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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 | |
---|---|---|---|---|---|---|---|---|---|---|
0.10 | 0.15% | 66.60 | 66.20 | 67.00 | 66.60 | 66.50 | 66.50 | 3 | 08:41:42 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Real Estate Investment Trust | 8.66M | -5.24M | -0.0651 | -10.23 | 53.61M |
TIDMAIRE
RNS Number : 4596N
Alternative Income REIT PLC
30 September 2021
THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED STATES OF AMERICA, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH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.
30 September 2021
ALTERNATIVE INCOME REIT PLC
(the "Company" or the "Group")
Annual Report and Financial Statements for the year ended 30 June 2021
The Board of Directors of Alternative Income REIT plc (ticker: AIRE), the owner of a diversified portfolio of UK commercial property assets predominantly let on long leases, is pleased to announce its annual report and financial statements for the year ended 30 June 2021.
Financial Highlights
-- Net Asset Value ('NAV') of GBP68.89 million, and of 85.58 pence per share ('pps') as at 30 June 2021 (30 June 2020: GBP67.29 million and 83.58 pps).
-- Operating profit of GBP6.31 million (before fair value changes) for the year (year ended 30 June 2020: GBP5.80 million).
-- Profit before tax of GBP5.57 million, profit per share of 6.92 pps for the year (year ended 30 June 2020: loss before tax of GBP5.05 million, loss per share of 6.27 pps, primarily due to write-downs of property valuations).
-- EPRA Earnings per share (1) ('EPS') for the year were 5.55 pps (year ended 30 June 2020: 5.42 pps).
-- Adjusted EPS(1) for the year, which reflect cash earnings, were 5.07 pps with dividend cover of 99% (year ended 30 June 2020: 4.25 pence per share; dividend cover of 85%).
-- Total dividends of 5.14 pps declared in respect of the year (year ended 30 June 2020: 5.0 pps), underlining the Company's strong rent collection and cash flows . The Board has reaffirmed its target annual dividend of 5.5 pence per share, with full dividend cover expected, all else being equal, by September 2022.
-- The price of the Company's Ordinary Shares on the Main Market of the London Stock Exchange was 71.00 pps as at 30 June 2021 (30 June 2020: 53.50 pps).
-- As at 30 June 2021, the Group had a GBP41.0 million loan facility with Canada Life Investments and was geared to 36.3% of the Gross Asset Value ('GAV') (30 June 2020: GBP41.0 million, gearing of 37.0%).
-- For the year ended 30 June 2021, non-property operating expenses were GBP0.88 million (30 June 2020: GBP1.49 million), representing a 41% reduction, or 35% reduction after allowing for the period during which M7 did not charge an investment advisory fee and as a result of the Board taking a disciplined approach to cost management.
-- Ongoing charges of 1.27% as at 30 June 2021 (30 June 2020: 2.22%).
Operational Review
-- To date, the Group has collected 97.8% of all rent demanded since the beginning of the COVID-19 pandemic, with the remaining 2.2% to be collected through payment plans throughout 2021 and 2022; further information can be found in the Investment Adviser's Report.
-- As at 30 June 2021, the Group's property portfolio had a fair value of GBP109.23 million across 19 properties (30 June 2020: GBP104.76 million, 19 properties including the Wet 'n' Wild Water Park held for sale). As at 30 June 2021, when looking at the core 18 assets that have been held over the last 12 months, the property portfolio had a fair value of GBP104.08 million (30 June 2020: GBP101.91 million).
-- Weighted average unexpired lease term ('WAULT') of 17.8 years to the earlier of break and expiry (30 June 2020: 19.5 years) and 19.8 years to expiry (30 June 2020: 21.6 years).
-- Rent recognised during the year was GBP7.21 million (30 June 2020: GBP7.35 million) , of which, GBP0. 49 million was accrued debtors for the combination of minimum uplifts and rent-free period (30 June 2020: accrued debtors of GBP 1.28 million) . The number of tenants as at 30 June 2021 was 22 (30 June 2020: 21).
-- 87.0% of the Group's income is inflation linked to Retail Price Index ('RPI') or Consumer Price Index ('CPI').
-- As at 30 June 2021, the portfolio had gross passing rental income of GBP6.97 million (30 June 2020: GBP6.79 million ) .
-- As at 30 June 2021, the asset valuations and rental income of the 17 properties secured to Canada Life would have needed to fall by 18% and 24% respectively before breaching the Loan to Value and Income Cover Cash Trap covenants respectively.
-- EPRA Net Initial Yield ('NIY') of 5.94% as at 30 June 2021 (30 June 2020: 5.72%) (2) .
Post balance sheet events
On 2 August 2021, the Board declared an interim dividend of 1.64 pence per share in respect of the period from 1 April 2021 to 30 June 2021. This was paid on 31 August 2021 to shareholders on the register as at 13 August 2021. The ex-dividend date was 12 August 2021.
All references to page numbers are in reference to the Annual Report which will be available in due course at: https://www.alternativeincomereit.com/investors/documents/2021
Alan Sippetts, Non-Executive Chairman of Alternative Income REIT plc, comments:
" The fundamentals of certain property sectors in the UK appear robust and the Group's portfolio has proved resilient throughout the challenges of the COVID-19 pandemic, underpinned by robust rent collection and over 87% of our leases with inflation linked upwards only rent reviews. Furthermore, the Company's share price has substantially increased by 32.7% to 71 pence as at 30 June 2021 (as at 30 June 2020: 53.5 pence per share) narrowing the discount to our NAV.
We are pleased therefore that we were able to declare an increased dividend to shareholders, which is testament to the Board's confidence in the long-term value we can deliver to our shareholders and underlines the continuing strength of the Group's collection of rent from our 100% let portfolio. Taken together with our robust balance sheet, much reduced overhead and with 87% of our portfolio's leases with inflation linked upwards only rent reviews, the Board remains confident that the Group will provide attractive total returns to our shareholders principally in the form of fully covered dividends but also through other opportunistic initiatives, supported by our Investment Adviser."
Notes
1. See Note 8 of the Consolidated Financial Statements, glossary on pages 91 to 92 of the Annual Report (AR) for definitions and abbreviations and page 8 for Key Performance Indicators and their definitions.
2. EPRA Net Initial Yield is the annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with purchasers' costs estimated by the Group's External Valuers. A reconciliation can be found on page 89 of the AR.
ENQUIRIES
Alternative Income REIT PLC via Maitland/AMO below Alan Sippetts - Chairman M7 Real Estate Ltd Richard Croft +44 (0)20 3657 5500 Panmure Gordon (UK) Limited +44 (0)20 7886 2500 Alex Collins Tom Scrivens Chloe Ponsonby Maitland/AMO (Communications Adviser) +44(0) 7747 113 930 James Benjamin james.benjamin@maitland.co.uk
The Company's LEI is 213800MPBIJS12Q88F71.
Further information on Alternative Income REIT plc is available at www.alternativeincomereit.com (1)
NOTES
Alternative Income REIT PLC aims to generate a sustainable, secure and attractive income return for shareholders from a diversified portfolio of UK property investments, predominately in alternative and specialist sectors. The majority of the assets in the Group's portfolio are let on long leases which contain inflation linked rent review provisions.
The Company's investment adviser is M7 Real Estate Limited ("M7"). M7 is a leading specialist in the pan-European, regional, multi-tenanted real estate market. Majority owned by its senior managers, it has over 200 employees in 14 countries across Europe. The team manages over 835 properties with a value of circa EUR5.1 billion.
1 Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published on a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
CHAIRMAN'S STATEMENT
Overview
I am pleased to present the annual audited results of Alternative Income REIT plc (the 'Company') together with its subsidiaries (the 'Group') for the financial year ended 30 June 2021, my first as Chairman.
In March 2021, when it was announced that I would assume the role of Chairman, it appeared that the UK vaccination programme had begun to turn the tide on the challenges of the COVID-19 pandemic. The Group's portfolio has proved resilient throughout the challenges of the COVID-19 pandemic. We are pleased therefore that we were able to declare an increased dividend to shareholders, underlining the continuing strength of the Group's collection of rent from our 100% let portfolio. Taken together with our robust balance sheet, much reduced overhead and with 87% of our portfolio's leases with inflation linked upwards only rent reviews, the Board remains confident that the Group will provide attractive total returns to our shareholders principally in the form of fully covered dividends.
I would like to take the opportunity to thank my predecessor Steve Smith for his significant contribution to the Company since its IPO in June 2017. He left the business and portfolio well positioned for the better times that we expect to lie ahead, and he departed with our best wishes. At the same time as my own appointment as Chairman, we also welcomed Adam C Smith to the Board as a Non-Executive Director. Adam's appointment followed a request from the Company's largest shareholder, Glenstone Property plc, for representation on the Board. Adam has extensive property and investment experience and I welcome the constructive contribution Adam has made. It also followed open and transparent engagement with shareholders following the failure to carry the resolution to adopt the proposed changes to the Investment Policy at the 2020 AGM.
The Board has delivered on the commitments it made following our earlier engagement with shareholders, focusing on reducing the Group's operating cost base, pursuing other initiatives within the Group's current portfolio of assets, while seeking to maximise rent collection, income distribution and total returns to shareholders.
Further, as announced on 29 September 2021, following a comprehensive and thorough recruitment process supported by external consultants, we have also welcomed Stephanie Eastment to the Board as a Non-Executive Director and Audit Chair with effect from 1 October 2021. As part of a planned succession process, Jim Prower will resign as a Non-Executive Director and Audit Chair on 1 October 2021. I would like to express my sincere thanks to Jim for his significant and invaluable contribution, insights and unwavering commitment since IPO, and he leaves with the Board's very best wishes for the future.
During the year, we completed the disposal of the Wet 'n' Wild Water Park, North Shields ("Wet 'n' Wild"). The disposal was at a significant premium to cost and book value, and subsequently we redeployed the proceeds through the acquisition of the Droitwich Spa Retail Park, at a yield of 7.95% which was materially higher than both the 6.0% exit yield on Wet 'n' Wild and the Group's 5.76% portfolio valuation yield at the time. Also, importantly, it provided the potential to deliver excellent long term returns for shareholders. Following that acquisition, the Group has been fully invested and holds a diverse portfolio of UK commercial property assets with a weighted average unexpired lease term of 17.8 years (30 June 2020: 19.5 years) to the earlier of break and expiry and 19.8 years (30 June 2020: 21.6 years) to expiry.
That acquisition was the first introduced by our Investment Adviser, M7 Real Estate Limited ("M7"). Since their initial appointment in May 2020, the Board has been pleased with the performance of M7 and on 1 April 2021 extended the Investment Advisory Agreement under which M7 provide the Group with investment advice, fund accounting and administration services. The agreement has provided the Group with certainty and stability of high quality services and advice in a cost-effective manner. M7 and our Property Manager, Mason Owen, also undertook several asset management initiatives during the year that underlined the Group's supplemental strategy of value enhancement led by active management. Further information can be found below.
A year ago, we said that we would substantially reduce costs and these results demonstrate the delivery of these actions. Year on year, all non-property operating expenses, together with auditor fees were reduced by GBP616,000 a reduction of 41%. This overall reduction included a period during which M7 did not charge an investment advisory fee , which when added back would produce a like-for-like reduction of 35%. Despite the environment caused by the COVID-19 pandemic and the negative impact upon rent collection seen across the industry, in aggregate dividends of 5.14 pence per share have been paid as Property Income Distribution in respect of the year ended 30 June 2021, representing an increase of 2.8% against the prior financial year. For the year ended 30 June 2021, adjusted cash earnings were 5.07 pence per share with dividend cover of 99% (year ended 30 June 2020: 4.25 pence per share; dividend cover of 85%). Our focus remains on generating a progressive cash covered dividend from the Group's fully invested portfolio. Our recent dividend increase is testament to the Board's confidence in the long-term value we can deliver to our shareholders.
The actions undertaken in the past year reaffirm the Board's confidence that the Group is well positioned for the opportunities ahead. Our continued strong rent collection from our 100% let portfolio, robust balance sheet, well controlled overheads and with 87% of our portfolio's leases with inflation linked upwards only rent reviews give us confidence that the Group can provide attractive total returns to our shareholders.
Portfolio Performance
The near full deployment of the Group's funds for the whole year resulted in headline rent of circa GBP7.21 million during the year (30 June 2020: GBP7.35 million) , of which, GBP 0.49 million was accrued debtors for the combination of minimum contracted uplifts and rent-free periods ( 30 June 2020: accrued debtors of GBP1.28 million) .
As at 30 June 2021, the Group's property portfolio had a fair value of GBP109.23 million (30 June 2020: GBP104.76 million). The portfolio had a net initial yield of 5.93% (30 June 2020: 5.77%), a WAULT to the first break of 17.8 years (19.8 years to expiry).
Financial Results
Year ended Year ended 30 June 2021 30 June 2020 ---------------------------------------- -------------------- --------------------------- Operating profit before fair value changes [GBP'000] 6,311 5,803 Operating profit/(loss) [GBP'000] 6,993 (3,608) Profit/(loss) before tax [GBP'000] 5,572 (5,050) Profit/(loss) per share - basic and diluted [pence] 6.92 (6.27) EPRA EPS - basic and diluted [pence] 5.55 5.42 Adjusted EPS [pence] 5.07 4.25 Net Asset Value per share [pence] 85.58 83.58 EPRA Net Asset Value per share [pence] 85.58 83.58
The Group's operating profit before fair value changes for the financial year was GBP6.31 million (30 June 2020: GBP5.80 million).
Basic profit per share for the financial year was 6.92 pence (30 June 2020: loss per share: 6.27 pence). Adjusted EPS, as calculated in Note 8, for the financial year were 5.07 pence (30 June 2020: 4.25 pence).
Under European Public Real Estate Association ('EPRA') methodology, EPS for the financial year was 5.55 pence (30 June 2020: 5.42 pence). A full list of EPRA performance figures can be found below.
