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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Alternative Income Reit Plc | LSE:AIRE | 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.10 | -4.27% | 69.50 | 68.00 | 71.00 | 70.00 | 69.00 | 70.00 | 60,445 | 10:07:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 7.9M | 2.36M | 0.0293 | 23.72 | 58.44M |
From Feb 2023 to Feb 2025
TIDMAIRE
RNS Number : 2557O
Alternative Income REIT PLC
02 October 2023
THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED STATES OF AMERICA, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH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 2023
ALTERNATIVE INCOME REIT PLC
(the "Company" or the "Group")
Annual Report and Financial Statements for the year ended 30 June 2023
The Board of Directors of Alternative Income REIT PLC (ticker: AIRE), the owner of a diversified portfolio of UK commercial property assets predominantly let on long leases with index-linked reviews, is pleased to announce its annual report and financial statements for the year ended 30 June 2023.
Financial Highlights
At 30 June
Hot Features
Premium
2023 2022 Change
Net Asset Value ('NAV') GBP67.8 million GBP77.6 million -12.7%
------------------ ----------------- -------
NAV per share 84.16p 96.40 p -12.7%
------------------ ----------------- -------
Share price 64.70 p 82.10 p -21.2%
------------------ ----------------- -------
Share price discount to NAV (A) 23.1% 14.8% 8.3%
------------------ ----------------- -------
Investment property fair value
(based on external valuation) GBP107.0 million GBP117.9 million -9.2%
------------------ ----------------- -------
Loan to gross asset value ('GAV')
(A) 36.8% 33.7 % -
------------------ ----------------- -------
Loan facility GBP41.0 million GBP41.0 million -
------------------ ----------------- -------
For the year ended 30 June
2023 2022 Change
EPRA earnings per share ('EPS')
(A) 6.75 p 6.27 p 7.7%
--------------------- ----------------- --------
Adjusted EPS (A) 6.43p 5.57 p 15.4%
--------------------- ----------------- --------
Total dividends per share 6.045p 5.50p 9.9 %
--------------------- ----------------- --------
Dividend cover (A) 106.4 % 101.3 % 5.1%
--------------------- ----------------- --------
Dividend yield (A) 9.3 % 6.7% 2.6%
--------------------- ----------------- --------
Operating profit
(including gain on sale of investment
property but excluding fair value
changes) GBP6.9 million GBP6.6 million 4.5%
--------------------- ----------------- --------
(Loss)/ profit before tax (GBP5.2) million GBP 13.2 million -139.4%
--------------------- ----------------- --------
(Loss)/ earnings per share (6.51 p) 16.36 p -139.8%
--------------------- ----------------- --------
Share price total return (A) (14.2%) 24.3 % -
--------------------- ----------------- --------
NAV total return (A) (6.7 %) 22.5 % -
--------------------- ----------------- --------
Gross passing rental income GBP7.6 million GBP7.2 million 5.6%
--------------------- ----------------- --------
Ongoing charges 1.39% 1.42 % -3 bps
--------------------- ----------------- --------
Financial Highlights Overview
-- The NAV decrease to 84.16 pence per share ("pps") was primarily due to the GBP10.9 million (9.2%) reduction in the fair value of the investment properties which were impacted by an upward yield movement across the wider UK real estate sector, driven primarily by rises in interest rates and inflation during the year.
-- Dividends in respect of the year totalled 6.045pps, a 9.9% increase from the previous year and in excess of the Board's 2023 target annual dividend of at least 5.70pps.
-- Dividends declared and paid for the year were 106.4% covered by EPRA earnings per share.
-- Dividend yield has increased to 9.3%, a 2.6% increase from the prior year as a result of market conditions negatively impacting the share price of the Company.
-- Loss before tax of GBP5.2 million, equivalent to 6.51pps, is primarily due to the GBP10.9 million (9.2%) reduction in the fair value of the investment properties.
-- Loan to GAV of 36.8% and interest cover ratio of 614.50% gives significant headroom on the lender's loan to value covenant of 60% and interest cover covenant of 250%. The loan matures in October 2025 and is fixed at a weighted average interest cost of 3.19%.
Operational Overview
At the Group's year end of 30 June 2023:
-- The Group's property portfolio had a fair value of GBP107.0 million across 19 properties (2022: GBP117.9 million across 19 properties).
-- The EPRA Net Initial Yield (A) ('NIY') was 6.6% (2022: 5.7%).
-- 97.0 % of the portfolio's income stream is reviewed periodically (45% annually) on an upward only, inflation linked basis to Retail Price Index ('RPI') or Consumer Price Index ('CPI').
-- The portfolio remained fully let at the year end..
-- Weighted average unexpired lease term ('WAULT'):
- 17.0 years to the earlier of break and expiry (2022: 17.5 years) and
- 18.9 years to expiry (2022: 19.4 years).
Income and expense during the year
-- Rent recognised was GBP8.1 million (2022: GBP7.5 million), of which GBP0.4 million was accrued debtors for the combination of rental smoothing of minimum uplifts and rent-free periods (2022: accrued debtors of GBP0.5 million).
-- A total of 14 rent reviews took place during the year, which resulted in a combined rental uplift of GBP346,000, which represents a 4.8% increase on contracted rent across the portfolio.
-- Ongoing charges decreased from 1.42% to 1.39% which is a result of the Board successfully continuing its effort to manage costs effectively.
-- The Group received GBP825,000 during the year, in full and final settlement of litigation to recover costs incurred in respect of works to replace defective cladding on the Travelodge Hotel, Swindon. This one-off receipt has been proportionally allocated as GBP606,000 to capital, as a reduction in acquisition costs and GBP219,000 to revenue, recognised as other property income. Further detail is contained in note 15.3 of the financial statements.
Property transactions during the year
-- There were no property transactions in the year, however, shortly after the year end the Group completed the disposal of a property in Glasgow at a 7.9% premium on the book value at 30 June 2023, as detailed below.
Post balance sheet highlights
-- On 2 August 2023, the Board approved the interim dividend for the quarter ended 30 June 2023 of 1.92pps. As a result, the dividend target of 5.70pps for the year ended 30 June 2023 was met. The 1.92pps interim dividend included an additional 0.345pps in respect of non-rental income that was received in the year following the successful settlement of a historical legal case. This dividend was paid on 25 August 2023 to shareholders on the register at 11 August 2023. The ex-dividend date was 10 August 2023.
-- By 29 September 2023, the Group had collected 100% of rent due for the four rental quarters of the financial year being reported.
-- On 8 August 2023, the Group completed the disposal of Mercure Hotel, Ingram Street, Glasgow to the occupier for GBP7.5 million, a 7.9% premium on the book value at 30 June 2023. The Board intends to reinvest the net proceeds from the sale as soon as practical.
(A) Alternative Performance Measure, please see below for further details.
Simon Bennett, non-executive chairman of Alternative Income REIT plc, comments:
"During the period under review, the global economy has been impacted by high inflation and central banks have responded by aggressively raising interest rates. In general terms, the impact of these rising interest rates has affected real estate valuations and share prices detrimentally, with a significant downward movement in valuations particularly in the first half of the financial year, although valuations of the Group's portfolio have now stabilised. I am also pleased to report that post year end, the sale of the Group's hotel in Glasgow was achieved at a 7.9% premium to its book value as at 30 June 2023.
The current UK economic woes plays to the strengths of the Group's resilient and diversified portfolio, which is let on long-dated and higher yielding leases with index - linked rental increases. Dividends declared for the year totalled 6.045pps, a 9.9% increase from the previous year and in excess of the Board's 2023 target annual dividend of at least 5.7pps and were fully covered by earnings.
The Group's portfolio is expected to perform relatively well during a period of higher inflation, as 97.0% of the portfolio's income stream is reviewed periodically. In the coming financial year, approximately 58.0% of the Group's income will be subject to rent reviews, 45.0% as annual index-linked rent reviews and the remaining 13.0% being periodic 5 yearly index-linked rent reviews. Accordingly, the Board remains confident that the Company is well -positioned for the future, with a resilient portfolio well-placed to continue to provide secure, index-linked income with the potential for capital growth."
ENQUIRIES
Alternative Income REIT PLC via H/Advisors Maitland below
Simon Bennett - Chairman
M7 Real Estate Ltd
Richard Croft +44 (0)20 3657 5500
--------------------------------
Jane Blore
--------------------------------
Panmure Gordon (UK) Limited +44 (0)20 7886 2500
--------------------------------
Alex Collins
--------------------------------
Tom Scrivens
--------------------------------
H/Advisors Maitland (Communications
Adviser) +44(0) 7747 113 930
--------------------------------
James Benjamin aire-maitland@h-advisors.global
--------------------------------
The Company's LEI is 213800MPBIJS12Q88F71.
Further information on Alternative Income REIT PLC is available at www.alternativeincomereit.com (1)
About the Group
Alternative Income REIT PLC aims to generate a sustainable, secure and attractive income return for shareholders from a diversified portfolio of UK property investments, predominately in alternative and specialist sectors. The majority of the assets in the Group's portfolio are let on long leases which contain index-linked rent review provisions, which help to underpin income distributions to shareholders with the potential for income and capital growth.
The Company's Investment Adviser is M7 Real Estate Limited ("M7"). M7 is a leading specialist in the pan-European, regional, multi-tenanted real estate market. Majority owned by its senior managers, it has over 200 employees in 15 countries across Europe. The team manages over 620 properties with a value of circa EUR6.9 billion.
Notes
1 Neither the content of the Company's website, nor the content of any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published on a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
CHAIRMAN'S STATEMENT
Overview
I am pleased to present the annual audited results of Alternative Income REIT plc (the 'Company') together with its subsidiaries (the 'Group') for the financial year ended 30 June 2023.
The current UK economic environment with high levels of inflation and interest rates, and low growth plays to the strengths of the Group's resilient portfolio, which is let on long-dated and higher yielding leases with index linked rental increases.
During the period under review the global economy has been impacted by high inflation rates. Central banks have responded by aggressively raising interest rates. In the UK, the Bank of England has increased base rates from 1% in June 2022 to 5.25% currently. In general terms, the impact of these rising interest rates has affected real estate valuations and share prices detrimentally, with a significant downward movement in valuations particularly in the first half of the financial year, although valuations of the Group's portfolio have now stabilised. I am also pleased to report that post year end, the sale of the Group's hotel in Glasgow was achieved at a 7.9% premium to its book value at 30 June 2023.
In summary, the value of the Group's properties showed a fall of GBP10.9 million to GBP107.0 million (30 June 2022: GBP117.9 million), when compared to the previous financial year. The portfolio is expected to perform relatively well during a period of higher inflation, as 97.0% of its rental income is subject to index-linked reviews and 31.0% of this rental income is not subject to any cap. During the financial year, a total of 14 rent reviews took place, which resulted in a combined rental uplift of GBP346,000, which represents a 4.8% increase on contracted rent across the portfolio.
The Group also benefits from a low overhead base and fixed borrowing costs until October 2025. Together with the active asset management initiatives being undertaken, the Board expects that the portfolio will continue to deliver an attractive yield as a result of its secure and growing rental income.
Portfolio Performance
At 30 June 2023, the Group's property portfolio had a fair value of GBP 107.0 million (2022: GBP 117.9 million). The portfolio had a net initial yield of 6.6 % (2022: 5.7%), and a WAULT to the first break of 17.0 years, 18.9 years to expiry ( 2022: 17.5 years to first break, 19.4 years to expiry).
Financing
The Group ha s fully utilised its GBP41.0 million loan facility with Canada Life Investments throughout the year . The weighted average interest cost of the facility is 3.19% and it is repayable on 20 October 2025. There would be no penalties for repaying the Group's loan facility ahead of maturity, provided the corresponding gilt rate is lower than the contracted rate of interest.
Dividends and Earnings
During this financial year the Group declared four interim dividends meeting the dividend target of 5.70pps, together with an extra 0.345pps declared which represented non-rental income that was received, the majority of this arising from the successful settlement of a historical legal case. This means that the total dividends declared for the year amounted to 6.045pps, representing an increase of 9.9% on the dividends declared in the previous year (2022: total dividends declared of 5.5pps). The increased dividends declared for this year reflect the resilience of the Group's underlying property portfolio and the strength of its quarterly collection of rent due, which remains 100%.
As set out in Note 8 to the Consolidated Financial Statements, these dividends were covered by both EPRA Earnings (A) of 6.75pps (2022: 6.27pps), and the Group's Adjusted EPS (representing cash) of 6.43pps (2022: 5.57pps). Note 9 sets out all dividends paid and payable in the year. All dividends were paid as Property Income Distributions ('PIDs').
Historically the Board has paid dividends in four equal instalments each financial year. The Board intends to continue with this practice by making dividend payments in November, February, May and August each year. In order to do this, all dividends need to be declared and paid as interim dividends. The Board, however, recognises that this precludes shareholders from having the opportunity to vote on a final dividend. Recognising this, and although not required to do so, resolution 9 in the AGM notice gives shareholders the opportunity to vote on this dividend policy.
Discount
The discount of the Company's share price to NAV at 30 June 2023 widened to 23.1% from 14.8% at the previous year end. The Board monitors the discount level throughout the year and has the authority to both issue and buy back shares. Although these powers have not been used to date, the Board believes these authorities are important powers for it to have available, if required, and therefore recommends that shareholders vote in favour of their continuance at the forthcoming AGM.
Property Transaction After the Year End
Subsequent to the year end, on 8 August 2023, the Company completed the sale of the Mercure City Hotel, Ingram Street, Glasgow, for a total consideration of GBP7.5 million to the current tenant S Hotels & Resorts (UK) Limited. This property represented 6.5% of the Group's portfolio at 30 June 2023. The disposal represents a 7.9% premium on the book value at that date and a next exit yield of 8.9%. The sale will enable the proceeds to be recycled into one or more properties as the Group seeks to achieve further diversification of the portfolio's tenants and assets.
Board Composition
During the year, I joined the Board as an independent non-executive director and chairman-designate. The previous chairman Alan Sippetts retired at the conclusion of the Company's AGM on 30 November 2022 and I succeeded him. I would like to take this opportunity to thank Alan Sippetts for the significant contribution he made to the Group during his tenure as a director and latterly as chairman.
AGM
The Company will hold its AGM at 10 am on Wednesday 15 November 2023 at The Monument Building, 11 Monument Street, London EC3R 8AF. As usual, the Investment Adviser will give a presentation on the Group prior to the AGM.
I always welcome engagement with shareholders and they should be aware that if they are unable to attend in person, they can submit questions to the Board by emailing the Company Secretary at cosec@hanwayadvisory.com or by writing to me at Alternative Income REIT plc, 1 King William Street, London EC4N 7AF.
O utlook
The Board remains confident that the Company is well-positioned for the future, with a resilient portfolio well-placed to continue to provide secure, index-linked income with the potential for capital growth.
The Company exceeded its target annual dividend of at least 5.7pps for the year ended 30 June 2023 and the dividends were fully covered by earnings. In the coming financial year, approximately 58.0% of the Group's income will be subject to rent reviews, 45.0% as annual index-linked rent reviews and the remaining 13.0% being periodic five-yearly index-linked rent reviews.
I would like to thank my colleagues on the Board, the Investment Adviser, the Company Secretary and our other advisers and service providers, who have provided professional support and services to the Group during this financial year. We have a good team, to whom a large proportion of the Group's success can be attributed.
Simon Bennett
Chairman
29 September 2023
BUSINESS MODEL AND STRATEGY
Introduction
Alternative Income REIT plc is a real estate investment trust listed on the premium segment of the Official List of the Financial Conduct Authority ('FCA') and traded on the Main Market of the London Stock Exchange. As part of its business model and strategy, the Group has maintained and intends to maintain its UK REIT status.
Investment Objective
The investment objective of the Group is to generate a secure and predictable income return, sustainable in real terms, whilst at least maintaining capital values, in real terms, through investment in a diversified portfolio of UK properties, in alternative and specialist sectors.
Investment Policy
In order to achieve the investment objective, the Group invests in freehold and long leasehold properties across the whole spectrum of the UK property sector, but with a focus on alternative and specialist real estate sectors. Examples of alternative and specialist real estate sectors include, but are not limited to, leisure, hotels, healthcare, education, logistics, automotive, supported living and student accommodation.
In the event of a breach of the investment policy or the investment restrictions set out below, the Alternative Investment Fund Manager ('AIFM'), as advised by the Investment Adviser, shall inform the Board upon becoming aware of the same and, if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the AIFM, as advised by the Investment Adviser, will look to resolve the breach.
