders with attractive, secure, long dated income and capital growth.
As announced in our results for the half year ended 31 December 2021, on 1 December 2021 we completed the disposal of the freehold interest in the Audi car showroom in Huddersfield to the occupier for GBP5.5 million, representing a 3.8% premium on the book value as at 30 June 2021 and a net exit yield of 6.75%. On 28 January 2022, we were also delighted to announce that we had swiftly redeployed these proceeds through the acquisition of a state-of-the-art car showroom let to Volvo for GBP5.0 million (net of acquisition costs to the Company) with a materially longer WAULT of 15 years.
Furthermore, a total of 12 rent reviews took place during the year with a combined uplift of GBP259,000 representing a 3.9% increase in contracted rent across the portfolio, further enhancing income.
Portfolio Performance
The near full deployment of the Group's funds for the whole year resulted in headline rent of GBP 7.5 million during the year, of which, GBP0.5 million was accrued debtors for the combination of minimum contracted uplifts and rent-free periods (2021: GBP7.2 million; accrued debtors of GBP0.5 million) .
At 30 June 2022, the Group's property portfolio had a fair value of GBP 117.9 million (2021: GBP109.2 million). The portfolio had a net initial yield of 5.7 % (2021: 5.9%), and a WAULT to the first break of 17.5 years, 19.4 years to expiry ( 2021: 17.8 years to first break, 19.8 years to expiry).
Financing
The Group ha s fully utilised its GBP41 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. If repayment is made prior to this date, and the corresponding Gilt rate is lower than the contracted rate of interest, then the loan terms provide for a prepayment fee, which at 30 June 2022 was GBP486,088.
Dividends and Earnings
The Company declared three interim dividends of 1.30pps each and a fourth interim dividend of 1.60 pps in respect of the financial year, totalling 5.5 pps (2021: four dividends totalling 5.14pps), representing an increase of 7.0 % and meeting our target dividend ahead of schedule. This underlines the Company's strong rent collection and cash flows .
As set out in Note 8 to the Consolidated Financial Statements, these dividends were covered by both EPRA Earnings (A) of 6.27pps (2021: 5.55pps), and the Group's Adjusted EPS (representing cash) of 5.57pps (2021: 5.07pps).
It is the Board's intention to continue to pay four equally spaced dividends each year, with payments in November, February, May and August. In order to do this, all must be paid as interim dividends which prevents shareholders having the opportunity to vote on a final dividend. Recognising this, and though not required, the Board have added a dividend policy setting out the above dividend payment schedule and, by resolution 9 of the AGM notice, have given shareholders the opportunity to vote on this policy.
Discount
The discount of the share price to NAV at the year end had narrowed slightly to 14.8% from 17.0% 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 believe these authorities are important powers for it to have available if required, and therefore recommend that shareholders vote in favour of their continuance.
Board Composition
As a board of only three directors, there has been considerable change in the year with the resignation of Jim Prower and the appointment on the same day of Stephanie Eastment as an independent non-executive director and Audit Committee Chair. Jim takes with us our thanks for his hard work throughout the life of the Company which included the change of the Investment Adviser - no mean undertaking - and his wealth of commercial expertise. Stephanie joined us on 1 October 2021 so has been on the Board for the majority of the financial year being reported. Her experience and knowledge has been very welcome, and her biography can be found in the Board of Directors section.
After serving on the Board for over five years and having guided the Company through a period of stabilisation, cost control and having provided continuity of historical knowledge following director changes over the last two years, I intend to step down as a Director and Chair of the Company. A formal recruitment process for my replacement will be carried out, and I will remain as Director and Chair until this process has been completed. A further announcement will be made in due course.
Continuation Resolution
At our upcoming Annual General Meeting (AGM) on 10 November 2022, we will be presenting a resolution for shareholders to consider whether the Company should continue its business as presently constituted, as required under the Company's Articles of Association.
The Board's focus for the last two years has been to maximise rent collection, income distribution and returns to shareholders, whilst maintaining a low operating cost base and taking initiatives within the Group's current portfolio of assets. This year has demonstrated that the Company has an attractive, well-managed and resilient portfolio which continues to increase in value with growing contracted rents, 96% of which are linked to inflation and with 100% rent collection. The Board believes that the Company can continue to deliver strong returns. Consequently, and following detailed consideration by the Board which took into account the advice of the Company's broker and views of major shareholders, the Board considers that the Company should continue in its current form and therefore recommend shareholders vote in favour of the resolution. The Directors have confirmed their intention to vote their shareholdings in favour of continuation.
The Board will continue to canvas the views of shareholders, including in the lead up to the maturity of the current debt facility in October 2025, to ensure that the strategy adopted by the Board for your Company continues to be in the best interests of shareholders.
AGM
The Company will hold its AGM at 10am on 10 November 2022 at The Monument Building, 11 Monument Street, London EC3R 8AF. The AGM will be in its traditional format, though this is subject to there being no re-introduction of any Government restrictions preventing this. The Investment Adviser will give a presentation on the Company and the investment outlook before the AGM.
I always welcome engagement by shareholders at the AGM. Shareholders may also submit questions to myself, my fellow directors and the Investment Adviser by emailing cosec@hanwayadvisory.com or by writing to Alternative Income REIT plc, 1 King William Street, London EC4N 7AF.
O utlook
The Board remains convinced by the fundamentals of the Group's resilient portfolio and is committed to further enhancement of both income and capital growth through the inflation linked upwards only rent reviews, active asset management opportunities and opportunistic transactions. Having achieved the major milestone set out in the Company's prospectus of the dividend target of 5.5p, our focus is on generating an increasing dividend which is fully covered by the Group's fully invested portfolio. Our recent dividend increase is testament to the Board's confidence in the long-term value we can deliver to our shareholders.
We remain cognisant of the discount in the Company's share price to NAV and continue to explore initiatives and opportunities to narrow this discount and increase liquidity. The Company's share price has increased in the year by 15.6% to 82.10p as at 30 June 2022. We continue to believe there is a significant market opportunity for certain property sectors in the UK and are confident that delivering on our outlined strategy will continue to support our share price and improve liquidity, which in turn should narrow the discount.
I would like to thank my fellow shareholders, Directors, the Investment Adviser and our other advisers and
service providers who have provided professional support and services to the Group.
Alan Sippetts
Chairman
28 September 2022
Business Model and Strategy
Introduction
Alternative Income REIT plc is a real estate investment trust listed on the premium segment of the Official List of the Financial Conduct Authority ('FCA') and traded on the Main Market of the London Stock Exchange. As part of its business model and strategy, the Group has maintained and intends to maintain its UK REIT status.
Investment Objective
The investment objective of the Group is to generate a secure and predictable income return, sustainable in real terms, whilst at least maintaining capital values, in real terms, through investment in a diversified portfolio of UK properties, in alternative and specialist sectors.
Investment Policy
In order to achieve the investment objective, the Group invests in freehold and long leasehold properties across the whole spectrum of the UK property sector, but with a focus on alternative and specialist real estate sectors. Examples of alternative and specialist real estate sectors include, but are not limited to, leisure, hotels, healthcare, education, logistics, automotive, supported living and student accommodation.
In the event of a breach of the investment policy or the investment restrictions set out below, the Alternative Investment Fund Manager ('AIFM'), as advised by the Investment Adviser, shall inform the Board upon becoming aware of the same and, if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the AIFM, as advised by the Investment Adviser, will look to resolve the breach.
Any material change to the investment policy or investment restrictions of the Group may only be made with the prior approval of shareholders.
Investment Strategy
The Group focuses on properties which can deliver a secure income and preserve capital value, with an attractive entry yield. The Group has an emphasis on alternative and specialist property sectors to access the attractive value and capital preservation qualities which such sectors currently offer.
The Group will supplement this core strategy with active asset management initiatives for certain properties.
Subject at all times to the AIFM's (as advised by the Investment Adviser) assessment of their appeal and specific asset investment opportunities, permitted sectors include, but are not limited to the following: Healthcare; Leisure; Hotels and serviced apartments; Education; Automotive; Car parks; Residential; Supported living; Student accommodation; Logistics; Storage; Communications; Supermarkets; and, subject to the limitations on traditional sector exposures below, Offices; Shopping centres; Retail and retail warehouses; and Industrial.
The Group is not permitted to invest in land assets, including development land which does not have a development agreement attached, agriculture or timber.
The focus will be to invest in properties to construct a portfolio with the following minimum targets:
-- a WAULT, at the time of investment, in excess of 18 years;
-- at least 85% of the gross passing rent will have leases with rent reviews linked to inflation (RPI or CPI) at the time of investment;
-- investment in properties which typically have a value, at the time of investment, of between GBP2 million and GBP30 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 GBP250 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 GBP250 million GAV of GBP250 million or greater
Investment in a single property Investment in a single property
limited to 15% of GAV (measured limited to 10% of GAV (measured
at the time of investment). at the time of investment).
The value of assets in any sub-sector Investments will be made with
in one geographical region, a view to reducing the maximum
at the time of investment, shall exposure to any sub-sector in
not exceed 15% of GAV. 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')(A) 5.70%
Annualised rental income The NIY is an indicator At 30 June 2022
based on the cash rents of the ability of the
passing at the balance Group to meet its target
sheet date, less non-recoverable dividend after adjusting
property operating expenses, for the impacts of leverage
divided by the market and deducting operating
value of the property, costs.
increased with purchasers'
costs estimated by the
Group's External Valuers.
(2021: 5.94%)
Weighted Average Unexpired
Lease Term ('WAULT') 17.5 years to break
to break and expiry and 19.4 years to expiry
The average lease term The WAULT is a key measure At 30 June 2022
remaining to expiry of the quality of the (2021: 17.8 years to
across the portfolio, portfolio. Long leases break and 19.8 years
weighted by contracted underpin the security to expiry)
rent. of our future income.
Net Asset Value ('NAV') GBP77.60 million /96.40pps
per share
NAV is the value of Provides stakeholders At 30 June 2022
an entity's assets minus with the most relevant (2021: GBP68.89 million,
the value of its liabilities. information on the fair 85.58pps)
value of the assets
and liabilities of the
Group.
Dividend per share 5.50pps
Dividends declared in The Group seeks to deliver For the year ended 30
relation to the period a sustainable income June 2022
are in line with the stream from its portfolio,
stated dividend target which it distributes
as set out in the Prospectus as dividends.
at IPO. Having achieved
the target dividend
of 5.5 pence per Ordinary
Share per annum, the
aim now is to ensure
an increasing dividend
in line with the Company's
Investment Objective.
(2021: 5.14pps)
Adjusted EPS(A) 5.57pps
Adjusted EPS from core This reflects the Group's For the year ended 30
operational activities, ability to generate June 2022
as adjusted for non-cash earnings from the portfolio
items. A key measure which underpins dividends.
of a company's underlying
operating results from
its property rental
business and an indication
of the extent to which
current dividend payments
are supported by earnings.
See Note 8 to the Consolidated
Financial Statements.
(2021: 5.07pps)
Leverage (Loan-to-GAV)(A) 33.69%
The proportion of the The Group utilises borrowings At 30 June 2022
Group's assets that to enhance returns over
is funded by borrowings. the medium term. Borrowings
will not exceed 40%
of GAV (measured at
drawdown).
(2021: 36.34%)
(A) is considered by the Directors to be an Alternative Performance Measure (APM). The NIY calculation is the same calculation as that for EPRA NIY, which is set out in the EPRA Performance Measure Calculation following the financial statements. Adjusted EPS and Loan-to-GAV are also considered by the Directors to be APMs. Their calculations are set out in note 8 of the consolidated financial statements and following the financial statements respectively.
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 5.70%
Annualised rental income A comparable measure At 30 June 2022
based on the cash rents for portfolio valuations.
passing at the balance This measure should
sheet date, less non-recoverable make it easier for investors
property operating expenses, to judge themselves,
divided by the market how the valuation of
value of the property, two portfolios compare.
increased with (estimated)
purchasers' costs.
(2021: 5.94%)
EPRA 'Topped-up' NIY
(1) - unaudited 6.41%
This measure incorporates A comparable measure At 30 June 2022
an adjustment to the for portfolio valuations.
EPRA NIY in respect This measure should
of the expiration of make it easier for investors
rent-free periods (or to judge themselves,
other unexpired lease how the valuation of
incentives such as discounted two portfolios compare.
rent periods and step
rents).