The audited NAV per share as at 30 June 2021 was 85.58 pence (30 June 2020: 83.58 pence).
The Group has ongoing charges of 1.27% (30 June 2020: 2.22%) for the financial year, being a measure of annualised fund level operating costs for the year as a percentage of NAV. The EPRA cost ratio for the financial year was 18.4% (30 June 2020: 21.1%).
Financing
As at 30 June 2021, the Group had fully utilised its GBP41.0 million loan facility with Canada Life Investments (30 June 2020: fully utilised). The weighted average interest cost of the Group's facility is 3.19% and the loan is repayable on 20 October 2025. If repayment is made prior to this date, and the corresponding Gilt rate is lower than the contracted rate of interest, then the loan terms provide for a significant early redemption fee (1) .
Dividends
The Group declared two interim dividends of 1.25 pps each, one interim dividend of 1.00 pps and a fourth interim dividend of 1.64 pps in respect of the financial year, totalling 5.14 pps (year ended 30 June 2020: four dividends totalling 5.00 pps), representing an increase of 2.8% against the prior financial year and ahead of inflation for the period. This underlines the Company's strong rent collection and cash flows . The Board has reaffirmed its target annual dividend of 5.5 pence per share, with full dividend cover expected, all else being equal, by September 2022.
In light of the circumstances affecting global economies and markets and the Group's rental collection levels the Board considered it prudent to reduce the dividend for the first three quarter rent payments of the year. For the quarter ended 30 June 2021, the Board declared an increased dividend on the previous three quarters of 1.64 pps, underlining the continuing strength of the Group's collection of rent from our 100% let portfolio .
Outlook
The fundamentals of certain property sectors in the UK appear robust and the Group's portfolio has proved resilient throughout the challenges of the COVID-19 pandemic, underpinned by robust rent collection and over 87% of our leases with inflation linked upwards only rent reviews. Furthermore, the Company's share price has substantially increased by 32.7% to 71 pence as at 30 June 2021 (as at 30 June 2020: 53.5 pence per share) narrowing the discount to our NAV.
As we look ahead, the Board remains confident that the Group will provide attractive total returns to our shareholders. This will principally take the form of fully covered dividends but also through other opportunistic initiatives, supported by our Investment Adviser.
I would like to thank my fellow shareholders, Directors, the Investment Adviser and our other advisers and service providers who have provided professional support and services to the Group.
Alan Sippetts
Chairman
29 September 2021
Note
1. As at 30 June 2021, the redemption fee would have been GBP 3,467,127 (30 June 2020: GBP5,261,651) .
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 AIFM, as advised by the Investment Adviser, shall inform the Board upon becoming aware of the same and, if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the AIFM, as advised by the Investment Adviser, will look to resolve the breach.
Any material change to the investment policy or investment restrictions of the Group may only be made with the prior approval of shareholders.
Investment Strategy
The Group focuses on properties which can deliver a secure income and preserve capital value, with an attractive entry yield. The Group has an emphasis on alternative and specialist property sectors to access the attractive value and capital preservation qualities which such sectors currently offer.
The Group will supplement this core strategy with active asset management initiatives for certain properties.
Subject at all times to the AIFM's (as advised by the Investment Adviser) assessment of their appeal and specific asset investment opportunities, permitted sectors include, but are not limited to the following: Healthcare; Leisure; Hotels and serviced apartments; Education; Automotive; Car parks; Residential; Supported living; Student accommodation; Logistics; Storage; Communications; Supermarkets; and, subject to the limitations on traditional sector exposures below, Offices; Shopping centres; Retail and retail warehouses; and Industrial.
The Group is not permitted to invest in land assets, including development land which does not have a development agreement attached, agriculture or timber.
The focus will be to invest in properties to construct a portfolio with the following minimum targets:
-- a WAULT, at the time of investment, in excess of 18 years;
-- at least 85% of the gross passing rent will have leases with rent reviews linked to inflation (RPI or CPI) at the time of investment;
-- investment in properties which typically have a value, at the time of investment, of between GBP2 million and GBP30 million;
-- at least 70% of the properties will be in non-traditional sectors;
-- less than 30% of the properties will be in the traditional sectors of Retail, Industrial and Offices; and
-- over 90% of properties will be freehold or very long leasehold (over 100 years).
Once GAV is GBP250 million or greater, future investments will be made to target a portfolio with at least 80% of the properties in non-traditional sectors and less than 20% of the properties in traditional sectors.
Whilst each acquisition will be made on a case-by-case basis, it is expected that properties will typically offer the following characteristics:
-- existing tenants with strong business fundamentals and profitable operations in those locations;
-- depth of tenant/operator demand; -- alternative use value; -- current passing rent close to or below rental value; and
-- long-term demand drivers, including demographics, use of technology or built-for-purpose real estate.
The Group may invest in commercial properties or portfolios of commercial property assets which, in addition, include ancillary or secondary utilisations.
The Group does not intend to spend any more than 5% of the NAV in any rolling 12-month period on (a) the refurbishment of previously occupied space within the existing Portfolio, or (b) the refurbishment of new properties acquired with vacant units.
The Group may invest in corporate and other entities that hold property and the Group may also invest in conjunction with third party investors.
Investment Restrictions
GAV of less than GBP250 million GAV of GBP250 million or greater Investment in a single property Investment in a single property limited to 15% of GAV (measured limited to 10% of GAV (measured at the time of investment). at the time of investment). The value of assets in any sub-sector Investments will be made with in one geographical region, a view to reducing the maximum at the time of investment, shall exposure to any sub-sector in not exceed 15% of GAV. one geographical region to 10% of GAV. The value of assets in any one sector and sub-sector, at the time of investment, shall not exceed 50% of GAV and 25% of GAV respectively. Exposure to a single tenant covenant will be limited to 15% of GAV. The Group may commit up to a maximum of 10% of its GAV (measured at the commencement of the project) in development activities. Investment in unoccupied and non-income producing assets will, at the time of investment, not exceed 5% of Estimated Rental Value ('ERV'). The Group will not invest in other closed-ended investment companies. If the Group invests in derivatives for the purposes of efficient portfolio and cash management, the total notional value of the derivatives at the time of investment will not exceed, in aggregate, 20% of GAV.
The Group will invest and manage its assets with the objective of spreading risk through the above investment restrictions.
When the measure of GAV is used to calculate the restrictions relating to (i) the value of a single property and (ii) the value of assets in any sub-sector in one geographical region, it will reflect an assumption that the Group has drawdown borrowings such that these borrowings are equal to 30% of GAV.
Borrowings
The Group has utilised borrowings to enhance returns over the medium term. Borrowings have been utilised on a limited recourse basis for each investment on all or part of the total Portfolio and will not exceed 40% of GAV (measured at drawdown) of each relevant investment or of the portfolio.
Key Performance Indicators
KPI AND DEFINITION RELEVANCE TO STRATEGY PERFORMANCE 1. Net Initial Yield ('NIY') 5.93% Annualised rental income The NIY is an indicator At 30 June 2021 based on the cash rents of the ability of passing at the balance the Company to meet sheet date, less non-recoverable its target dividend property operating expenses, after adjusting for divided by the market the impacts of leverage value of the property, and deducting operating increased with purchasers' costs. costs estimated by the Group's External Valuers. (30 June 2020: 5.77%) 2. Weighted Average Unexpired Lease Term 17.8 years to break ('WAULT') to break and and 19.8 years to expiry expiry The average lease term The WAULT is a key At 30 June 2021 remaining to expiry measure of the quality (30 June 2020: 19.5 across the portfolio, of the portfolio. years to break and weighted by contracted Long leases underpin 21.6 years to expiry) rent. the security of our future income. 3. Net Asset Value ('NAV') GBP68.89 million (85.58 pence per share ('pps')) NAV is the value of Provides stakeholders At 30 June 2021 an entity's assets minus with the most relevant (30 June 2020: GBP67.29 the value of its liabilities. information on the million, 83.58 pps) fair value of the assets and liabilities of the Group. 4. Dividend 5.14 pps Dividends declared in The Company seeks For the year ended relation to the period to deliver a sustainable 30 June 2021 are in line with the income stream from (30 June 2020: 5.00 stated dividend target its portfolio, which pps) as set out in the Prospectus it distributes as at IPO. The Company dividends. targets a dividend of 5.50 pence per Ordinary Share per annum once fully invested and leveraged.
5. Adjusted EPS 5.07 pps Adjusted EPS from core This reflects the For the year ended operational activities, Company's ability 30 June 2021 as adjusted for non-cash to generate earnings (30 June 2020: 4.25 items. A key measure from the portfolio pps) of a company's underlying which underpins dividends. operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. See Note 8 to the Consolidated Financial Statements. 6. Leverage (Loan-to-GAV) 36.30 % The proportion of the The Group utilises At 30 June 2021 Group's property that borrowings to enhance is funded by borrowings. returns over the medium term. Borrowings will not exceed 40% of GAV (measured at drawdown). (30 June 2020: 37.0%)
EPRA Unaudited Performance Measures
Detailed below is a summary table showing the EPRA performance measures in the Group.
MEASURE AND DEFINITION PURPOSE PERFORMANCE ----------------------------------- -------------------------------- ------------------------------------------ EPRA NIY 5.94 % Annualised rental income A comparable measure At 30 June 2021 based on the cash rents for portfolio valuations. passing at the balance This measure should sheet date, less non-recoverable make it easier for property operating expenses, investors to judge divided by the market themselves, how the value of the property, valuation of two portfolios increased with (estimated) compare. purchasers' costs. (30 June 2020: 5.72%) EPRA 'Topped-up' NIY 6.95 % This measure incorporates A comparable measure At 30 June 2021 an adjustment to the for portfolio valuations. EPRA NIY in respect This measure should of the expiration of make it easier for rent-free periods (or investors to judge other unexpired lease themselves, how the incentives such as discounted valuation of two portfolios rent periods and step compare. rents). (30 June 2020: 6.97%) EPRA NAV GBP68.89 million/85.58 pps Net asset value adjusted Makes adjustments At 30 June 2021 to include properties to IFRS NAV to provide (30 June 2020: GBP67.29 and other investment stakeholders with million/83.58pps) interests at fair value the most relevant and to exclude certain information on the items not expected to fair value of the crystallise in a long-term assets and liabilities investment property within a real estate business. investment company with a long-term investment strategy. EPRA Earnings/EPS GBP4.47 million/5.55 pps Earnings from operational A key measure of a EPRA earnings for activities. company's underlying the year ended 30 operating results June 2021 and an indication (30 June 2020: GBP4.36 of the extent to which million/ 5.42pps) current dividend payments are supported by earnings. EPRA Vacancy 0.00 % Estimated Rental Value A 'pure' percentage EPRA Vacancy as at ('ERV') of vacant space measure of investment 30 June 2021 divided by ERV of the property space that (30 June 2020: 0.00%) whole portfolio. is vacant, based on ERV. EPRA Cost Ratio 18.4 % Administrative and operating A key measure to enable EPRA Cost Ratio for costs (including and meaningful measurement the year ended 30 excluding costs of direct of the changes in June 2021 vacancy) divided by a company's operating (30 June 2020: 21.1%) gross rental income. costs. EPRA Net Reinstatement GBP72.53 million/90.09pps Value The EPRA NRV adds back A measure that highlights EPRA NRV for the the purchasers' costs the value of net assets year ended 30 June deducted from the EPRA on a long-term basis. 2021 NAV and deducts the (30 June 2020: GBP69.88million/86.81pps) break cost of bank borrowings. EPRA Net Tangible Assets GBP65.43 million/81.27pps The EPRA NTA deducts A measure that assumes EPRA NTA for the the break cost of bank entities buy and sell year ended 30 June borrowings from the assets, thereby crystallising 2021 EPRA NAV. certain levels of (30 June 2020: GBP62.02 deferred tax liability. million/77.05pps) The Group has UK REIT status and as such no deferred tax is required to be recognised in the accounts. EPRA Net Disposal Value GBP65.43 million/81.27pps The EPRA NDV deducts A measure that shows EPRA NDV for the the break cost of bank the shareholder value year ended 30 June borrowings from the if assets and liabilities 2021 EPRA NAV. are not held until (30 June 2020: 62.02 maturity. million/77.05pps)
EPRA NNNAV is equal to EPRA NAV as there are no adjusting items. As such this measure has not been presented.
Investment Adviser's Report
Introduction
The previous Investment Adviser's Report spoke in detail about changing the Group's investment principles, and whilst these remain closely monitored, the 12 months to June 2021 presented other obstacles, primarily COVID-19.
The current 19 assets, following the sale of Wet 'n' Wild on 31 July 2020 and the acquisition of Droitwich Spa Retail Park on 2 December 2020, continue to provide investors with long high yielding income, on average of c.18 years of which c.87% is linked to inflationary growth, adding 1.64% to income profile this year. The portfolio also provides investors with exposure to a diverse range of alternative investment sectors.
Through continued asset management and engagement with tenants, the portfolio has shown resilience to the impact of the COVID-19 pandemic and national lockdowns experienced by others. As at the June 2021 quarter day, 20% of the tenants are contractually invoiced monthly, whilst the remaining 80% are invoiced quarterly. Since the beginning of the COVID-19 pandemic, which for the purposes of this report is assumed to be 25 March 2020 (quarter day), the Group has collected 97.8% of all rent demanded, with the remaining 2.2% to be collected through payment plans over the next 12 months as outlined below.
During the year the Group completed the disposal of Wet 'n' Wild, North Shields at a significant premium to book value, and subsequently the proceeds were reinvested with the acquisition of Droitwich Spa Retail Park, at a yield which was materially higher than both the 6.0% exit yield on Wet 'n' Wild and the Group's 5.76% portfolio valuation yield at the time. This acquisition was the first introduced by M7 since appointment in May 2020. Following the performance by M7 in the delivery of services to the Company, the Board made the decision on 1 April 2021 to extend the Investment Advisory Agreement under which M7 will continue to provide the Company with investment advice, fund accounting and administration services.