Any material change to the investment policy or investment restrictions of the Group may only be made with the prior approval of shareholders.
Investment Strategy
The Group focuses on properties which can deliver a secure income and preserve capital value, with an attractive entry yield. The Group has an emphasis on alternative and specialist property sectors to access the attractive value and capital preservation qualities which such sectors currently offer.
The Group will supplement this core strategy with active asset management initiatives for certain properties.
Subject at all times to the AIFM's (as advised by the Investment Adviser) assessment of their appeal and specific asset investment opportunities, permitted sectors include, but are not limited to the following: Healthcare; Leisure; Hotels and serviced apartments; Education; Automotive; Car parks; Residential; Supported living; Student accommodation; Logistics; Storage; Communications; Supermarkets; and, subject to the limitations on traditional sector exposures below, Offices; Shopping centres; Retail and retail warehouses; and Industrial.
The Group is not permitted to invest in land assets, including development land which does not have a development agreement attached, agriculture or timber.
The focus will be to invest in properties to construct a portfolio with the following minimum targets:
-- a WAULT, at the time of investment, in excess of 18 years;
-- at least 85% of the gross passing rent will have leases with rent reviews linked to inflation (RPI or CPI) at the time of investment;
-- investment in properties which typically have a value, at the time of investment, of between 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
limited to 15% of GAV (measured to 10% of GAV (measured at the time of
at the time of investment). investment).
The value of assets in any sub-sector Investments will be made with a view to
in one geographical region, reducing the maximum exposure to any sub-sector
at the time of investment, shall in one geographical region to 10% of GAV.
not exceed 15% of GAV.
The value of assets in any one sector and sub-sector, at the time of
investment, shall not exceed 50% of GAV and 25% of GAV respectively.
Exposure to a single tenant covenant will be limited to 15% of GAV.
The Group may commit up to a maximum of 10% of its GAV (measured at
the commencement of the project) in development activities.
Investment in unoccupied and non-income producing assets will, at the
time of investment, not exceed 5% of Estimated Rental Value ('ERV').
The Group will not invest in other closed-ended investment companies.
If the Group invests in derivatives for the purposes of efficient portfolio
and cash management, the total notional value of the derivatives at
the time of investment will not exceed, in aggregate, 20% of GAV.
The Group will invest and manage its assets with the objective of spreading risk through the above investment restrictions.
When the measure of GAV is used to calculate the restrictions relating to (i) the value of a single property and (ii) the value of assets in any sub-sector in one geographical region, it will reflect an assumption that the Group has drawdown borrowings such that these borrowings are equal to 30% of GAV.
Borrowings
The Group has utilised borrowings to enhance returns over the medium term. Borrowings have been utilised on a limited recourse basis for each investment on all or part of the total portfolio and will not exceed 40% of GAV (measured at drawdown) of each relevant investment or of the portfolio.
Dividend Policy
It is the directors' intention to pay dividends in line with the Company's investment objective with interim dividends payable by four instalments quarterly in November, February, May and August in respect of each financial year to June. Additionally, the dividend policy allows for the payment of further interim dividends should compliance with the REIT rules require.
KEY PERFORMANCE INDICATORS
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE
----------------------------------- ------------------------------- -----------------------------------
Net Initial Yield ('NIY') 6.58 %
Annualised rental income The NIY is an indicator At 30 June 2023
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 value and deducting operating
of the property, increased costs.
with purchasers' costs
estimated by the Group's
External Valuers.
(2022: 5.70%)
----------------------------------- ------------------------------- -----------------------------------
Weighted Average Unexpired
Lease Term ('WAULT') to 17.0 years to break
break and expiry and 18.9 years to expiry
The average lease term The WAULT is a key measure At 30 June 2023
remaining to expiry across of the quality of the (2022: 17.5 years to
the portfolio, weighted portfolio. Long leases break and 19.4 years
by contracted rent. underpin the security to expiry)
of our future income.
----------------------------------- ------------------------------- -----------------------------------
Net Asset Value ('NAV') GBP67.75 million/84.16pps
per share
NAV is the value of an Provides stakeholders At 30 June 2023
entity's assets minus the with the most relevant
value of its liabilities. information on the fair
value of the assets and
liabilities of the Group.
(2022: GBP77.60 million/96.40pps)
----------------------------------- ------------------------------- -----------------------------------
Dividend per share 6.045pps
Dividends declared in relation The Group seeks to deliver For the year ended 30
to the period are in line a sustainable income stream June 2023
with the stated dividend from its portfolio, which
target as set out in the it distributes as dividends.
Prospectus at IPO. Having
achieved the target dividend
of 5.70 pence per Ordinary
Share per annum, the aim
now is to ensure an increasing
dividend in line with the
Company's Investment Objective.
(2022: 5.50pps)
----------------------------------- ------------------------------- -----------------------------------
Adjusted EPS 6.43pps
Adjusted EPS from core This reflects the Group's For the year ended 30
operational activities, ability to generate earnings June 2023
as adjusted for non-cash from the portfolio which
items. A key measure of underpins dividends.
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 financial statements.
(2022: 5.57pps)
----------------------------------- ------------------------------- -----------------------------------
Leverage (Loan-to-GAV) 36.76%
The proportion of the Group's The Group utilises borrowings At 30 June 2023
assets that is funded by to enhance returns over
borrowings. the medium term. Borrowings
will not exceed 40% of
GAV (measured at drawdown).
(2022: 33.69%)
------------------------------------------------------------------- -----------------------------------
EPRA PERFORMANCE MEASURES
Detailed below is a summary table showing the EPRA performance measures (which are all alternative performance measures) in the Group.
MEASURE AND DEFINITION PURPOSE PERFORMANCE
----------------------------------- ---------------------------------- ------------------------------------
EPRA NIY (1) - unaudited 6.58%
Annualised rental income A comparable measure for At 30 June 2023
based on the cash rents portfolio valuations.
passing at the balance This measure should make
sheet date, less non-recoverable it easier for investors
property operating expenses, to judge themselves, how
divided by the market value the valuation of two portfolios
of the property, increased compare.
with (estimated) purchasers'
costs.
(2022: 5.70%)
----------------------------------- ---------------------------------- ------------------------------------
EPRA 'Topped-up' NIY (1)
- unaudited 7.08%
This measure incorporates A comparable measure for At 30 June 2023
an adjustment to the EPRA portfolio valuations.
NIY in respect of the expiration This measure should make
of rent-free periods (or it easier for investors
other unexpired lease incentives to judge themselves, how
such as discounted rent the valuation of two portfolios
periods and step rents). compare.
(2022: 6.41%)
----------------------------------- ---------------------------------- ------------------------------------
EPRA NAV (2) GBP67.75 million /84.16pps
Net asset value adjusted Makes adjustments to IFRS At 30 June 2023
to include properties and NAV to provide stakeholders
other investment interests with the most relevant
at fair value and to exclude information on the fair
certain items not expected value of the assets and
to crystallise in a long-term liabilities within a real
investment property business. estate investment company
with a long-term investment
strategy.
(2022: GBP77.60 million/96.40pps)
----------------------------------- ---------------------------------- ------------------------------------
EPRA Net Reinstatement GBP74.71 million/ 92.80pps
Value 2
The EPRA NRV adds back A measure that highlights At 30 June 2023
the purchasers' costs deducted the value of net assets (2022: GBP84.77 million/105.31pps)
from the EPRA NAV and deducts on a long-term basis.
the break cost of bank
borrowings.
----------------------------------- ---------------------------------- ------------------------------------
EPRA Net Tangible Assets GBP67.75 million/ 84.16pps
2
The EPRA NTA deducts the A measure that assumes At 30 June 2023
break cost of bank borrowings entities buy and sell
from the EPRA NAV. assets, thereby crystallising
certain levels of deferred
tax liability. The Group
has UK REIT status and
as such no deferred tax
is required to be recognised
in the accounts.
(2022: GBP77.11 million/95.79pps)
----------------------------------- ---------------------------------- ------------------------------------
EPRA Net Disposal Value GBP67.75 million/ 84.16pps
2
The EPRA NDV deducts the A measure that shows the At the year ended 30
break cost of bank borrowings shareholder value if assets June 2023
from the EPRA NAV. and liabilities are not (2022: GBP77.11million/95.79pps)
held until maturity.
----------------------------------- ---------------------------------- ------------------------------------
EPRA Earnings/EPS 2 GBP5.43 million/ 6.75pps
Earnings from operational A key measure of a company's For the year ended 30
activities. underlying operating results June 2023
and an indication of the (2022: GBP5.05 million/6.27pps)
extent to which current
dividend payments are
supported by earnings.
----------------------------------- ---------------------------------- ------------------------------------
EPRA Vacancy 1 -- unaudited 0.00%
Estimated Rental Value A 'pure' percentage measure At 30 June 2023
('ERV') of vacant space of investment property
divided by ERV of the whole space that is vacant,
portfolio. based on ERV.
(2022: 0.00%)
----------------------------------- ---------------------------------- ------------------------------------
EPRA Cost Ratio 1 - unaudited 15.23 %
Administrative and operating A key measure to enable For the year ended 30
costs (including and excluding meaningful measurement June 2023
costs of direct vacancy) of the changes in a company's
divided by gross rental operating costs.
income.
(2022: 13.79%)
---------------------------------------------------------------------- ------------------------------------
EPRA NNNAV (the EPRA NAV adjusted to include the fair value of hedging instruments, financial debt and deferred taxes) is equal to EPRA NAV as there are no adjusting items. As such this measure has not been presented.
(1) The reconciliation of this APM is set out in the EPRA Performance Measures Calculations section following the Notes to the Consolidated Financial Statements.
(2) The reconciliation of this APM is set out in Note 8 of the Notes to the Consolidated Financial Statements.
INVESTMENT ADVISER'S REPORT
Introduction
The UK and indeed the Global real estate market have been through a challenging period. As predicted in our 2022 Investment Adviser's Report, persistently high inflation, increased debt costs and low consumer confidence are driving the 2023 story.
Market Outlook
UK Economic Outlook
After a strong post COVID rebound the UK economy is now more challenging. Output is declining; inflation remains elevated, above the long term average and the labour market is showing signs of weakening. Whilst GDP slowed to 0.2% in Q2 2023, there is a growing belief that the UK may avoid a recession, with an expectation that the economy will slowly recover during 2024.
Businesses and consumers have limited their spending, faced with spiralling prices and high interest rates on loans and mortgages. Retail sales have declined as consumer confidence is hit due to the 'cost of living crisis'. Consequently, businesses are expected to have to cut costs to preserve their margins which are expected to lead to some job losses and higher unemployment in 2023.
The key economic challenge is inflation which, having been in double digits for 15 months and hitting levels not seen since the 1980s of 14.2% (RPI October 2022), has now started to decrease, to 9.1% (RPI August 2023). Higher interest rates, cooling domestic demand and lower wholesale import pricing have started to take effect on the economy and inflation is widely predicted to fall back to more sustainable levels by the end of 2023.
The August 2023 Bank of England base rate increase to 5.25% was the 14th consecutive hike, but they chose to half rates at 5.25% at the September meeting following better than expected falls in inflation indicators. Financial markets expect the base interest rate to rise a little more. This is widely forecast to peak at 5.5% in 2024, but some analysts predict a climb to 5.75%.
The UK economy is expected to return to low level economic growth in 2024, thereby avoiding the long-term scarring of reduced business investment, high long-run unemployment and a permanent decline in key sectors.
UK Real Estate Outlook
After rising substantially over the last two quarters of 2022, commercial property yields effectively plateaued in early 2023. At that time, core inflation data, on the upside of expectations, caused the market to think again. Some were expecting that the previous 'yield peak' may be an inflection point with some yield softening in the latter half of 2023, others suspected an extended period of relative stability.
Forecasters' predictions for a peak in base rates went through a volatile period in the first half of 2023, ranging from 6.0% to 6.5% This rate shift from 5.0% is relatively small compared with the near doubling of the cost of debt last year. Investors in a position to take a medium to long-term view, with long-term drawn down facilities at below current debt pricing, may well start taking key assets from leveraged investors. There is still a weight of global capital seeking a home in UK real estate.
The gap between stronger and weaker assets with more vulnerable occupiers is widening. Investment volumes are down, sellers are reluctant to dispose of assets, and new development supply is slowing. Another summer of low activity was expected.
It is income returns, rather than capital growth, which are expected to continue to drive performance in 2023. Business insolvencies, property defaults and consequently void rates are marginally increasing. However, where businesses have requirements there is a focus on quality and sustainability, reducing their occupational overheads and retaining staff. Moreover, the ongoing lack of suitable development supply continues to underpin prime markets particularly in comparison with secondary space.
The MSCI Capital Value Growth Index (June 2023) demonstrates the historical movement in the investment market, showing the rerating in the second half of 2022 and the recent stability. The industrial sector, being the lowest yielding, fell back more dramatically than the other main sectors, when rising inflation and interest rates hit. This sector sits relatively favourably at present, with a significant global weight of capital targeting the sector, despite headwinds for occupiers. Void rates may rise somewhat over the short term, but rental growth is expected to remain positive.
Both investors and occupiers have a renewed focus on the physical climate risk after record temperatures which may be the new norm. Each are developing a better understanding of the value of sustainability features, accurate measurement of 'green' features and the impact of improved energy efficiency on the corporate bottom line. More mandatory disclosure requirements are expected, including net zero transition plans.
Portfolio Activity During the Year
The following asset management initiatives were undertaken during the year:
-- Rent Reviews: A total of 14 rent reviews took place during the year with a combined uplift of GBP346,000 representing a 4.79% increase in contracted rent across the portfolio.
-- Droitwich: Pets at Home have renewed their lease for a further five years from 14 January 2023 at GBP113,000 per annum with a nine-month rent free allowance.
-- Bramall Court, Salford: Following an application from the tenant, Mears Group, the Company has agreed to a change of use for the above property from student accommodation to social housing. Following a surrender of the original lease for a 345-bed secondary student accommodation block, a new, institutionally acceptable, social housing lease has been agreed. This incorporates a new undertenant, the Registered Provider, Plexus UK (First Project) Limited, and a 10-year nomination agreement with Salford City Council. Bramall Court is now almost 100% occupied by previously homeless local families, as the 115 flats were recently refurbished by the tenant. The rent, rent review period and lease length are unaltered.
NAV Movements
For the year ended 30 June 2023 2022
Pence per Pence per
share GBP million share GBP million
---------- -------------- ---------- ------------
NAV at beginning of year 96.40 77.60 85.58 68.89
Change in fair value of investment
property (13.26) (10.67) 9.97 8.02
Income earned for the year 10.76 8.66 9.81 7.90
Gain on sale of property - - 0.12 0.10
Finance costs for the year (1.77) (1.43) (1.77) (1.42)
Other expenses for the year (2.24) (1.80) (1.77) (1.43)
Dividends paid during the year (5.73) (4.61) (5.54) (4.46)
---------- -------------- ---------- ------------
NAV at the end of the year 84.16 67.75 96.40 77.60
---------- -------------- ---------- ------------
Valuation
At 30 June 2023 the Group owned 19 assets (30 June 2022: 19 assets). The 19 properties held for the year were valued at GBP107.0 million at 30 June 2023 (30 June 2022: GBP117.9 million).