(2021: 6.95%)
EPRA NAV (2) GBP77.60 million/96.40pps
Net asset value adjusted Makes adjustments to At 30 June 2022
to include properties IFRS NAV to provide
and other investment stakeholders with the
interests at fair value most relevant information
and to exclude certain on the fair value of
items not expected to the assets and liabilities
crystallise in a long-term within a real estate
investment property investment company with
business. a long-term investment
strategy.
(2021: GBP68.89 million/85.58pps)
EPRA Net Reinstatement GBP84.77 million/105.31pps
Value 2
The EPRA NRV adds back A measure that highlights At 30 June 2022
the purchasers' costs the value of net assets
deducted from the EPRA on a long-term basis.
NAV and deducts the
break cost of bank borrowings.
(2021: GBP72.53 million/90.09pps)
EPRA Net Tangible Assets GBP77.11 million/95.79pps
2
The EPRA NTA deducts A measure that assumes At 30 June 2022
the break cost of bank entities buy and sell
borrowings from the assets, thereby crystallising
EPRA NAV and any unavoidable certain levels of avoidable
deferred tax. deferred tax liability.
The Group has UK REIT
status and as such no
deferred tax is required
to be recognised in
the accounts.
(2021: GBP65.43 million/81.27pps)
EPRA Net Disposal Value GBP77.11 million/95.79pps
2
The EPRA NDV deducts Represents shareholders' At the year ended 30
the break cost of bank value under a disposal June 2022
borrowings from the scenario, where deferred (2021: GBP65.43 million/81.27pps)
EPRA NAV. tax, financial instruments
and certain other adjustments
are calculated to the
full extent of their
liability, net of any
resulting tax.
EPRA Earnings/EPS 2 GBP5.05 million/6.27pps
Earnings from operational A key measure of a company's For the year ended 30
activities. underlying operating June 2022
results and an indication (2021: GBP4.47 million/
of the extent to which 5.55pps)
current dividend payments
are supported by earnings.
EPRA Vacancy 1 - unaudited 0.00 %
Estimated Rental Value A 'pure' percentage At 30 June 2022
('ERV') of vacant space measure of investment
divided by ERV of the property space that
whole portfolio. is vacant, based on
ERV.
(2021: 0.00%)
EPRA Cost Ratio 1 -
unaudited 13.79 %
Administrative and operating A key measure to enable For the year ended 30
costs (including and meaningful measurement June 2022
excluding costs of direct of the changes in a
vacancy) divided by company's operating
gross rental income. costs.
(2021: 18.36%)
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.
EPRA NNNAV is equal to EPRA NAV as there are no adjusting items. As such this measure has not been presented.
Investment Adviser's Report
Introduction
Whilst the 2021 Investment Adviser's Report spoke in detail about primarily COVID-19, H2'2021 and H1'2022 presented the Group with a new set of obstacles to deal with, including soaring inflation, increasing debt costs and decreasing consumer confidence, all of which have an impact on real estate investment and its performance.
The Company's 19 investment properties continue to provide investors with long-dated higher yielding income, with an average unexpired lease term to break of 17.5 years, of which 96% is linked to inflationary growth, adding 3.9% to the income profile this year. The portfolio also provides investors with exposure to a diverse range of alternative investment sectors and its existing Canada Life senior debt facility eliminates the Group's exposure to increasing debt costs.
The portfolio has shown resilience to the headwinds being experienced throughout the UK commercial real estate market. At 30 June 2022, 16% of the tenants are contractually invoiced monthly, whilst the remaining 84% are invoiced quarterly and 100% of rents due have been collected for the four quarter days of H2'2021 and H1'2022.
During the year the Group completed the disposal of Audi, Huddersfield to the occupier for GBP5.5 million, a 3.8% premium on the book value at 30 June 2021. The proceeds from the sale were used to acquire Volvo, Slough, at a net initial yield of 5% in an off market transaction.
Following the portfolio's resilience over the past year, it's continued performance improvement with a strong and improving dividend, M7 remains optimistic despite the risks surrounding the UK economy and real estate market.
Market Outlook
UK Economic Outlook
Just as the UK economy returned to its pre-pandemic size, new shocks hit the global economy. The invasion of Ukraine and renewed lockdowns in China put upward pressure on commodity prices while keeping supply chains under strain. There are growing concerns that a combination of policy actions to combat inflation and any further fallouts as a result of geopolitical tensions will bring about another recession.
The half year report for December 2021 commented on headline UK GDP growth in 2022 of between 4.5% and 5.1%. However, updated analysis by KPMG expects GDP growth to decrease to 3.2% for 2022 before slowing further to 0.7% in 2023. This is primarily driven by the cost-of-living crisis and rising tax burden negatively impacting consumer confidence, which will adversely affect spending.
One of the key economic changes impacting real estate investment in 2022 is the increasing cost of debt. There has already been a series of interest rate increases by the Bank of England in 2022, and some, including KPMG, expect there to be two further increases before the end of the year in order to combat rising inflation. The current increase in inflation will positively impact the income profile of the Company with 96% of tenants having index linked rent reviews, though the likely reaching of caps on some future rent reviews will for the first time limit increases but also prevent overburden on tenants.
The risks to most UK economic outlooks are skewed to the downside. A sharper deterioration in the external environment causing a recession in some of the UK's major trading partners, coupled with rising debt costs, rising inflation and a stronger fall in consumer spending in the UK, could see the UK economy enter a mild recession next year, with manufacturing and financial services likely to be among the worst affected sectors.
UK Real Estate Outlook
Whilst the 2021 half year report for December 2021 spoke of a renewed sense of optimism within the UK real estate sector, with the UK showing an improving economy and the labour market holding stable following the removal of the furlough scheme, it is now becoming clear that the UK commercial real estate market is facing headwinds.
With debt costs having increased throughout H1'2022, Savills reported that for the third month in a row, the average prime yield remained static showing only a four basis point fall during this period. Commercial real estate, as with most asset classes, is looking at the combined issues of inflation and recession.
Looking at the above in more granular detail, June 2022 saw the flattening of yields in five of the sub sectors, which previously trended downwards: Southeast Offices, Retail Warehousing, Food Stores, Industrial Logistics and Industrial Multi-let. Yields for the High Street and Shopping Centre retail sectors continued to trend downwards reflecting improved sentiment to the sectors but are still much higher than pre-pandemic levels by 75 and 100 basis points respectively. The diversified nature of the AIRE portfolio combined with June 2022 valuation gains, provides evidence of the portfolios ability to mitigate the impacts of a market downturn.
Reports from Lambert Smith Hampton confirmed in Q1'2022 that, amid concerns over the cost-of-living crisis and the war in Ukraine, the UK investment market demonstrated clear resilience. GBP16.7bn of property assets changed hands during Q1 2022, just 3% shy of Q4 2021's six-year high of GBP17.3 billion. Notably, despite the outbreak of the war in late February, activity was consistent throughout Q1, with volumes in March comparable with each of the previous months. With that being said, the current rising inflation combined with increasing debt costs, has caused a slowdown in property asset transactions, with many investors taking some downtime whilst they assess where both variables are heading.
2021 saw an emphasis placed on the importance of ESG related credentials and 2022 has seen that continue. Normally associated with sustainability, and gaining in prominence, ESG has quickly been established as an ethical priority for businesses, both large and small. It has become a central aspect of how businesses define themselves. This is having significant impact on the occupational market with perspective tenants taking ESG values into account when considering their next premises move and making ESG related credentials a key selling point. Furthermore, investors are seeing their equity come with ESG related caveats, ensuring it takes a key role in investment decisions and the deployment of capital.
Portfolio Activity During the Year
The following asset management initiatives were undertaken during the year:
-- Rent Reviews: A total of 12 rent reviews took place during the year with a combined uplift of GBP259,000 representing a 3.9% increase in contracted rent across the portfolio.
-- Audi, Huddersfield was sold for GBP5.5 million on 1 December 2021 to the occupier.
-- Volvo, Slough was acquired for GBP5.0 million on 28 January 2022, with the rent review settled on 17 March 2022 at GBP281,124 per annum.
-- Pocket Nook Estate, St Helens: BGEN Limited have extended their lease for Unit 2 until 2027 with a break in 2025, at an increased rent of GBP145,000 p.a. with 4 months' rent-free spread over 12 months. In addition, they have taken a further co-terminus lease at GBP50,000 p.a. rising to GBP63,750 p.a. of 0.75 acres of adjacent land. Ayrshire Metals, having closed their operation in St Helens, have assigned their lease to Kingscrown Land & Commercial Limited with a sub-letting to Prospect Engineering (MIA) Limited.
-- Hoddesdon Energy have placed their advanced thermal treatment plant in Hoddesdon on standby whilst they look for a buyer for their business.
-- Travelodge, Swindon: Travelodge Hotels Limited are now paying 100% of contracted rent (increased at review in June 2021 to GBP403,148 p.a.), following company voluntary agreement ('CVA') proceedings in 2020. As previously reported, following works to replace the combustible cladding elements uncovered on part of the property, with non-combustible replacements and to remediate the fire/smoke stopping completed in December 2020, both the architect and cladding sub-contractor involved are being pursued for reimbursement of the costs of GBP1,056,000.
NAV Movements
For the year ended 30 June
2022 2022 2021
Pence Pence
per per
share GBP million share GBP million
------- ------------ ------- ------------
NAV at beginning of year 85.58 68.89 83.58 67.29
Change in fair value of investment
property 9.97 8.02 0.85 0.68
Income earned for the year 9.81 7.90 9.20 7.41
Gain on sale of property 0.12 0.10 0.53 0.42
Finance costs for the year (1.77) (1.42) (1.77) (1.42)
Other expenses for the year (1.77) (1.43) (1.89) (1.52)
Dividends paid during the
year (5.54) (4.46) (4.92) (3.97)
------- ------------ ------- ------------
NAV at the end of the year 96.40 77.60 85.58 68.89
------- ------------ ------- ------------
Valuation
At the year end the Group owned 19 assets. The fair value of these 19 assets had increased from GBP109.2 million at 30 June 2021 to GBP117.9 million at the year end, an increase of GBP8.7 million or 8.0%.
The Group has experienced valuation increases across the majority of the Group's assets. The best performances came in the industrial and retail warehouse sectors, showing annual increases of 15-25%. Slower to react, following the pandemic have been the hotel, student accommodation & automotive sectors which have seen uplifts during 2022.