The portfolio's resilience over the past year and its improving returns gives M7 optimism as to future performance.
Market Outlook
UK Economic Outlook
The beginning of 2021 has seen the UK agree a deal for parting ways with EU and work its way through its third national lockdown. Moreover, with the significant achievements of the vaccination programme, the UK is gradually following the government's steps for reopening the economy. Recent data shows improvement in retail spending and there are now renewed expectations for a medium-term recovery.
In early Q2 2021, it was reported that GDP growth figures supported a faster than expected return to normality due to large parts of the economy reopening and a successful vaccination programme. Economic growth is forecast to continue an upward trend and was projected to result in an 8.0% year-on-year expansion in GDP in 2021. However, the rapid economic recovery from this year's COVID-19 restrictions hit the buffers in July as GDP rose by 0.1% month on month (m/m). That was weaker than the 1.0% m/m increase in June and was smaller than the consensus forecast of a 0.7% m/m gain.
Government stimulus, particularly through the furlough scheme, has been successful in softening the economic blow, with unemployment and the reduction in UK household income both less severe than expected. A substantial number of people have also left the labour force in the last year, which has made the impact appear less acute. As of June 2021, unemployment stands at 4.7%, it is likely that this will increase as the furlough scheme approaches its September 2021 end date. Nevertheless, employment is set to recover quicker than it has previously following other recessions since the economy's potential has not been permanently damaged.
The latest inflation data reported a jump in CPI from 2.1% in May to 2.5% in June 2021. The level of increase since Q1 2021 exceeded economists' expectations. However, they did project potential spikes as the economy reopened and as energy related effects took place. Inflation is expected to peak at 4.0% by the end of the year but will not stabilise to pre-pandemic levels until 2023, when inflation is set to be supported by a robust economic recovery. We have seen a strong monetary stimulus with interest rates decreasing to 0.1% and high levels of QE set to take place until the end of 2021. Capital Economics does not anticipate that the BoE will shift from the current interest rates at least until the end of 2022. (1)
UK Real Estate Outlook
The collection of commercial property rents, as calculated seven days after the June 2021 Quarter due date, reached the highest level achieved for any quarter during the pandemic so far at 66.5% (2) . This compares to a figure of 50.7% for the same period in 2020 and 60.5% for the March 2021 quarter.
Overall, the alternative and long-income space has fared better than expected during the global pandemic. Whilst this is in part due to various fiscal support measures implemented by the UK government, it does also stand testament to the secure and stable income streams that investment in long income and alternatives sectors offer.
Despite the headwinds witnessed during the last 18 months, occupancy and rent collection in the living sector have been largely resilient. Whereas, the student housing, hospitality and leisure sectors have been more severely affected, resulting from lockdown measures and restrictions on international travel. There is, however, a renewed sense of optimism surrounding these sectors, driven largely by increasing vaccination rates; however, progress is mixed.
The latest investment volume data for 2021 demonstrates a stable recovery, with the monthly figure now within 10.0% of the five-year average. This is particularly encouraging given that the year end volume for 2020 (GBP42.7bn) was 15.0% below the 2019 figure and the lowest annual volume since 2012. The investment volume for 2020 was largely buoyed by the fourth quarter, which contributed GBP19.4bn, a 6.0% increase compared Q4 2019. (3)
The 'All Property Yield' as of May 2021 is ca. 5.2% compared to ca. 5.3% at the same time last year. This has largely been driven by e-commerce which continues to strengthen, propelling demand for multi-let industrial, distribution warehouses and retail warehouses. This in turn has resulted in hardening of transaction yields and growth in investment volumes. Specifically, multi-let industrial has seen 100bps compression compared with the pre-lockdown prime yield, now standing at 3.5% (in line with west end offices). Office and hospitality property transactions remain scarce but reportedly there are signs of recovery with prime yields at 5.0% and 5.3% for provincial offices and regional pubs respectively. Shopping centres, however, remain under pressure having seen yields move out by 150bps year on year to 6.8%. (4)
It is expected that investment activity will recuperate in the second half of 2021, following the easing of lockdown restrictions. Additionally, according to RICS commercial survey (Q1 2021) most surveyors reported a rise in investment enquiries. However, factors such as debt availability will likely weigh on investors as lenders will become more cautious. (5)
The outlook for 2021 investment volumes stands just above GBP50.0bn, which is a ca. 20.0% increase from 2020. It is expected that upcoming investment themes will include the rebalancing of portfolios away from underperforming sectors such as retail and secondary offices. In return, investors are increasingly targeting the alternative sectors, such as life sciences and data centres. These specialised sectors have proved to be resilient throughout the COVID-19 pandemic. Globally, investors see the UK as a leader in life sciences and thus, they are increasingly keen to deploy capital. Data centres are also receiving increased attention, underpinned by demand for flexible work patterns and cloud computing. Lastly, there is also a growing interest from investors in operational assets and the living sector. (6)
A global pandemic, Brexit transition and ongoing economic slowdown has seen central banks keep interest rates low. Despite economic uncertainty, the UK property market continues to deliver healthy spreads over government bond yields, both in absolute terms and relative to other markets. This, coupled with post-pandemic inflationary pressure is further securing the appeal of index-linked income, as well as growth sectors linked to social infrastructure such as distribution, last-mile logistics, supermarkets, and the living sector.
Portfolio Activity during the Year
The following asset management initiatives were undertaken during the year:
-- Rent Reviews: A total of nine rent reviews took place during the period with a combined uplift of GBP106,372 representing a 1.64% increase in contracted rent across the portfolio.
-- Droitwich: Droitwich Spa Retail Park was acquired for GBP4.75 million on 2 December 2020.
-- Dudley: Licence to Alter is imminent in respect of a major investment by Meridian Steel in their Dudley operation. They are spending circa GBP3.5m on new machinery and cranes.
-- Huddersfield: Network Rail are proposing electrification of the adjacent rail track. Part of the property, adjacent to the road, is identified for compulsory purchase.
-- Pocket Nook Estate, St Helens: Discussions are ongoing with Boulting Group for a lease extension of 3/5 years on expiry of their lease in April 2022 at an increased rent. Terms have also been agreed for Boulting Group to take occupation of part of Mr Tox's yard, following his part surrender. Ayrshire Metals have closed their operation in St Helens. They have limited alienation provisions so a joint disposal together with a split of the marriage value is being negotiated.
-- Travelodge, Swindon: Travelodge Hotels Limited filed for a CVA and creditor and shareholder meetings were held on 19 June 2020 with landlords voting in favour of the proposal. Under the CVA, Travelodge Swindon is a Category B hotel and as such 25% of the Q2, Q3 and Q4 2020 rent and 70% of the 2021 rent will be payable. As part of the CVA the landlord has been able to extend the lease by 36 months. 100% rent becomes due from 1 January 2022. Work started in September 2020 to replace the combustible cladding elements uncovered on the external walls of the top floors and rear lift core of the Travelodge Hotel, with non-combustible replacements and to remediate the fire/smoke stopping. The work completed in December 2020 at a cost (including professional fees) of c.GBP1.1 million. The cladding was installed when the property was extended in 2007 and both the architect and cladding sub-contractor involved are being pursued for reimbursement of the costs.
-- North Shields, Wet 'n' Wild was sold for GBP3 million on 31 July 2020.
Financial Results
Net rental income earned from the portfolio for the year was GBP7.21 million excluding service charge and direct recharge (30 June 2020: GBP7.35 million), contributing to an operating profit before fair value changes of GBP6.31 million (30 June 2020: GBP5.80 million).
The portfolio has seen a gain of GBP0.68 million in fair value of investment property during the year (30 June 2020: loss of GBP9.41 million). (7)
Administrative and property operations expenses, which include the Investment Manager's fee and other costs attributable to the running of the Group, were GBP1.32 million for the year excluding service and direct recharges (30 June 2020: GBP1.55 million). Ongoing charges as a percentage of net asset value for the year were 1.27% (30 June 2020: 2.22%).
The Group incurred finance costs of GBP1.42 million during the year (30 June 2020: GBP1.44 million).
The total profit before tax for the year of GBP5.57 million (30 June 2020: loss before tax of GBP5.05 million) equates to a basic profit per share of 6.92 pence (30 June 2020: loss of 6.27 pence).
EPRA EPS for the year was 5.55 pence which, based on dividends declared of 5.14 pence, reflects a dividend cover of 108.0% (30 June 2020: EPRA earnings of 5.42 pence, dividends declared of 5.00 pence and dividend cover of 108.4%).
Adjusted EPRA EPS for the year which equates to cash generated from operations (and therefore excludes movements in accrued minimum contracted uplifts, the amortisation of loan arrangement fees and movements in the provision for impairment of trade receivables) were 5.07 pence which, based on dividends declared of 5.14 pence, reflect a dividend cover of 98.6% (30 June 2020: Adjusted earnings per share of 4.25 pence, dividends declared of 5.00 pence and dividend cover of 85.0%).
The Group's NAV as at 30 June 2021 was GBP68.89 million or 85.58 pps (30 June 2020: GBP67.29 million or 83.58 pps). This is an increase of 2.00 pps or 2.4 % over the year, with the underlying movement in NAV set out in the table below:
Year ended Year ended 30 June 2021 30 June 2020 Pence per GBP million Pence share per share GBP million ---------- ------------ -------- ------------ NAV as at beginning of year 83.58 67.29 94.81 76.32 Gain on disposal of investment property 0.53 0.42 - - Change in fair value of investment property 0.85 0.68 (11.69) (9.41) Income earned for the year 9.20 7.41 9.70 7.81 Finance costs for the year (1.77) (1.42) (1.79) (1.44) Other expenses for the year (1.89) (1.52) (2.50) (2.01) Dividends paid during the year (4.92) (3.97) (4.95) (3.98) NAV as at the end of the year 85.58 68.89 83.58 67.29 ---------- ------------ -------- ------------
Improvement in valuation
There has been an overall 4.3% increase in the portfolio valuation since 30 June 2020. When removing Droitwich Spa Retail Park, Droitwich and analysing the core 18 assets that were held over the period, this figure becomes 2.1%. There have been valuation improvements across the portfolio's industrial assets, as this is an asset class that has continued to perform well during the COVID-19 pandemic. Additionally, there has been a GBP1.7 million increase in value at Travelodge, Swindon predominantly driven by the completion of the cladding rectification works.
Dividends
Refer to Note 9 of the Consolidated Financial Statements for details.
Financing
As at 30 June 2021, the Group had fully utilised its GBP41 million loan facility with Canada Life Investments (30 June 2020: GBP41 million facility fully utilised). This term facility, which is repayable on 20 October 2025, allows up to 35% loan to property value at drawdown and is provided on a portfolio basis and has a loan to value covenant of 60%.
The weighted average interest cost of the Group's GBP41 million facility is 3.19% (30 June 2020: 3.19%).
Notes
1. Capital Economics - UK Economic Outlook 15(th) April 2021. 2. REMark Report July 2021, Remit Consulting 3. JLL - UK Capital Markets Review & Outlook 2020/2021 4. Savills - UK Commercial, Market in Minutes - May 2021 5. Capital Economics - UK Commercial Property 30 April 2021 6. JLL - UK Capital Markets Review & Outlook 2020/2021
7. The fair value decrease includes accounting adjustments relating to rent smoothing of (GBP0.60m) and movement in finance lease obligation of GBP0.05m.
Summary by Sector as at 30 June 2021
Gross Passing Market Occupancy WAULT to Rental Number Valuation Value by ERV break Income ERV of Sector Properties (GBPm) (%) (%) (years) (GBPm) (GBPm) (%) ------------------------ ----------- ---------- ------- ---------- --------- -------- ------- ------ Industrial 4 22.15 20.3 100 24.0 1.51 1.44 20.8 Hotel 3 20.85 19.1 100 14.5 1.37 1.43 20.6 Automotive & Petroleum 3 17.40 15.9 100 11.0 1.13 1.11 16.0 Healthcare 3 18.38 16.8 100 27.5 1.10 1.10 15.8 Student Accommodation 1 12.30 11.3 100 20.1 0.66 0.65 9.6 Leisure 2 5.75 5.3 100 8.3 0.37 0.39 5.6 Retail 1 5.15 4.7 100 6.0 0.40 0.38 5.4 Power Station 1 5.15 4.7 100 10.7 0.30 0.30 4.3 Education 1 2.10 1.9 100 22.6 0.13 0.13 1.9 Total/Average 19 109.23 100 100 17.8 6.97 6.93 100 ----------- ---------- ------- ---------- --------- -------- ------- ------
Summary by Geographical Area as at 30 June 2021
Gross Passing Market Occupancy WAULT to Rental Geographical Number Valuation Value by ERV break Income ERV of Area Properties (GBPm) (%) (%) (years) (GBPm) (GBPm) (%) ------------------------- ----------- ---------- ------- ---------- --------- -------- ------- ------ West Midlands 4 26.90 24.6 100 13.2 1.86 1.41 20.5 North West & Merseyside 2 21.70 19.9 100 35.8 1.22 1.18 17.0 South East excluding London 4 18.55 17.0 100 11.6 1.07 1.06 15.2 South West 2 12.70 11.6 100 24.3 0.69 0.81 11.7 Yorkshire and the Humber 2 11.53 10.6 100 12.5 0.81 1.19 17.2 Scotland 1 6.95 6.4 100 15.2 0.65 0.59 8.5 London 1 5.75 5.3 100 8.3 0.37 0.39 5.6 Eastern 3 5.15 4.6 100 10.7 0.30 0.30 4.3 ------------------------- ----------- ---------- ------- ---------- --------- -------- ------- ------ Total/Average 19 109.23 100 100 17.8 6.97 6.93 100 ------------------------- ----------- ---------- ------- ---------- --------- -------- ------- ------
The table below illustrates the weighting of the Group's contracted rental income, based on the type of rent review associated with each lease.