Summary by Sector at 30 June 2023
Gross
WAULT Passing
Market Occupancy to Rental
Number
of Valuation Value by ERV break Income ERV ERV
Sector Properties (GBPm) (%) (%) (years) (GBPm) (GBPm) (%)
-------------- ---------- --------- -------- ---------- ---------- ----------- -------- ---------
Industrial 4 24.5 22.9 100.0 23.8 1.7 1.6 22.9
Hotel 3 20.1 18.8 100.0 12.9 1.7 1.4 20.6
Healthcare 3 18.0 16.8 100.0 25.5 1.2 1.1 15.6
Automotive &
Petroleum 3 15.0 14.0 100.0 12.9 1.1 1.0 14.0
Residential 1 12.0 11.2 100.0 18.1 0.7 0.7 9.5
Retail 1 5.4 5.1 100.0 6.2 0.3 0.4 5.4
Leisure 2 5.4 5.0 100.0 6.3 0.5 0.4 5.5
Power Station 1 4.8 4.5 100.0 8.7 0.3 0.3 4.7
Education 1 1.8 1.7 100.0 20.6 0.1 0.1 1.8
-------------- ---------- --------- -------- ---------- ---------- ----------- -------- ---------
Total/Average 19 107.0 100.0 100.0 17.0 7.6 7.0 100.0
-------------- ---------- --------- -------- ---------- ---------- ----------- -------- ---------
Summary by Geographical Area at 30 June 2023
Gross
WAULT Passing
Market Occupancy to Rental
Number
Geographical of Valuation Value by ERV break Income ERV ERV
Area Properties (GBPm) (%) (%) (years) (GBPm) (GBPm) (%)
--------------------- ---------- --------- ------ --------- ------- ------- ------ -----
West Midlands 4 26.2 24.5 100.0 12.1 1.8 1.9 26.6
The North West
& Merseyside 2 23.3 21.7 100.0 34.4 1.5 1.2 17.5
South East excluding
London 5 21.8 20.3 100.0 10.4 1.4 1.4 19.2
South West 2 12.4 11.7 100.0 21.6 0.9 0.8 11.6
Scotland 1 6.9 6.5 100.0 13.2 0.8 0.6 8.7
Yorkshire and
the Humber 2 6.2 5.8 100.0 18.6 0.4 0.4 6.2
London 2 5.4 5.0 100.0 6.3 0.5 0.4 5.5
Eastern 1 4.8 4.5 100.0 8.7 0.3 0.3 4.7
--------------------- ---------- --------- ------ --------- ------- ------- ------ -----
Total/Average 19 107.0 100.0 100.0 17.0 7.6 7.0 100.0
--------------------- ---------- --------- ------ --------- ------- ------- ------ -----
The table below illustrates the weighting of the Group's contracted rental income, based on the type of rent review associated with each lease.
Income Allocation by Type
71.0 % (2022:
Inflation linked - RPI 69.6%)
Inflation linked - CPI 26.0 % (2022:
Expiry or Open Market Value 26.3%)
Reviews 3.0% (2022: 4.1%)
% of Passing Rent by Rent Review Type
% of Passing Rent by Review Frequency
% of Passing Rent by Cap Band
Property Portfolio at 30 June 2023
Market
Value
Property Sector Region (GBPm)
Bramall Court, Salford Residential North West & Merseyside 12.0
------------------------ ------------------------- --------
Pocket Nook Industrial Estate,
St Helens Industrial North West & Merseyside 11.2
------------------------ ------------------------- --------
South East
Premier Inn, Camberley Hotel excluding London 7.5
------------------------ ------------------------- --------
Grazebrook Industrial Estate,
Dudley Industrial West Midlands 7.3
------------------------ ------------------------- --------
Mercure City Hotel, Glasgow Hotel Scotland 6.9
------------------------ ------------------------- --------
Motorpoint, Birmingham Automotive & Petroleum West Midlands 6.9
------------------------ ------------------------- --------
Silver Trees, Bristol Healthcare South West 6.8
------------------------ ------------------------- --------
Yorkshire and the
Prime Life Care Home, Solihull Healthcare Humber 6.7
------------------------ ------------------------- --------
Travelodge, Duke House, Swindon Hotel South West 5.6
------------------------ ------------------------- --------
Droitwich Spa Retail Park,
Droitwich Retail West Midlands 5.4
------------------------ ------------------------- --------
Hoddesdon Energy, Hoddesdon Power Station Eastern 4.8
------------------------ ------------------------- --------
Yorkshire and the
Prime Life Care Home, Brough Healthcare Humber 4.4
------------------------ ------------------------- --------
South East
Volvo Slough, Slough Automotive & Petroleum excluding London 4.3
------------------------ ------------------------- --------
South East
Unit 2, Dolphin Park, Sittingbourne Industrial excluding London 4.2
------------------------ ------------------------- --------
Applegreen Petrol Station, South East
Crawley Automotive & Petroleum excluding London 3.9
------------------------ ------------------------- --------
Pure Gym, London Leisure London 3.6
------------------------ ------------------------- --------
South East
YMCA Nursery, Southampton Education excluding London 1.9
------------------------ ------------------------- --------
Snap Fitness, London Leisure London 1.8
------------------------ ------------------------- --------
Unit 14, Provincial Park, Yorkshire and the
Sheffield Industrial Humber 1.8
------------------------ ------------------------- --------
Top Ten Tenants at 30 June 2023
% of
Annual Portfolio
Contracted Total
Rental Passing WAULT to
Income Rental break
Tenants Property (GBP'000) Income (Years)
---------------- -------------------------------- ------------ ----------- -------------------
Jupiter Hotels
Ltd Mercure City Hotel, Glasgow 761.0 10.1% 13.2
Grazebrook Industrial Estate,
Meridian Steel Dudley and Provincial Park,
Ltd Sheffield 744.3 9.8% 3.9
Mears Group
Plc Bramall Court, Salford 734.6 9.7% 18.1
Lyndon Croft Care Centre,
Prime Life Solihull and Westerlands
Ltd Care Village, Brough 728.7 9.6% 25.4
Premier Inn
Hotels Ltd Premier Inn, Camberley 503.5 6.7% 8.7
Motorpoint
Ltd Motorpoint, Birmingham 500.0 6.6% 14.0
Handsale Ltd Silver Trees, Bristol 455.7 6.0% 25.6
Travelodge
Hotels Ltd Duke House, Swindon 403.1 5.3% 17.9
Hoddesdon
Energy Ltd Hoddesdon Energy, Hoddesdon 332.7 4.4% 8.7
Biffa Waste Pocket Nook Industrial Estate,
Services Ltd St Helens 314.4 4.2% 110.1
---------------- -------------------------------- ------------ ----------- -------------------
Total 5,478.0 72.4% 20.6
-------------------------------------------------- ------------ ----------- -------------------
Tenancy Schedule
Annual Contracted
Rental Income
Tenant Property (GBP '000) Break Date Expiry Date
----------------------------- ------------------------ ------------------ ----------- ------------
Jupiter Hotels Ltd Mercure City Hotel 741.0 23/08/2036
Mears Group Plc Bramall Court 734.6 16/08/2041
Premier Inn Hotels
Ltd Premier Inn 503.5 25/03/2032 24/03/2037
Motorpoint Ltd Motorpoint 500.0 24/06/2037
Handsale Ltd Silver Trees 455.7 14/01/2049
Prime Life Ltd Prime Life Care Home 426.3 21/11/2048
Travelodge Hotels
Ltd Duke House 403.1 31/05/2041
Grazebrook Industrial
Estate, Works 1 &
Meridian Steel Ltd 2 361.4 21/05/2027
Hoddesdon Energy
Ltd Hoddesdon Energy 332.7 27/02/2032 26/02/2050
Prime Life Ltd Prime Life Care Home 302.4 21/11/2048
Pure Gym Ltd Pure Gym 286.9 11/12/2027 10/12/2032
Volvo Car UK Ltd Volvo Slough 281.1 16/03/2037
Droitwich Spa Retail
B&M Bargains Park 272.4 31/08/2029
Dore Metal Services
Southern Ltd Unit 2, Dolphin Park 261.8 13/09/2028 12/09/2033
Petrogas Group UK Applegreen Petrol
Ltd Station 255.9 16/07/2033
Grazebrook Industrial
Estate, Works 1 &
Meridian Steel Ltd 2 241.3 21/05/2027
Biffa Waste Services Pocket Nook Industrial
Ltd Estate 203.1 24/02/2133
Sec. of State for
Communities & Local Pocket Nook Industrial
Government Estate 199.9 30/01/2033 29/01/2048
MSG Life Realty Ltd Snap Fitness 158.2 28/03/2033
Pocket Nook Industrial
BGEN Ltd Estate 145.0 05/04/2025 04/04/2027
Unit 14, Provincial
Meridian Steel Ltd Park 141.6 21/05/2027
YMCA Fairthorne Group YMCA Nursery 129.5 17/02/2044
Droitwich Spa Retail
Pets at Home Park 112.5 13/01/2028
Biffa Waste Services Pocket Nook Industrial
Ltd Estate 111.3 31/03/2134
Pocket Nook Industrial
BGEN Ltd Estate 63.8 05/04/2024 04/04/2025
The Salvation Army
Trustee Company Duke House 27.2 17/07/2032
Mercure City Hotel
Jupiter Hotels Ltd (Conference Suite) 20.0 31/08/2036
Kingscrown Land & Pocket Nook Industrial
Commercial Ltd Estate * 28/09/2045
Camberley Properties
Ltd Premier Inn * 23/06/3010
Southern Electric
Parcel Distribution
Plc Premier Inn * 20/02/2111
Westlea Housing Association
Ltd Duke House * 17/09/3006
----------------------------- ------------------------ ------------------ ----------- ------------
Total 7,692.2
------------------------------------------------------- ------------------ ----------- ------------
* Ground rents less than GBP150 per annum.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
The Group recognises that Environmental, Social and Governance ('ESG') matters are of utmost importance to sustainable investment and a focus for the business and investor community. The Group is committed to understanding how best to consider ESG factors in all facets of its business, from business strategy to investment decisions and company operations.
In order to meet investors' expectations relating to ESG matters, the Group and its advisers adopt both financial and non-financial strategies to drive long-term value with an innovative yet disciplined and conscientious approach to ESG in respect of the property portfolio management including but not limited to:
Environmental
-- A proactive approach to procurement of Energy Performance Certificate ('EPC') reassessments ahead of Minimum Energy Efficiency Standards 2023, maintaining quarterly reviews of EPC schedules, identification of opportunities to improve energy efficiency, the reduction of greenhouse gas ('GHG') emissions and working closely with tenants who occupy under full repairing and insuring leases.
-- Ongoing environmental reviews and audits as part of regular due diligence, including regular asset inspections to avoid any breach in environmental legislation.
-- Responsible refurbishment in respect of all works to assets with consideration of the best approach to improving the EPC rating against potential spend, liaising with tenants in respect of any fit-out or alterations to carry out sustainable development and reuse of existing materials where feasible to reduce waste.
-- 'Green lease' terms being incorporated into leases where feasible.
-- Assets being operated in a manner to reduce overall energy and water consumptions as well as waste production, while maintaining tenant comfort and needs.
-- Leverage technology for data management being used to monitor and drive improvement across environmental and social metrics.
Social
-- Commitment to occupier engagement.
-- Incorporation of social improvements to each asset such as installing defibrillators & electrical charging points.
-- Provision of regular training and awareness to all managers on social issues, such as wellbeing and mental health.
Governance
-- Client checks being completed on all tenants as well as new suppliers and contractors.
-- Regular tenant engagement and inspections to ensure assets are used as agreed within leases.
-- Effective tracking of legislative requirements to assess and monitor risks and opportunities.
Diversity
As an externally managed business, the Company does not have any employees or office space. As such, the Group does not operate a diversity policy with regards to any administrative, management and supervisory functions. A description of the Board's policy on director diversity can be found in the Corporate Governance Report of the Annual Report.
Employees
The Group has no employees and accordingly no requirement to report separately in this area as the management of the portfolio has been delegated to the AIFM and Investment Adviser.
The AIFM and Investment Adviser are equal opportunities employers who respect and seek to empower each individual and the diverse cultures, perspectives, skills and experiences within their workforce.
Human Rights
The Group is not within the scope of the Modern Slavery Act 2015 because it has not exceeded the turnover threshold and therefore no further disclosure is required in this regard.
Business Relationships
As well as the critical day-to-day portfolio management, the Group has service providers that ensure the smooth running of the Group's activities. The Group's key service providers are listed in the Annual Report, and the Management Engagement Committee annually review the effectiveness and performance of these service providers, taking into account any feedback received.
The Group, AIFM and Investment Adviser and other third-party service providers maintain high standards of business conduct by acting in a collaborative and responsible manner with all business partners that protects the reputation of the Group as a whole.
Greenhouse Gas Emissions
As an investment company, the Group's own direct environmental impact is minimal and greenhouse gas ('GHG') emissions are negligible, and as such the Company has not introduced measures to achieve energy efficiency. Information on the GHG emissions in relation to the Group's property portfolio is disclosed below.
The Group has followed UK Government environmental reporting guidelines and used the UK Government 2023 greenhouse gas reporting conversion factors for company reporting to identify and report relevant GHG emissions over which it has Operational Control (where data is available) for the 12-month period to 30 June 2023.
An independent consultancy specialising in the application of sustainability in commercial real estate was appointed to calculate the GHG statement and provide verification on the approach used.
Scopes
GHG emissions have been reported against the following 'Scopes', as defined by the GHG Protocol and where relevant:
Scope 1 (not relevant to AIRE): Direct emissions from owned vehicles, controlled boilers and fugitive emissions from air conditioning systems under landlord control.
Scope 2: Indirect emissions from electricity purchased by the Company and consumed within real estate assets owned by the Company.
Scope 3: Indirect emissions from electricity and gas purchased/consumed within AIRE assets, by tenants, where the tenant is counterparty to the energy supply.
Statement of GHG emissions
The table below sets out the emissions per sector and for the Group overall in the year ended 30 June 2023. The approach taken follows guidance provided by the GHG Reporting Guidelines (BEIS, 2019) and EPRA Best Practice Recommendations of Sustainability Reporting 2017.
Sector Scope Absolute tonnes of Like-for-like comparison
carbon dioxide equivalent of carbon dioxide
(tCO(2) e) equivalent (tCO(2)
e)*
Difference
(tCO(2)
2022/23 2021/22 e) % change
-------------- ------------- -------------- -----------
Retail park Scope 2 0.13 1.44 -1.31 -91%
----------------- -------------- ------------- -------------- -----------
Industrial warehouse Scope 3 - Elec. 93.71 82.21 11.5 14%
----------------- -------------- ------------- -------------- -----------
Total Scope 2 & 3 93.84 83.65 10.19 12%
----------------- -------------- ------------- -------------- -----------
*Like-for-like requires 24 months of data for the current and previous reporting year (July 2021 - June 2023). Both assets provided 24 months of data therefore like-for-like calculations were possible.
Statement of Energy Usage
The table below sets out the energy use per sector and for the Group overall. The approach follows guidance provided by the GHG Reporting Guidelines (BEIS, 2019) and the EPRA Best Practice Recommendations on Sustainability Reporting 2017.
Sector Energy Source Absolute energy usage Like-for-like energy
(kWh) usage (kWh)
Difference
2022/23 2021/22 (kWh) % change
----------- ----------- ------------ ---------
Retail park Electricity 646 7,454 -6,809 -91%
--------------- ----------- ----------- ------------ ---------
Industrial warehouse Electricity 452,531 425,106 27,425 6%
--------------- ----------- ----------- ------------ ---------
Total Electricity 453,177 432,560 20,616 5%
--------------- ----------- ----------- ------------ ---------
Intensity Ratios
In addition to reporting relevant absolute GHG emissions (per scope and per sector), the Group has chosen to report intensity ratios, where appropriate. An intensity measure is reported for assets within the like-for-like portfolio, where:
-- No major renovation or refurbishment has taken place i.e. affecting more than 50% of the building by area or number of occupants
-- Occupancy is at least 75% -- At least 24 months data is available -- Emissions reported relate to an indoor area
Whilst no landlord meters reflect the above criteria for an intensity metric, the Group has applied an intensity figure for one asset, Pocket Nook, where the landlord procures the energy and directly recharges this to the tenant. An intensity metric has not been produced for Droitwich Spa retail park on the basis that the landlord-controlled meter does not reflect the above criteria (emissions reported relate to an indoor area).
No normalisation factors have been considered for this annual report.
Assurance Statement
The Group's GHG emissions have been calculated and verified by an independent third-party in accordance with the principles of ISO 14064. A full copy of the methodology used, including scope, source or data and conversion factors, is available on request.
Property Portfolio ESG activity
During the year ended 30 June 2023, the Group has worked closely with its tenants to encourage and facilitate improvements in ESG activities within the property portfolio.
Two new EPCs have been carried out; Motorpoint, Birmingham improved from C75 to C62; Travelodge Hotel, Swindon improved from C62 to B42. These improvements are mainly as a result of tenant's internal refurbishment works.
Following inspections by EPC assessors, works have been identified at six properties to improve EPC levels in the year to 30 June 2024 including new LED lighting, replacement of an oil-fired boiler, solar panels and installation of secondary glazing. The costs of these enhancements will be borne by the occupiers.
Future projects are being developed with three other occupiers.
In the histogram above, the highest EPC rating of G applies to the Mercure Hotel, Glasgow. This property was sold subsequent to the year end. The remaining properties in the portfolio have an EPC rating of E or above with the majority, 72% based on the remaining 18 properties , falling within B and C.
SECTION 172(1) STATEMENT
The following disclosure describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) of the Companies Act 2006, in promoting the success of the Company for the benefit of members as a whole.