Summary by Sector at 30 June 2022
Gross
WAULT Passing
Market Occupancy to Rental
Number Valuation Value by ERV break Income ERV ERV
of
Sector Properties (GBPm) (%) (%) (years) (GBPm) (GBPm) (%)
---------------------- ---------- --------- ------ --------- ------- ------- ------ ------
Industrial 4 26.4 22.3 100.0 25.8 1.55 1.56 22.3
Hotel 3 22.3 19.0 100.0 13.9 1.60 1.45 20.7
Automotive &
Petroleum 3 18.6 15.8 100.0 26.5 1.14 1.10 15.7
Healthcare 3 17.5 14.8 100.0 14.0 1.02 0.99 14.1
Student Accommodation 1 13.5 11.5 100.0 19.1 0.67 0.67 9.6
Leisure 2 5.8 4.9 100.0 7.3 0.37 0.38 5.6
Retail 1 5.2 4.4 100.0 9.7 0.33 0.33 4.8
Power Station 1 6.4 5.4 100.0 5.0 0.40 0.38 5.3
Education 1 2.2 1.9 100.0 21.6 0.13 0.13 1.9
---------------------- ---------- --------- ------ --------- ------- ------- ------ ------
Total/Average 19 117.9 100.0 100.0 17.5 7.21 6.99 100.0
---------------------- ---------- --------- ------ --------- ------- ------- ------ ------
Summary by Geographical Area at 30 June 2022
Gross
Passing
Market Occupancy WAULT to Rental
Geographical Number Valuation Value by ERV break Income ERV ERV
of
Area Properties (GBPm) (%) (%) (years) (GBPm) (GBPm) (%)
------------------------ ---------- --------- ------ --------- -------- ------- ------ ------
West Midlands 4 29.9 25.4 100.0 12.3 1.90 1.85 26.4
North West & Merseyside 2 24.3 20.6 100.0 35.9 1.24 1.23 17.7
South East excluding
London 5 25.7 21.8 100.0 11.4 1.40 1.34 19.2
South West 2 13.4 11.4 100.0 22.6 0.86 0.81 11.6
Yorkshire and the
Humber 2 6.6 5.6 100.0 19.6 0.43 0.42 6.0
Scotland 1 7.0 5.9 100.0 14.2 0.68 0.61 8.7
London 2 5.8 4.9 100.0 7.3 0.37 0.40 5.6
Eastern 1 5.2 4.4 100.0 9.7 0.33 0.33 4.8
------------------------ ---------- --------- ------ --------- -------- ------- ------ ------
Total/Average 19 117.9 100.0 100.0 17.5 7.21 6.99 100.0
------------------------ ---------- --------- ------ --------- -------- ------- ------ ------
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 69.6% (2021: 65.0%) Expiry or Open Market Value 4.1% (2021: 13.0%) Reviews Inflation linked - CPI 26.3% (2021: 22.0%)
Property Portfolio
Property Portfolio at 30 June 2022
Market
Value
Property Sector Region (GBPm)
----------------------------------- ----------------------- ------------------------- --------
1. Bramall Court, Salford Student Accommodation North West & Merseyside 13.5
2. Pocket Nook Industrial
Estate, St Helens Industrial North West & Merseyside 10.8
South East excluding
3. Premier Inn, Camberley Hotel London 9.1
4. Grazebrook Industrial Estate,
Dudley Industrial West Midlands 8.5
Automotive
5. Motorpoint, Birmingham & Petroleum West Midlands 8.1
6. Silver Trees, Bristol Healthcare South West 7.1
7. Prime Life Care Home, Solihull Healthcare West Midlands 7.0
8. Mercure City Hotel, Glasgow Hotel Scotland 7.0
9. Droitwich Spa Retail Park,
Droitwich Retail West Midlands 6.3
10. Travelodge, Duke House,
Swindon Hotel South West 6.3
Automotive South East excluding
11. Volvo Slough, Slough & Petroleum London 5.2
12. Hoddesdon Energy, Hoddesdon Power Station Eastern 5.2
13. Unit 2, Dolphin Park, South East excluding
Sittingbourne Industrial London 5.0
14. Prime Life Care Home, Yorkshire and the
Brough Healthcare Humber 4.5
15. Applegreen Petrol Station, Automotive South East excluding
Crawley & Petroleum London 4.2
16. Pure Gym, London Leisure London 3.9
South East excluding
17. YMCA Nursery, Southampton Education London 2.2
18. Unit 14, Provincial Park, Yorkshire and the
Sheffield Industrial Humber 2.1
19. Snap Fitness, London Leisure London 1.9
Top Ten Tenants at 30 June 2022
Tenant Property % of
Annual Portfolio
Contracted Total
Rental Passing
Income Rental WAULT
(GBP '000) Income (Years)
---------------- ------------------------------- ------------ ----------- ---------
Grazebrook Industrial Estate,
Meridian Steel Dudley and Provincial Park,
Ltd Sheffield 716 9.9 4.9
Lyndon Croft Care Centre,
Prime Life Solihull and Westerlands
Ltd Care Village, Brough 704 9.8 26.4
Jupiter Hotels
Ltd Mercure City Hotel, Glasgow 680 9.4 14.2
Mears Group
Plc Bramall Court, Salford 671 9.3 19.1
Premier Inn
Hotels Ltd Premier Inn, Camberley 504 7.0 9.7
Motorpoint
Ltd Motorpoint, Birmingham 500 6.9 15.0
Handsale Ltd Silver Trees, Bristol 438 6.1 26.6
Travelodge
Hotels Ltd Duke House, Swindon 403 5.6 18.9
Hoddesdon
Energy Ltd Hoddesdon Energy, Hoddesdon 333 4.6 9.7
Volvo Car
UK Ltd Volvo Slough, Slough 281 3.9 14.7
Tenancy Schedule
Annual
Contracted
Rental
Income
Tenant Property (GBP '000) Break Expiry
Date Date
--------------------- ----------------------------- ----------- ----------- -----------
Mears Group Bramall Court, Salford 671 16/08/2041
Plc
Jupiter Hotels Mercure City Hotel, Glasgow 660 23/08/2036
Ltd
Premier Inn Premier Inn, Camberley 504 25/03/2032 24/03/2037
Hotels Ltd
Motorpoint Motorpoint, Birmingham 500 24/06/2037
Ltd
Handsale Ltd Silver Trees, Bristol 438 14/01/2049
Prime Life Prime Life Care Home, 412 21/11/2048
Ltd Solihull
Travelodge Duke House, Swindon 403 31/05/2041
Hotels Ltd
Meridian Steel Grazebrook Industrial 347 21/05/2027
Ltd Estate, Works 1 & 2, Dudley
Hoddesdon Energy Hoddesdon Energy, Hoddesdon 332 27/02/2032 26/02/2050
Ltd
Prime Life Prime Life Care Home, 292 21/11/2048
Ltd Brough
Volvo Car UK Volvo Slough, Slough 281 16/03/2037
Ltd
B&M Bargains Droitwich Spa Retail Park, 272 31/08/2029
Droitwich
Dore Metal Unit 2, Dolphin Park, 262 13/09/2028 12/09/2033
Services Southern Sittingbourne
Ltd
Pure Gym Ltd Pure Gym, London 236 11/12/2027 10/12/2032
Petrogas Group Applegreen Petrol Station, 234 16/07/2033
UK Ltd Crawley
Meridian Steel Grazebrook Industrial 232 21/05/2027
Ltd Estate, Works 1 & 2, Dudley
Biffa Waste Pocket Nook Industrial 156 24/02/2133
Services Ltd Estate, St Helens
Sec. of State Pocket Nook Industrial 154 29/01/2048
for Communities Estate, St Helens
& Local Gov'mt
BGEN Ltd Pocket Nook Industrial 97** 05/04/2025 04/04/2027
Estate, St Helens
Meridian Steel Unit 14, Provincial Park, 136 21/05/2027
Ltd Sheffield
Pets at Home Droitwich Spa Retail Park, 131 13/01/2023
Droitwich
MSG Life Realty Snap Fitness, London 130 28/03/2033
Ltd
YMCA Fairthorne YMCA Nursery, Southampton 130 17/02/2044
Group
Biffa Waste Pocket Nook Industrial 111 31/03/2134
Services Ltd Estate, St Helens
BGEN Ltd Pocket Nook Industrial 50*** 05/04/2024 04/04/2025
Estate, St Helens
The Salvation Duke House, Swindon 22 17/07/2032
Army Trustee
Company
Jupiter Hotels Mercure City Hotel, Glasgow 20 31/08/2036
Ltd
Ayrshire Metal Pocket Nook Industrial * 28/09/2045
Products Ltd Estate, St Helens
Ayrshire Metal Pocket Nook Industrial * 28/09/2045
Products Ltd Estate, St Helens
Ayrshire Metal Pocket Nook Industrial * 28/09/2045
Products Ltd Estate, St Helens
Ayrshire Metal Pocket Nook Industrial * 28/09/2045
Products Ltd Estate, St Helens
Camberley Properties Premier Inn, Camberley * 23/06/3010
Ltd
Westlea Housing Duke House, Swindon * 17/09/3006
Association
Ltd
Southern Electric Premier Inn, Camberley * 20/02/2111
Parcel Distribution
Plc
* Ground rents less than GBP150 per annum.
** Increasing to GBP145,000 per annum on 25 April 2023
*** Increasing to GBP63,750 per annum on 5 April 2023
Environmental, Social and Governance
The Group recognises that Environmental, Social and Governance ("ESG") matters are of utmost importance to sustainable investment and a focus for the business and investor community. The Group is committed to understanding how best to consider ESG factors in all facets of its business, from business strategy to investment decisions and company operations.
In order to meet investors' expectations relating to ESG matters the Group and its advisers adopt both financial and non-financial strategies to drive long-term value with an innovative yet disciplined and conscientious approach to ESG in respect of the property portfolio management including but not limited to:
Environmental
-- A proactive approach to procurement of Energy Performance Certificate ("EPC") reassessments ahead of Minimum Energy Efficiency Standards 2023, maintaining quarterly reviews of EPC schedules, identification of opportunities to improve energy efficiency, reduce greenhouse gas ("GHG") emissions and working closely with tenants who occupy under full repairing and insuring leases.
-- Ongoing environmental reviews and audits as part of regular due diligence, including regular asset inspections to avoid any breach in environmental legislation.
-- Responsible refurbishment in respect of all works to assets with consideration to the best approach to improving the EPC rating against potential spend, liaison with tenants in respect of any fit-out or alterations to carry out sustainable development and reuse of existing materials where feasible to reduce waste.
-- 'Green lease' terms are incorporated in leases where feasible.
-- Assets are operated in a manner to reduce overall energy and water consumptions as well as waste production, while maintaining tenant comfort and needs.
-- Leverage technology for data management is used to monitor and drive improvement across environmental and social metrics.
Social
-- Commitment to occupier engagement.
-- Incorporation of social improvements to each asset such as installing defibrillators & electrical charging points.
-- Provision of regular training and awareness to all managers on social issues, such as wellbeing and mental health
Governance
-- Client checks are completed on all tenants as well as new suppliers and contractors.
-- Regular tenant engagement and inspections to ensure assets are used as agreed within leases.
-- Effective tracking of legislative requirements to assess and monitor risks and opportunities.
Diversity
As an externally managed business, the Company does not have any employees or office space. As such, the Group does not operate a diversity policy with regards to any administrative, management and supervisory functions. A description of the Board's policy on Director diversity can be found in the Corporate Governance Report of the Annual Report.
Employees
The Group has no employees and accordingly no requirement to report separately in this area as the management of the portfolio has been delegated to the AIFM and Investment Adviser.
The AIFM and Investment Adviser are equal opportunities employers who respect and seek to empower each individual and the diverse cultures, perspectives, skills and experiences within their workforce.
Human Rights
The Group is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and therefore no further disclosure is required in this regard.
Business Relationships
As well as the critical day-to-day portfolio management, the Group has a set of 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 its business partners that protects the reputation of the Group as a whole.
Greenhouse Gas Emissions
As an investment company, the Group's own direct environmental impact is minimal and greenhouse gas ('GHG') emissions are negligible, and as such the Company has not introduced measures to achieve energy efficiency. Information on the GHG emissions in relation to the Group's property portfolio are shown in the following section.
The Group has followed UK Government environmental reporting guidelines and used the UK Government 2020 greenhouse gas reporting conversion factors for company reporting to identify and report relevant GHG emissions over which it has operational control for the 12-month period to 30 June 2022.
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 2022. The approach taken follows guidance provided by the GHG Reporting Guidelines (BEIS, 2019) and EPRA Best Practice Recommendations of Sustainability Reporting 2017. The Group has little or no control over energy purchased over the majority of its assets. However, there are two properties where there is some form of control being Droitwich Spa Retail Park (retail park), and Pocket Nook Industrial Estate (industrial warehouse), and their scope 2 and 3 emissions respectively are set out below. The retail park was purchased in December 2020 and the data is incomplete for the period prior to this. Like-for-like comparison can therefore not be provided between 2020/21 and 2021/22.
Sector Scope Absolute tonnes Like-for-like
of carbon dioxide comparison of
equivalent (tCO(2) carbon dioxide
e) equivalent (tCO(2)
e)
Difference
(tCO(2)
2020/21 2021/22 e) % Change
---------- ---------- ----------- ---------
Retail park Scope 2 0.59 1.44 N/A N/A
----------------------- ---------- ---------- ----------- ---------
Industrial warehouse Scope 3 - Electricity 104.11 82.21 -21.9 -21%
----------------------- ---------- ---------- ----------- ---------
Total Scope 2 & 3 104.7 83.65 -21.9 -21%
----------------------- ---------- ---------- ----------- ---------
Statement of Energy Usage
The table below sets out the energy use per sector and for the Group overall. The approach follows guidance provided by the GHG Reporting Guidelines (BEIS, 2019) and the EPRA Best Practice Recommendations on Sustainability Reporting 2017.