Income Allocation by Type Inflation linked - RPI 65.0% Open Market Value Reviews 13.0% Inflation linked - CPI 22.0%
Property Portfolio
Property Portfolio as at 30 June 2021
Market Value Property Sector Region (GBPm) ----------------------------------- ------------------------ ------------------------- -------- 1. Bramall Court, Salford Student Accommodation North West & Merseyside 12.30 2. Pocket Nook Industrial Estate, St Helens Industrial North West & Merseyside 9.40 South East excluding 3. Premier Inn, Camberley Hotel London 8.10 4. Motorpoint, Birmingham Automotive & Petroleum West Midlands 7.80 5. Grazebrook Industrial Estate, Dudley Industrial West Midlands 7.00 6. Mercure City Hotel, Glasgow Hotel Scotland 6.95 Yorkshire and the 6. Prime Life Care Home, Solihull Healthcare Humber 6.95 8. Silver Trees, Bristol Healthcare South West 6.90 9. Travelodge, Duke House, Swindon Hotel South West 5.80 10. Trident Business Park, Yorkshire and the Huddersfield Automotive & Petroleum Humber 5.30 11. Droitwich Spa Retail Park, Droitwich Retail West Midlands 5.15 11. Hoddesdon Energy, Hoddesdon Power Station Eastern 5.15 13. Prime Life Care Home, Yorkshire and the
Brough Healthcare Humber 4.53 14. Applegreen Petrol Station, South East excluding Crawley Automotive & Petroleum London 4.30 15. Unit 2, Dolphin Park, South East excluding Sittingbourne Industrial London 4.05 16. Pure Gym, London Leisure London 3.85 South East excluding 17. YMCA Nursery, Southampton Education London 2.10 18. Snap Fitness, London Leisure London 1.90 19. Unit 14, Provincial Park, Yorkshire and the Sheffield Industrial Humber 1.70
Tenants as at 30 June 2021
% of Annual Portfolio Contracted Total Rental Passing Income Rental Expiry Break Tenant Property (GBP '000) Income date date ------------------------------- ---------------------------------- ----------- ---------- ----------- ----------- Grazebrook Industrial Estate, Meridian Steel Ltd Works 1 & 2, Dudley 688 9.9 21/05/2027 - Prime Life Ltd Prime Life Care Home, Brough 680 9.8 21/11/2048 - Mears Group Plc Bramall Court, Salford 655 9.4 16/08/2041 - Jupiter Hotels Ltd Mercure City Hotel, Glasgow 650 9.3 31/08/2036 - Motorpoint Ltd Motorpoint, Birmingham 500 7.2 24/06/2037 - Premier Inn Hotels Ltd Premier Inn, Camberley 449 6.4 24/03/2037 25/03/2032 Handsale Ltd Silver Trees, Bristol 421 6.0 14/01/2049 - Volkswagen Group United Trident Business Park, Audi, Kingdom Ltd Huddersfield 396 5.7 13/07/2025 - Hoddesdon Energy Ltd Hoddesdon Energy, Hoddesdon 300 4.3 26/02/2050 27/02/2032 Droitwich Spa Retail Park, B&M Bargains Droitwich 272 3.9 31/08/2029 - Pocket Nook Industrial Estate, Biffa Waste Services Ltd St Helens 267 3.8 31/03/2134 - Dore Metal Services Southern Unit 2, Dolphin Park, Ltd Sittingbourne 262 3.8 12/09/2033 13/09/2028 Travelodge Hotels Ltd Duke House, Swindon 245 3.5 31/05/2041 - Pure Gym Ltd Pure Gym, London 236 3.4 10/12/2032 11/12/2027 Applegreen Petrol Station, Petrogas Group UK Ltd Crawley 234 3.4 16/07/2033 - Sec. of State for Communities Pocket Nook Industrial Estate, & Local Gov'mt St Helens 154 2.2 29/01/2048 30/01/2023 Droitwich Spa Retail Park, Pets at Home Droitwich 131 1.9 13/01/2023 - MSG Life Realty Ltd Snap Fitness, London 130 1.9 28/03/2033 - YMCA Fairthorne Group YMCA Nursery, Southampton 130 1.9 17/02/2044 - Pocket Nook Industrial Estate, Boulting Group Ltd St Helens 123 1.8 04/04/2022 - The Salvation Army Trustee Company Duke House, Swindon 22 0.3 17/07/2032 - Mr Tox Recovery Specialist Pocket Nook Industrial Estate, Ltd St Helens 20 0.3 04/12/2033 05/12/2028
*GBP245,000 pa from 1 January 2021 rising to GBP403,147.65 pa from 1 January 2022.
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) when performing their duty under s172 and forms the directors' statement required under section 414CZA of the Act.
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 on page 44.
Stakeholder Issues of importance Engagement Effect of engagement on key decisions Shareholders Shareholder engagement is set out above. The effect of The Group's * Strong total shareholder return shareholder investment engagement has objective is fed into each to deliver * Dividend cover and target aspect of the an Board's attractive decision-making. total return * Long-term income stream linked to inflationary growth Shareholders to have been shareholders temporarily . * Robust corporate governance structure and impacted through Shareholders well-performing service providers a limited are directly reduction of the impacted by interim the * Strategic direction of the Company dividends performance due to the wider of the effects of the Company both COVID-19 through pandemic. equity However, the growth total aggregate and dividends dividends. for the year
have increased compared to the prior year and the Board has also worked to keep expenses at a reduced level to optimise total shareholder return. ------------------------------------------------------------ ---------------------------------------------------------- ----------------- Service Clear and Providers * Reputation of the Company, including its impact on * Effective and consistent engagement both through effective In the the community, environment, and maintaining high formal Board meetings and regularly outside the strategic second half standards of business conduct meetings with the Board oversight by the of the Board has been previous crucial to year, the * Fair and transparent service agreements enhancing the Board made effectiveness several of the Company's changes to * Effective relationship with the Board and other key key service its key service providers providers. The service Board has worked providers. closely with its Whilst service keeping providers expenses at to maintain and a reduced continually level, it is improve confident processes to that the ensure that the service Company receives providers best value have and good quality performed service. well and have improved its corporate governance processes. ------------------------------------------------------------ ---------------------------------------------------------- ----------------- Tenants Due to the Tenants with * Working closely during the COVID-19 pandemic with the * Regular dialogue with the Investment Adviser, ongoing impact strong Group's service providers, and offering assistance Property Manager and other key service providers as of the COVID-19 business where required appropriate pandemic, the fundamentals Board has and recognised the profitable * Fair lease terms * The service providers have developed an effective challenges operations working relationship with the Company's tenants faced by tenants are one of and has granted the key * Long-term strategy and alignment with the tenant's concessions for components business operations a limited period to ensure a for some tenants consistent to settle income rent monthly, stream and the objective ability to being to provide pay proportional dividends to assistance to the those tenants Company's whose shareholders operations were materially impacted. Despite this and the Travelodge CVA, the Board delivered an increased total aggregate
dividend for the year compared to the prior year. ------------------------------------------------------------ ---------------------------------------------------------- -----------------
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 Alternative Investment Fund Manager ('AIFM') and, where appropriate, the Investment Adviser. The Group's ongoing risk management process is designed to identify, evaluate and mitigate the significant risks the Group faces.
Twice each year, the Board undertakes a risk review with the assistance of the Audit Committee, to assess the adequacy and effectiveness of the AIFM's and, where appropriate, the Investment Adviser's risk management and internal control processes.
The Board has carried out an assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
An analysis of the principal risks and uncertainties is set out in the table below. This does not purport to be exhaustive as some risks are not yet known and some risks are currently not deemed material but could turn out to be material in the future.
PRINCIPAL RISKS AND THEIR ------------------------------- ---------------------------- POTENTIAL IMPACT HOW RISK IS MANAGED RISK ASSESSMENT -------------------------------- ------------------------------- ---------------------------- REAL ESTATE RISKS 1. Tenant default Failure by tenants Our investment policy Probability: Moderate to comply with their limits our exposure to high rental obligations to any one tenant could affect the income to 15% of Gross Asset Impact: High that the properties Value. Our maximum earn and the ability exposure to any one Movement: Decrease of the Group to pay tenant (calculated in probability from dividends to its shareholders. by GAV) is 9.8% as high to moderate to at 30 June 2021. The high as a result of Where the COVID-19 Group benefits from the strong and resilient pandemic has a material a balanced portfolio rent collection throughout impact on a tenant's with a diversified the portfolio, easing business, tenants may tenant base and is of lockdown measures be unable to comply therefore not reliant and tenants demonstrating with rental obligations. on a single tenant their ability to meet or sector. agreed payment plans In the due diligence process prior to acquiring a property, covenant checks are carried out on tenants which are repeated on a regular basis. The Investment Adviser and Property Manager conduct ongoing monitoring and liaison with tenants to manage potential bad debt risk. During the COVID-19 pandemic the Group has, where appropriate, granted concessions for a limited period to certain tenants to settle their rent monthly. 2. Portfolio concentration Any downturn in the The Group has investment Probability: Low UK and its economy restrictions in place to moderate or regulatory changes to invest and manage in the UK could have its assets with the Impact: Low to moderate a material adverse objective of spreading effect on the Group's and mitigating risk. Movement: No change operations or financial condition. Greater concentration of investments in any sector or exposure to the creditworthiness of any one tenant or tenants may lead to greater volatility in the value of the Group's investments, NAV and the Company's share price. 3. Property defects Due diligence may not The Group's due diligence Probability: Moderate identify all the risks relies on the work and liabilities in (such as legal reports Impact: Moderate respect of an acquisition on title, property (including any environmental, valuations, environmental, Movement: No change structural or operational building surveys) defects) that may lead outsourced to third to a material adverse parties that have effect on the Group's appropriate Professional profitability, the Indemnity cover in NAV and the Company's place. share price. 4. Rate of inflation Rent review provisions The inflation linked Probability: Low may have contractual (RPI/CPI) leases in limits to the increases the portfolio have Impact: Low to moderate that may be made as contractual rent review a result of the rate collars, with the Movement: No change of inflation. If inflation lowest floor being is in excess of such 0%, and caps that contractual limits, range from 3% to no the Group may not be cap. The caps are able to deliver targeted in excess of RPI and returns to shareholders. CPI forecasts during the next five-year rent review cycle and therefore based on forecasts, the risk is somewhat mitigated. 5. Property market Any recession or future The Group has investment Probability: Moderate deterioration in the restrictions in place to high property market could, to invest and manage inter alia, (i) lead its assets with the Impact: Moderate to an increase in tenant objective of spreading to high defaults, (ii) make and mitigating risk. it difficult to attract Movement: No change new tenants for its Most of the leases properties, (iii) lead provide a relatively to a lack of finance long unexpired term available to the Group, and contain upward (iv) cause the Group only rent reviews to realise its investments which are linked to at lower valuations; either RPI or CPI. and (v) delay the timings Because of these factors, of the Group's realisations. the Group expects that the assets will Any of these factors show less volatile could have a material valuation movement adverse effect on the over the long term. ability of the Group to achieve its investment objective. 6. Property valuation Property is inherently The Group uses an Probability: Low difficult to value independent valuer to moderate due to the individual (Knight Frank LLP) nature of each property. to value the properties Impact: Moderate on a quarterly basis to high There may be an adverse at fair value in accordance effect on the Group's with accepted RICS Movement: Decrease profitability, the appraisal and valuation in probability from NAV and the Company's standards. moderate to low to share price in cases moderate due to material where properties are uncertainty clause sold whose valuations being removed from have previously been Knight Frank's valuation materially overstated. as at 30 June 2021 7. Investments are illiquid The Group invests in The Group aims to Probability: Moderate
commercial properties. hold the properties Such investments are for long-term income. Impact: Moderate illiquid; they may be difficult for the Movement: No change Group to sell and the price achieved on any realisation may be at a discount to the prevailing valuation of the relevant property. BORROWING RISKS 8. Breach of borrowing covenants The Group has entered The Group monitors Probability: Low into a term loan facility. the use of borrowings on an ongoing basis Impact: High Material adverse changes through regular cash in valuations and net flow forecasting and Movement: No change income may lead to quarterly risk monitoring breaches in the LTV to monitor financial and interest cover covenants. ratio covenants. The Group's gearing If the Group is unable at 30 June 2021 was to operate within its 36.3%, below our maximum debt covenants, this gearing (on a GAV would lead to default basis on drawdown) and the loan facility of 40% and materially being recalled. This below the loan's default could result in the covenant of 60%. Borrowing Group selling properties is carefully monitored to repay the loan facility. by the Group, and action will be taken to conserve cash where necessary to ensure that this risk is mitigated. There is significant headroom in the LTV and interest cover covenants in the loan agreement. CORPORATE RISKS 9. Failure of service providers The Group has no employees The performance of Probability: Low and is reliant upon service providers to moderate the performance of in conjunction with third-party service their service level Impact: Moderate providers. agreements is monitored to high regularly and the Failure by any service use of Key Performance Movement: Decrease provider to carry out Indicators, where in probability from its obligations to relevant. moderate to low to the Group in accordance moderate. The Board with the terms of its The Management Engagement has lowered this risk appointment could have Committee reviews due to the continued a materially detrimental the performance and strong performance impact on the operation continuing appointment of the Group's current of the Group. of service providers service providers on an annual basis. Should the Group pursue litigation against service providers, there is a risk that the Company may incur costs that are irrecoverable if litigation is unsuccessful. 10. Dependence on the Investment Adviser The future ability The Board meets regularly Probability: Moderate of the Group to successfully with, and monitors, pursue its investment all of its service Impact: Moderate objective and investment providers, including policy may, among other the Investment Adviser, Movement: No change things, depend on the to ensure close positive ability of the service working relationships providers to retain are maintained. its existing staff and/or to recruit individuals The dependence on of similar experience the Investment Adviser and calibre, and effectively is managed through carry out its services. segregating the roles of AIFM and Investment Adviser. 11. Ability to meet objectives The Group may not meet The Group has an investment Probability: Low its investment objective policy to achieve to moderate to deliver an attractive a balanced portfolio total return to shareholders with a diversified Impact: High from investing predominantly tenant base. This in a portfolio of smaller is reviewed by the Movement: No change commercial properties Board at each scheduled in the UK. Board meeting. Poor relative total The Group's property return performance portfolio has a WAULT may lead to an adverse to break of 17.8 years reputational impact and a WAULT to expiry that affects the Group's of 19.8 years. Further, ability to raise new over 87.0% of leases capital and new funds. have inflation linked upwards only rent reviews, representing a secure income stream on which to deliver attractive total returns to shareholders. TAXATION RISK 12. Group REIT status The Group has UK REIT The Company monitors Probability: Low status that provides REIT compliance through a tax-efficient corporate the Investment Adviser Impact: High structure. and Administrator on acquisitions and Movement: No change If the Group fails disposals and distribution to remain a REIT for levels; the Registrar UK tax purposes, its and Broker on shareholdings profits and gains will and third party tax be subject to UK corporation advisors to monitor tax. REIT compliance requirements. Any change to the tax status or in UK tax legislation could impact on the Group's ability to achieve its investment objectives and provide attractive returns to shareholders. POLITICAL/ ECONOMIC RISKS 13. Political and macroeconomic The Group only invests Probability: Moderate events present risks in UK properties with to high to the real estate strong alternative and financial markets use values and long Impact: Moderate that affect the Group leases so the portfolio to high and the business of is well positioned our tenants. to withstand an economic Movement: Decrease downturn. in probability from The economic disruption high to moderate to arising from the COVID-19 high due to the roll pandemic in addition out of the vaccine to any arrangements programme and removal made, or lack thereof, of national lockdown between the UK and measures throughout the EU following the the UK end of its transition period could impact the ability of the Group to raise capital and/or increase the regulatory compliance burden on the Group.