This section describes how the Board has regard to the likely consequences of any decision in the long term, the need to foster the Company's business relationships with suppliers, customers and others, the desirability of the Company maintaining a reputation for high standards of business conduct, and the need to act fairly as between members of the Company. The Company does not have any employees and therefore s172(1)(b) is not applicable to the Company. The impact of the Company's operations on the community and the environment is set out more fully in the Environmental, Social and Governance section above.
Stakeholder Issues of importance Engagement Effect of
engagement
on key decisions
Shareholders The effect of
The Group's * Attractive and sustainable level of income, earnings * Shareholder engagement is set out in the Corporate shareholder
investment and dividends. Governance Report in the Annual Report. engagement has
objective is fed into each
to aspect
deliver an * Long-term income stream linked to inflationary * As a publicly listed Company, the Company is subject of the Board's
attractive growth. to Listing Rules and other regulatory disclosure decision-making.
total return requirements which the Board abides by with the The total
to assistance of the Company Secretary and Corporate aggregate
shareholders. * Robust corporate governance structure and Broker. dividends for
Shareholders well-performing service providers. the
are directly year have
impacted increased
by changes to * Strategic direction of the Company. compared to the
the prior year and
Company's NAV the Board has
and * Execution of investment objective. also
thus the share worked to keep
price expenses under
and dividends. * Value for money - low ongoing charges. control.
-------------------------------------------------------------------- ------------------------------------------------------------------ -----------------
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 * Productive working relationships with the Company. the Board has
Company been
conducts * Annual evaluation of key service providers. crucial to
all its * Fair and transparent service agreements. enhancing
business the
through its effectiveness
service * Culture set by the Board and communicated to all of the Company's
providers, the * Collaboration. providers. key service
key providers.
ones being the The Board has
Investment worked
Adviser, closely with its
Property service
Manager, providers
Company to maintain and
Secretary, continually
AIFM, improve
depositary and processes and to
corporate ensure that the
broker. Company's values
are aligned with
them.
-------------------------------------------------------------------- ------------------------------------------------------------------ -----------------
Tenants There is regular
Tenants with * Positive working relationship with the Board, * To ensure the Investment Adviser and Property Manager contact between
strong Investment Adviser and Property Manager. generate and foster good relationships with the the Property
business tenants. Manager
fundamentals and all the
and profitable Group's
operations * Rent reviews * Focus on asset management initiatives to assist the tenants. Rent
are one of the tenants where applicable. reviews
key have all been
components to completed
ensure * Fair lease terms on time and
a consistent collection
income of rent at 100%
stream and is indicative of
ability * Long-term strategy and alignment with the tenant's good tenant
to pay business operations. relations.
dividends Positive
to the engagement
Company's is also
shareholders. * Financial stability of tenants. reflected
in the
Investment
Adviser's
successful
working with
tenants
for EPC and ESG
improvements
(see
ESG report).
-------------------------------------------------------------------- ------------------------------------------------------------------ -----------------
Debt provider In addition to
The Group * Compliance with loan covenants. * Ongoing engagement by the Investment Adviser the Investment
maintains throughout the year and by the Board if required. Adviser regular
a positive contact, the
working * Responsible portfolio management. chairman
relationship engaged directly
with with Canada Life
its debt post year end to
provider, ensure good
Canada Life. communications
are established
and obtained
helpful
lender feedback
prior to the
maturing
of the loan in
2025.
-------------------------------------------------------------------- ------------------------------------------------------------------ -----------------
Society and The Board has
the * Responsible investing together with sustainability. * Starting regular engagement with tenants in respect encouraged
environment of EPC requirements. both the
As an investor Investment
in * Long-term strategy to take account of ESG Adviser and
real estate, considerations without negatively impacting financial * Ensuring shareholder engagement covers ESG. Property
the returns. Manager to
Company's consider
assets ESG on
have an impact investment
on and on an
the built ongoing
environment. basis.
Environmental,
Social
and Governance
('ESG')
factors
increasingly
apply
alongside
of financial
returns.
-------------------------------------------------------------------- ------------------------------------------------------------------ -----------------
Principal Decisions
Principal decisions are those that have a material impact to the Group and its key stakeholders. In taking these decisions, the directors considered their duties under section 172 of the Act.
Directorate Changes
During the year, the Board welcomed Simon Bennett as an independent non-executive director and chairman-designate on 10 November 2022, with the search process supported by an independent recruitment consultant. Following this on 30 November 2022, Alan Sippetts retired as an independent non-executive director with Simon Bennett succeeding him as chairman on the same date. In taking this decision, the Board considered that Simon Bennett's skills and experience were suitable for the role and would complement the skills and experience of the existing Board members.
Dividend and Dividend Policy
The dividend target of 5.70pps for the year ended 30 June 2023 was met. The Board also agreed to distribute to shareholders an extra 0.345pps in respect of non-rental income that had been received in the year. This brings the total dividends for the year to 6.045pps, an increase of 9.9% on the 5.50pps declared for the prior year.
As last year, the Board paid four interim dividends at quarterly intervals to ensure shareholders received a steady stream of income on a timely basis. However, this dividend policy prevents there being an opportunity for shareholders to vote on a final dividend. Consequently, the Board are again giving shareholders the opportunity to vote on the dividend policy of the Company.
Settlement of Litigation
The Group received GBP825,000 during the year, in full and final settlement of litigation to recover costs incurred on work to replace defective cladding on the Travelodge Hotel, Swindon. Please refer to Note 15.3 for further details. The Board were heavily involved in the litigation process and were focused on ensuring an outcome which was in the best interests of the Company, its shareholders and all stakeholders.
Property Transactions
On 8 August 2023 the Group completed the disposal of Mercure Hotel, Ingram Street, Glasgow to the occupier for GBP7.5 million, a GBP550,000 (7.9%) premium on the book value at 30 June 2023. The net proceeds from the sale will be reinvested. In consideration of the disposal of this property, the interests of shareholders had been taken into account by achieving a premium on the book value of the asset alongside providing the Company with cash to take advantage of beneficial opportunities for reinvestment.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's assets consist of UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also to the particular circumstances of the individual properties and the tenants within the properties.
The Board has overall responsibility for reviewing the effectiveness of the system of risk management and internal control which is operated by the AIFM and, where appropriate, the Investment Adviser. The Group's ongoing risk management process is designed to identify, evaluate and mitigate the risks the Group faces.
Twice each year the Board, assisted by the Audit Committee, undertakes a risk review to assess the adequacy and effectiveness of the AIFM's, and where appropriate the Investment Adviser's, risk management and internal control systems. In addition, during the year the Audit Committee implemented improvements to the Company's approach to risk management, detail on this is provided in the Corporate Governance Report in the Annual Report.
The Board has carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
An analysis of the principal risks and uncertainties is set out in the table below. This does not purport to be exhaustive as some risks are not yet known and some risks are currently not deemed material but could turn out to be material in the future.
PRINCIPAL RISKS AND HOW RISK IS MANAGED RISK ASSESSMENT
THEIR POTENTIAL IMPACT
REAL ESTATE RISKS
1. Tenant default The investment policy Probability: Moderate
Failure by tenants to limits the exposure to to high
comply with their rental any one tenant to 15%
obligations could affect of Gross Asset Value. Impact: High
the income that the The maximum exposure
properties to any one tenant Movement: No change.
earn and the ability (calculated However, the impact of
of the Group to pay by GAV) is 10.8% at 30 different factors have
dividends June 2023. The Group changed the inflation/interest
to its shareholders. benefits from a balanced rate/cost pressures on
portfolio with a tenants from the previous
Macroeconomic trends diversified COVID/Market volatility
discussed through the tenant base and is pressures.
report, including rising therefore
interest rates, higher not reliant on a single
inflation and the tenant or sector.
possibility
of recession have the In the due diligence
ability to materially process prior to
impact on a tenant's acquiring
business. This could a property, covenant
result in tenants being checks are carried out
unable to comply with on tenants which are
their rental repeated on a regular
obligations. basis.
The Investment Adviser
and Property Manager
conduct ongoing
monitoring
and liaison with tenants
to manage potential bad
debt risk.
------------------------- ----------------------------------------------------------------
2. Portfolio The Group has investment Probability: Low to
concentration restrictions in place moderate
Any downturn in the UK to invest and manage
and its economy or its assets with the Impact: Low to moderate
regulatory objective
changes in the UK could of spreading and Movement: No change
have a material adverse mitigating
effect on the Group's risk.
operations or financial
condition. Greater Having a diversified
concentration portfolio in respect
of investments in any of both sector and
sector or exposure to tenants
the creditworthiness provides reduced
of any one tenant or potential
tenants may lead to volatility in the
greater portfolio
volatility in the value and the impact rating
of the Group's for this risk is
investments, accordingly
NAV and the Company's set at low to moderate.
share price.
------------------------- ----------------------------------------------------------------
3. Property defects The Group's due Probability: Low to
Due diligence may not diligence Moderate
identify all the risks relies on the work (such
and liabilities in as legal reports on Impact: Moderate
respect title,
of an acquisition property valuations, Movement: Probability
(including environmental, building decreased
any environmental, surveys) outsourced to
structural third parties that have The Investment Adviser
or operational defects) appropriate Professional has comprehensive due
that may lead to a Indemnity cover in diligence processes in
material place. place. In addition, the
adverse effect on the Investment Adviser now
Group's profitability, has an in depth knowledge
the NAV and the of all the properties
Company's that were in portfolio
share price. on their appointment.
------------------------- ----------------------------------------------------------------
4. Rate of inflation The inflation linked Probability: Moderate
Rent review provisions (RPI/CPI) leases in the to High
may have contractual portfolio have
limits to the increases contractual Impact: Moderate
that may be made as a rent review collars,
result of the rate of with the lowest floor Movement: Probability
inflation. If inflation being 0%, and caps that increased
is in excess of such range from 3% to no cap.
contractual limits, the The majority of caps The rate of inflation
Group may not be able are in excess of RPI has continued to increase
to deliver targeted and CPI forecasts during significantly in the
returns the next five-year rent past year. This has increased
to shareholders. review cycle and the possibility of caps
therefore limiting the level of
based on forecasts. rent increases.
The risk of inflation
is somewhat mitigated
by the leases that have
no cap. In addition,
a total of eight leases
undergo reviews annually
which will allow
inflation
changes to be reflected
expeditiously.
------------------------- ----------------------------------------------------------------
5. Property market The Group has investment Probability: Moderate
Any recession or future restrictions in place to high
deterioration in the to invest and manage
property market could, its assets with the Impact: Moderate to
inter alia, (i) lead objective high
to an increase in tenant of spreading and
defaults, (ii) make it mitigating Movement: No change
difficult to attract risk.
new tenants for its
properties, Most of the leases
(iii) lead to a lack provide
of finance available a relatively long
to the Group, (iv) cause unexpired
the Group to realise term and contain upward
its investments at lower only rent reviews which
valuations; and (v) are linked to either
delay RPI or CPI. Because of
the timings of the these factors, the Group
Group's expects that the assets
realisations. will show less volatile
valuation movement over
Any of these factors the long term.
could have a material
adverse effect on the
ability of the Group
to achieve its
investment
objective.
------------------------- ----------------------------------------------------------------
6. Property valuation The Group uses an Probability: Low to
Property is inherently independent moderate
difficult to value due valuer (Knight Frank
to the individual nature LLP) to value the Impact: Moderate to
of each property. properties high
on a quarterly basis
There may be an adverse at fair value in Movement: No change
effect on the Group's accordance
profitability, the NAV with accepted RICS
and the Company's share appraisal
price in cases where and valuation standards.
properties are sold
whose
valuations have
previously
been materially
overstated.
------------------------- ----------------------------------------------------------------
7. Investments are The Group aims to hold Probability: Low
illiquid the properties for
The Group invests in long-term Impact: Moderate
commercial properties. income and all property
Such investments are investment / Movement: Probability
illiquid; they may be disinvestment decreased.
difficult for the Group is managed carefully
to sell and the price to ensure there is no Turnover in the portfolio
achieved on any undue pressure on cash is, and is expected to
realisation flow that would require remain, limited; therefore,
may be at a discount a quick sale of assets. the probability of this
to the prevailing risk materialising has
valuation The Company's dividend been changed to low.
of the relevant is funded from net
property. revenue
and is not affected by
the portfolio's
(il)liquidity.
------------------------- ----------------------------------------------------------------
8. Environment The current regulations Probability: Moderate
The Group is subject require annual mandatory
to environmental Green House Gas (GHG) Impact: Moderate
regulations. reporting, which will
In addition to be carried out as part Movement: No change
regulatory of the annual report
risk, there is a growing and will result in
importance being placed minimal
on ESG credentials by expenditure for the
tenants, which could Group.
lead to difficulty in
letting vacant space. Furthermore, the
Investment
Properties could be Adviser has prepared
impacted an ESG strategy to
by extreme environment ensure
events such as flooding. it meets legal
Climate change could requirements
accelerate more quickly and remains attractive
leading to adverse to current and future
physical tenants. Please see the
impacts as well as 'Environmental, Social
regulatory and Governance' section
change. for further information.
Failure by the Group In depth research is
to meet current or undertaken on each
future property
environmental targets at acquisition. The
could result in Investment
penalties, Adviser has adopted an
increased costs, a environmental policy
reduction which it is in the
in asset values and have process
an adverse effect on of applying to all
the Company's properties
reputation, within the portfolio.
leading to loss of good
quality tenants.
------------------------- ----------------------------------------------------------------
BORROWING RISKS
9. Breach of borrowing The Group monitors the Probability: Low to
covenants borrowing covenants on moderate
The Group has entered a regular ongoing basis
into a fixed term loan by cash flow Impact: High
facility, maturing forecasting,
October quarterly risk reports Movement: Probability
2025. and a quarterly increased
compliance Increase is the result
Material adverse changes certificate. of:
in valuations and net * the likelihood that future borrowings will be at a
income may lead to The Group's gearing at higher interest rate;
breaches 30 June 2023 was 36.8%,
in the LTV and interest below the maximum
cover ratio covenants. gearing * to reflect the volatility in interest rates compared
(on a GAV basis on to when the initial borrowings were negotiated; and
If the Group is unable drawdown)
to operate within its of 40% and materially
debt covenants, this below the covenant's * the decreasing timescale to the maturity of the
could lead to default default LTV of 60%. On current loan facility.
and the loan facility the same date the
being recalled. This Group's
could result in the interest rate
Group calculation
being forced to sell (ICR) was 614.5%,
properties to repay the materially
loan facility, possibly above the covenant
resulting in a default
substantial ICR of 250%.
fall in the NAV.
Borrowing is carefully
monitored by the Group,
and action will be taken
to conserve cash where
necessary to ensure that
this risk is mitigated.
It is ensured that there
is significant headroom
in the LTV and interest
cover covenants as part
of the monitoring
process.
Diversification of both
the portfolio and
tenants
limit the risk to the
Group of any one
geographic
or sector property event
and any one tenant
default.
------------------------- ----------------------------------------------------------------
CORPORATE RISKS
10. Failure of service The Board meets Probability: Low
providers regularly
The Group has no with, and monitors, all Impact: Moderate
employees of its key service
and is reliant upon the providers, Movement: Probability
performance of including the Investment and impact decreased
third-party Adviser. The Management
service providers. Engagement Committee Strengthening of the
(MEC) reviews annually Board's oversight of
Failure by any service the performance of key its service providers
provider to carry out service providers in (via the MEC and audit
its obligations to the conjunction with their committee) which in turn
Group in accordance with service level has confirmed the continued
the terms of its agreements, strong performance of
appointment and makes use of Key the Group's service providers.
could have a materially Performance Indicators
detrimental impact on where relevant.
the operation of the
Group. In addition, the Audit
Committee's robust and
Should the Group pursue ongoing review of risk
litigation against management and internal
service controls covers key
providers, there is a service
risk that the Company providers.
may incur costs that
are irrecoverable if
litigation is
unsuccessful.
------------------------- ----------------------------------------------------------------
11. Dependence on the The MEC performs a Probability: Moderate
Investment Adviser formal
The future ability of annual review of the Impact: Moderate
the Group to Investment Adviser which
successfully covers the performance Movement: No change
pursue its investment of the portfolio (both
objective and investment capital and income
policy may, among other returns)
things, depend on the and the performance of
ability of the service and engagement with the
providers to retain its M7's fund manager and
existing staff and/or other supporting staff.
to recruit individuals
of similar experience In addition, the Board
and calibre, and meets regularly with
effectively M7 and directors engage
carry out its services. with them not only in
Board meetings but also
The Group relies on the by email, telephone and
Investment Adviser to ad hoc meetings. This
manage the assets and helps to maintain a good
termination of the working relationship.