Sector Energy Source Absolute energy Like-for-like
usage (kWh) energy usage (kWh)
Difference
2020/21 % Change
2020/21 2021/22 (kWh) 2021/22
-------- -------- ----------- ---------
Retail park Electricity 446,568 425,106 -21,462 -5%
--------------- -------- -------- ----------- ---------
Industrial warehouse Electricity 2,555 7,454 N/A N/A
--------------- -------- -------- ----------- ---------
Total Electricity 449,123 432,560 -21,462 -5%
--------------- -------- -------- ----------- ---------
Intensity Ratios
In addition to reporting relevant absolute GHG emissions (per scope and per sector), the Group has chosen to report intensity ratios, where appropriate. An intensity measure is reported for assets within the like for like portfolio, where:
- No major renovation or refurbishment has taken place i.e. affecting more than 50% of the building by area or number of occupants
- Occupancy is at least 75% - At least 24 months data is available
Whilst no landlord meters reflect the above criteria for an intensity metric, the Group has applied an intensity figure for one asset, Pocket Nook of 0.013 tCO(2) e/m(2) for the year ended 30 June 2022, 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 (less than 12 months data available from the previous reporting year).
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.
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.
Stakeholder Issues of importance Engagement Effect of
engagement
on key decisions
Shareholders The effect of
The Group's * Attractive and sustainable level of income, earnings * Shareholder engagement is set out above. shareholder
investment and dividends. engagement has
objective is fed into each
to deliver an * As a publicly listed Company, the Company is subject aspect
attractive * Long-term income stream linked to inflationary to Listing Rules and other regulatory disclosure of the Board's
total return growth. requirements which the Board abides by with the decision-making.
to assistance of the Company Secretary and Corporate The total
shareholders. Broker. aggregate
Shareholders * Robust corporate governance structure and dividends for the
are directly well-performing service providers. year have
impacted by increased
changes to the compared to the
Company's NAV * Strategic direction of the Company. prior year and
and thus the the Board has
share price also
and dividends. * Execution of investment objective. worked to keep
expenses under
control. This,
* Value for money - low ongoing charges. alongside, asset
management
initiatives
to enhance the
income stream,
have resulted in
a strong total
shareholder
return.
------------------------------------------------------------ ------------------------------------------------------------------ ------------------
Service Clear and
Providers * Reputation of the Company, and maintaining high * Effective and consistent engagement both through effective
As an standards of business conduct. formal Board meetings and regularly outside the strategic
externally meetings. oversight
managed REIT, and culture by
the Company * Productive working relationships with the Company. the Board has
conducts all been
its business * Annual evaluation of key service providers. crucial to
through its * Fair and transparent service agreements. enhancing
service the effectiveness
providers, of the Company's
the key ones * Collaboration. * Culture set by the Board and communicated to all key service
being the providers. providers.
Investment The Board has
Adviser, worked
Property closely with its
Manager, service providers
Company to maintain and
Secretary, continually
AIFM, improve
Depositary processes and to
and Corporate ensure that the
Broker. Company's values
are aligned with
them.
------------------------------------------------------------ ------------------------------------------------------------------ ------------------
Tenants Following the
Tenants with * Positive working relationship with the Board, * To ensure the Investment Adviser and Property Manager removal
strong Investment Advisor and Property Manager. generate and foster good relationships with our of national
business tenants. lockdown
fundamentals restrictions in
and profitable * Rent reviews response to
operations are * Focus on asset management initiatives to assist our COVID-19,
one of the key tenants where applicable. all outstanding
components * Fair lease terms arrears/deferrals
to ensure a have been repaid.
consistent All rent reviews
income stream * Long-term strategy and alignment with the tenant's due in the year
and ability to business operations. have been
pay dividends successfully
to the negotiated and
Company's * Financial stability of tenants. extension to
shareholders. leases
have been agreed
for Pocket Nook,
as set out in the
Investment
Adviser's
Report.
------------------------------------------------------------ ------------------------------------------------------------------ ------------------
Debt provider Board strategic
The Group * Compliance with loan covenants. * Ongoing engagement by the Investment Adviser and detailed
maintains a throughout the year and by the Board if required. oversight
positive by the Board has
working * Responsible portfolio management. ensured enhanced
relationship application of
with its debt covenants and
provider, improved
Canada Life. process.
------------------------------------------------------------ ------------------------------------------------------------------ ------------------
Society and The Company is
the * Responsible investing together with sustainability. * Starting regular engagement with tenants in respect in the process
environment of EPC requirements. of putting in
As an investor place
in real * Long-term strategy to take account of ESG an ESG policy.
estate, the considerations without negatively impacting financial * Ensuring shareholder engagement covers ESG. The Board has
Company's returns. encouraged
assets have an both the
impact on the Investment
built Adviser and
environment. Property
Environmental, Manager to
Social and consider
Governance ESG on investment
('ESG') and on an ongoing
factors basis.
increasingly
apply
alongside of
financial
returns.
------------------------------------------------------------ ------------------------------------------------------------------ ------------------
Principal Decisions
Principal decisions are those that have a material impact to the Group and its key stakeholders. In taking these decisions, the Directors considered their duties under section 172 of the Act.
Directorate Changes
During the year, the Board welcomed Stephanie Eastment to the board as an independent non-executive Director and Audit Chair effective 1 October 2021, and at the same time, Jim Prower resigned as Director and Audit Chair as part of a planned succession process. The Board undertook steps to ensure that it replaced its Audit Chair with an individual with the appropriate skills and experience to undertake the role, including appointing an external consultant to support the process. In taking this decision, the Board considered that the appointment would maintain the Company's robust corporate governance structure and, alongside the other Directors, Stephanie Eastment's skills and experience would complement the Board to deliver the Company's strategy.
Property Transactions during the Year
As set out in the Chairman's Statement and Investment Adviser's Report, Audi, Huddersfield was sold and the proceeds re-invested swiftly into Volvo, Slough.
Dividend Policy and Dividend
In the year the Board formally adopted a dividend policy, as set out above, to pay four evenly spaced interim dividends a year. Previously a resolution had been put to shareholders and the policy is in keeping with those earlier resolutions.
The Board set a dividend target of 5.5 pps for the year ended 30 June 2022. This provided clarity to shareholders on what could be expected from the Company.
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
Failure by tenants to Our investment policy Probability: Moderate
comply with their rental limits our exposure to to high
obligations could affect any one tenant to 15%
the income that the properties of Gross Asset Value. Impact: High
earn and the ability of Our maximum exposure to
the Group to pay dividends any one tenant (calculated Movement: No change
to its shareholders. by GAV) is 11.47% at 30 to the overall
June 2022. The Group benefits risk rating. However,
Macroeconomic trends discussion from a balanced portfolio the impact of different
through the report, including with a diversified tenant factors considered
rising interest rates, base and is therefore by Directors have
higher inflation and the not reliant on a single changed with the
possibility of recession tenant or sector. COVID-19 pressure
have the ability to materially on tenants reducing
impact on a tenant's business. In the due diligence process offset by costs
This could result in tenants prior to acquiring a property, (energy particularly)
being unable to comply covenant checks are carried and inflation/
with their rental obligations. out on tenants which are interest rate pressures
repeated on a regular on tenants increasing.
basis.
The Investment Adviser
and Property Manager conduct
ongoing monitoring and
liaison with tenants to
manage potential bad debt
risk.
2. Portfolio concentration
Any downturn in the UK The Group has investment Probability: Low
and its economy or regulatory restrictions in place to moderate
changes in the UK could to invest and manage its
have a material adverse assets with the objective Impact: Low to
effect on the Group's of spreading and mitigating moderate
operations or financial risk.
condition. Greater concentration Movement: No change
of investments in any Having a diversified portfolio
sector or exposure to in respect of both sector
the creditworthiness of and tenants provides reduced
any one tenant or tenants potential volatility in
may lead to greater volatility the portfolio and the
in the value of the Group's impact rating for this
investments, NAV and the risk is accordingly set
Company's share price. at low to moderate.
3. Property defects
Due diligence may not The Group's due diligence Probability: Moderate
identify all the risks relies on the work (such
and liabilities in respect as legal reports on title, Impact: Moderate
of an acquisition (including property valuations, environmental,
any environmental, structural building surveys) outsourced Movement: No change
or operational defects) to third parties that
that may lead to a material have appropriate Professional
adverse effect on the Indemnity cover in place.
Group's profitability,
the NAV and the Company's
share price.
4. Rate of inflation
Rent review provisions The inflation linked (RPI/CPI) Probability: Moderate
may have contractual limits leases in the portfolio
to the increases that have contractual rent Impact: Moderate
may be made as a result review collars, with the
of the rate of inflation. lowest floor being 0%, Movement: Increased
If inflation is in excess and caps that range from
of such contractual limits, 3% to no cap. The majority The rate of inflation
the Group may not be able of caps are in excess has increased significantly
to deliver targeted returns of RPI and CPI forecasts in the past year
to shareholders. during the next five-year so that caps may
rent review cycle and for the first time
therefore based on forecasts. limit the level
of rent increases.
The risk of inflation The probability
is somewhat mitigated and risk have both
by the leases that have been increased
no cap. In addition, a from low to moderate
total of eight leases to reflect this.
undergo reviews annually
which will allow inflation
changes to be reflected
expeditiously.
5. Property market
Any recession or future The Group has investment Probability: Moderate
deterioration in the property restrictions in place to high
market could, inter alia, to invest and manage its
(i) lead to an increase assets with the objective Impact: Moderate
in tenant defaults, (ii) of spreading and mitigating to high
make it difficult to attract risk.
new tenants for its properties, Movement: No change
(iii) lead to a lack of Most of the leases provide
finance available to the a relatively long unexpired
Group, (iv) cause the term and contain upward
Group to realise its investments only rent reviews which
at lower valuations; and are linked to either RPI
(v) delay the timings or CPI. Because of these
of the Group's realisations. factors, the Group expects
that the assets will show
Any of these factors could less volatile valuation
have a material adverse movement over the long
effect on the ability term.
of the Group to achieve
its investment objective.
6. Property valuation
Property is inherently The Group uses an independent Probability: Low
difficult to value due valuer (Knight Frank LLP) to moderate
to the individual nature to value the properties
of each property. on a quarterly basis at Impact: Moderate
fair value in accordance to high
There may be an adverse with accepted RICS appraisal
effect on the Group's and valuation standards. Movement: No change.
profitability, the NAV
and the Company's share The Knight Frank valuation
price in cases where properties is reviewed by the AIFM,
are sold whose valuations Investment Adviser and
have previously been materially auditor.
overstated.
7. Investments are illiquid
The Group invests in commercial The Group aims to hold Probability: Moderate
properties. Such investments the properties for long-term
are illiquid; they may income. Impact: Moderate
be difficult for the Group
to sell and the price Movement: No change
achieved on any realisation
may be at a discount to
the prevailing valuation
of the relevant property.
8. Environment
The Group is subject to The current regulations Probability: Moderate
environmental regulations. require annual mandatory
In addition to regulatory Green House Gas (GHG) Impact: Moderate
risk, there is a growing reporting, which will
importance being placed be carried out as part Movement: N/A
on ESG credentials by of the annual report and (new risk)
tenants, which could lead will result in minimal
to difficulty in letting expenditure for the Group.
vacant space.
Furthermore, the Investment
Properties could be impacted Adviser has prepared an
by extreme environment ESG strategy to ensure
events such as flooding. it meets legal requirements
Climate change could accelerate and remains attractive
more quickly leading to to current and future
adverse physical impacts tenants. Please see the
as well as regulatory 'Environmental, Social
change. and Governance' section
for further information.
Failure by the Group to
meet current or future In depth research is undertaken
environmental targets on each property at acquisition.
could result in penalties, The Investment Adviser
increased costs, a reduction has adopted an environmental
in asset values and have policy which it is in
an adverse effect on the the process of applying
Company's reputation, to all properties with
leading to loss of good the portfolio.
quality tenants.
Borrowing Risks
9. Breach of borrowing
covenants
The Group has entered The Group monitors the Probability: Low
into a term loan facility. use of borrowings on an
ongoing basis through Impact: High
Material adverse changes regular cash flow forecasting
in valuations and net and quarterly risk monitoring Movement: No change
income may lead to breaches to monitor financial covenants.
in the LTV and interest
cover ratio covenants. The Group's gearing at
30 June 2022 was 33.7%,
If the Group is unable below our maximum gearing
to operate within its (on a GAV basis on drawdown)
debt covenants, this would of 40% and materially
lead to default and the below the loan's default
loan facility being recalled. covenant of 60%. Borrowing
This could result in the is carefully monitored
Group being forced to by the Group, and action
sell properties to repay will be taken to conserve
the loan facility, possibly cash where necessary to
resulting in a substantial ensure that this risk
fall in the NAV. is mitigated.