EMERGING RISKS
Introduction of, or amendment to, laws and regulations (especially in relation to climate change)
The global ambition for a more sustainable future has never been greater, particularly in light of recent events such as the COVID-19 pandemic and various climate-related events across the globe. There is increasing pressure for governments and authorities to enforce environmental-related legislation, which may require the Company to adapt its properties in line with legislation in future. The Board will continue to monitor ongoing legal and regulatory developments.
EXTRACTS FROM DIRECTORS' REPORT
Going Concern
The Group has considered its cash flows, financial position, liquidity position and borrowing facilities.
The Group's unrestricted cash balance as at 30 June 2021 was GBP2.12 million, of which GBP0.66 million was readily available for potential investments. As at 30 June 2021, the Group had headroom against its borrowing covenants. The Group is permitted to utilise up to 40% of GAV measured at drawdown with a Loan to GAV of 36.30% as at 30 June 2021.
A 'severe but plausible downside' scenario has also been projected. While rent collections have been strong, this scenario anticipates further rent deferrals and write-offs where tenants would have difficulty paying rents from operational cash flows. In this scenario the Group still has adequate headroom against the interest cover covenant and positive cash balances. Further detail of the assumptions made in assessing the adaption of Group's going concern basis can be found in Note 2.
The Group benefits from a secure, diversified income stream from leases which are not overly reliant on any one tenant or sector. As a result, the Directors believe that the Group is well placed to manage its financing and other business risks. The Directors believe that there are currently no material uncertainties in relation to the Group's and Company's ability to continue for 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 2024, 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 Company's viability over this three year period include:
1. The current unexpired term under the Group's debt facilities stands at 4.3 years.
2. The Group's property portfolio had a WAULT to break of 17.8 years and a WAULT to expiry of 19.8 years as at 30 June 2021, 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 patterns and therefore three years allow for the forecasts to include the reversion arising from most rent reviews.
The three year review considers the Company's cash flows, dividend cover, REIT compliance and other key financial ratios over the period. In assessing the Company's viability, the Board has carried out a thorough review of the Company's business model, including future performance, liquidity and banking covenant tests for a three year period. In particular relating to the impact of the COVID-19 pandemic, the Directors have assessed the extent of any operational disruption; potential curtailment of rental receipts; potential liquidity and working capital shortfalls; and diminished demand for Company's assets going forward, in adopting a going concern preparation basis and in assessing the Company's longer-term viability. The viability statement has been prepared assuming that the continuation vote in 2022 will be passed.
These assessments are subject to sensitivity analysis, which involves flexing a number of key
assumptions and judgements included in the financial projections:
-- The anticipated level of rents deferred or written off due to the impact of the COVID-19 pandemic;
-- Tenant default; -- Dividend payments; and -- Property portfolio valuation movements.
Based on the prudent assumptions within the Company's forecasts regarding rent deferrals, tenant default, void rates and property valuation movements, the Directors expect that over the three year period of their assessment:
-- LTV covenants will not be breached - as at 30 September 2021, the asset valuations and rental income of the 17 properties secured to Canada Life would need to fall by 18% and 24% respectively before breaching the Loan to Value loan and Income Cover Cash Trap covenants respectively;
-- REIT tests are complied with; and
-- That the Group and Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.
Board Approval of the Strategic Report
The Strategic Report has been approved and signed on behalf of the Board by:
Alan Sippetts
Chairman
29 September 2021
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 international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ("EU") and Article 4 of the IAS Regulations. The Directors have elected to prepare the parent Company financial statements in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework.
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 international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union ("EU") and Article 4 of the IAS Regulations subject to any material departures disclosed and explained in the financial statements;
-- 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 parent Company's transactions and disclose with reasonable accuracy at any time the financial position of 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 to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Report and the Consolidated Financial Statements
We confirm that to the best of our knowledge:
-- the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
-- the Strategic Report and Directors' Report includes 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.
-- We consider the Annual Report and the Consolidated Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
On behalf of the Board
Alan Sippetts
Chairman
29 September 2021
Consolidated Statement of Comprehensive Income For the year ended 30 June 2021 Year ended Year ended 30 June 30 June 2021 2020 Notes GBP'000 GBP'000 Income Rental and other income 3 7,409 7,810 Property operating expense 4 (647) (515) Net rental and other income 6,762 7,295 Other operating expenses 4 (876) (1,492) Operating profit before fair value changes and gain on sale 5,886 5,803 Change in fair value of investment properties 10 682 (9,411) Gain on disposal of investment property 12 425 - Operating profit/(loss) 6,993 (3,608) Finance expenses 6 (1,421) (1,442)
Profit/(loss) before tax 5,572 (5,050) Taxation 7 - - Profit/(loss) and total comprehensive income/(loss) for the year 5,572 (5,050) --------------------- --------------------- Earnings/(loss) per share (pence per share) (basic and diluted) 8 6.92 (6.27) --------------------- --------------------- EPRA EPS (pence per share) (basic and diluted) 8 5.55 5.42 --------------------- --------------------- Adjusted EPS (pence per share) (basic and diluted) 8 5.07 4.25 --------------------- --------------------- The notes on pages 63 to 82 of the Annual Report form an integral part of these Consolidated Financial Statements. Consolidated Statement of Financial Position As at 30 June 2021 30 June 30 June 2021 2020 Notes GBP'000 GBP'000 Assets Non-current Assets Investment properties 10 107,026 100,273 ---------------------- --------- 107,026 100,273 ---------------------- --------- Current Assets Receivables and prepayments 11 3,682 5,417 Cash and cash equivalents 2,115 2,288 5,797 7,705 ---------------------- --------- Non-current assets held for sale 12 - 2,734 ---------------------- --------- Total Assets 112,823 110,712 ---------------------- --------- Non-current Liabilities Interest bearing loans and borrowings 14 (40,516) (40,417) Lease obligations 15 (335) (373) (40,851) (40,790) ---------------------- --------- Current Liabilities Payables and accrued expenses 13 (3,041) (2,595) Lease obligations 15 (38) (41) (3,079) (2,636) ---------------------- --------- Total Liabilities (43,930) (43,426) ---------------------- --------- Net Assets 68,893 67,286 ---------------------- --------- Equity Share capital 18 805 805 Capital reserve and retained earnings 68,088 66,481 ---------------------- --------- Total capital and reserves attributable to equity holders of the Group 68,893 67,286 ---------------------- --------- Net Asset Value per share (pence per share) 8 85.58 83.58 ---------------------- --------- The notes on pages 63 to 82 of the Annual Report form an integral part of these Consolidated Financial Statements. The financial statements on pages 59 to 82 of the Annual Report were approved by the Board of Directors on 29 September 2021 and were signed on its behalf by: Alan Sippetts Chairman Company number: 10727886 Consolidated Statement of Changes in Equity For the year ended 30 June 2021 Total capital and reserves Capital attributable reserve and to equity Share retained holders of capital earnings the Group Notes GBP'000 GBP'000 GBP'000 For the year ended 30 June 2021 Balance as at 1 July 2020 805 66,481 67,286 Total comprehensive income - 5,572 5,572 Dividends paid 9 - (3,965) (3,965) Balance as at 30 June 2021 805 68,088 68,893 ----------------- --------------- ---------------- For the year ended 30 June 2020 Balance as at 1 July 2019 805 75,516 76,321 Total comprehensive loss - (5,050) (5,050) Dividends paid 9 - (3,985) (3,985) Balance as at 30 June 2020 805 66,481 67,286 ----------------- --------------- ---------------- The notes on pages 63 to 82 of the Annual Report form an integral part of these Consolidated Financial Statements. Consolidated Statement of Cash Flows For the year ended 30 June 2021 Year ended Year ended 30 June 30 June 2021 2020 GBP '000 GBP '000 Cash flows from operating activities Profit/(loss) before tax 5,572 (5,050) Adjustments for: Gain on disposal of investment property (425) - Finance expenses 1,421 1,442 Change in fair value of investment properties (682) 9,411 Operating results before working capital changes 5,886 5,803 ------------ ------------------------ Changes in working capital Decrease/(increase) in other receivables and prepayments 1,735 (4,262) Increase in other payables and accrued expenses 429 694 Net cash flow generated from operating activities 8,050 2,235 ------------ ------------------------ Cash flows from investing activities Purchase of investment property (6,070) - Net proceeds from disposal of investment - properties 3,159 Net cash used in investing activities (2,911) - ------------ ------------------------ Cash flows from financing activities Finance costs paid (1,322) (1,435) Dividends paid (3,949) (4,031) Payment of lease obligation (41) - Net cash used in financing activities (5,312) (5,466) ------------ ------------------------ Net decrease in cash and cash equivalents (173) (3,231) Cash and cash equivalents at start of year 2,288 5,519 ------------ ------------------------ Cash and cash equivalents at end of year 2,115 2,288 ------------ ------------------------ The notes on pages 63 to 82 form an integral part of these Consolidated Financial Statements. Notes to the Consolidated Financial Statements For the year ended 30 June 2021
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 is registered in England and Wales. The registered office of the Company is located at 1 King William Street, London, United Kingdom, EC4N 7AF. The Company's Ordinary Shares were listed on the Official List of the FCA and admitted to trading on the Main Market of the London Stock Exchange on 6 June 2017. The nature of the Group's operations and its principal activities are set out in the Strategic Report. 2. Accounting policies 2.1 Basis of preparation These Consolidated Financial Statements are prepared and approved by the Directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards 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 IAS Regulations. 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. The Consolidated Financial Statements will transition to UK-adopted international accounting standards for financial periods beginning 1 July 2021. These Consolidated Financial Statements have been prepared under the historical-cost convention, except for investment properties that have been measured at fair value. The Consolidated 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 Consolidated 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 Standards effective from 1 June 2020 New standards impacting the Group that have been adopted for the first time in this set of Consolidated Financial Statements are: -- Amendments to IAS 1 "Presentation of Financial Statements" and IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors" -- Revised Conceptual Framework for Financial Reporting The above standards have been assessed to have no significant impact to the Group. -- Amendments to IFRS 3 "Business Combinations", definition of a business. The amendment and interpretation does not have a material impact on the financial statements in the period of initial application. This is because the amendment narrows the definition of a business, however, subsidiaries acquired by the Group to date have all been treated as the acquisition of a group of assets rather than a business as there was not an integrated set of activities acquired in addition to the property. -- Amendments to IFRS 16 regarding COVID-19-related rent concessions were issued in May 2020, for annual reporting periods beginning on or after 1 June 2020. It permits lessees, as a practical expedient, not to assess whether particular rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and instead to account for those rent concessions as if they are not lease modifications. The amendment does not affect lessors. The impact of this amendment is considered immaterial as the Group does not hold any material operating or leasehold agreements as lessee. Standards issued not yet effective 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: -- Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). The amendments provide relief to the Group in respect of certain loans whose contractual terms are affected by interest benchmark reform (effective from 1 January 2021). Applying the practical expedient introduced by the amendments, when the benchmarks are replaced the adjustments to the contractual cash flows will be reflected as an adjustment to the effective interest rate. Therefore,
the replacement of the loans' benchmark interest rate will not result in an immediate gain or loss recorded in profit or loss. The amendment is not expected to have an impact on the presentation or classification of the liabilities in the Group. -- 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 twelve 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. There are other new standards and amendments to standards and interpretations which have been issued that are effective in future accounting periods, and which the Group has decided not to adopt early. None of these are expected to have a material impact on the condensed Consolidated Financial Statements of the Group. 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: Estimates Valuation of investment properties The fair value of investment properties are determined, by external property valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. The Group's properties have been valued on an individual basis. The valuation experts use recognised valuation techniques, applying the principles of both IAS 40 and IFRS13. The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors ('RICS') Valuation. Factors include current market conditions, annual rentals, the contractual terms of the leases and their lengths and location. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in note 10. Provision for expected credit losses ('ECL') of trade receivables Rent collection rates pre-COVID were 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. Judgment 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 management's intention that the Group will continue as a REIT for the foreseeable future. Classification of lease arrangements - the Group as lessor (Note 16) 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 reported by property too. 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 In assessing the Group's going concern assumptions, the Directors have considered the impact of the COVID-19 pandemic on the performance of the business. The Directors have therefore projected the Group's cash flows for the period up to 30 September 2022, 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 Directors note that the Group's debt of GBP41m does not mature until 2025 and the Group has reported full compliance with its loan covenants to date. Based on the cash flow projections, the directors expect to continue to remain compliant with the covenants. The Directors also note that the headroom of the loan to value covenant is significant and any fall in property values that would cause a breach would be significantly more than any currently envisaged. A "severe, but plausible, downside" scenario has also been projected. While rent collections have been strong, this scenario anticipates further rent deferrals and write-offs should tenants would have difficulty paying rents. -- The Directors have modelled rent collection of 80% in Q3 & Q4 2021 and 70% in Q1 2022 recovering to 80% in Q2 2022 and then at 100% onwards.