Investment
Adviser agreement could The dependence on the
severely affect the M7 is managed through
Group's segregating the roles
ability to effectively of AIFM and Investment
manage its operations. Adviser.
------------------------- ----------------------------------------------------------------
12. Ability to meet The Group has an Probability: Moderate
objectives investment
The Group may not meet policy to achieve a Impact: High
its investment objective balanced
to generate a secure portfolio with a Movement: Probability
and predictable income, diversified increased
that is sustainable in tenant base. This is
real terms, and at least reviewed by the Board The ability to ensure
maintain capital values at each scheduled Board the real terms aspect
in real terms, from meeting. of the objective will
investing likely be impacted by
predominantly in a The Group's property refinancing being considerably
portfolio portfolio has a WAULT more expensive than the
of smaller commercial to break of 17.0 years current facility. And/or
properties in the UK. and a WAULT to expiry the possibility that
of 18.9 years. Further, the Group cannot obtain
Poor relative total over 97.0% of leases the required amount of
return have inflation-linked GBP41 million borrowings
performance may lead upwards only rent from an acceptable lender
to an adverse reviews, on acceptable terms.
reputational representing a secure
impact that affects the income stream on which
Group's ability to raise to deliver attractive
new capital and new total returns to
funds. shareholders.
Inability to obtain new
borrowings - of the The maturity of the loan
amount facility is a standing
required and at item on the Board
acceptable agenda,
terms and rate(s) - on and regular discussions
maturity of the current are held with the
GBP41 million loan Investment
facility Adviser and other
in 2025, will be advisers
detrimental to the Board concerning
to the dividend return the make-up, amount etc
for shareholders. Also of any additional or
disposal of several future borrowings.
properties
to repay borrowings.
------------------------- ----------------------------------------------------------------
TAXATION RISK
13. Group REIT status The Company monitors Probability: Low
The Group has UK REIT REIT compliance through
status that provides the Investment Adviser Impact: High
a tax-efficient and Administrator on
corporate acquisitions and Movement: No change
structure. disposals
and distribution levels;
If the Group fails to the Registrar and Broker
remain a REIT for UK on shareholdings; and
tax purposes, its third-party tax advisers
profits to monitor REIT
and gains will be compliance
subject requirements.
to UK corporation tax.
Processes are in place
to ensure ongoing
compliance
with REIT regulations.
------------------------- ----------------------------------------------------------------
POLITICAL/ ECONOMIC RISK
14. Political and The Group only invests Probability: High
macroeconomic in UK properties with
events. strong alternative use Impact: High
Such events present values and long leases,
risks so the portfolio is well Movement: No change
to the real estate and positioned to withstand
financial markets that an economic downturn.
affect the Group and Tenant default risk
the business of the arising
tenants. from political and
macroeconomic
The negative economic events is managed as
effects from the described above.
deterioration
of the global economy, The Investment Adviser
higher inflation and monitors both the macro
interest rates, the and micro economy with
ongoing special attention to
long-term effects of those factors
the Russia-Ukraine war potentially
and secondary effects impacting the Group,
from COVID including and reports to the Board
supply constraints could on a regular basis.
impact the portfolio,
tenants and the ability
of the Group to raise
capital.
------------------------- ----------------------------------------------------------------
REGULATORY RISK
15. Disclosure Risk Service providers Probability: Low to
Failure to properly including moderate
disclose AIFM, Investment
information to investors Adviser, Impact: Moderate
or regulators in Company Secretary,
accordance auditor, Movement: No change
with various disclosure and corporate broker
rules and regulations. monitor disclosure
Examples include AIFMD obligations
investor disclosures, and liaise with the
annual reporting Board
requirements, to ensure requirements
marketing/promotion are met.
disclaimers,
data protection
regulations
etc.
------------------------- ----------------------------------------------------------------
16. Regulatory Change The Board receives Probability: Low
New regulations or regular
changes updates on relevant Impact: High
to existing regulations regulatory
(particularly in changes (and prospective Movement: No change
relation changes) from its
to climate change) could professional
result in sub-optimal advisers.
performance of the Group
or, in worst case, The Investment Adviser
inability monitors the impact of
to continue as a viable emerging legislation
business. across all aspects of
property investment and
ESG has a particularly
high profile at this
time. The Investment
Adviser uses an ESG
pre-acquisition
checklist to review
purchases
and also to ensure that
the current portfolio
is monitored, and that
works are carried out
as appropriate, with
tenant's agreement, to
prevent asset
depreciation.
------------------------- ----------------------------------------------------------------
Emerging risks
The Board take account of and consider emerging risks as part of its risk management assessment.
GOING CONCERN
The Group has considered its cash flows, financial position, liquidity position and borrowing facilities.
The Group's unrestricted cash balance at the year end was GBP 3.5 million (2022: GBP2.5 million). The Group borrowings totalled GBP41 million under a loan facility repayable on 20 October 2025 (the 'Loan'). The Group is permitted to utilise up to 40% of GAV measured at drawdown with a Loan to GAV of 36.8% at 30 June 2023. Therefore, the Group had headroom against its borrowing covenant. The lender's loan to value covenant of 60% is significantly higher than the Group's Loan to GAV. Lastly, if agreed by the current lender, two properties not secured against the loan and valued at GBP8.73 million are available as additional security for the Loan.
The Loan also has a lender's interest cover covenant of 250%. At 30 June 2023 the Group's interest cover ratio was 614.50%, giving significant headroom. A 'severe but plausible downside' scenario has also been projected. While rent collections have been strong, this scenario projects rent deferrals and write-offs for tenants with difficulty paying rents from operational cash flows. In this scenario the Group still has adequate headroom against the interest cover covenant and positive cash balances. Further detail of the assumptions made in assessing the adaption of Group's going concern basis can be found in Note 2.4.
The Group benefits from a secure, diversified income stream from leases which are not overly reliant on any one tenant or sector. As a result, the directors believe that the Group is well placed to manage its financing and other business risks.
The Board is satisfied that the Group and the Company has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of these financial statements. The Board is, therefore, of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.
VIABILITY STATEMENT
In accordance with provision 30 of the UK Code, the directors have assessed the prospects of the Group over a period longer than the 12 months required by the 'Going Concern' provisions.
The Board has considered the nature of the Group's assets and liabilities and associated cash flows and has determined that three years, up to 30 June 2026, is a realistic timescale over which the performance of the Group can be forecast with a degree of accuracy and so is an appropriate period over which to consider the Group's viability.
Considerations in support of the Group's viability over this three-year period include:
1. The current unexpired term under the Group's debt facilities stands at just over two years. The Board has no reason to believe that the Group cannot refinance its debt in October 2025.
2. The Group's property portfolio had a WAULT to break of 17.0 years and a WAULT to expiry of 18.9 years at 30 June 2023, representing a secure income stream for the period under consideration.
3. A major proportion of the leases contain an annual, three or five-year rent review pattern and therefore three years allow for the forecasts to include the reversion arising from most rent reviews.
The three-year review considers the Group's cash flows, future dividends and dividend cover, REIT compliance and relevant key financial ratios over the period. In assessing the Company's viability, the Board has carried out a thorough review of the Group's business model, including future performance, liquidity and banking covenant tests for a three-year period. The Board has assessed the extent of any operational disruption; potential curtailment of rental receipts; potential liquidity and working capital shortfalls; and diminished demand for the Group's assets going forward, in adopting a going concern preparation basis and in assessing the Group's longer-term viability.
These assessments are subject to sensitivity analysis, which involves flexing a number of key assumptions and judgements included in the financial projections:
-- Tenant default; -- Dividend payments; -- Refinancing terms; and -- Property portfolio valuation movements.
Based on the prudent assumptions within the Group's forecasts regarding refinancing of the debt, rent deferrals, tenant default, void rates and property valuation movements, the directors expect that over the three-year period of their assessment:
-- LTV covenants will not be breached - at 30 June 2023 , the asset valuations and rental income of the properties secured to Canada Life would need to fall by 16.7% and 46.3% respectively before breaching the Loan to Value and Income Cover Cash Trap covenants;
-- REIT tests are complied with; and
-- That the Group and Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of assessment.
Board Approval of the Strategic Report
The Strategic Report has been approved and signed on behalf of the Board by:
Simon Bennett
Chairman
29 September 2023
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND THE CONSOLIDATED FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with the UK adopted international accounting standards. The directors have elected to prepare the parent Company financial statements in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable, relevant, reliable and prudent;
-- for the Group financial statements, state whether they have been prepared in accordance with Companies Act 2006 and in accordance with UK adopted international accounting standards;
-- for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent Company financial statements;
-- assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company, or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the parent Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
-- the Consolidated Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-- that the Annual Report and the Consolidated Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
On behalf of the Board
Simon Bennett
Chairman
29 September 2023
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2023 2023 2022
Notes GBP'000 GBP'000
Income
Rental and other income 3 8,660 7,901
Property operating expense 4 (755) (330)
Net rental and other income 7,905 7,571
Other operating expenses 4 (1,049) (1,101)
Operating profit before fair value changes
and gain on sale 6,856 6,470
Change in fair value of investment
properties 10 (10,671) 8,023
Gain on disposal of investment property 10 - 96
Operating (loss)/ profit (3,815) 14,589
Finance expenses 6 (1,425) (1,423)
(Loss)/profit before tax (5,240) 13,166
Taxation 7 - -
(Loss)/ profit and total comprehensive
(loss)/ income attributable to shareholders (5,240) 13,166
--------- --------
(Loss per share)/ earnings per share
(basic and diluted) 8 (6.51p) 16.36p
--------- --------
EPRA EPS (basic and diluted) 8 6.75p 6.27p
--------- --------
Adjusted EPS (basic and diluted) 8 6.43p 5.57p
--------- --------
All items in the above statement are derived from continuing operations.
The accompanying notes 1 to 21 form part of these Consolidated Financial Statements.
Consolidated Statement of Financial Position
As at 30 June 2023
2023 2022
Notes GBP'000 GBP'000
Assets
Non-current Assets
Investment properties 10 103,847 115,124
--------- ---------
Current Assets
Receivables and prepayments 11 4,193 4,034
Cash and cash equivalents 3,484 2,542
7,677 6,576
--------- ---------
Total Assets 111,524 121,700
--------- ---------
Non-current Liabilities
Interest bearing loans and
borrowings 13 (40,724) (40,620)
Lease obligations 14 (266) (299)
(40,990) (40,919)
--------- ---------
Current Liabilities
Payables and accrued expenses 12 (2,751) (3,146)
Lease obligations 14 (33) (36)
(2,784) (3,182)
--------- ---------
Total Liabilities (43,774) (44,101)
--------- ---------
Net Assets 67,750 77,599
--------- ---------
Equity
Share capital 17 805 805
Capital reserve 75,417 75,417
(Deficit)/ retained earnings (8,472) 1,377
--------- ---------
Total equity 67,750 77,599
--------- ---------
Net Asset Value per share (basic and
diluted) 8 84.16p 96.40p
--------- ---------
The accompanying notes 1 to 21 form part of these Consolidated Financial Statements.
The Consolidated Financial Statements were approved by the Board of directors on 29 September 2023 and were signed on its behalf by:
Simon Bennett
Chairman
Company number: 10727886
Consolidated Statement of Changes in Equity
For the year ended 30 June 2023
Share Capital Retained Total
capital reserve earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000
For the year ended 30
June 2023
Balance at 30 June 2022 805 75,417 1,377 77,599
Total comprehensive loss
attributable to shareholders - - (5,240) (5,240)
Dividends paid 9 - - (4,609) (4,609)
---------
Balance at 30 June 2023 805 75,417 (8,472) 67,750
-------- -------- --------- --------
For the year ended 30
June 2022
Balance at 30 June 2021 805 75,417 (7,329) 68,893
Total comprehensive income
attributable to shareholders - - 13,166 13,166
Dividends paid 9 - - (4,460) (4,460)
---------
Balance at 30 June 2022 805 75,417 1,377 77,599
-------- -------- --------- --------
The accompanying notes 1 to 21 form part of these Consolidated Financial Statements.
Consolidated Statement of Cash Flows
For the year ended 30 June 2023
Notes 2023 2022
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/ profit before tax (5,240) 13,166
Adjustment for:
Finance expenses 6 1,425 1,423
Gain on disposal of investment property 10 - (96)
Change in fair value of investment
properties 10 10,671 (8,023)
-------- --------
Operating results before working
capital changes 6,856 6,470
-------- --------
Change in working capital
Increase in receivables and prepayments (159) (352)
(Decrease)/ increase in other payables
and accrued expenses (312) 100
Net cash flow generated from operating
activities 6,385 6,218
-------- --------
Cash flows from investing activities
Purchase of investment property 10 - (5,375)
Net proceeds from disposal of investment
property 10 - 5,396
Reduction in acquisition costs 10 606 -
Net cash generated from investing
activities 606 21
-------- --------
Cash flows from financing activities
Finance costs paid (1,321) (1,319)
Dividends paid 9 (4,692) (4,455)
Payment of lease obligation (36) (38)
Net cash used in financing activities (6,049) (5,812)
-------- --------
Net increase in cash and cash equivalents 942 427
Cash and cash equivalents at beginning
of year 2,542 2,115
-------- --------
Cash and cash equivalents at end
of year 3,484 2,542
-------- --------
The accompanying notes 1 to 21 form part of these Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
for the year ended 30 June 2023
1. Corporate Information
Alternative Income REIT plc (the 'Company') is a public limited company
and a closed ended Real Estate Investment Trust ('REIT') incorporated
on 18 April 2017 and domiciled in the UK and registered in England
and Wales. The registered office of the Company is 1 King William Street,
London, United Kingdom, EC4N 7AF.
The Company's Ordinary Shares were listed on the Official List of the
FCA and admitted to trading on the Main Market of the London Stock
Exchange on 6 June 2017.
The nature of the Group's operations and its principal activities are
set out in the Strategic Report of the Annual Report.
2. Accounting policies
2.1 Basis of preparation
These consolidated financial statements (the 'financial statements')
are prepared and approved by the directors in accordance with
International Financial Reporting Standards ('IFRS') adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union ('EU') and in accordance with the Companies Act
2006 and Article 4 of the International Accounting Standards
('IAS') Regulations.
These financial statements have been prepared under the historical-cost
convention, except for investment properties that have been measured
at fair value.
The financial statements are presented in Sterling and all values
are rounded to the nearest thousand pounds (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
The Group has applied the following amendments for the first
time for their annual reporting period
commencing 1 July 2022:
* Deferred Tax related to Assets and Liabilities
arising from a Single Transaction (Amendments to IAS
12) (effective 1 January 2023)
* IFRS 17 Insurance Contracts and amendments to IFRS 17
Insurance Contracts (effective 1 January 2023)
* Disclosure of Accounting Policies (Amendments to IAS
1 and IFRS Practice Statement 2) (effective 1 January
2023)
* Definition of Accounting Estimates (Amendments to IAS
8) (effective 1 January 2023)
* Initial Application of IFRS 17 and IFRS 9 -
Comparative Information (Amendments to IFRS 17)
(effective 1 January 2023)
The amendments listed above did not have any impact on the amounts
recognised in prior periods and are not expected to significantly
affect the current or future periods.
Certain new accounting standards and interpretations have been
published that are not mandatory for annual periods beginning
after 1 July 2022 and early application is permitted; however,
the Group has not early adopted the new or amended standards
in preparing these financial statements:
* Classification of liabilities as current or
non-current (Amendments to IAS 1) (effective 1
January 2024)
* Lease Liability in a Sale and Leaseback (Amendments
to IFRS 16) (effective 1 January 2024)
* Non-current Liabilities with Covenants (Amendments to
IAS 1) (effective 1 January 2024)
* Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture (Amendments to
IFRS 10 and IAS 28) (effective date deferred
indefinitely).
Forthcoming requirements
The following are new standards, interpretations and amendments,
which are not yet effective, and have not been early adopted
in this financial information, that will or may have an effect
on the Group's future financial statements:
* Amendments to IAS 1 which clarifies the criteria used
to determine whether liabilities are classified as
current or non-current (effective 1 January 2023).
These amendments clarify that current or non-current
classification is based on whether an entity has a
right at the end of the reporting period to defer
settlement of the liability for at least 12 months
after the reporting period. The amendment is not
expected to have an impact on the presentation or
classification of the liabilities in the Group based
on rights that are in existence at the end of the
reporting period.
