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IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED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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END
FR KKLFLFKLFBBE
(END) Dow Jones Newswires
September 30, 2021 02:00 ET (06:00 GMT)
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