-- In such a scenario, the assumption is that 50% of these rent deferrals would be written off, with the remainder repaid over the course of 12 months commencing from Q3 2021. This is in addition to the existing payment plans already in place. In this scenario the Group still has adequate headroom against the interest cover covenant and positive cash balances. Having assessed the heightened risks as well as mitigating factors and management strategies available to reduce such risks, the Directors have determined that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements. 2.5 Summary of significant accounting policies The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. a) Functional and presentation currency These Consolidated Financial Statements are presented in Sterling, which is the functional and presentational currency of the Group and its subsidiary undertakings. The functional currency of the Group and its subsidiaries is principally determined by the primary economic environment in which it operates. The Group did not enter into any transactions in foreign currencies during the period. b) Revenue recognition i) Rental income Rental income under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income, which is recognised when it arises. For leases, which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the lease term. Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option. Lease modifications, such as lease extensions and rent reductions, are accounted for either as a separate lease or not a separate lease. A modification will only be treated as a separate lease if it involves the addition of one or more underlying assets at a price that is commensurate with the standalone price of the increase in scope. All other modifications are not treated as a separate lease. If a modification is a separate lease, a lessee applies the requirements of IFRS 16 to the newly added asset, due as a result of the modification, independently of the original lease. The accounting for the original lease continues unchanged. If a modification is not a separate lease, the accounting reflects that there is a linkage between the original lease and the modified lease. The existing lease liability is remeasured with a corresponding adjustment to the right-of-use asset on the effective date of the modification. ii) Service charges and direct recharges Revenue from service charges is recognised in the accounting period in which the service is rendered. For certain service contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because the customer receives and uses the benefits simultaneously. iii) Deferred income Deferred income is rental income received in respect of future accounting periods. (iv) Dilapidation and lease surrender premium Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Consolidated Statement of Comprehensive income when the right to receive them arises. c) Financing income and expenses Financing income comprises interest receivable on funds invested. Financing expenses comprise interest and other costs incurred in connection with the borrowing of funds. Interest income and
interest payable are recognised in profit or loss as they accrue, using the effective interest method which is significantly the same as the contracted interest. d) Investment property Property is classified as investment property when it is held to earn rentals or for capital appreciation or both. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the replacement of that part will prolong or improve the life of the asset. Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included in profit or loss. Investment properties are valued by the external valuer. Any valuation of investment properties by the external valuer must be undertaken in accordance with the current issue of RICS Valuation - Professional Standards (the 'Red Book'). The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and yield applicable to those cash flows. For the purposes of these Consolidated Financial Statements, the assessed fair value is: -- reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives; and -- increased by the carrying amount of leasehold obligations. Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected after its disposal or withdrawal. The profit on disposal is determined as the difference between the net sales proceeds and the carrying amount of the asset at the commencement of the accounting period plus capital expenditure in the period. Any gains or losses on the retirement or disposal of investment property are recognised in profit or loss in the year of retirement or disposal. e) Cash and cash equivalents Cash and short-term deposits in the Consolidated Statement of Financial Position comprise cash at bank and short-term deposits with an original maturity of three months or less. f) Receivables and prepayments Rent and other receivables are initially recognised at fair value and subsequently at amortised cost. Impairment provisions are recognised based on the processed as described in note 2.2. Any adjustment is recognised in profit or loss as an impairment gain or loss. g) Other payables and accrued expenses Other payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost. h) Interest bearing loans and borrowings All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowing costs are amortised over the lifetime of the facilities through profit or loss. i) Provisions A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event that can be reliably measured and is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. j) Dividend payable to shareholders Equity dividends are recognised when they become legally payable. k) Share issue costs The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity. l) Lease obligations
Lease obligations relate to the head rent of investment property and are capitalised at the lease commencement, at the lower of fair value of the property and present value of the minimum lease payments and held as a liability within the Consolidated Statement of Financial Position. The lease payments are discounted using the interest rate implicit in the lease. Where the Group is exposed to potential future increases in variable lease payments based on an index or rate, these are not included in the lease liability until they take effect. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. m) Taxes Corporation tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. As a REIT, the Group is exempt from corporation tax on the profits and gains from its investments, provided it continues to meet certain conditions as per REIT regulations. Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected tax payable on any non-REIT taxable income for the year, using tax rates applicable in the year. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax that is provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the period end date. n) Non-current assets held for sale Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Investment properties classified as such are measured at fair value. o) European Public Real Estate Association The Group has adopted the European Public Real Estate Association ('EPRA') best practice recommendations, which it expects to broaden the range of potential institutional investors able to invest in the Company's Ordinary Shares. For the year ended 30 June 2021, audited EPS and NAV calculations under EPRA's methodology are included in note 8 and further unaudited measures are included on page 89. p) Capital and reserves Share capital Share capital is the nominal amount of the Company's ordinary shares in issue. 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. 3. Rental and other income Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Gross rental income 6,724 6,073 Service charges and direct recharges (see note 4) 199 459 Spreading of minimum contracted future rent indexation 571 720 Spreading of tenant incentives - rent free periods (85) 558 Total rental and other income 7,409 7,810 ----------------------------------------- ----------- 4. Expenses Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Property operating expenses 448 56 Service charges and direct recharges (see note 3) 199 459 Total property operating expenses 647 515 --------------------- ------------------ Investment management fee 269 408 Auditor remuneration 77 120 Provision for impairment of trade receivables - 213 Operating costs* 442 657 Directors' remuneration (note 5) 88 94 Total other operating expenses 876 1,492 --------------------- ------------------ Total operating expenses 1,523 2,007
--------------------- ------------------ * A write-off in the amount of GBP107 ('000) presented as separate line item in prior year accounts has been reclassed to operating cost this year. Audit Statutory audit of Annual Report and Accounts 67 105 Statutory audit of Subsidiary Accounts 10 15 Total fees due to auditor 77 120 --------------------- ------------------ Moore Kingston Smith LLP has replaced KMPG LLP as the auditor for the Group for year ended 30 June 2021. Neither Moore Kingston Smith LLP nor KPMG LLP have provided any non-audit services to the Group. 5. Directors' remuneration Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Directors' fees 78 90 Tax and social security 10 4 Total fees 88 94 --------------------- ----------------------- A summary of the Director's remuneration is set out in the Directors' Remuneration Report on pages 41 to 43 of the Annual Report . The Group had no employees during the period. 6. Finance expenses Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Interest payable on loan 1,307 1,315 Amortisation of loan arrangement fees (note 14) 99 124 Other finance costs 15 3 Total 1,421 1,442 ------------------------- --------------------- 7. Taxation Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Tax charge comprises: Analysis of tax charge in the period Profit/(loss) before tax 5,572 (5,050) ----------------------- ---------------------- Theoretical tax/(tax credit) at UK corporation tax standard rate of 19.00% (2020: 19.00%) 1,059 (960) Effects of tax exempt items under the REIT regime (1,059) 960 Total - - ----------------------- ---------------------- The Group maintained its REIT status and as such, no deferred tax asset or liability has been recognised in the current period. Factors that may affect future tax charges Due to the Group's status as a REIT and the intention to continue meeting the conditions required to retain approval as a REIT in the foreseeable future, the Group has not provided deferred tax on any capital gains or losses arising on the revaluation or disposal of investments. 8. Earnings/ (loss) per share (EPS) and Net Asset Value (NAV) per share Year ended Year ended 30 June 30 June 2021 2020 Earnings/(loss) per share: Total comprehensive income/(loss) (GBP'000) 5,572 (5,050) --------------------- -------------------------- Weighted average number of shares (Number) 80,500,000 80,500,000 Earnings/(loss) per share (basic and diluted) (pence) 6.92 (6.27) --------------------- -------------------------- EPRA EPS: Total comprehensive income/(loss) (GBP'000) 5,572 (5,050) Adjustment: Change in fair value of investment properties (GBP'000) (682) 9,411 Gain on disposal of investment (425) - property (GBP'000) EPRA earnings (basic and diluted) (GBP'000) 4,465 4,361 --------------------- -------------------------- EPRA EPS (basic and diluted) (pence) 5.55 5.42 --------------------- -------------------------- Year ended Year ended 30 June 30 June 2021 2020 Adjusted EPS: EPRA earnings (basic and diluted) (GBP'000) - as above 4,465 4,361 --------------------- ---------------------- Adjustments: Rental income recognised in respect of guaranteed fixed rental uplifts (GBP'000) (571) (720) Rental income recognised in respect of rent free periods (GBP'000) 85 (558) Amortisation of loan arrangement fee (GBP'000) 99 124 Provision for impairment of trade receivables (GBP'000) - 213 Adjusted earnings (basic and diluted) (GBP'000) 4,078 3,420 --------------------- ---------------------- Adjusted EPS (basic and diluted) (pence)* 5.07 4.25 --------------------- ---------------------- * 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. Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 NAV per share: Net assets value (GBP'000) 68,893 67,286 --------------------- ---------------------- Ordinary Shares (Number) 80,500,000 80,500,000 NAV per share (pence) 85.58 83.58 --------------------- ---------------------- EPRA NAV and EPRA NNNAV (refer to Glossary) are equal to the NAV presented in the Consolidated Statement of Financial Position under IFRS and there are no adjusting items. Accordingly, a reconciliation between these measures does not need to be provided. EPRA Net Asset Value metrics
In October 2019, the European Public Real Estate Association (EPRA) updated its Best Practice Recommendations (BPR) for financial disclosures by public real estate companies. The BPR introduced three new measures of net asset value: EPRA Net Reinvestment Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV).The Group has adopted these new guidelines and applies them in this Annual Report. EPRA NTA and EPRA EPRA NRV NDV As at 30 June 2021 Net assets value (GBP'000) 68,893 68,893 Purchasers' cost (GBP'000) 7,100 - Break cost on bank borrowings (GBP'000) (3,467) (3,467) --------------------- ---------------------- 72,526 65,426 Ordinary Shares (Number) 80,500,000 80,500,000 Per share measure (pence) 90.09 81.27 --------------------- ---------------------- EPRA NTA and EPRA EPRA NRV NDV As at 30 June 2020 Net assets value (GBP'000) 67,286 67,286 Purchasers' cost (GBP'000) 7,857 - Break cost on bank borrowings (GBP'000) (5,262) (5,262) --------------------- ---------------------- 69,881 62,024 Ordinary Shares (Number) 80,500,000 80,500,000 Per share measure (pence) 86.81 77.05 --------------------- ---------------------- 9. Dividends paid Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Fourth interim dividend declared and paid in respect of the quarter ended 30 June 2020 at 1.425p per Ordinary Share (Quarter ended 30 June 2019 at 1.375p per Ordinary Shares*) 1,147 1,107 First interim dividend declared and paid in respect of the quarter ended 30 September 2020 at 1.25p per Ordinary Share (Quarter ended 30 September 2019 at 1.375p per Ordinary Share) 1,006 1,107 Second interim dividend declared and paid in respect of the quarter ended 31 December 2020 at 1.00p per Ordinary Share (Quarter ended 31 December 2019 at 1.375p per Ordinary Share) 805 1,107 Third interim dividend declared and paid in respect of the quarter ended 31 March 2021 at 1.25p per Ordinary Share (Quarter ended 31 March 2020 at 0.825p per Ordinary Share) 1,007 664 Total dividends declared and paid during the year** 3,965 3,985 --------------------- -------------------- Fourth interim dividend declared and paid in respect of the quarter ended 30 June 2020 at 1.425p per Ordinary Share (Quarter ended 30 June 2019 at 1.375p per Ordinary Shares*) (1,147) (1,107) Fourth interim dividend declared and paid in respect of the quarter ended 30 June 2021 at 1.64p per Ordinary Share (Quarter ended 30 June 2020 at 1.425p per Ordinary Shares*) 1,320 1,147 Total dividends in respect of the year 4,138 4,025 --------------------- -------------------- Total dividends in respect of the year (pence per share) 5.14 5.00 --------------------- -------------------- * Dividends declared after the year end are not included in the Consolidated Financial Statements as a liability. ** Dividends paid per cash flow statement amount to GBP3,949 (GBP'000), the difference between the amount disclosed above is due to withholding tax. 10. Investments 10.1 Investment properties 30 June 30 June 2021 2020 Freehold Leasehold Investment Investment properties properties Total Total GBP'000 GBP'000 GBP'000 GBP'000 UK Investment properties At the beginning of the year 87,130 14,780 101,910 112,990 Acquisition during the year 6,070 - 6,070 - Reclassification between assets* (18,658) 18,658 - - Adjustment on cost - - - (143) Change in value of investment properties 1,230 20 1,250 (8,087) Non-current asset held for sale (note 12) - - - (2,850) Valuation provided by Knight Frank LLP 75,772 33,458 109,230 101,910 ---------------- --------------------- ----------------------- ------------------- Adjustment to fair value for minimum rent indexation of lease income (note 11) (2,709) (2,224) Reclassification to non-current asset held for sale (note 12) - 116 Adjustment for lease obligations 505 471 Total investment properties 107,026 100,273 ----------------------- ------------------- Change in fair value of investment properties Change in fair value before adjustments for lease incentives and lease obligations 1,250 (8,087) Movement in lease obligations 34 (46) Adjustment to spreading of contracted future rent indexation and tenant incentives (602) (1,278) 682 (9,411) ----------------------- ------------------- *Following a review of the classification of the Group's properties, Bramall Court and Grazebrook Industrial Estate has been reclassified as Leasehold as reflected above in the current year consolidated financial statements. 