2.2 Significant accounting judgements and estimates
In the application of the Group's accounting policies the directors
are required to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future. The
estimates and associated assumptions that have a significant
risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are
outlined below:
Valuation of investment properties
The fair value of investment properties is determined by external
property valuation experts to be the estimated amount for which
a property should exchange on the date of the valuation in an
arm's length transaction. The Group's properties have been valued
on an individual basis. The valuation experts use recognised
valuation techniques, applying the principles of both IAS 40
and IFRS 13.
The valuations have been prepared in accordance with the Royal
Institution of Chartered Surveyors ('RICS') Valuation. Factors
include current market conditions, annual rentals, the contractual
terms of the leases and their lengths and location. The significant
methods and assumptions used by valuers in estimating the fair
value of investment properties are set out in note 10.
Provision for expected credit losses ('ECL') of trade receivables
Rent collection rates since the start of the Group are in the
region of 100%. As a result, the Group does not have the data
to establish historical loss rates for the expected credit loss
analysis.
In determining the provision on a tenant by tenant basis, the
Group considers both recent payment history and future expectations
of the tenant's ability to pay or possible default, in order
to recognise an expected credit loss allowance. The Group also
considers the risk factors associated by sector in which the
tenant operates and the nature of the debt. Based on sector and
rent receivable type, a provision is provided in addition to
full provision for maximum risk tenants or known issues.
Principal versus agent considerations - services to tenants
The Group arranges for certain services to be provided to tenants.
These arrangements are included in the contract the Group enters
into as a lessor. The Group has determined that it controls the
services before they are transferred to tenants, because it has
the ability to direct the use of these services and obtain the
benefits from them. The Group has determined that it is primarily
responsible for fulfilling these services as it directly deals
with tenants' complaints and is primarily responsible for the
quality or sustainability of the services. In addition, the Group
has discretion in establishing the price that it charges to the
tenants for the specified services.
Therefore, the Group has concluded that it is the principal in
these contracts. In addition, the Group has concluded that it
transfers control of these services over time, as services are
rendered by the third-party service providers, because this is
when tenants receive and, at the same time, consume the benefits
from these services.
REIT status
The Group is a Real Estate Investment Trust (REIT) and does not
pay tax on its property income or gains on property sales, provided
that at least 90% of the Group's property income is distributed
as a dividend to shareholders, which becomes taxable in their
hands. In addition, the Group has to meet certain conditions such
as ensuring the property rental business represents more than
75% of total profits and assets. Any potential or proposed changes
to the REIT legislation are monitored and discussed with HMRC.
It is the Board's intention that the Group will continue as a
REIT for the foreseeable future.
Classification of lease arrangements - the Group as lessor (Note
14)
The Group has acquired investment properties that are leased to
tenants. In considering the classification of lease arrangements,
at inception of each lease the Group considers the economic life
of the asset compared with the lease term and the present value
of the minimum lease payments and any residual value compared
with the fair value and associated costs of acquiring the asset
as well as qualitative factors as indicators that may assert to
the risks and rewards of ownership having been substantially retained
or transferred. The Group has determined that it retains all the
significant risks and rewards of ownership of its investment property
and accounts for the lease arrangements as operating leases.
2.3 Segmental information
Each property held by the Group is reported to the chief operating
decision maker. In the case of the Group, the chief operating
decision maker is considered to be the Board of directors. The
review process for segmental information includes the monitoring
of key performance indicators applicable across all properties.
These key performance indicators include Net Asset Value, Earnings
per Share and valuation of properties. All asset cost and rental
allocations are also reported by property. The internal financial
reports received by the directors cover the Group and all its
properties and do not differ from amounts reported in the financial
statements. The directors have considered that each property has
similar economic characteristics and have therefore aggregated
the portfolio into one reportable segment under the provisions
of IFRS 8.
2.4 Going concern
The financial statements have been prepared on a going concern
basis.
The Group's business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Strategic Report. The robust financial position
of the Group, its cash flows, liquidity position and borrowing
facilities are described in the financial statements and the accompanying
notes. The financial statements also include the Group's objectives,
policies and processes for managing its capital, its financial
risk management objective and its exposures to market price risk,
real estate risk, credit risk and liquidity risk.
The Investment Adviser on behalf of the Board has projected the
Group's cash flows for the period up to 30 September 2024, challenging
and sensitising inputs and assumptions to ensure that the cash
forecast reflects a realistic outcome given the uncertainties
associated with the current economic environment. The scenarios
applied were designed to be severe but plausible, and to take
account of the availability of mitigating actions that could be
taken to avoid or reduce the impact or probability of the underlying
risks.
The Group's debt of GBP41 million does not mature until 2025 and
the Group has reported full compliance with its loan covenants
to date. Based on cash flow projections, the directors expect
the Group to continue to remain compliant. The headroom of the
loan to value covenant is significant and any reduction in property
values that would cause a breach would be significantly more than
any reduction currently envisaged.
Based on the above, the Board believes that the Group has the
ability and adequate resources to continue in operational existence
for the foreseeable future, being at least 12 months from the
date of approval of the financial statements.
2.5 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below.
a) Functional and presentation currency
These financial statements are presented in Sterling, which
is the functional and presentational currency of the Group and
its subsidiary undertakings. The functional currency of the
Group and its subsidiaries is principally determined by the
primary economic environment in which it operates. The Group
did not enter into any transactions in foreign currencies during
the period.
b) Revenue recognition
i) Rental income
Rental income under operating leases is recognised on a straight-line
basis over the term of the lease, except for contingent rental
income, which is recognised when it arises. For leases, which
contain fixed or minimum uplifts, the rental income arising
from such uplifts is recognised on a straight-line basis over
the lease term.
Incentives for lessees to enter into lease agreements are spread
evenly over the lease term, even if the payments are not made
on such a basis. The lease term is the non-cancellable period
of the lease together with any further term for which the tenant
has the option to continue the lease, where, at the inception
of the lease, the directors are reasonably certain that the
tenant will exercise that option.
Lease modifications, such as lease extensions and rent reductions,
are accounted for either as a separate lease or not a separate
lease.
A modification will only be treated as a separate lease if it
involves the addition of one or more underlying assets at a
price that is commensurate with the standalone price of the
increase in scope. All other modifications are not treated as
a separate lease.
If a modification is a separate lease, a lessee applies the
requirements of IFRS 16 to the newly added asset, due as a result
of the modification, independently of the original lease. The
accounting for the original lease continues unchanged.
If a modification is not a separate lease, the accounting reflects
that there is a linkage between the original lease and the modified
lease. The existing lease liability is remeasured with a corresponding
adjustment to the right-of-use asset on the effective date of
the modification.
ii) Service charges and direct recharges
Revenue from service charges is recognised in the accounting
period in which the service is rendered. For certain service
contracts, revenue is recognised based on the actual service
provided to the end of the reporting period as a proportion
of the total services to be provided because the customer receives
and uses the benefits simultaneously.
iii) Deferred income
Deferred income is rental income received in respect of future
accounting periods.
(iv) Dilapidation and lease surrender premium
Amounts received from tenants to terminate leases or to compensate
for dilapidations are recognised in the Consolidated Statement
of Comprehensive Income when the right to receive them arises.
c) Financing income and expenses
Financing income comprises interest receivable on funds invested.
Financing expenses comprise interest and other costs incurred
in connection with the borrowing of funds. Interest income and
interest payable are recognised in profit or loss as they accrue,
using the effective interest method which is significantly the
same as the contracted interest.
d) Investment property
Property is classified as investment property when it is held
to earn rentals or for capital appreciation or both. Investment
property is measured initially at cost including transaction
costs. Transaction costs include transfer taxes and professional
fees to bring the property to the condition necessary for it
to be capable of operating. The carrying amount also includes
the cost of replacing part of an existing investment property
at the time that cost is incurred if the replacement of that
part will prolong or improve the life of the asset.
Subsequent to initial recognition, investment property is stated
at fair value. Gains or losses arising from changes in the fair
values are included in profit or loss.
Investment properties are valued by the external valuer. Any
valuation of investment properties by the external valuer must
be undertaken in accordance with the current issue of RICS Valuation
- Professional Standards (the 'Red Book').
The determination of the fair value of investment property requires
the use of estimates such as future cash flows from assets (such
as lettings, tenants' profiles, future revenue streams, capital
values of fixtures and fittings, plant and machinery, any environmental
matters and the overall repair and condition of the property)
and yield applicable to those cash flows.
For the purposes of the financial statements, the assessed fair
value is:
* reduced by the carrying amount of any accrued income
resulting from the spreading of lease incentives; and
increased by the carrying amount of leasehold
obligations.
Investment property is derecognised when it has been disposed
of or permanently withdrawn from use and no future economic
benefit is expected after its disposal or withdrawal.
The profit on disposal is determined as the difference between
the net sales proceeds and the carrying amount of the asset
at the commencement of the accounting period plus capital expenditure
in the period. Any gains or losses on the retirement or disposal
of investment property are recognised in profit or loss in the
year of retirement or disposal.
e) Cash and cash equivalents
Cash and short-term deposits in the Consolidated Statement of
Financial Position comprise cash at bank and short-term deposits
with an original maturity of three months or less.
f) Receivables and prepayments
Rent and other receivables are initially recognised at fair
value and subsequently at amortised cost. Impairment provisions
are recognised based on the process as described in note 2.2.
Any adjustment is recognised in profit or loss as an impairment
gain or loss.
g) Other payables and accrued expenses
Other payables and accrued expenses are initially recognised
at fair value and subsequently held at amortised cost.
h) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. After initial
recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Borrowing costs are amortised over the lifetime of the facilities
through profit or loss.
i) Provisions
A provision is recognised in the Consolidated Statement of Financial
Position when the Group has a present legal or constructive
obligation as a result of a past event that can be reliably
measured and is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are determined
by discounting the expected future cash flows at a pre-tax rate
that reflects risks specific to the liability.
j) Dividend payable to shareholders
Equity dividends are recognised when they become legally payable.
k) Share issue costs
The costs of issuing or reacquiring equity instruments (other
than in a business combination) are accounted for as a deduction
from equity.
l) Lease obligations
Lease obligations relate to the head rent of investment property
and are capitalised at the lease commencement, at the lower of
fair value of the property and present value of the minimum lease
payments and held as a liability within the Consolidated Statement
of Financial Position. The lease payments are discounted using
the interest rate implicit in the lease. Where the Group is exposed
to potential future increases in variable lease payments based
on an index or rate, these are not included in the lease liability
until they take effect. Lease payments are allocated between
principal and finance cost. The finance cost is charged to profit
or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for
each period.
m) Taxes
Corporation tax is recognised in profit or loss except to the
extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
As a REIT, the Group is exempt from corporation tax on the profits
and gains from its investments, provided it continues to meet
certain conditions as per REIT regulations.
Taxation on the profit or loss for the period not exempt under
UK REIT regulations comprises current and deferred tax. Current
tax is expected tax payable on any non-REIT taxable income for
the year, using tax rates applicable in the year.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The amount
of deferred tax that is provided is based on the expected manner
of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantially enacted
at the period end date.
n) European Public Real Estate Association
The Group has adopted the European Public Real Estate Association
('EPRA') best practice recommendations, which it expects to broaden
the range of potential institutional investors able to invest
in the Company's Ordinary Shares. For the year ended 30 June
2023, audited EPS and NAV calculations under EPRA's methodology
are included in note 8 and further unaudited measures are included
following the financial statements.
o) Capital and reserves
Share capital
Share capital is the nominal amount of the Company's Ordinary
Shares in issue, and is non-distributable.
Capital reserve
The capital reserve is a distributable reserve and represents
the cancelled share premium less dividends paid from this reserve.
Retained earnings
Retained earnings represent the profits of the Group less dividends
paid from revenue profits to date.
2.6 Fair value measurement
The Group measures financial and non-financial assets such as
investment properties at fair value at each reporting date.
A number of the Group's accounting policies and disclosures require
the determination of fair value, for both financial and non-financial
assets and liabilities. Fair value is defined in IFRS 13 Fair
Value Measurement as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair values
have been determined for measurement and/or disclosure purposes
based on methods described below. Where applicable, further information
about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs significant to fair
value measurement as a whole:
Fair value hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level 2: Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy
by re-assessing categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole)
at the end of each reporting period.
There were no transfers between any of the levels during the year.
Investment property
The valuation of investment property by valuers engaged by the
Group who are independently appointed and have the relevant professional
qualifications and with recent experience in the location and
category of the investment property being valued. Further information
in relation to the valuers is provided in note 10.
Property valuations are inherently subjective as they are made
on the basis of assumptions made by the valuer which may not prove
to be accurate. For these reasons, and consistent with EPRA's
guidance, we have classified the valuations of the property portfolio
as Level 3 as defined by IFRS 13. The inputs to the valuations
are defined as 'unobservable' by IFRS 13 and these are analysed
in note 10.
3. Rental and other income
2023 2022
GBP'000 GBP'000
Gross rental income 7,429 7,036
Spreading of minimum contracted future rent
- indexation 423 541
Spreading of tenant incentives - rent free
periods (58) (73)
Other property income 294 1
-------- --------
Gross rental income (adjusted) 8,088 7,505
Service charges and direct recharges (see note
4) 572 396
Total rental and other income 8,660 7,901
-------- --------
All rental, service charges, direct recharges and other income are derived from the United Kingdom.
Other property income for the year ended 30 June 2023 mainly relates to the allocation to revenue of GBP219,000 arising from a settlement of the litigation in respect of replacement of defective cladding for Travelodge, Swindon. Further detail is provided in note 15.3.
4. Expenses
2023 2022
GBP'000 GBP'000
Property operating expenses 177 136
Service charges and direct recharges (see note
3) 572 396
Provision/ (reversal) of provision for impairment
of trade receivables 6 (202)
Property operating expenses 755 330
-------- --------
Investment adviser fee 371 368
Auditor's remuneration 87 63
Operating costs * 481 588
Directors' remuneration (note 5) 110 82
Other operating expenses 1,049 1,101
-------- --------
Total operating expenses 1,804 1,431
-------- --------
Total operating expenses (excluding service
charges and direct recharges) 1,232 1,035
-------- --------
* Included in the operating costs for year ended 30 June 2022 is GBP1,250 of fees paid to Stephanie Eastment for due diligence incurred in advance of her appointment as a director.
2023 2022
GBP'000 GBP'000
Audit
Statutory audit of Annual Report and Accounts 76 * 53
Statutory audit of Subsidiary Accounts 11 10
Total fees due to auditor 87 63
-------- --------
*Include GBP6,000 fees relating to year ended 30 June 2022.
Moore Kingston Smith LLP has not provided any non-audit services to the Group.
5. Directors' remuneration
2023 2022
GBP'000 GBP'000
Directors' fees 99 75
Tax and social security 11 7
Total fees 110 82
-------- --------
A summary of the director's remuneration is set out in the Directors' Remuneration Report in the Annual Report.
The Group had no employees during the year.
6. Finance expenses
2023 2022
GBP'000 GBP'000
Interest payable on loan (note 13) 1,307 1,307
Amortisation of finance costs (note 13) 104 104
Other finance costs 14 12
Total 1,425 1, 423
-------- --------
7. Taxation
2023 2022
GBP'000 GBP'000
Tax charge comprises:
Analysis of tax charge in the year
(Loss)/ profit before tax (5,240) 13,166
-------- --------
Theoretical tax (refund)/ charge at UK corporation
tax standard rate of 20.50% (2022: 19.00%) (1,074) 2,502
Effects of tax-exempt items under the REIT
regime (1,074) (2,502)
Total - -
-------- --------
The Group maintained its REIT status and as such, no deferred tax asset or liability has been recognised in the current year.
Factors that may affect future tax charges
Due to the Group's status as a REIT and the intention to continue meeting the conditions required to retain approval as a REIT in the foreseeable future, the Group has not provided deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.