There is significant headroom
in the LTV and interest
cover covenants in the
loan agreement.
Diversification of both
the portfolio and tenants
limit the risk to the
Group of any one geographic
or sector property event
and any one tenant default.
CORPORATE RISKS
10. Failure of service
providers
The Group has no employees The performance of service Probability: Low
and is reliant upon the providers in conjunction to moderate
performance of third-party with their service level
service providers. agreements is monitored Impact: Moderate
regularly and the use to high
Failure by any service of Key Performance Indicators,
provider to carry out where relevant. Movement: Decrease
its obligations to the in probability
Group in accordance with The Management Engagement from moderate to
the terms of its appointment Committee reviews the low to moderate.
could have a materially performance and continuing The Board has lowered
detrimental impact on appointment of key service this risk due to
the operation of the Group. providers on an annual the continued strong
basis. performance of
Should the Group pursue the Group's current
litigation against service service providers
providers, there is a
risk that the Company
may incur costs that are
irrecoverable if litigation
is unsuccessful.
11. Dependence on the
Investment Adviser
The future ability of The Board meets regularly Probability: Moderate
the Group to successfully with, and monitors, all
pursue its investment of its service providers, Impact: Moderate
objective and investment including the Investment
policy may, among other Adviser, to ensure close Movement: No change
things, depend on the positive working relationships
ability of the service are maintained.
providers to retain its
existing staff and/or The dependence on the
to recruit individuals Investment Adviser is
of similar experience managed through segregating
and calibre, and effectively the roles of AIFM and
carry out its services. Investment Adviser.
The Group relies on the Directors engage with
Investment Adviser to the Investment Adviser
manage the assets and not only in Board meetings
termination of the Investment but also by email, telephone
Adviser agreement could and ad hoc meetings, This
severely affect the Group's helps to maintain a good
ability to effectively working relationship.
manage its operations.
12. Ability to meet objectives
The Group may not meet The Group has an investment Probability: Low
its investment objective policy to achieve a balanced to moderate
to deliver an attractive portfolio with a diversified
total return to shareholders tenant base. This is reviewed Impact: High
from investing predominantly by the Board at each scheduled
in a portfolio of smaller Board meeting. Movement: No change
commercial properties
in the UK. The Group's property portfolio
has a WAULT to break of
Poor relative total return 17.5 years and a WAULT
performance may lead to to expiry of 19.4 years.
an adverse reputational Further, over 96% of leases
impact that affects the have inflation linked
Group's ability to raise upwards only rent reviews,
new capital and new funds. representing a secure
income stream on which
to deliver attractive
total returns to shareholders.
TAXATION RISK
13. Group REIT status
The Group has UK REIT The Company monitors REIT Probability: Low
status that provides a compliance through the
tax-efficient corporate Investment Adviser and Impact: High
structure. Administrator on acquisitions
and disposals and distribution Movement: No change
If the Group fails to levels; the Registrar
remain a REIT for UK tax and Broker on shareholdings;
purposes, its profits and third-party tax advisors
and gains will be subject to monitor REIT compliance
to UK corporation tax. requirements.
Processes are in place
to ensure ongoing compliance
with REIT regulations.
POLITICAL/ ECONOMIC RISK
14.Political and macroeconomic The Group only invests Probability: high
events. in UK properties with
strong alternative use Impact: high
Such events present risks values and long leases
to the real estate and so the portfolio is well Movement: Increase
financial markets that positioned to withstand probability and
affect the Group and the an economic downturn. impact from moderate
business of our tenants. Tenant default risk arising to high to high
from political and macroeconomic due to the impact
The economic disruption events is managed as described of the deterioration
arising from the COVID-19 above. of the global,
pandemic, the deterioration including UK, economy.
of the global economy The Investment Adviser
arising from changes such monitors COVID-19 second-order
as higher interest rates, effects and the current
and ongoing long-term deterioration in the global
effects of the Ukraine-Russia economy for their possible
war could impact the portfolio, effects on the Group.
tenants and the ability
of the Group to raise
capital.
REGULATORY RISK
15. Disclosure Risk Service providers including Probability: Low
Failure to properly disclose AIFM, Investment Adviser, to moderate
information to investors Company Secretary, auditor,
or regulators in accordance and corporate broker monitor Impact: Moderate
with various disclosure disclosure obligations
rules and regulations. and liaise with the Board Movement: N/A
Examples include AIFMD to ensure requirements (new risk)
investor disclosures, are met.
annual reporting requirements,
marketing/promotion disclaimers,
data protection regulations
etc.
16. Regulatory Change The Board receives regular Probability: Low
New regulations or changes updates on relevant regulatory
to existing regulations changes (and prospective Impact: High
(particularly in relation changes) from its professional
to climate change) could advisers. Movement: N/A
result in sub-optimal (new risk)
performance of the Group The Investment Adviser
or, in worst case, inability monitors the impact of
to continue as a viable emerging legislation across
business. all aspects of property
investment and ESG has
a particularly high profile
at this time. The Investment
Adviser uses an ESG pre-acquisition
checklist to review purchases
but also work to ensure
that the current portfolio
is monitored and 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.
EXTRACTS FROM DIRECTORS' REPORT
Going Concern
The Group has considered its cash flows, financial position, liquidity position and borrowing facilities. As discussed in the Chairman's Statement, in accordance with the Company's Articles of Association there is a continuation vote being put to shareholders at the upcoming AGM. Having taken account of the views of the Company's broker and major shareholders, the Directors have no reason to believe that the continuation vote will not pass. If the Continuation Resolution is not passed, the Directors will formulate proposals to be put to Shareholders to reorganise, restructure or wind-up the Company and to present such proposals to Shareholders within six months of the date of the AGM.
The Group's unrestricted cash balance at the year end was GBP2.5 million. The Group borrowings totalled GBP41 million under a facility repayable on 20 October 2025. The Group had headroom against its borrowing covenants. The Group is permitted to utilise up to 40% of GAV measured at drawdown with a Loan to GAV of 33.69% at 30 June 2022.
A 'severe but plausible downside' scenario has also been projected. While rent collections have been strong, this scenario anticipates rent deferrals and write-offs for tenants with difficulty paying rents from operational cash flows. In this scenario the Group still has adequate headroom against the interest cover covenant and positive cash balances. Further detail of the assumptions made in assessing the adaption of Group's going concern basis can be found in Note 2.
The Group benefits from a secure, diversified income stream from leases which are not overly reliant on any one tenant or sector. As a result, the Directors believe that the Group is well placed to manage its financing and other business risks.
The Directors are satisfied that the Group and the Company has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of the approval of these financial statements. The Board is, therefore, of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.
Viability Statement
In accordance with provision 30 of the UK Code, the Directors have assessed the prospects of the Group over a period longer than the 12 months required by the 'Going Concern' provisions. For the reasons given in the Going Concern statement, the viability statement has been prepared assuming that the continuation vote in 2022 will be passed.
The Board has considered the nature of the Group's assets and liabilities and associated cash flows and has determined that three years, up to 30 June 2025, is a realistic timescale over which the performance of the Group can be forecast with a degree of accuracy and so is an appropriate period over which to consider the Group's viability.
Considerations in support of the Group's viability over this three-year period include:
1. The current unexpired term under the Group's debt facilities stands at 3.3 years.
2. The Group's property portfolio had a WAULT to break of 17.5 years and a WAULT to expiry of 19.4 years at 30 June 2022, representing a secure income stream for the period under consideration.
3. A major proportion of the leases contain annual, three or five year rent review patterns and therefore three years allow for the forecasts to include the reversion arising from most rent reviews.
The three-year review considers the Group's cash flows, dividend cover, REIT compliance and other key financial ratios over the period. In assessing the Group's viability, the Board has carried out a thorough review of the Group's business model, including future performance, liquidity and banking covenant tests for a three-year period. The Board has assessed the extent of any operational disruption; potential curtailment of rental receipts; potential liquidity and working capital shortfalls; and diminished demand for 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; and -- Property portfolio valuation movements.
Based on the prudent assumptions within the Group's forecasts regarding rent deferrals, tenant default, void rates and property valuation movements, the Directors expect that over the three year period of their assessment:
-- LTV covenants will not be breached - at 30 June 2022 , the asset valuations and rental income of the properties secured to Canada Life would need to fall by 24.9% and 43.3% respectively before breaching the Loan to Value loan and Income Cover Cash Trap covenants;
-- REIT tests are complied with; and
-- That the Group and Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.
Board Approval of the Strategic Report
The Strategic Report has been approved and signed on behalf of the Board by:
Alan Sippetts
Chairman
28 September 2022
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.
Responsibility statement of the Directors in respect of the Annual Report and the Consolidated Financial Statements
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; and
-- 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.
-- 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
Alan Sippetts
Chairman
28 September 2022
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2022
2022 2021
Notes GBP'000 GBP'000
Income
Rental and other income 3 7,901 7,409
Property operating expense 4 (330) (647)
Net rental and other
income 7,571 6,762
Other operating expenses 4 (1,101) (876)
Operating profit before fair value
changes
and gain on sale 6,470 5,886
Change in fair value of investment
properties 10 8,023 682
Gain on disposal of investment
property 10 96 425
Operating profit 14,589 6,993
Finance expense 6 (1,423) (1,421)
Profit before tax 13,166 5,572
Taxation 7 - -
Profit and total comprehensive
income attributable to shareholders 13,166 5,572
-------- --------
Earnings per share (basic and
diluted) 8 16.36p 6.92p
-------- --------
EPRA EPS (basic and diluted) 8 6.27p 5.55p
-------- --------
Adjusted EPS (basic and diluted) 8 5.57p 5.07p
-------- --------
All items in the above statement are derived from continuing operations.
The accompanying notes form part of these Consolidated Financial Statements.
Consolidated Statement of Financial Position
As at 30 June 2022
2022 2021
Notes GBP'000 GBP'000
Assets
Non-current Assets
Investment properties 10 115,124 107,026
115,124 107,026
--------- ---------
Current Assets
Receivables and prepayments 11 4,034 3,682
Cash and cash equivalents 2,542 2,115
6,576 5,797
--------- ---------
Total Assets 121,700 112,823
--------- ---------
Non-current Liabilities
Interest bearing loans
and borrowings 13 (40,620) (40,516)
Lease obligations 14 (299) (335)
(40,919) (40,851)
--------- ---------
Current Liabilities
Payables and accrued expenses 12 (3,146) (3,041)
Lease obligations 14 (36) (38)
(3,182) (3,079)
--------- ---------
Total Liabilities (44,101) (43,930)
--------- ---------
Net Assets 77,599 68,893
--------- ---------
Equity
Share capital 17 805 805
Capital reserve 75,417 75,417
Retained earnings 1,377 (7,329)
--------- ---------
Total equity 77,599 68,893
--------- ---------
Net Asset Value per share (basic
and diluted) 8 96.40p 85.58p
--------- ---------
The accompanying notes form part of these Consolidated Financial Statements.
The Consolidated Financial Statements were approved by the Board of Directors on 28 September 2022 and were signed on its behalf by:
Alan Sippetts
Chairman
Company number: 10727886
Consolidated Statement of Changes in Equity
For the year ended 30 June 2022
Share Capital Retained Total
capital Reserve* Earnings* Equity
Notes GBP'000 GBP'000 GBP'000 GBP'000
For the year ended 30
June 2022
Balance as at 30 June
2021 805 75,417 (7,329) 68,893
Total comprehensive income - - 13,166 13,166
Dividends paid 9 - - (4,460) (4,460)
-----------
Balance as at 30 June
2022 805 75,417 1,377 77,599
--------- ---------- ----------- --------
For the year ended 30
June 2021
Balance as at 30 June
2020 805 75,417 (8,936) 67,286
Total comprehensive income - - 5,572 5,572
Dividends paid 9 - - (3,965) (3,965)
-----------
Balance as at 30 June
2021 805 75,417 (7,329) 68,893
--------- ---------- ----------- --------
* Capital reserve and retained earnings were presented combined in prior years.
The accompanying notes form part of these Consolidated Financial Statements.