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 outbreak of COVID-19, has and continues to impact on many aspects of daily life and the global economy - with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel, movement and operational restrictions have been implemented in many countries. In some cases, "lockdowns" have been applied to varying degrees and to reflect further "waves" of COVID-19; although these may imply a new stage of the crisis, they are not unprecedented in the same way as the initial impact. The pandemic and the measures taken to tackle COVID-19 continue to affect economies and real estate markets globally. Nevertheless, as at the valuation date property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate quantum of market evidence exists upon which to base opinions of value. Accordingly, and for the avoidance of doubt, valuations are not reported as being subject to "material valuation uncertainty" as defined by VPS3 and VPGA 10 of the RICS Valuation - Global Standards. In preparing their valuations, our valuers have considered the impact of concessions agreed with tenants at the balance sheet date, which mainly relate to rent deferrals and rent reductions, on valuations. They have also given consideration to occupiers in higher risk sectors, and those assumed to be at risk of default, in determining the appropriate yields to apply. At 30 June 2020, Knight Frank LLP's external valuation reports included a "material valuation uncertainty" declaration, which emphasised that less certainty - and a higher degree of caution - should be attached to the valuations than would normally be the case. In light of this, we reviewed the ranges used for our sensitivity analysis, and adopted expanded ranges to reflect this increased uncertainty. No such declaration was included in our valuation reports at 30 June 2021, with our external valuers concluding that there was an adequate quantum of market evidence upon which to base opinions of value. 10.2 Fair value measurement hierarchy The different valuation method levels are defined below: 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). These levels are specified in accordance with IFRS 13 'Fair Value Measurement'. Property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer which may not prove to be accurate. For these reasons, and consistent with EPRA's guidance, we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. The inputs to the valuations are defined as 'unobservable' by IFRS 13 and these are analysed in a table below. There were no transfers between levels in the year. Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the 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) Equivalent yield Increases/(decreases) in the ERV (per sq ft per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in the yield in isolation would result in a lower/(higher) fair value measurement. The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the fair value hierarchy of the portfolio of investment property and investments are: Fair Significant value Valuation unobservable Class GBP'000 technique inputs Range ------------------------ ------------ --------------- --------------------- ----------- 30 June 2021 GBP3.86 ERV - GBP21.96 Income Equivalent 5.17% Investment properties* 109,230 capitalisation yield - 8.46%** ------------------------ ------------ --------------- --------------------- ----------- 30 June 2020 GBP3.74 ERV - GBP21.96 Income Equivalent 5.34% Investment properties* 101,910 capitalisation yield - 8.76% ------------------------ ------------ --------------- --------------------- ----------- * Valuation per Knight Frank LLP ** Hotels, Nurseries, Petrol Stations & Healthcare are excluded from this range Where possible, sensitivity of the fair values of Level 3 assets are tested to changes in unobservable inputs to reasonable alternatives. 30 June 2021 Change in equivalent Change in ERV yield GBP'000 GBP'000 GBP'000 GBP'000 ------------ --------------- --------------------- ----------- Sensitivity Analysis +10% -10% +10% -10% Resulting fair value of investment property 112,222 107,104 103,375 116,769 ------------ --------------- --------------------- ----------- 30 June 2020 - as restated* Change in equivalent Change in ERV yield GBP'000 GBP'000 GBP'000 GBP'000 ------------ --------------- --------------------- ----------- Sensitivity Analysis +10% -10% +10% -10% Resulting fair value of investment property 106,808 102,724 97,883 113,193 ------------ --------------- --------------------- ----------- * The resulting fair value as the result of change in ERV and yield disclosed in prior year consolidated financial statements were interchanged. Necessary corrections have been reflected in the current year consolidated financial statements. Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period. 11. Receivables and prepayments 30 June 30 June 2021 2020 GBP'000 GBP'000 Receivables Tenant receivable 602 1,174 Less: Provision for impairment of trade receivables (213) (213) Other debtors 307 2,211 Total receivables 696 3,172 --------------------- -------------------- Spreading of minimum contracted future rent indexation 2,167 1,598 Spreading of tenant incentives - rent free periods 542 626 Other prepayments 277 21 Total 3,682 5,417 --------------------- --------------------
The aged debtor analysis of receivables which are past due but not impaired is as follows: 30 June 30 June 2021 2020 GBP'000 GBP'000 Less than three months due 667 3,089 Between three and six months due 29 83 Between six and twelve months due - - Total 696 3,172 --------------------- -------------------- 12. Non-current assets held for sale During the year, the Group disposed of the investment property known as Wet n Wild, Royal Quays, North Shields. 30 June 30 June 2021 2020 GBP'000 GBP'000 Assets held for sale Investment property - 2,734 Total - 2,734 --------------------- --------------------------------- The table below shows a reconciliation of the gain recognised on disposal through the Consolidated Statement of Comprehensive Income and the realised gain on disposal in the year which includes changes in fair value of the investment property and minimum rent indexation spreading recognised in previous periods. Year ended Year ended 30 June 30 June 2021 2020 GBP'000 GBP'000 Gross proceeds on disposal 3,204 - Selling costs (45) - --------------------- --------------------------------- Net proceeds on disposal 3,159 - Carrying value (2,734) - --------------------- Gain on disposal of investment property 425 - --------------------- --------------------------------- Add: Change in fair value recognised in 70 - previous periods Adjustment to spreading of contracted (116) - future rent indexation and tenant incentives --------------------- --------------------------------- Realised gain on disposal of investment property 379 - --------------------- 13. Payables and accrued expenses 30 June 30 June 2021 2020 GBP'000 GBP'000 Deferred income 1,445 1,265 Trade creditors 59 87 Accruals 603 395 Other creditors 934 848 Total 3,041 2,595 14. Interest bearing loans and borrowings 30 June 30 June 2021 2020 GBP'000 GBP'000 Total facility drawn 41,000 41,000 Unamortised finance cost brought forward (583) (686) Adjustment on unamortised finance cost - (21) Amortisation of finance costs 99 124 At end of year 40,516 40,417 Repayable between 1 and 2 years - - Repayable between 2 and 5 years 41,000 - Repayable in over 5 years - 41,000 Total 41,000 41,000 As at 30 June 2021, 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 36.3% (2020: 37.0%). The weighted average interest cost of the Group's facility is 3.19% and the facility is repayable on 20 October 2025. 30 June 30 June 2021 2020 GBP'000 GBP'000 Reconciliation to cash flows from financing activities At the beginning of the year 40,417 40,314 Interest paid (1,322) (1,435) Total changes from financing cash flows 39,095 38,879 Other changes Movement in interest payable presented under other creditors (99) (7) Interest expense 1,421 1,442 Adjustment on loan issue costs - (21) Amortisation of loan issue costs 99 124 Total other changes 1,421 1,538 At the end of the year 40,516 40,417 15. 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 under non-cancellable leases: 30 June 30 June 2021 2020 GBP'000 GBP'000 Within one year 50 50 After one year but less than five years* 150 150 More than five years* 563 613 Total undiscounted lease liabilities: 763 813 Less: Future finance charge on lease obligation (390) (399) Present value of lease liabilities: 373 414 Lease liabilities included in the statement of financial position: Current 38 41 Non-current 335 373 Total: 373 414 * Prior year balances have been amended to present the correct expected minimum lease payment amounts for over one year. 16. Commitments Operating lease commitments - as lessor The Group has 22 commercial property leases on its investment property portfolio as set out on page 18. These non-cancellable leases have a remaining term of between 6 months and 90 years. Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2021 are as follows: 30 June 30 June
2021 2020 GBP'000 GBP'000 Less than one year 6,957 6,449 One to two years 7,135 6,603 Two to three years 7,094 6,626 Three to four years 7,191 6,729 Four to five years 7,002 6,758 Five to ten years 29,898 30,429 Ten to fifteen years 27,201 28,231 Over fifteen years 58,889 64,735 Total 151,367 156,560 During the year ended 30 June 2021 (2020: GBPnil) there were no material contingent rents recognised as income. Capital commitment There were no capital commitments as at 30 June 2021. At 30 June 2020 Work started in September 2020 to replace the defective cladding elements uncovered on the external walls of the top floors and rear lift core of the Travelodge Hotel, Swindon, with compliant replacements and to remediate the fire stopping. The project was completed in December 2020 at a cost (including professional fees) of GBP1.1 million. The cladding was installed when the property was extended in 2007 and both the architect and the cladding sub-contractor involved are being pursued for reimbursement of the costs incurred. 17. Investments in subsidiaries The Company has two wholly owned subsidiaries as disclosed below: Country Ordinary of registration Date of Principal Shares Name and company number and incorporation incorporation activity held Alternative Income REIT England Holdco Limited (Company and 7 November Real Estate number 11052186) Wales 2017 Company 73,158,502* England Alternative Income Limited 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 2021 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. 18. Issued share capital For the year ended For the year ended 30 June 2021 30 June 2020 Number Number of of Ordinary Ordinary GBP'000 Shares GBP'000 Shares Ordinary Shares issued and fully paid at a nominal value of GBP0.01 per Ordinary Share At the beginning and end of the year 805 80,500,000 805 80,500,000 19. Financial risk management and policies The Group's activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and further risks inherent to investing in investment property. The Group's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Group's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The principal risks facing the Group in the management of its portfolio are as follows: 19.1 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 Investment Management Committee ('IMC') meets monthly and reserves the ultimate decision with regards to investment purchases or sales. In order to monitor property valuation fluctuations, the IMC and the Portfolio Management Team of the Investment Manager meet 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. 19.2 Real estate risk Property investments are illiquid asset and can be difficult to sell, especially if local market conditions are poor. Illiquidity may also result from the absence of an established market for investments, as well as legal or contractual restrictions on resale of such investments. There can be no certainty regarding the future performance of any of the properties acquired for the Group. The value of any property can go down as well as up. Real property investments are subject to varying degrees of risk. The yields available from investments in real estate depend on the amount of income generated and expenses incurred from such investments. There are additional risks in vacant, part vacant, redevelopment and refurbishment situations, although these are not prospective investments for the Group. These aspects, and their effect on the Group from a going concern perspective are discussed in more detail in the Going Concern policy note. 19.3 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 Advisor 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: 30 June 30 June 2021 2020 GBP'000 GBP'000 Debtors (including rent spreading from rent indexation and incentives and excluding prepayments)* 3,618 5,609* Cash and cash equivalents 2,115 2,288 Total 5,733 7,897
* Prior year balances have been amended to present the correct amount for Debtors (including rent spreading from rent indexation and incentives and excluding prepayments).
19.4 Liquidity risk Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its borrowings. It is the risk the Group will encounter difficulty in meeting its financial obligations as they fall due as the majority of the Group's assets are investment properties and therefore not readily realisable. The Group's objective is to ensure it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by quarterly review/ monitoring of forecast and actual cash flows by the Investment Adviser and Board of Directors. The below table summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments. < 3 3 - 1 - > 5 On demand months 12 months 5 years years Total 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Interest bearing loans and borrowings - - - 41,000 - 41,000 Interest payable - 327 980 4,573 - 5,880 Payables and accrued expenses 138 884 123 - - 1,145 Lease obligations - 13 37 200 513 763 Total 138 1,224 1,140 45,773 513 48,788 < 3 3 - 1 - > 5 On demand months 12 months 5 years years Total 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Interest bearing loans and borrowings - - - - 41,000 41,000
Interest payable* - 327 980 5,226 653 7,186 Payables and accrued expenses 228 843 - - - 1,071 Lease obligations - 13 37 200 563 813 Total 228 1,183 1,017 5,426 42,216 50,070
*Prior year balances have been amended to present the correct interest payable.