8. (Loss per share)/ Earnings per share (EPS) and Net Asset Value (NAV) per share
2023 2022
(Loss per share)/ EPS:
Total comprehensive (loss)/income (GBP'000) (5,240) 13,166
----------- -----------
Weighted average number of shares (number) 80,500,000 80,500,000
(Loss per share)/ EPS (basic and diluted) (6.51p) 16.36p
----------- -----------
EPRA EPS (GBP'000):
Total comprehensive (loss)/income (5,240) 13,166
Adjustment to total comprehensive income:
Change in fair value of investment properties 10,671 (8,023)
Gain on disposal of investment property - (96)
EPRA earnings (basic and diluted) (GBP'000) 5,431 5,047
----------- -----------
EPRA EPS (basic and diluted) 6.75p 6.27p
----------- -----------
Adjusted EPS:
EPRA earnings (basic and diluted) (GBP'000)
- as above 5,431 5,047
Adjustments (GBP'000):
Rental income recognised in respect of guaranteed
fixed rental uplifts (note 3) (423) ( 541 )
Rental income recognised in respect of rent
free periods (note 3) 58 73
Amortisation of loan finance costs (note 6) 104 104
Write-off of rent 16 4
Reversal of provision for impairment of trade
receivables (note 4) (10) (202)
Adjusted earnings (basic and diluted) (GBP'000) 5,176 4, 485
------ --------
Adjusted EPS (basic and diluted) * 6.43p 5. 57p
------ --------
* Adjusted EPS is a measure used by the Board to assess the level of the Group's dividend payments. This metric adjusts EPRA earnings for non-cash items in arriving at an adjusted EPS as supported by cash flows.
Earnings per share are calculated by dividing profit/(loss) for the year attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year.
2023 2022
NAV per share:
Net assets (GBP'000) 67,750 77,599
Ordinary Shares (Number) 80,500,000 80,500,000
NAV per share 84.16p 96.40p
----------- -----------
EPRA Net Reinvestment Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV)
EPRA NTA
and EPRA
EPRA NRV NDV
At 30 June 2023
Net assets value (GBP'000) 67,750 67,750
Estimated purchasers' cost (GBP'000) 6,957 -
Break cost on bank borrowings (GBP'000) - -
----------- -----------
74,707 67,750
----------- -----------
Ordinary Shares (Number) 80,500,000 80,500,000
----------- -----------
Per share measure 92.80p 84.16p
----------- -----------
At 30 June 2022
Net assets value (GBP'000) 77,599 77,599
Estimated 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
----------- -----------
9. Dividends
All dividends were paid as
PIDs Quarter 2023 2022
Ended Rate GBP'000 GBP'000
Dividends in respect of year
ended 30 June 2021
4th dividend 30-Jun-21 1.640p - 1,320
Dividends in respect of year
ended 30 June 2022
1st dividend 30-Sep-21 1.300p - 1,047
2nd dividend 31-Dec-21 1.300p - 1,046
3rd dividend 31-Mar-22 1.300p - 1,047
4th dividend 30-Jun-22 1.600p 1,288 -
Dividends in respect of year
ended 30 June 2023
1st dividend 30-Sep-22 1.375p 1,107 -
2nd dividend 31-Dec-22 1.375p 1,107 -
3rd dividend 31-Mar-23 1.375p 1,107 -
-------- --------
Total dividends paid* 4,609 4,460
4th dividend 30-Jun-21 1.640p - (1,320)
4th dividend 30-Jun-22 1.600p (1,288) 1,288
4th dividend** 30-Jun-23 1.920p 1,545 -
-------- --------
Total dividends payable in
respect of the year 4,866 4,428
-------- --------
Total dividends per share payable in respect
of the year 6.045p 5.50p
-------- --------
* Dividends paid per Consolidated Statement of Cash Flows amount to GBP4,692,000 (2022: GBP4,455,000), the difference between the amount disclosed above is due to withholding tax.
** Dividends declared after the year end are not included in the financial statements as a liability.
10. Investment properties
2023
Freehold Leasehold
Investment Investment
properties properties Total 2022 Total
GBP'000 GBP'000 GBP'000 GBP'000
At the beginning of the year 80,980 36,925 117,905 109,230
Acquisition during the year - - - 5,375
Reduction in acquisition costs
(note 15.3) (606) - (606) -
Disposal during the year - - - (5,300)
Change in value of investment
properties (6,549) (3,725) (10,274) 8,600
------------ ------------ --------- -----------
Valuation provided by Knight
Frank LLP 73,825 33,200 107,025 117,905
------------ ------------ --------- -----------
Adjustment to fair value for minimum rent indexation
of lease income (note 11) (3,542) (3,177)
Adjustment for lease obligations* 364 396
--------- -----------
Total investment properties 103,847 115,124
--------- -----------
Change in fair value of investment properties
Change in fair value before adjustments for lease
incentives and lease obligations (10,274) 8,600
Movement in lease obligations (32) (109)
Adjustment to spreading of contracted future rent
indexation and tenant incentives (365) (468)
--------- -----------
(10,671) 8,023
--------- -----------
There were no acquisitions nor disposals of properties in the year
being reported. During 2022, the Group acquired the property known
as Volvo, Slough and disposed of the investment property known as Audi,
Huddersfield. The table below shows a reconciliation of the gain recognised
on disposal through the Consolidated Statement of Comprehensive Income.
2023 2022
GBP'000 GBP'000
Gross proceeds on disposal - 5,500
Selling costs - (104)
----------- -----------
Net proceeds on disposal - 5,396
Carrying value - (5,300)
----------- -----------
Gain on disposal of investment property - 96
----------- -----------
Valuation of investment
properties
Valuation of investment properties is performed by Knight Frank LLP,
an accredited external valuer with recognised and relevant professional
qualifications and recent experience of the location and category of
the investment property being valued. The valuation of the Group's
investment properties at fair value is determined by the external valuer
on the basis of market value in accordance with the internationally
accepted RICS Valuation - Professional Standards (incorporating the
International Valuation Standards).
The determination of the fair value of investment properties requires
the use of estimates such as future cash flows from assets (such as
lettings, tenants' profiles, future revenue streams, capital values
of fixtures and fittings, plant and machinery, any environmental matters
and the overall repair and condition of the property) and yield applicable
to those cash flows.
The right of use asset is valued at future lease payments discounted
using the net equivalent yield on the relevant asset.
Sensitivity analysis to significant changes in unobservable inputs
within Level 3 of the fair value hierarchy
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of the entity's
portfolios of investment properties are:
1) Estimated Rental Value ('ERV')
2) Net Initial Yield
Increases/(decreases) in the ERV (per sq. ft. per annum) in isolation
would result in a higher/(lower) fair value measurement. Increases/(decreases)
in the yield in isolation would result in a lower/(higher) fair value
measurement.
The significant unobservable inputs used in the fair value measurement,
categorised within Level 3 of the fair value hierarchy of the portfolio
of investment property and investments are:
Fair Significant
value Valuation unobservable
Class GBP'000 technique inputs Range
------------------------ ---------- ----------------------- ---------------- ------------------
30 June 2023
GBP4.39 -
ERV GBP21.97
Net Initial
Investment Properties* 107,025 Income capitalisation yield 4.70% - 10.25%**
------------------------ ---------- ----------------------- ---------------- ------------------
30 June 2022
GBP4.00 -
ERV GBP21.96
Net Initial
Investment Properties* 117,905 Income capitalisation yield 4.65% - 9.16%**
------------------------ ---------- ----------------------- ---------------- ------------------
* Valuation per Knight Frank LLP
**Hotels, petrol stations, residential & healthcare are excluded from this range
Sensitivity analysis below.
2023
Change in net initial
Change in ERV yield
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- ------------ -----------
Sensitivity Analysis +10% -10% +10% -10%
Resulting fair value of investment
properties 109,412 104,542 101,214 114,027
-------- -------- ------------ -----------
2022
Change in net initial
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
-------- -------- ------------ -----------
11. Receivables and prepayments
2023 2022
GBP'000 GBP'000
Receivables
Trade debtor 122 284
Less: Provision for impairment of trade receivables (2) (11)
Other debtors 326 244
-------- --------
446 517
Spreading of minimum contracted future rent
indexation 3,132 2,709
Spreading of tenant incentives - rent free
periods 410 468
-------- --------
3,542 3,177
Tenant deposit asset (note 12) 118 118
Other prepayments 87 222
-------- --------
205 340
Total receivables and prepayments 4,193 4,034
-------- --------
The aged debtor analysis of receivables which are past due but not
impaired is as follows:
2023 2022
GBP'000 GBP'000
Less than 3 months due 464 515
Between 3 and 6 months due (18) 2
Between 6 and 12 months due - -
446 517
-------- --------
12. Payables and accrued expenses
2023 2022
GBP'000 GBP'000
Deferred income 1,568 1,501
Trade creditors 24 51
Accruals 374 576
Tenant deposit liability (note 11) 118 118
Loan interest payable (note 13) 258 258
Other creditors 409 642
2,751 3,146
-------- --------
13. Interest bearing loans and borrowings
2023 2022
GBP'000 GBP'000
Facility drawn 41,000 41,000
----------- -----------
Unamortised finance costs brought forward (380) (484)
Amortisation of finance costs 104 104
At end of year 40,724 40,620
----------- -----------
Repayable between 1 and 2 years - -
Repayable between 2 and 5 years 41,000 41,000
Repayable in over 5 years - -
Total at end of the year 41,000 41,000
----------- -----------
At 30 June 2023, the Group had utilised all of its GBP41 million fixed
interest loan facility with Canada Life Investments and was geared
at a loan to Gross Asset Value ('GAV') of 36.8% (2022: 33.7%). The
weighted average interest cost of the Group's facility is 3.19% and
the facility is repayable on 20 October 2025. Interest expense incurred
during the year amounted to GBP1.31 million (2022: GBP1.31 million),
GBP0.26 million was outstanding as at 30 June 2023 (2022: GBP0.26 million).
The loan is secured against 17 properties in the Group's portfolio.
2023 2022
GBP'000 GBP'000
Reconciliation to cash flows from financing
activities
At beginning of the year 40,620 40,516
Non-cash changes
Amortisation of loan issue costs 104 104
Total at end of the year 40,724 40,620
---------- ----------
14. Lease obligations
At the commencement date, the lease liability is measured at the present
value of the lease payments that are not paid on that date.
The following table analyses the minimum lease payments due under non-cancellable
leases:
2023 2022
GBP'000 GBP'000
Within 1 year 50 50
After 1 year but not more than 5 years 150 150
More than 5 years 463 513
Total undiscounted lease liabilities 663 713
Less: Future finance charge on lease obligations (364) (378)
Present value of lease liabilities 299 335
---------- ----------
Lease liabilities included in the Consolidated
Statement of Financial Position
Current 33 36
Non-current 266 299
299 335
---------- ----------
15. Commitments
15.1. Operating lease commitments - as lessor
The Group has 19 commercial properties with 33 units on its investment
property portfolio. These non-cancellable leases have a remaining term
of between 10 months and 111 years (2022: 7 months to 112 years), excluding
ground leases.
Future minimum rentals receivable under non-cancellable operating leases
as at 30 June 2023 are as follows:
2023 2022
GBP'000 GBP'000
Within 1 year 7,179 7,071
After 1 year, but not more than 2 years 6,804 7,015
After 2 years, but not more than 3 years 6,548 6,754
After 3 years, but not more than 4 years 7,034 7,011
After 4 years, but not more than 5 years 6,416 7,045
After 5 years, but not more than 10 years 28,307 29,896
After 10 years, but not more than 15 years 24,085 25,935
More than fifteen years 50,689 55,472
137,062 146,199
---------- ----------
During the year ended 30 June 2023 there were no material contingent rents recognised as income (2022: GBPNil).
15.2. Capital commitments
There were no capital commitments at 30 June 2023 (2022: none).
15.3. Financial commitments
In the 2022 Annual Report, it was disclosed that the Group was involved in litigation against two parties to recover GBP1.1 million of costs. The costs were incurred for work in the period September to December 2020 to replace defective cladding elements uncovered in the external walls of the top floors and rear lift core of the Travelodge Hotel, Swindon. The defective cladding was installed when the property was extended in 2007 and the Group's claims were against the architect and cladding sub-contractor involved. During the year, the Board engaged in mediation with both parties and agreed a full and final settlement of GBP825,000. Consequent to the resolution of that litigation, the Group have no financial commitments other than those arising from its normal business operations. The settlement was in respect of the Group's costs to replace the defective cladding, which had been charged to capital, and in respect of the professional fees incurred by the Group to undertake the litigation, which had been charged to revenue. Accordingly, the settlement has been proportionally allocated GBP606,000 to capital, as a reduction in acquisition costs (see note 10), and GBP219,000 to revenue, as other property income (see note 3). There are no other commitments other than those shown above at the year end (2022: same).
16. Investments in subsidiaries
The Company has two wholly owned subsidiaries as disclosed below:
Country of Ordinary
registration Date of Principal Shares
Name and company number and incorporation incorporation activity held
---------------------------- -------------------- ---------------- ------------- ------------
Alternative Income REIT
Holdco Limited England and Real Estate
(Company number 11052186) Wales 7 Nov 2017 Company 73,158,502*
---------------------------- --------------------- ----------------- ------------ ------------
Alternative Income Limited England and Real Estate
(Company 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
2023 2022
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 has limited exposure to foreign currency risk as most of its transaction is in Sterling. The Group's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Group's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The principal risks facing the Group in the management of its portfolio follows.
18.1 Market price risk
Market price risk is the risk that future values of investments in property will fluctuate due to changes in market prices. To manage market price risk, the Group diversifies its portfolio geographically in the UK and across property sectors.
The disciplined approach to the purchase, sale and asset management ensures that the value is maintained to its maximum potential. Prior to any property acquisition or sale, detailed research is undertaken to assess expected future cash flow. The Board and the Investment Adviser meet regularly and are responsible for recommending investment purchases or sales to the AIFM which makes the ultimate decision. In order to monitor property valuation fluctuations, the Investment Adviser meets with the independent external valuer on a regular basis. The valuer provides a property portfolio valuation quarterly, so any movements in the value can be accounted for in a timely manner and reflected in the NAV every quarter.
18.2 Real estate risk
Property investments are illiquid assets and can be difficult to sell, especially if local market conditions are poor. Illiquidity may also result from the absence of an established market for investments, as well as legal or contractual restrictions on resale of such investments.
There can be no certainty regarding the future performance of any of the properties acquired for the Group. The value of any property can go down as well as up.
Real property investments are subject to varying degrees of risk. The yields available from investments in real estate depend on the amount of income generated and expenses incurred from such investments.
There are additional risks in vacant, part vacant, redevelopment and refurbishment situations, although these are not prospective investments for the Group.
These aspects, and their effect on the Group from a going concern perspective are discussed in more detail in the Going Concern policy note.
18.3 Credit risk
Credit risk is the risk that the counterparty (to a financial instrument) or tenant (of a property) will cause a financial loss to the Group by failing to meet a commitment it has entered into with the Group.
It is the Group's policy to enter into financial instruments with reputable counterparties. All cash deposits are placed with an approved counterparty, Barclays International.
In respect of property investments, in the event of a default by a tenant, the Group will suffer a rental shortfall and additional costs concerning re-letting the property. The Investment Adviser monitors tenant arrears in order to anticipate and minimise the impact of defaults by occupational tenants.
The table below shows the Group's exposure to credit risk:
2023 2022
GBP'000 GBP'000
-------- --------
Debtors 448 528
Cash and cash equivalents 3,484 2,542
Total 3,932 3,070
-------- --------
18.4 Liquidity risk
Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its borrowings. It is the risk the Group will encounter difficulty in meeting its financial obligations as they fall due as the majority of the Group's assets are investment properties and therefore not readily realisable. The Group's objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by quarterly review/monitoring of forecast and actual cash flows by the Investment Adviser and Board.
The below table summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
18.5 Fair value of financial instruments
There is no material difference between the carrying amount and fair value of the Group's financial instruments.
18.6 Interest rate risk
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates is minimal because the Group's loan is at a fixed rate of 3.19% (note 13).
19. Capital management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital.
To enhance returns over the medium term, the Group utilises borrowings on a limited recourse basis for each investment or all or part of the total portfolio. The Group's policy is to borrow up to a maximum of 40% loan to GAV (measured at drawdown). Alongside the Group's borrowing policy, the directors intend, at all times, to conduct the affairs of the Group so as to enable the Group to qualify as a REIT for the purposes of Part 12 of the Corporation Tax Act 2010 (and the regulations made thereunder). The REIT status compliance requirements include 90% distribution test, interest cover ratio, 75% assets test and the substantial shareholder rule, all of which the Group remained compliant in both this and the prior year.
The monitoring of the Group's level of borrowing is performed primarily using a Loan to GAV ratio. The Loan to GAV ratio is an alternative performance measure and its calculation is shown below. The Group Loan to GAV ratio at the year end was 36.8 % (2022: 33.7%).