Consolidated Statement of Cash Flows
For the year ended 30 June 2022
Notes 2022 2021
GBP '000 GBP '000
Cash flows from operating activities
Profit before tax 13,166 5,572
Adjustment for:
Finance expenses 6 1,423 1,421
Gain on disposal of investment
property 10 (96) (425)
Change in fair value of investment
properties 10 (8,023) (682)
Operating results before working
capital changes 6,470 5,886
--------- ---------
Change in working capital
(Increase) / decrease in receivables
and prepayments (352) 1,735
Increase in payables and accrued
expenses 100 429
Net cash flow generated from
operating activities 6,218 8,050
--------- ---------
Cash flows from investing activities
Purchase of investment property 10 (5,375) (6,070)
Net proceeds from disposal of
investment property 10 5,396 3,159
Net cash generated from / (used
in) investing activities 21 (2,911)
--------- ---------
Cash flows from financing activities
Finance costs paid (1,319) (1,322)
Dividends paid 9 (4,455) (3,949)
Payment of lease obligation (38) (41)
Net cash used in financing activities (5,812) (5,312)
--------- ---------
Net increase / (decrease) in cash
and cash equivalents 427 (173)
Cash and cash equivalents at
beginning of year 2,115 2,288
--------- ---------
Cash and cash equivalents at
end of year 2,542 2,115
--------- ---------
The accompanying notes form part of these Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
For the year ended 30 June 2022
1. Corporate Information
Alternative Income REIT plc (the "Company") is a public limited
company and a closed ended Real Estate Investment Trust ('REIT')
incorporated on 18 April 2017 and domiciled in the UK and registered
in England and Wales. The registered office of the Company is 1
King William Street, London, United Kingdom, EC4N 7AF.
The Company's Ordinary Shares were listed on the Official List of
the FCA and admitted to trading on the Main Market of the London
Stock Exchange on 6 June 2017.
The nature of the Group's operations and its principal activities
are set out in the Strategic Report.
2. Accounting policies
2.1 Basis of preparation
These Consolidated financial statements (the "financial
statements") are prepared and approved by the Directors
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and in accordance with UK-adopted international accounting
standards.
These financial statements have been prepared under the
historical-cost convention, except for investment properties
that have been measured at fair value.
These financial statements are presented in Sterling and
all values are rounded to the nearest thousand pounds (GBP'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
Standards effective from 1 July 2021
New standards impacting the Group that have been adopted
for the first time in this set of Consolidated Financial
Statements are:
* Interest Rate Benchmark Reform - IBOR 'phase 2'
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16)
The amendments provide relief to the Group in respect of
certain loans whose contractual terms are affected by interest
benchmark reform (effective from 1 January 2021). Applying
the practical expedient introduced by the amendments, when
the benchmarks are replaced the adjustments to the contractual
cash flows will be reflected as an adjustment to the effective
interest rate. Therefore, the replacement of the benchmark
interest rate does not result in an immediate gain or loss
recorded in profit or loss.
Forthcoming requirements
The following are new standards, interpretations and amendments,
which are not yet effective, and have not been early adopted
in this financial information, that will or may have an
effect on the Group's future financial statements:
* Amendments to IAS 1 which clarifies the criteria used
to determine whether liabilities are classified as
current or non-current (effective 1 January 2023).
These amendments clarify that current or non-current
classification is based on whether an entity has a
right at the end of the reporting period to defer
settlement of the liability for at least 12 months
after the reporting period. The amendment is not
expected to have an impact on the presentation or
classification of the liabilities in the Group based
on rights that are in existence at the end of the
reporting period.
The Group has also applied the following amendments for
the first time for their annual reporting period
commencing 1 July 2021:
o Onerous contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37) (effective 1 January 2022);
o Annual Improvements to IFRS Standards 2018-2020 (effective
1 January 2022);
o Property, Plant and Equipment: Proceeds before intended
use (Amendments to IAS 16) (effective 1 January 2022);
o Reference to the Conceptual Framework (Amendments to IFRS
3) (effective 1 January 2022).
The amendments listed above did not have any impact on the
amounts recognised in prior periods and are not expected
to significantly affect the current or future periods.
Certain new accounting standards and interpretations have
been published that are not mandatory for annual periods
beginning after 1 July 2021 and early application is permitted;
however the Group has not early adopted the new or amended
standards in preparing these Consolidated Financial Statements:
o Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12) (effective
1 January 2023);
o Classification of Liabilities as Current or Non-current
(Amendments to IAS 1) (effective 1 January 2023);
o IFRS 17 Insurance Contracts and amendments to IFRS 17
Insurance Contracts (effective 1 January 2023);
o Disclosure of Accounting Policies (Amendments to IAS 1
and IFRS Practice Statement 2) (effective 1 January 2023);
o Definition of Accounting Estimates (Amendments to IAS
8) (effective 1 January 2023);
o 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).
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 Consolidated 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 are 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 property
are set out in note 10.
Provision for expected credit losses ('ECL') of trade receivables
Rent collection rates since the start of the Fund are in
the region of 100%. As a result, the Group does not have
the data to establish historical loss rates for the expected
credit loss analysis.
In determining the provision on a tenant by tenant basis,
the Group considers both recent payment history and future
expectations of the tenant's ability to pay or possible
default in order to recognise an expected credit loss allowance.
The Group also considers the risk factors associated by
sector in which the tenant operates and the nature of the
debt. Based on sector and rent receivable type a provision
is provided in addition to full provision for maximum risk
tenants or known issues.
Principal versus agent considerations - services to tenants
The Group arranges for certain services to be provided to
tenants. These arrangements are included in the contract
the Group enters into as a lessor. The Group has determined
that it controls the services before they are transferred
to tenants, because it has the ability to direct the use
of these services and obtain the benefits from them. The
Group has determined that it is primarily responsible for
fulfilling these services as it directly deals with tenants'
complaints and is primarily responsible for the quality
or sustainability of the services. In addition, the Group
has discretion in establishing the price that it charges
to the tenants for the specified services.
Therefore, the Group has concluded that it is the principal
in these contracts. In addition, the Group has concluded
that it transfers control of these services over time, as
services are rendered by the third-party service providers,
because this is when tenants receive and, at the same time,
consume the benefits from these services.
REIT status
The Group is a Real Estate Investment Trust (REIT) and does
not pay tax on its property income or gains on property
sales, provided that at least 90% of the Group's property
income is distributed as a dividend to shareholders, which
becomes taxable in their hands. In addition, the Group has
to meet certain conditions such as ensuring the property
rental business represents more than 75% of total profits
and assets. Any potential or proposed changes to the REIT
legislation are monitored and discussed with HMRC. It is
the Board's intention that the Group will continue as a
REIT for the foreseeable future.
Classification of lease arrangements - the Group as lessor
(Note 14)
The Group has acquired investment properties that are leased
to tenants. In considering the classification of lease arrangements,
at inception of each lease the Group considers the economic
life of the asset compared with the lease term and the present
value of the minimum lease payments and any residual value
compared with the fair value and associated costs of acquiring
the asset as well as qualitative factors as indicators that
may assert to the risks and rewards of ownership having
been substantially retained or transferred. The Group has
determined that it retains all the significant risks and
rewards of ownership of its investment property and accounts
for the lease arrangements as operating leases.
2.3 Segmental information
Each property held by the Group is reported to the chief
operating decision maker. In the case of the Group, the
chief operating decision maker is considered to be the Board
of Directors. The review process for segmental information
includes the monitoring of key performance indicators applicable
across all properties. These key performance indicators
include Net Asset Value, Earnings per Share and valuation
of properties. All asset cost and rental allocations are
also reported by property. The internal financial reports
received by the Directors cover the Group and all its properties
and do not differ from amounts reported in the financial
statements. The Directors have considered that each property
has similar economic characteristics and have therefore
aggregated the portfolio into one reportable segment under
the provisions of IFRS 8.
2.4 Going concern
The Consolidated 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
2023, challenging and sensitising inputs and assumptions
to ensure that the cash forecast reflects a realistic outcome
given the uncertainties associated with the current economic
environment. The scenarios applied were designed to be severe
but plausible, and to take account of the availability of
mitigating actions that could be taken to avoid or reduce
the impact or probability of the underlying risks.
The Group's debt of GBP41m does not mature until 2025 and
the Group has reported full compliance with its loan covenants
to date. Based on cash flow projections, the Directors expect
the Group to continue to remain compliant. The headroom
of the loan to value covenant is significant and any reduction
in property values that would cause a breach would be significantly
more than any reduction currently envisaged.
Based on the above, the Board believes that the Group has
the ability and adequate resources to continue in operational
existence for the foreseeable future, being at least 12
months from the date of approval of the financial statements.
At the Company's upcoming AGM on 10 November 2022, a resolution
will be put to shareholders in accordance with its Articles
of Association, to consider whether it should continue its
business as presently constituted ("Continuation Resolution").
In the event that the Continuation Resolution did not pass,
the Company would be required to formulate proposals to
reorganise, restructure or wind up. The Company has provided
justifications to shareholders for why it should continue
in operation as presently constituted and the Board has
recommended that shareholders vote in favour of this resolution.
Having taking account of the views of the Company's broker
and major shareholders, the Board has no reason to believe
that the continuation vote will not pass.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation
of these Consolidated Financial Statements are set out below.
a) Functional and presentation currency
These Consolidated 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 these Consolidated 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
Equity dividends are recognised when they become legally
payable.
k) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a deduction
from equity.
l) Lease obligations
Lease obligations relate to the head rent of investment
property and are capitalised at the lease commencement,
at the lower of fair value of the property and present value
of the minimum lease payments and held as a liability within
the Consolidated Statement of Financial Position. The lease
payments are discounted using the interest rate implicit
in the lease. Where the Group is exposed to potential future
increases in variable lease payments based on an index or
rate, these are not included in the lease liability until
they take effect. Lease payments are allocated between principal
and finance cost. The finance cost is charged to profit
or loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the
liability for each period.
m) Taxes
Corporation tax is recognised in profit or loss except to
the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
As a REIT, the Group is exempt from corporation tax on the
profits and gains from its investments, provided it continues
to meet certain conditions as per REIT regulations.
Taxation on the profit or loss for the period not exempt
under UK REIT regulations comprises current and deferred
tax. Current tax is expected tax payable on any non-REIT
taxable income for the year, using tax rates applicable
in the year.
Deferred tax is provided on temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
The amount of deferred tax that is provided is based on
the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates
enacted or substantially enacted at the period end date.
n) 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 2022, audited EPS and NAV calculations
under EPRA's methodology are included in note 8 and further
unaudited measures are uded 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 is a distributable reserve and represents
the cancelled share premium less dividends paid from this
reserve.
Retained earnings
Retained earnings represent the profits of the Group less
dividends paid from revenue profits to date.
2.6 Fair value measurement
The Group measures financial and non-financial assets such
as investment properties at fair value at each reporting
date.
A number of the Group's accounting policies and disclosures
require the determination of fair value, for both financial
and non-financial assets and liabilities. Fair value is defined
in IFRS 13 Fair Value Measurement as the price that would
be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at
the measurement date. Fair values have been determined for
measurement and/or disclosure purposes based on methods described
below. Where applicable, further information about the assumptions
made in determining fair values is disclosed in the notes
specific to that asset or liability.
The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs significant
to fair value measurement as a whole:
Fair value hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
Level 3: Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Group
determines whether transfers have occurred between levels
in the hierarchy by re-assessing categorisation (based on
the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
There were no transfers between any of the levels during
the year.
Investment property
The valuation of investment property by valuers engaged by
the Group who are independently appointed and have the relevant
professional qualifications and with recent experience in
the location and category of the investment property being
valued. Further information in relation to the valuers is
provided in note 10.
Property valuations are inherently subjective as they are
made on the basis of assumptions made by the valuer which
may not prove to be accurate. For these reasons, and consistent
with EPRA's guidance, we have classified the valuations of
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
2022 2021
GBP'000 GBP'000
Gross rental income 7,036 6,724
Spreading of minimum contracted future rent-indexation 541 571
Spreading of tenant incentives - rent free periods (73) (85)
Other property income 1 -
-------- --------
Gross rental income (adjusted) 7,505 7,210
Service charges and direct recharges (see note
4) 396 199
Total rental and other income 7,901 7,409
-------- --------
All rental, service charges, direct recharges and other income are derived from the United Kingdom.