19.5 Fair value of financial instruments There is no material difference between the carrying amount and fair value of the Group's financial instruments. 19.6 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 as it has taken out a fixed rate loan. 20. 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 (both are 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 with in this reporting period. The monitoring of the Group's level of borrowing is performed primarily using a Loan to GAV ratio. The Loan to GAV ratio is calculated as the amount of outstanding debt divided by the total assets of the Group, which includes the valuation of the investment property portfolio. The Group Loan to GAV ratio at the period end was 36.3% (2020: 37.0%). Breaches in meeting the financial covenants would permit the lender to immediately call loans and borrowings. During the period, the Group did not breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements. 21. 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. Subsidiaries Alternative Income REIT Plc as at 30 June 2021 owns 100% controlling stake of Alternative Income REIT Holdco Limited and Alternative Income REIT Holdco Limited holds 100% of Alternative Income Limited. Directors Directors of the Group are considered to be the key management personnel. Directors' remuneration is disclosed in note 5. Investment Adviser M7 Real Estate Limited - from 14 May 2020 to date M7 Real Estate Ltd was appointed as Investment Adviser on 14 May 2020. The Interim Investment Advisory agreement (amended with Deed of Variation dated February 2021) specifies that there are no fees payable up to 30 September 2020. From 1 October 2020, an annual management fee will be calculated at a rate equivalent of 0.50% per annum of NAV (subject to a minimum fee of GBP90,000 per quarter), paid quarterly in advance. During the year ended 30 June 2021, the Group incurred GBP269,327 (30 June 2020: GBPnil) in respect of investment advisory fees, of which GBPnil was outstanding at 30 June 2021 (30 June 2020: GBPnil). AEW UK Investment Management LLP ("AEW UK") - period ended 9 April 2020 The Group was party to an Investment Management Agreement with AEW UK, pursuant to which the Group appointed the Investment Manager to provide investment management services relating to the respective assets on a day-to-day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of the Board of Directors. Under the Investment Management Agreement, AEW UK received a management fee which was calculated at a rate equivalent to 0.75% per annum of NAV (excluding un-invested fund-raising proceeds) and paid quarterly in arrears. During the period 1 July 2019 to 9 April 2020, the Group was charged GBP407,708 in respect of investment management fees and expenses of which GBP137,445 remains outstanding. 22. Events after reporting date Dividend On 4 August 2021, the Board declared an interim dividend of 1.64 pence per share in respect of the period from 1 April 2021 to 30 June 2021. This was paid on 31 August 2021 to shareholders on the register as at 13 August 2021. The ex-dividend date was 12 August 2021 (2020: On 6 August 2020, the Board declared an interim dividend of 1.425 pence per share in respect of the period from 1 April 2020 to 30 June 2020. This was paid on 28 August 2020 to shareholders on the register as at 14 August 2020. The ex-dividend date was 13 August 2020). Company Statement of Financial Position As at 30 June 2021 30 June Notes 30 June 2021 2020 GBP'000 GBP'000 Assets Non-current Assets Investments in subsidiary companies 3 73,158 73,158 Investment property 3 2,067 2,011 75,225 75,169 Current Assets Receivables and prepayments 4 208 41 Cash and cash equivalents 535 108 743 149 Total Assets 75,968 75,318 Current Liabilities Payables and accrued expenses 5 (17,148) (11,936) Total Liabilities (17,148) (11,936) Net Assets 58,820 63,382 Equity Share capital 7 805 805 Capital reserve and retained earnings 58,015 62,577 Total capital and reserves attributable to equity holders of the Company 58,820 63,382 Net Asset Value per share (pence per share) 73.07 78.74 As permitted by s408 Companies Act 2006, the Company's profit and loss account has not been presented in these financial statements. The Company's loss for the year was GBP596,947 (30 June 2020 loss: GBP1,057,229). The financial statements on pages 83 and 88 were approved by the Board of Directors on 29 September 2021 and were signed on its behalf by: Alan Sippetts Chairman Company number: 10727886 The notes below form an integral part of these financial statements. Company Statement of Changes in Equity For the year ended 30 June 2021 Total capital and reserves Capital attributable reserve and to equity holders Share retained of capital earnings the Group GBP'000 GBP'000 GBP'000 For the year ended 30 June 2021 Balance as at 1 July 2020 805 62,577 63,382 Total comprehensive loss - (597) (597) Dividends paid - (3,965) (3,965) Balance at 30 June 2021 805 58,015 58,820 For the year ended 30 June 2020 Balance as at 1 July 2019 805 67,619 68,424 Total comprehensive loss - (1,057) (1,057) Dividends paid - (3,985) (3,985) Balance at 30 June 2020 805 62,577 63,382 The notes on pages 85 to 88 form an integral part of these financial statements. Notes to the Consolidated Financial Statements For the year ended 30 June 2021 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 United Kingdom and is registered in England and Wales. The registered office of the Company is located at 1 King William Street, London, United Kingdom, EC4N 7AF. The Company's Ordinary Shares were listed on the Official List of the UK Listing Authority and admitted to trading
on the Main Market of the London Stock Exchange on 6 June 2017. The Company is the ultimate parent company of the Alternative Income REIT HoldCo Limited and Alternative Income Limited. Its primary activity is to hold shares in subsidiary companies and invest in direct property investments. 2. 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. 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. For an assessment of going concern refer to the accounting policy 2.4 of the Group on page 65. 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. 3. Investments 3a. Investments in Subsidiary Companies 30 June 30 June 2021 2020 GBP'000 GBP'000 At the beginning and end of the year 73,158 73,158 A list of subsidiary undertakings at 30 June 2021 is included on note 17 of the Consolidated Financial Statements. The Directors have considered the recoverability of the investment in subsidiary company by comparing the carrying value of the investment to the net asset value of the subsidiary. The directors consider the net asset value of the subsidiary to be a reliable proxy to the recoverable amount as the properties held by the Company are carried at fair value. The net asset value of the subsidiary company exceed the carrying amount of the investment in subsidiary and the Directors have concluded that no impairment is necessary. 3b. Investment property 30 June 30 June 2021 2020 GBP'000 GBP'000 At the beginning of the year 2,011 2,055 Revaluation of investment property 70 (30) Adjustment to fair value for minimum rent indexation of lease income (14) (14) At the end of the year 2,067 2,011 4. Receivables and prepayments 30 June 30 June 2021 2020 GBP'000 GBP'000 Receivables Rent debtor 4 65 Less: Provision for impairment of trade receivables - (65) Spreading of minimum contracted future rent indexation 33 19 VAT receivable 57 17 94 36 Prepayments Other prepayments 114 5 Total 208 41 5. Payables and accrued expenses 30 June 30 June 2021 2020 GBP'000 GBP'000 Due to subsidiaries 16,759 11,471 Deferred income 30 30 Trade creditors 26 6 Accruals 254 368 Other creditors 79 61 Total 17,148 11,936 Amounts due to subsidiaries are unsecured, interest free and repayable on demand. 6. Dividends paid 30 June 30 June 2021 2020 GBP'000 GBP'000 Fourth interim dividend declared and paid in respect of the quarter ended 30 June 2020 at 1.425p per Ordinary Share (Quarter ended 30 June 2019 at 1.375p per Ordinary Shares*) 1,147 1,107 First interim dividend declared and paid in respect of the quarter ended 30 September 2020 at 1.25p per Ordinary Share (Quarter ended 30 September 2019 at 1.375p per Ordinary Share) 1,006 1,107 Second interim dividend declared and paid in respect of the quarter ended 31 December 2020 at 1.00p per Ordinary Share (Quarter ended 31 December 2019 at 1.375p per Ordinary Share) 805 1,107 Third interim dividend declared and paid in respect of the quarter ended 31 March 2021 at 1.25p per Ordinary Share (Quarter ended 31 March 2020 at 0.825p per Ordinary Share) 1,007 664 Total dividends paid during the year 3,965 3,985 Fourth interim dividend declared and paid in respect of the quarter ended 30 June 2020 at 1.425p per Ordinary Share (Quarter ended 30 June 2019 at 1.375p per Ordinary Shares*) (1,147) (1,107) Fourth interim dividend declared and paid in respect of the quarter ended 30 June 2021 at 1.64p per Ordinary Share (Quarter ended 30 June 2020 at 1.425p per Ordinary Shares*) 1,320 1,147 Total dividends in respect of the year 4,138 4,025 Total dividends in respect of the year (pence per share) 5.14 5.00 * Dividends declared after the year end are not included in the Company's Financial Statements as a liability. 7. Issued share capital For the year ended For the year ended 30 June 2021 30 June 2020 Number Number of of Ordinary Ordinary GBP'000 Shares GBP'000 Shares Ordinary Shares issued and fully paid at a nominal value of GBP0.01 per Ordinary Share At the beginning and end of the year 805 80,500,000 805 80,500,000
8. Events after reporting date Dividend On 2 August 2021, the Board declared an interim dividend of 1.64 pence per share in respect of the period from 1 April 2021 to 30 June 2021. This was paid on 31 August 2021 to shareholders on the register as at 13 August 2021. The ex-dividend date was 12 August 2021 (2020: On 6 August 2020, the Board declared an interim dividend of 1.425 pence per share in respect of the period from 1 April 2020 to 30 June 2020. This was paid on 28 August 2020 to shareholders on the register as at 14 August 2020. The ex-dividend date was 13 August 2020). EPRA Unaudited Performance Measure Calculations 30 June 30 June 2021 2020 EPRA Yield calculations GBP'000 GBP'000 Investment properties - wholly owned 109,230 104,760 Allowance for estimated purchasers' costs 7,100 7,857 Gross up completed property portfolio valuation B 116,330 112,617 Annualised cash passing rental income 6,965 6,496 Property outgoings (55) (55) Annualised net rents A 6,910 6,441 Add: notional rent expiration of rent free periods or other lease incentives 1,171 1,407 Topped-up net annualised rent C 8,081 7,848 EPRA NIY A/B 5.94% 5.72% EPRA "topped-up" C/B 6.95% 6.97% EPRA Cost Ratios 2021 2020 Include: Administrative/operating expense line per IFRS income statement 876 1,492 Property operating expense 448 56 EPRA Costs (including direct vacancy costs) A 1,324 1,548 Direct vacancy costs - - EPRA Costs (excluding direct vacancy costs) B 1,324 1,548 Gross Rental Income (C) C 7,210 7,351 EPRA Cost Ratio (including direct vacancy costs) A/C 18.36% 21.06% EPRA Cost Ratio (excluding direct vacancy costs) B/C 18.36% 21.06% 2021 2020 Vacancy rate GBP'000 GBP'000 ERV vacant - - ERV total 6,927 6,729
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 on page 93. 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 Interim Reports are available from the Company's website.
Financial Calendar
31 December 2021 Half-year end
March 2022 Announcement of interim results
30 June 2022 Year end
October 2022 Announcement of annual results
Glossary
Alternative Investment Langham Hall Fund Management LLP. Fund Manager or AIFM or Investment Manager Company Alternative Income REIT plc. Contracted rent The annualised rent adjusting for the inclusion of rent subject to rent-free periods. Earnings Per Share Profit for the period attributable to equity ('EPS') shareholders divided by the weighted average number of Ordinary Shares in issue during the period. EPRA European Public Real Estate Association, the industry body representing listed companies in the real estate sector. Equivalent Yield The internal rate of return of the cash flow from the property, assuming a rise to Estimated Rental Value at the next review or lease expiry. No future growth is allowed for. Estimated Rental The external valuer's opinion as to the Value ('ERV') open market rent which, on the date of the valuation, could reasonably be expected to be obtained on a new letting or rent review of a property. External Valuer An independent external valuer of a property. The Group's External Valuer is Knight Frank LLP. Fair value The estimated amount for which a property should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing and where parties had each acted knowledgeably, prudently and without compulsion. Fair value movement An accounting adjustment to change the book value of an asset or liability to its fair value. FCA The Financial Conduct Authority. Gross Asset Value The aggregate value of the total assets ('GAV') of the Group as determined in accordance with IFRS. IASB International Accounting Standards Board. IFRS International financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. On 31 December 2020 EU-adopted IFRS was brought into UK law and became UK-adopted international accounting standards, with future changes to IFRS being subject to endorsement by the UK Endorsement Board. Investment Adviser M7 Real Estate Limited. IPO The admission to trading on the London Stock Exchange's Main Market of the share capital of the Company and admission of Ordinary Shares to the premium listing segment of the Official List on 6 June 2017. Lease incentives Incentives offered to occupiers to enter into a lease. Typically this will be an initial rent-free period, or a cash contribution to fit-out. Under accounting rules the value of the lease incentive is amortised through the Consolidated Statement of Comprehensive Income on a straight-line basis until the lease expiry. Loan to Value ('LTV') The value of loans and borrowings utilised (excluding amounts held as restricted cash and before adjustments for issue costs) expressed as a percentage of the combined valuation of the property portfolio (as provided by the valuer) and the fair value of other investments. Net Asset Value Net Asset Value is the equity attributable ('NAV') to shareholders calculated under IFRS. Net Asset Value Equity shareholders' funds divided by the per share 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 The initial net rental income from a property ('NIY') at the date of purchase, expressed as a percentage of the gross purchase price including the costs of purchase. Net rental income Rental income receivable in the period after payment of ground rents and net property outgoings. Ongoing Charges The ratio of annualised total administration and property operating costs expressed as a percentage of average NAV throughout the period. Ordinary Shares The main type of equity capital issued by conventional Investment Companies. Shareholders are entitled to their share of both income, in the form of dividends paid by the Company, and any capital growth. Passing rent The gross rent, less any ground rent payable under head leases. pps Pence per share. 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. Total returns The returns to shareholders calculated on a per share basis by adding dividend paid in the period to the increase or decrease in the share price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets. Total Shareholder The percentage change in the share price Return assuming dividends are reinvested to purchase additional Ordinary Shares. Weighted Average The average lease term remaining for first Unexpired Lease Term break, or expiry, across the portfolio ('WAULT') weighted by contracted rental income (including rent-frees).
Shareholder Information
Directors
Alan Sippetts (Independent non-executive Chairman)
Jim Prower (Independent non-executive Director)
Adam C Smith (Non-executive Director)
Company Website
https://www.alternativeincomereit.com/
Registered Office
1 King William Street
London
EC4N 7AF
AIFM
Langham Hall Fund Management LLP
1 Fleet Place
8(th) Floor
London
EC4M 7RA
Property Manager
Mason Owen and Partners Limited
7(th) Floor
20 Chapel Street
Liverpool
L3 9AG
Corporate Broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Legal Adviser to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Depositary
Langham Hall UK Depositary LLP
8th Floor
1 Fleet Place
London
EC4M 7RA
Investment Adviser and Administrator
M7 Real Estate Limited
3(rd) Floor
The Monument Building
11 Monument Street
London
EC3R 8AF
Consultant Portfolio Manager
King Capital Consulting Limited
140a Tachbrook Street
London
SW1V 2NE
Company Secretary
Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Auditor
Moore Kingston Smith LLP
Devonshire House
60 Goswell Road
Barbican
London
EC1M 7AD
Valuer
Knight Frank LLP
55 Baker Street
London
W1U 8AN
Communications Advisor
Maitland/AMO
3 Pancras Square
London
N1C 4AG
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September 30, 2021 02:00 ET (06:00 GMT)
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