Breaches in meeting the financial covenants would permit the lender to immediately call loans and borrowings. During the year, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements.
20. Transactions with related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
Directors
Directors of the Group are related party. Directors' remuneration is disclosed in note 5.
Investment Adviser
M7 Real Estate Limited
M7 Real Estate Ltd was appointed as Investment Adviser on 14 May 2020. The Interim Investment Advisory agreement (amended with Deed of Variation dated 21 February 2021) specifies that from 1 October 2020, the annual management fee is calculated at a rate equivalent of 0.50% per annum of NAV (subject to a minimum fee of GBP90,000 per quarter), payable quarterly in advance, with no fee payable from 14 May to 30 September 2020. During the year ended 30 June 2023, the Group incurred GBP 371,000 (2022: GBP368,000) in respect of investment advisory fees, none of which was outstanding at 30 June 2023 (2022: GBP98,000).
21. Events after reporting date
Dividend
On 3 August 2023, the Board approved the interim dividend for the quarter ended 30 June 2023 of 1.92pps. This was paid on 25 August 2023 to shareholders on the register at 11 August 2023. The ex-dividend date was 10 August 2023. The dividend was paid as a PID. Details are disclosed in the Chairman's Statement.
Sale of property
On 8 August 2023, the Group completed the disposal of Mercure Hotel, Ingram Street, Glasgow to the occupier for GBP7.5 million, a 7.9% premium on the book value at 30 June 2023. The net proceeds from the sale have been deposited to the lenders bank account and the Board intends to reinvest this as soon as practical.
Company Statement of Financial Position
As at 30 June 2023
Notes 2023 2022
GBP'000 GBP'000
Assets
Non-current Assets
Investments in subsidiary companies 2 73,158 73,158
Investment property 2 1,814 2,153
-------- ---------
74,972 75,311
-------- ---------
Current Assets
Receivables and prepayments 3 169 159
Cash and cash equivalents 525 66
694 225
-------- ---------
Total Assets 75,666 75,536
-------- ---------
Current Liabilities
Payables and accrued expenses 4 (8,979) (13,035)
-------- ---------
Net Assets 66,687 62,501
-------- ---------
Equity
Share capital 6 805 805
Capital reserve 75,417 75,417
Deficit (9,535) (13,721)
-------- ---------
Total capital and reserves
attributable to equity holders
of the Company 66,687 62,501
-------- ---------
Net Asset Value per share (pence
per share) 82.84p 77.64p
-------- ---------
As permitted by s408 Companies Act 2006, the Company's profit and loss account has not been presented in these financial statements.
The Company's profit for the year was GBP8,795,000 (2022 : GBP8,141,000).
The financial statements were approved by the Board on 29 September 2023 and were signed on its behalf by:
Simon Bennett
Chairman
Company number: 10727886
The accompanying notes 1 to 8 form an integral part of these financial statements.
Company Statement of Changes
in Equity
For the year ended 30 June 2023
Share Capital Deficit Total
capital reserve equity
GBP'000 GBP'000 GBP'000 GBP'000
For the year ended 30 June
2023
Balance at 30 June 2022 805 75,417 (13,721) 62,501
Total comprehensive income - - 8,795 8,795
Dividends paid - - (4,609) (4,609)
---------
Balance at 30 June 2023 805 75,417 (9,535) 66,687
-------- -------- --------- --------
For the year ended 30 June
2022
Balance at 30 June 2021 805 75,417 (17,402) 58,820
Total comprehensive income - - 8,141 8,141
Dividends paid - - (4,460) (4,460)
---------
Balance at 30 June 2022 805 75,417 (13,721) 62,501
-------- -------- --------- --------
The accompanying notes 1 to 8 form an integral part of these financial statements.
Notes to the Company Financial Statements
for the year ended 30 June 2023
1. Accounting policies
Basis of preparation
These financial statements are prepared and approved by the directors
in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101) and in accordance with applicable accounting
standards.
As permitted by FRS 101, the Company has taken advantage of the following
disclosures exemptions which are permissible under FRS 101 as the
equivalent disclosures are contained within the Group's consolidated
financial statements:
* a cash flow statement and related notes;
* disclosures in respect of capital management;
* the effects of new but not yet effective IFRSs;
* the disclosures of the remuneration of key management
personnel;
* disclosure of related party transactions with other
wholly owned members of the Ultimate Parent;
* the disclosure of financial instruments and other
fair value measurements.
The financial statements are presented in Sterling and all values
are rounded to the nearest thousand pounds (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 2022.
Going concern
The financial statements have been prepared on a going concern basis.
For an assessment of going concern refer to the accounting policy
2.4 of the Consolidated Financial Statements.
Investments in subsidiary companies
Investments in subsidiary companies which are all 100% owned by the
Company are included in the statement of financial position at cost
less provision for impairment.
Impairment of non-financial assets
The carrying amounts of the Company's investment in subsidiaries
are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists, then
the asset's recoverable amount is estimated. The recoverable amount
of an asset is the greater of its value in use and its fair value
less costs to sell.
An impairment loss is recognised if the carrying amount of an asset
exceeds its estimated recoverable amount. Impairment losses are recognised
in profit or loss.
Impairment losses recognised in prior periods are assessed at each
reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
Deferred income
Deferred income is rental income received in respect of future accounting
periods.
2. Investments
2a. Investments in Subsidiary
Companies
2023 2022
GBP'000 GBP'000
At the beginning and end of
the year 73,158 73,158
----------- -------------------
A list of subsidiary undertakings at 30 June 2023 is included on note 16 of the Consolidated Financial Statements.
The directors have considered the recoverability of the investment in subsidiary companies by comparing the carrying value of the investment to the net asset value of the subsidiary. The directors consider the net asset value of the subsidiary to be a reliable proxy to the recoverable amount as the properties held by the Company are carried at fair value. The net asset value of the subsidiary company exceed the carrying amount of the investment in subsidiary and the directors have concluded that no impairment is necessary.
2b. Investment property
2023 2022
GBP'000 GBP'000
-------- --------
At the beginning of the year 2,153 2,067
Revaluation of investment property (325) 100
Adjustment to fair value for minimum rent indexation
of lease income (14) (14)
1,814 2,153
-------- --------
3. Receivables and prepayments
2023 2022
GBP'000 GBP'000
Rent debtor 5 32
Spreading of contracted future - rent indexation 61 40
VAT receivable 72 59
138 131
Other prepayments 31 28
169 159
-------- --------
4. Payables and accrued expenses
2023 2022
GBP'000 GBP'000
Due to subsidiaries 8,644 12,427
Deferred income 30 30
Trade creditors 5 35
Accruals 300 459
Other creditors - 84
8,979 13,035
-------- --------
Amounts due to subsidiaries are unsecured, interest free and repayable on demand.
5. Dividends paid and payable
Details of dividends paid and payable in respect of the year are set out in note 9 of the consolidated financial statements.
6. Issued share capital
2023 2022
Number 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 2023 the Company had GBPnil contingent liabilities or capital commitments (2022: 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.
EPRA Performance Measures (Unaudited)
2023 2022
EPRA Yield calculations GBP'000 GBP'000
Investment properties wholly owned:
* by Company 1,875 2,200
* by Alternative Income Limited 105,150 115,705
Total - note 10 107,025 117,905
Allowance for estimated purchasers'
costs - note 8 6,957 7,665
Gross up completed property portfolio
valuation B 113,982 125,570
Annualised cash passing rental
income 7,560 7,217
Annualised property outgoings (55) (55)
Annualised net rents A 7,505 7,162
Add: notional rent expiration
of rent-free periods or other
lease incentives 563 893
Topped-up net annualised rent C 8,068 8,055
EPRA NIY A/B 6.58% 5.70%
EPRA 'topped-up' NIY C/B 7.08% 6.41%
2023 2022
EPRA Cost Ratios GBP'000 GBP'000
Include:
EPRA Costs (including direct vacancy
costs) - note 4 A 1,232 1,035
Direct vacancy costs - -
----------
EPRA Costs (excluding direct vacancy
costs) B 1,232 1,035
----------
Gross rental income (adjusted)
- note 3 C 8,088 7,505
EPRA Cost Ratio (including direct
vacancy costs) A/C 15.23% 13.79%
EPRA Cost Ratio (excluding direct
vacancy costs) B/C 15.23% 13.79%
2023 2023
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 7,040 6,987
EPRA Vacancy rate A/B 0.00% 0.00%
Alternative Performance Measures (APMs)
APMs are numerical measures of the Group's current, historical or
future performance, financial position or cash flows, other than financial
measures defined or specified in the applicable financial framework.
The Group's applicable financial framework is IFRS. The directors
assess the Group's performance against a range of criteria which are
reviewed as particularly relevant for a closed-end REIT.
Discount
The discount is the amount by which the share price is lower than
the net asset value per share, expressed as a percentage of the net
asset value per share. 2023 2022
NAV per Ordinary Share A 84.16p 96.40p
Share price B 64.70p 82.10p
(A-B)
Discount /A 23.12% 14.83%
Dividend Cover
The ratio of Group's Adjusted EPS divided by the Group's dividends
payable for the relevant year.
2023 2022
Adjusted EPS A 6.43p 5.57p
Dividend per share B 6.045p 5.50p
Dividend cover A/B 106.37% 101.27%
Dividend Yield
The ratio of Group's annual dividends per share divided by the Group's
share price for the relevant year.
2023 2022
Annual dividends
paid A 6.045p 5.50p
Share price B 64.70 82.10
Dividend yield A/B 9.34% 6.70%
Loan to GAV
Loan to GAV measures the value of loans and borrowings utilised (excluding
amounts held as restricted cash and before adjustments for issue costs)
expressed as a percentage of the combined valuation of the property
portfolio (as provided by the valuer) and the fair value of other
assets.
2023 2022
Borrowings (GBP'000) A 41,000 41,000
Total assets (GBP'000) B 111,524 121,700
Loan to
GAV A/B 36.76% 33.69%
Ongoing Charges
The ongoing charges ratio is the total for all operating costs expected
to be regularly incurred expressed as a percentage of the average
quarterly NAVs of the Group for the financial year.
2023 2022
Other operating expenses for
the year (GBP'000) A 1,049 1,101
One-off website costs (GBP'000)
* B (40) -
One-off legal fees (GBP'000)
** C - (64)
D=A+B+C 1,009 1,037
Average net assets (GBP'000) E 72,675 73,246
Ongoing charges ratio D/E 1.39% 1.42%
* Non-recurring website set up costs have been excluded in the amount
for the year presented.
** Non-recurring legal and professional costs have been excluded in
the amount for the year presented.
Share Price and Net Asset Value (NAV) Total Return
Share price and NAV total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders.
Share price and NAV total returns are monitored against FTSE EPRA
Nareit UK and FTSE Small Cap, respectively.
Share price NAV
Opening at 30 June 2022 A 82.10 96.40p
Closing at 30 June 2023 B 64.70 84.16p
Return C=(B/A)-1 (21.19%) (12.69%)
Dividend reinvestment * D 6.97% 5.97%
Total return for the year ended
30 June 2023 C+D (14.22%) (6.72%)
Opening at 30 June 2021 A 71.00 85.58p
Closing at 30 June 2022 B 82.10 96.40p
Return C=(B/A)-1 15.63% 12.64%
Dividend reinvestment* D 8.70% 9.88%
Total return for the year ended
30 June 2022 C+D 24.33% 22.52%
* Share price total return involves reinvesting the net dividend
in the share price of the Company on the date on which that dividend
goes ex-dividend. NAV total return involves investing the net dividend
in the NAV of the Company with debt at fair value on the date on
which that dividend goes ex-dividend.
Glossary
Alternative Investment 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 ('EPS') Profit for the period attributable to equity
shareholders divided by the weighted average
number of Ordinary Shares in issue during the
period.
EPRA European Public Real Estate Association, the
industry body representing listed companies
in the real estate sector.
Estimated Rental Value The external valuer's opinion as to the open
('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 ('GAV') The aggregate value of the total assets of
the Group as determined in accordance with
IFRS.
Gross Passing Rental The gross passing rent is the rent roll at
Income the reporting date, taking account of any in-place
rent free incentives or step rents on a straight-line
basis over the following 12-month period.
IASB International Accounting Standards Board.
IFRS International financial reporting standards.
On 31 December 2020 EU-adopted IFRS was brought
into UK law and became UK-adopted international
accounting standards, with future changes to
IFRS being subject to endorsement by the UK
Endorsement Board.
Investment Adviser M7 Real Estate Limited.
IPO The admission to trading on the London Stock
Exchange's Main Market of the share capital
of the Company and admission of Ordinary Shares
to the premium listing segment of the Official
List on 6 June 2017.
Lease incentives Incentives offered to occupiers to enter into
a lease. Typically, this will be an initial
rent-free period, or a cash contribution to
fit-out. Under accounting rules, the value
of the lease incentive is amortised through
the Consolidated Statement of Comprehensive
Income on a straight-line basis until the lease
expiry.
Loan to Value ('LTV') The value of loans and borrowings utilised
(excluding amounts held as restricted cash
and before adjustments for issue costs) expressed
as a percentage of the combined valuation of
the property portfolio (as provided by the
valuer) and the fair value of other investments.
Net Asset Value ('NAV') Net Asset Value is the equity attributable
to shareholders calculated under IFRS.
Net Asset Value per share Equity shareholders' funds divided by the number
of Ordinary Shares in issue.
Net equivalent yield Calculated by the Group's External Valuers,
net equivalent yield is the internal rate of
return from an investment property, based on
the gross outlays for the purchase of a property
(including purchase costs), reflecting reversions
to current market rent and items as voids and
non-recoverable expenditure but ignoring future
changes in capital value. The calculation assumes
rent is received annually in arrears.
Net Initial Yield ('NIY') The initial net rental income from a property
at the date of purchase, expressed as a percentage
of the gross purchase price including the costs
of purchase.
Initial yield does not include cost of purchase.
Net rental income Rental income receivable in the period after
payment of ground rents and net property outgoings.
Ordinary Shares The main type of equity capital issued by conventional
Investment Companies. Shareholders are entitled
to their share of both income, in the form
of dividends paid by the Company, and any capital
growth.
REIT A Real Estate Investment Trust. A company which
complies with Part 12 of the Corporation Tax
Act 2010. Subject to the continuing relevant
UK REIT criteria being met, the profits from
the property business of a REIT, arising from
both income and capital gains, are exempt from
corporation tax.
Reversion Increase in rent estimated by the Company's
External Valuers, where the passing rent is
below the ERV.
Share price The value of a share at a point in time as
quoted on a stock exchange. The Company's Ordinary
Shares are quoted on the Main Market of the
London Stock Exchange.
Weighted Average Unexpired The average lease term remaining for first
Lease Term ('WAULT') break, or expiry, across the portfolio weighted
by contracted rental income (including rent-frees).
Company Information
Share Register Enquiries
The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of queries regarding your holding, please contact the Registrar on 0370 707 1874 or email: web.queries@computershare.co.uk .
Changes of name and/or address must be notified in writing to the Registrar, at the address shown below. You can check your shareholding and find practical help on transferring shares or updating your details at www.investorcentre.co.uk. Shareholders eligible to receive dividend payments gross of tax may also download declaration forms from that website.
Share Information
Ordinary 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 2023
30 June 2023 Year end October 2023 Announcement of annual results 15 November 2023 Annual General Meeting 31 December 2023 Half year end March 2024 Announcement of interim results
Shareholder Information
Directors
Simon Bennett (independent non-executive chairman)
Stephanie Eastment (independent non-executive director)
Adam Smith (non-executive director)
Company Website
https://www.alternativeincomereit.com/
Registered Office
1 King William Street
London
EC4N 7AF
Company Secretary
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
AIFM
Langham Hall Fund Management LLP
1 Fleet Place
8(th) Floor
London
EC4M 7RA
Depositary
Langham Hall UK Depositary LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
Legal Adviser to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Investment Adviser and Administrator
M7 Real Estate Limited
3(rd) Floor
The Monument Building
11 Monument Street
London
EC3R 8AF
Property Manager
Mason Owen and Partners Limited
7(th) Floor
20 Chapel Street
Liverpool
L3 9AG
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditor
Moore Kingston Smith LLP
9 Appold Street
London
EC2A 2AP
Corporate Broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Communications Adviser
H/Advisors Maitland
3 Pancras Square
London
N1C 4AG
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END
FR EAPNNADNDEFA
(END) Dow Jones Newswires
October 02, 2023 02:00 ET (06:00 GMT)
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