4. Operating Expenses
2022 2021
GBP'000 GBP'000
Property operating expenses 136 448
Service charges and direct recharges (see note
3) 396 199
Reversal of provision for impairment of trade (202)
receivables -
Property operating expenses 330 647
-------- --------
Investment adviser fee 368 269
Auditor's remuneration 63 77
Operating costs * 588 442
Directors' remuneration (note 5) 82 88
Other operating expenses 1,101 876
-------- --------
Total operating expenses 1,431 1,523
-------- --------
Total operating expenses (excluding service
charges and direct recharges) 1,035 1,324
-------- --------
* Included in the Operating cost is GBP1,250 of fees paid to Stephanie Eastment incurred in advance of her appointment as a Director, for due diligence activities.
2022 2021
GBP'000 GBP'000
Audit
Statutory audit of Annual Report and Accounts 53 67
Statutory audit of Subsidiary Accounts 10 10
Total fees due to auditor 63 77
-------- --------
Moore Kingston Smith LLP has not provided any non-audit services to the Group.
5. Directors' remuneration
2022 2021
GBP'000 GBP'000
Directors' fees 75 78
Tax and social security 7 10
Total fees 82 88
-------- --------
A summary of the Director's remuneration is set out in the Directors' Remuneration Report.
The Group had no employees during the year.
6. Finance expenses
2022 2021
GBP'000 GBP'000
Interest payable on loan 1,307 1,307
Amortisation of finance costs (note 13) 104 99
Other finance costs 12 15
Total 1,423 1,421
-------- --------
7. Taxation
2022 2021
GBP'000 GBP'000
Tax charge comprises:
Analysis of tax charge in the year
Profit before tax 13,166 5,572
-------- --------
Theoretical tax charge at UK corporation tax
standard rate of 19.00%
(2021: 19.00%) 2,502 1,059
Effects of tax-exempt items under the REIT
regime (2,502) (1,059)
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) and Net Asset Value (NAV) per share
2022 2021
Earnings per share:
Total comprehensive income (GBP'000) 13,166 5,572
----------- -----------
Weighted average number of shares (number) 80,500,000 80,500,000
Earnings per share (basic and diluted) 16.36p 6.92p
----------- -----------
EPRA EPS (GBP'000):
Total comprehensive income 13,166 5,572
Adjustment to total comprehensive income:
Change in fair value of investment properties (8,023) (682)
Gain on disposal of investment property (96) (425)
EPRA earnings (basic and diluted) (GBP'000) 5,047 4,465
----------- -----------
EPRA EPS (basic and diluted) 6.27p 5.55p
----------- -----------
Adjusted EPS:
EPRA earnings (basic and diluted) (GBP'000)
- as above 5,047 4,465
Adjustments (GBP'000):
Rental income recognised in respect of
guaranteed fixed rental uplifts - Note 3 (541) (571)
Rental income recognised in respect of
rent free periods - Note 3 73 85
Amortisation of loan arrangement fee -
Note 6 104 99
Write-off of rent 4 -
Reversal of provision for impairment of
trade receivables (202) -
Adjusted earnings (basic and diluted) (GBP'000) 4,485 4,078
------ ------
Adjusted EPS (basic and diluted) * 5.57p 5.07p
------ ------
* 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.
2022 2021
NAV per share:
Net assets (GBP'000) 77,599 68,893
Ordinary Shares (Number) 80,500,000 80,500,000
NAV per share 96.40p 85.58p
----------- -----------
EPRA Net Reinvestment Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV)
EPRA NTA and EPRA
EPRA NRV NDV
GBP'000 GBP'000
At 30 June 2022
Net assets value (GBP'000) 77,599 77,599
Purchasers' cost (GBP'000) 7,664 -
Break cost on bank borrowings
(GBP'000) (486) (486)
----------- ------------------
84,777 77,113
----------- ------------------
Ordinary Shares (Number) 80,500,000 80,500,000
----------- ------------------
Per share measure 105.31p 95.79p
----------- ------------------
At 30 June 2021
Net assets value (GBP'000) 68,893 68,893
Purchasers' cost (GBP'000) 7,100 -
Break cost on bank borrowings
(GBP'000) (3,467) (3,467)
----------- ------------------
72,526 65,426
----------- ------------------
Ordinary Shares (Number) 80,500,000 80,500,000
----------- ------------------
Per share measure 90.09p 81.27p
----------- ------------------
9. Dividends paid
Quarter
Ended Rate 2022 2021
GBP'000 GBP'000
Dividends in respect of year ended 30
June 2020
4th dividend 30-Jun-20 1.425p - 1,147
Dividends in respect of year ended 30
June 2021
1st dividend 30-Sep-20 1.250p - 1,006
2nd dividend 31-Dec-20 1.000p - 805
3rd dividend 31-Mar-21 1.250p - 1,007
4th dividend 30-Jun-21 1.640p 1,320 -
Dividends in respect of year ended 30
June 2022
1st dividend 30-Sep-21 1.300p 1,047 -
2nd dividend 31-Dec-21 1.300p 1,046 -
3rd dividend 31-Mar-22 1.300p 1,047 -
-------- --------
Total dividends paid 4,460 3,965
4th dividend 30-Jun-20 1.425p - (1,147)
4th dividend 30-Jun-21 1.640p (1,320) 1,320
4th dividend 30-Jun-22 1.600p 1,288 -
-------- --------
Total dividends payable in
respect of the year 4,428 4,138
-------- --------
Total dividends payable in respect of the year 5.50p 5.14p
-------- --------
* Dividends declared after the year end are not included in the financial statements as a liability.
** Dividends paid per Consolidated Statement of Cash Flows amount to GBP4,455,000 (2021: 3,949,000), the difference between the amount disclosed above is due to withholding tax.
10. Investment properties
2022 2021
Freehold Leasehold
Investment Investment
properties properties Total Total
GBP'000 GBP'000 GBP'000 GBP'000
At the beginning of the year 75,772 33,458 109,230 101,910
Acquisition during the year 5,375 - 5,375 6,070
Disposal during the year (5,300) - (5,300) -
Change in value of investment
properties 5,133 3,467 8,600 1,250
Valuation provided by Knight
Frank LLP 80,980 36,925 117,905 109,230
------------ ------------ -------- --------
Adjustment to fair value for minimum rent indexation
of lease income (note 11) (3,177) (2,709)
Adjustment for lease obligations 396 505
Total investment properties 115,124 107,026
-------- --------
Change in fair value of investment
properties
Change in fair value before adjustments for lease
incentives and lease obligations 8,600 1,250
Movement in lease obligations (109) 34
Adjustment to spreading of contracted future
rent
indexation and tenant incentives (468) (602)
8,023 682
-------- --------
During the year, the Group acquired the property known as Volva, Slough (2021: Droitwich Spa Retail Park) and disposed of the investment property known as Audi, Huddersfield (2021: Wet n Wild, Royal Quays, North Shields).
The table below shows a reconciliation of the gain recognised on
disposal through the Consolidated Statement of Comprehensive Income
and the realised gain on disposal in the year which includes changes
in fair value of the investment property and minimum rent indexation
spreading recognised in previous periods.
2022 2021
GBP'000 GBP'000
Gross proceeds on disposal 5,500 3,204
Selling costs (104) (45)
---------- ----------
Net proceeds on disposal 5,396 3,159
Carrying value (5,300) (2,734)
----------
Gain on disposal of investment property 96 425
---------- ----------
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.
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 Group's
portfolios of investment properties are:
1) Estimated Rental Value ('ERV')
2) Equivalent yield
Increases/(decreases) in the ERV (per sq ft per annum) in isolation
would result in a higher/(lower) fair value measurement. Increases/(decreases)
in the yield in isolation would result in a lower/(higher) fair
value measurement.
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:
Significant
Fair value Valuation unobservable
Class GBP'000 technique inputs Range
------------------------ ------------ ----------------------- ---------------- ------------------
30 June 2022
GBP4.00 -
ERV GBP21.96
Equivalent
Investment Properties* 117,905 Income capitalisation yield 4.87% - 8.70%**
------------------------ ------------ ----------------------- ---------------- ------------------
30 June 2021
GBP3.86 -
ERV GBP21.96
Equivalent
Investment Properties* 109,230 Income capitalisation yield 5.17% - 8.46%**
------------------------ ------------ ----------------------- ---------------- ------------------
* Valuation per Knight Frank LLP
**Hotels, nurseries, petrol stations, student accommodation & healthcare are excluded from this range
The estimated fair value would increase if the equivalent yield decreases to lower end of the range, see sensitivity analysis below.
2022
Change in equivalent
Change in ERV yield
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- ----------- -----------
Sensitivity Analysis +10% -10% +10% -10%
Resulting fair value of
investment properties 121,583 114,850 111,837 126,023
-------- -------- ----------- -----------
2021
Change in equivalent
Change in ERV yield
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- ----------- -----------
Sensitivity Analysis +10% -10% +10% -10%
Resulting fair value of
investment properties 112,222 107,104 103,375 116,769
-------- -------- ----------- -----------
12. Payables and accrued expenses
2022 2021
GBP'000 GBP'000
Deferred income 1,501 1,445
Trade creditors 51 59
Accruals 576 603
Tenant deposit liability (note 11) 118 -
Bank interest payable 258 258
Other creditors 642 676
3,146 3,041
-------- --------
13. Interest bearing loans and borrowings
2022 2021
GBP'000 GBP'000
Facility drawn 41,000 41,000
----------- ----------
Unamortised finance costs brought forward (484) (583)
Amortisation of finance costs 104 99
At end of year 40,620 40,516
----------- ----------
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 2022, the Group had utilised all of its GBP41 million
fixed interest loan facility with Canada Life Investments and was
geared at a loan to Gross Asset Value ('GAV') of 33.7% (2021: 36.3%).
The weighted average interest cost of the Group's facility is 3.19%
and the facility is repayable on 20 October 2025.
2022 2021
GBP'000 GBP'000
Reconciliation to cash flows from financing
activities
At beginning of the year 40,516 40,417
Non-cash changes
Amortisation of loan issue costs 104 99
Total at end of the year 40,620 40,516
-------- --------
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:
2022 2021
GBP'000 GBP'000
Within one year 50 50
After one year but not more than five years 150 150
More than five years 513 563
Total undiscounted lease liabilities 713 763
Less: Future finance charge on lease obligations (378) (390)
Present value of lease liabilities 335 373
-------- --------
Lease liabilities included in the Consolidated
Statement of Financial Position
Current 36 38
Non-current 299 335
335 373
-------- --------
15. Commitments
15.1. Operating lease commitments - as lessor
The Group has 19 commercial properties with 33 units on its investment
property portfolio. These non-cancellable leases have a remaining
term of between 7 months and 112 years (2021: 6 months to 113 years),
excluding ground leases.
Future minimum rentals receivable under non-cancellable operating
leases as at 30 June 2022 are as follows:
2022 2021
GBP'000 GBP'000
Within one year 7,071 6,957
After one year, but not more than two years 7,015 7,135
After two years, but not more than three years 6,754 7,094
After three years, but not more than four years 7,011 7,191
After four years, but not more than five years 7,045 7,002
After five years, but not more than ten years 29,896 29,898
After ten years, but not more than fifteen years 25,935 27,201
More than fifteen years 55,472 58,889
146,199 151,367
--------- --------
During the year ended 30 June 2022 there were no material contingent rents recognised as income (2021: GBPnil).
15.2. Capital commitments
There were no capital commitments at 30 June 2022 (2021: nil).
15.3. Financial commitments
In the 2021 annual report, it was disclosed that the Company is involved in litigation against two parties to recover GBP1,056,000 of costs. The costs were incurred for work in the period September to December 2020 to replace defective cladding elements uncovered in the external walls of the top floors and rear lift core of the Travelodge Hotel, Swindon. The defective cladding was installed when the property was extended in 2007 and the Company's claims are against the architect and cladding sub-contractor involved. Subsequent to the year end, the Board engaged in mediation with both parties and agreed a full and final settlement. (See also note 21b.) Settlement is due to be received after the signing of this annual report. Consequent to that settlement being received, the Group will have no financial commitments other than those arising from its normal business operations. There are no other commitments other than those shown above at the year-end (2021: same).
16. Investments in subsidiaries
The Company has two wholly owned subsidiaries as disclosed below:
Country of
Name and company registration Date of Principal Ordinary
number and incorporation incorporation activity Shares held
Alternative Income
REIT Holdco Limited England and Real Estate
(Company number 11052186) Wales 7 Nov 2017 Company 73,158,502*
Alternative Income
Limited (Company England and Real Estate
number 10754641) Wales 4 May 2017 Company 73,158,501*
* Ordinary shares of GBP1.00 each.
Alternative Income REIT Plc as at 30 June 2022 owns 100% of Alternative Income REIT Holdco Limited.
Alternative Income REIT Holdco Limited holds 100% of Alternative Income Limited.
Both Alternative Income REIT Holdco Limited and Alternative Income Limited are registered at 1 King William Street, London, United Kingdom, EC4N 7AF.
17. Issued share capital
2022 2021
Number Number
of of
Ordinary Ordinary
GBP'000 Shares GBP'000 Shares
Ordinary Shares of GBP0.01 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'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 of Directors and the Investment Adviser meet regularly as required 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 asset 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:
2022 2021
GBP'000 GBP'000
-------- --------
Debtors 528 909
Cash and cash equivalents 2,542 2,115
Total 3,070 3,024
-------- --------
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 of Directors.
The below table summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
< 3 3-12 1-5 > 5
On demand months months years years Total
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- --------- --------- --------- --------- ---------
Interest bearing loans
and borrowings - - - 41,000 - 41,000
Interest payable - 327 980 3,266 - 4,573
Payables and accrued
expenses 134 863 - - - 997
Lease obligations - 13 38 200 463 714
------------------------ ---------- --------- --------- --------- --------- ---------
Total 134 1,203 1,018 44,466 463 47,284
------------------------ ---------- --------- --------- --------- --------- ---------
< 3 3-12 1-5 > 5
On demand months months years years Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- --------- --------- --------- --------- ---------
Interest bearing loans
and borrowings - - - 41,000 - 41,000
Interest payable - 327 980 4,573 - 5,880
Payables and accrued
expenses 138 884 123 - - 1,145
Lease obligations - 13 37 200 513 763
------------------------ ---------- --------- --------- --------- --------- ---------
Total 138 1,224 1,140 45,773 513 48,788
------------------------ ---------- --------- --------- --------- --------- ---------
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 in the notes to the company accounts. The Group Loan to GAV ratio at the year end was 33.7% (2021: 36.3%).
Breaches in meeting the financial covenants would permit the lender to immediately call loans and borrowings. During the period, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements.
20. Transactions with related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
Directors
Directors of the Group are related party. Directors' remuneration is disclosed in note 5.
Investment Adviser
M7 Real Estate Limited
M7 Real Estate Ltd was appointed as Investment Adviser on 14 May 2020. The Interim Investment Advisory agreement (amended with Deed of Variation dated 21 February 2021) specifies that there were fees payable up to 30 September 2020. From 1 October 2020, the annual management fee is calculated at a rate equivalent of 0.50% per annum of NAV (subject to a minimum fee of GBP90,000 per quarter), payable quarterly in advance. During the year ended 30 June 2022, the Group incurred GBP367,920 (2021: GBP269,327) in respect of investment advisory fees, of which GBP97,920 was outstanding at 30 June 2022 (2021: GBPnil).
21. Events after reporting date
21a. Dividend
On 1 August 2022, the Board approved the interim dividend for the quarter ended 30 June 2022 of 1.6p, in line with the Group's previously announced target of 5.5 p.
21b. Swindon Travelodge remediation
As previously reported, work was completed in December 2020 to the Swindon Travelodge to replace the combustible cladding elements uncovered on part of the property with non-combustible replacements and to remediate the fire/smoke stopping. Both the architect and cladding sub-contractor involved were being pursued for reimbursement of the costs of GBP1,056,000. Subsequent to the year end, the Board engaged in mediation with both parties and agreed a full and final settlement of GBP825,000.
As at 30 June 2022
Notes 2022 2021
GBP'000 GBP'000
Assets
Non-current Assets
Investments in subsidiary
companies 2 73,158 73,158
Investment property 2 2,153 2,067
75,311 75,225
Current Assets
Receivables and prepayments 3 159 208
Cash and cash equivalents 66 535
225 743
---------- ---------
Total Assets 75,536 75,968
---------- ---------
Current Liabilities
Payables and accrued
expenses 4 (13,035) (17,148)
,(13,035) (17,148)
---------- ---------
Net Assets 62,501 58,820
---------- ---------
Equity
Share capital 6 805 805
Capital reserve 75,417 75,417
Retained earnings (13,721) (17,402)
---------- ---------
Total capital and reserves
attributable to equity
holders of the Company 62,501 58,820
Net Asset Value per
share (pence per share) 77.64p 73.07p
---------- ---------
As permitted by s408 Companies Act 2006, the Company's profit and loss account has not been presented in these financial statements.
The Company's profit for the year was GBP8,140,836 (2021 : loss of GBP596,947).
The financial statements were approved by the Board of Directors on 28 September 2022 and were signed on its behalf by:
Alan Sippetts
Chairman
Company number: 10727886
Company Statement of Changes in Equity
For the year ended 30 June 2022
Share Capital Retained Total
capital reserve* earnings* equity
Notes GBP'000 GBP'000 GBP'000 GBP'000
For the year ended
30 June 2022
Balance as at 30 June
2021 805 75,417 (17,402) 58,820
Total comprehensive
income - - 8,141 8,141
Dividends paid - - (4,460) (4,460)
Balance as at 30 June
2022 805 75,417 (13,721) 62,501
For the year ended
30 June 2021
Balance as at 30 June
2020 805 75,417 (12,840) 63,382
Total comprehensive
income - - (597) (597)
Dividends paid - - (3,965) (3,965)
Balance as at 30 June
2021 805 75,417 (17,402) 58,820
* Capital reserve and retained earnings were presented combined in prior years.
The accompanying notes form an integral part of these financial statements.
Notes to the Company Accounts
for the year ended 30 June 2022
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 (GBP'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 2021.
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
2022 2021
GBP'000 GBP'000
At the beginning and end
of the year 73,158 73,158
A list of subsidiary undertakings at 30 June 2022 is included on note 16 of the Consolidated Financial Statements.
The Directors have considered the recoverability of the investment in subsidiary company 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
2022 2021
GBP'000 GBP'000
At the beginning of the year 2,067 2,011
Revaluation of investment property 100 70
Adjustment to fair value for minimum
rent indexation of lease income (14) (14)
2,153 2,067
3. Receivables and prepayments
2022 2021
GBP'000 GBP'000
Receivables
Rent debtor 32 4
Spreading of contracted future - rent
indexation 40 33
VAT receivable 59 57
131 94
Prepayments
Other prepayments 28 114
159 208
4. Payables and accrued expenses
2022 2021
GBP'000 GBP'000
Due to subsidiaries 12,427 16,759
Deferred income 30 30
Trade creditors 35 26
Accruals 459 254
Other creditors 84 79
13,035 17,148
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
2022 2021
Number Number
of of
Ordinary Ordinary
GBP'000 Shares GBP'000 Shares
Ordinary Shares of GBP0.01 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 2022 the Company had GBPnil contingent liabilities or capital commitments (2021: GBPnil).
Related party transactions are the same for the Company as for the Group. For details refer to note 20 of the Consolidated Financial Statements.
8. Events after reporting date
Events after the reporting date are the same as those disclosed in note 21 of the Consolidated Financial Statements.
2022 2021
EPRA Yield calculations GBP'000 GBP'000
Investment properties wholly
owned:
* by Company 2,200 2,100
* by Alternative Income Limited 115,705 107,130
Total - note 10 117,905 109,230
Allowance for estimated purchasers'
costs 7,665 7,100
Gross up completed property
portfolio valuation b 125,570 116,330
Annualised cash passing rental
income 7,217 6,965
Annualised property outgoings (55) (55)
Annualised net rents a 7,162 6,910
Add: notional rent expiration
of rent-free periods or other
lease incentives 893 1,171
Topped-up net annualised rent c 8,055 8,081
EPRA NIY* a/b 5.70% 5.94%
EPRA "topped-up" NIY c/b 6.41% 6.95%
* The NIY calculation is the same calculation as that for EPRA NIY.
2022 2021
EPRA Cost Ratios GBP'000 GBP'000
Include:
EPRA Costs (including
direct vacancy costs)
- note 4 a 1,035 1,324
Direct vacancy costs - -
EPRA Costs (excluding
direct vacancy costs) b 1,035 1,324
Gross rental income
(adjusted) - note
3 c 7,505 7,210
EPRA Cost Ratio
(including direct
vacancy costs) a/c 13.79% 18.36%
EPRA Cost Ratio
(excluding direct
vacancy costs) b/c 13.79% 18.36%
2022 2021
EPRA Vacancy rate GBP'000 GBP'000
Annualised potential
rental value of vacant
premises a - -
Annualised potential
rental value for
the completed property
portfolio b 6,987 6,927
EPRA Vacancy rate a/b 0.00% 0.00%
Glossary
Alternative Investment Langham Hall Fund Management LLP.
Fund Manager or AIFM
or Investment Manager
Company Alternative Income REIT plc.
Contracted rent The annualised rent adjusting for the inclusion
of rent subject to rent-free periods.
Earnings Per Share Profit for the period attributable to equity
('EPS') 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.
Equivalent Yield The internal rate of return of the cash flow
from the property, assuming a rise to Estimated
Rental Value at the next review or lease expiry.
No future growth is allowed for.
Estimated Rental The external valuer's opinion as to the open
Value ('ERV') 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 The aggregate value of the total assets of the
('GAV') Group as determined in accordance with IFRS.
IASB International Accounting Standards Board.
IFRS International financial reporting standards.
On 31 December 2020 EU-adopted IFRS was brought
into UK law and became UK-adopted international
accounting standards, with future changes to
IFRS being subject to endorsement by the UK
Endorsement Board.
Investment Adviser M7 Real Estate Limited.
IPO The admission to trading on the London Stock
Exchange's Main Market of the share capital
of the Company and admission of Ordinary Shares
to the premium listing segment of the Official
List on 6 June 2017.
Lease incentives Incentives offered to occupiers to enter into
a lease. Typically, this will be an initial
rent-free period, or a cash contribution to
fit-out. Under accounting rules, the value of
the lease incentive is amortised through the
Consolidated Statement of Comprehensive Income
on a straight-line basis until the lease expiry.
Loan to Value ('LTV') The value of loans and borrowings utilised (excluding
amounts held as restricted cash and before adjustments
for issue costs) expressed as a percentage of
the combined valuation of the property portfolio
(as provided by the valuer) and the fair value
of other investments.
Net Asset Value Net Asset Value is the equity attributable to
('NAV') shareholders calculated under IFRS.
Net Asset Value Equity shareholders' funds divided by the number
per share 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 The initial net rental income from a property
('NIY') at the date of purchase, expressed as a percentage
of the gross purchase price including the costs
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.
Passing rent The gross rent, less any ground rent payable
under head leases.
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 The average lease term remaining for first break,
Unexpired Lease Term or expiry, across the portfolio weighted by
('WAULT') 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 GBP0.01 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 .
Annual and Interim Reports
Copies of the Annual and Half-Yearly Reports are available from the Group's website.
Financial Calendar 2022
30 June 2022 Year end September 2022 Announcement of annual results November 2022 Annual General Meeting 31 December 2022 Half year end March 2023 Announcement of interim results
Shareholder Information
Directors
Alan Sippetts (Independent non-executive Chairman)
Stephanie Eastment (Independent non-executive Director)
Adam C Smith (Non-executive Director)
Company Website
https://www.alternativeincomereit.com/
Registered Office
1 King William Street
London
EC4N 7AF
Company Secretary
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
AIFM
Langham Hall Fund Management LLP
1 Fleet Place
8(th) Floor
London
EC4M 7RA
Depositary
Langham Hall UK Depositary LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
Legal Adviser to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Investment Adviser and Administrator
M7 Real Estate Limited
3(rd) Floor
The Monument Building
11 Monument Street
London
EC3R 8AF
Property Manager
Mason Owen and Partners Limited
7(th) Floor
20 Chapel Street
Liverpool
L3 9AG
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Consultant Portfolio Manager
King Capital Consulting Limited
140a Tachbrook Street
London
SW1V 2NE
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditor
Moore Kingston Smith LLP
9 Appold Street
London
EC2A 2AP
Corporate Broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Communications Adviser
H/Advisors Maitland
3 Pancras Square
London
N1C 4AG
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END
FR EAFNPAEDAEAA
(END) Dow Jones Newswires
September 29, 2022 03:30 ET (07:30 GMT)
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