THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED STATES OF AMERICA, ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH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.

 

7 March 2022

Alternative Income REIT plc

(the "Company" or the "Group")

Interim Report and Financial Statements for the half year ended 31 December 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 interim report and financial statements for the half year ended 31 December 2021.

 

Financial Highlights

 

At 31 December

 

	2021	2020	Change
Net Asset Value (unaudited)	£72.75 million	£68.17 million	+6.7%
Net Asset Value per share (unaudited)	90.38 p	84.68 p	+6.7%
Share price	72.2 p	60.0 p	+20.3%
Loan to GAV 3 A	35.22%	36.62%

 

For the half year ended 31 December

 

	2021	2020	Change
EPRA EPS A	3.28 p	2.90 p1	+13.1%
Adjusted EPS A	2.79 p	2.66 p1	+4.9%
Dividend cover A	107.31%	118.22%	-10.9%
Total dividends	2.60 p	2.25 p	+15.6%
Operating profit	£3.45 million (including gain on sale of investment property but excluding fair value changes)	£3.48 million	-0.9%
Profit before tax	£6.23 million	£3.03 million	+105.3%
Earnings per share	7.74 p	3.77 p	+105.3%
Share price total return A	5.84%	17.15%
NAV total return A	9.65%	5.02%
Ongoing charges A	1.44%	1.45%	-1 bps

^A Considered to be an Alternative Performance Measure. Further details can be found at the end of this section and full calculations are set out following the financial statements.

¹ Originally reported 31 December 2020 EPRA EPS was 3.43p and Adjusted EPS was 3.19p. This included gain on investment disposal of £425,000 equivalent to 0.53p which should have been excluded from the EPRA EPS calculation. See Note 7.

² This is a target only and not a profit forecast. There can be no assurance that the target will be met and it should not be taken as an indicator of the Company's expected or actual results.

³ The loan facility at 31 December 2021 of £41.0 million (31 December 2020: same) is with Canada Life Investments, matures on 20 October 2025 and has a weighted average interest cost of 3.19%.

·    The Net Asset Value increased by 6.7% or £4.58 million to £72.75 million, equivalent to 90.38 pence per share ('pps') as at 31 December 2021 (31 December 2020: £68.17 million and 84.68 pps). The majority of this increase is due to the £3.9 million valuation uplift in investment properties primarily due to improved market conditions, with previous year valuations impacted by poorer market conditions due to Covid-19.  

·    Total dividends of 2.60p have been declared for the half year (half year ended 31 December 2020: 2.25 p). This is an increase of 15.6% and reflects the Board's view that the Company remains on track to deliver its target annual dividend² of 5.5 pps, with full dividend cover expected, all else being equal, by September 2022.

·    Profit before tax increased 105.3% to £6.23 million and earnings per share to 7.74p for the half year (half year ended 31 December 2020: profit of £3.03 million and earnings per share of 3.77p). The majority of this increase is due to the £3.9 million valuation uplift in investment properties.

·    At 31 December 2021, the Group had a £41.00 million loan facility with Canada Life Investments, which represented a loan to Gross Asset Value ('GAV') ^A  of 35.22% (31 December 2020: 36.62%), with the weighted average interest cost of 3.19% (31 December 2020: same).

Property Highlights

·    At 31 December 2021, the Group's property portfolio had a fair value of £107.73 million across 18 properties (31 December 2020: £108.53 million across 19 properties). During the year, the Group disposed of the investment property known as Trident Business Park, Huddersfield (refer to Financial Results section within the Chairman's Statement below). On a like-for-like basis the remaining 18 properties were valued at £107.73 million at 31 December 2021 (31 December 2020: £103.03 million), a valuation increase of £4.70 million or 4.6%.

·    EPRA Net Initial Yield ^A ('NIY') improved to 5.72% at 31 December 2021 (31 December 2020: 5.49%).

·    Rent recognised during the half year was £3.73 million (half year to 31 December 2020: £3.49 million), of which, £0.25 million was accrued debtors for the combination of minimum uplifts and rent-free period (31 December 2020: accrued debtors of £0.24 million). The number of tenants at 31 December 2021 was 20 (31 December 2020: 22).

·    At 31 December 2021, the portfolio had Annualised Gross Passing Rental Income ^A of £6.62 million across 18 properties (31 December 2020: £6.94 million across 19 properties).

·    92.6% of the Group's income is inflation linked to Retail Price Index ('RPI') or Consumer Price Index ('CPI').

·    The assets were 99.4% let at 31 December 2021 (31 December 2020: fully let).

·    The weighted average unexpired lease term ('WAULT') at 31 December 2021 was 18.1 years to the earlier of break and expiry (31 December 2020: 18.3 years) and 20.2 years to expiry (31 December 2020: 20.3 years).

·    On 1 December 2021, the Group completed the disposal of the freehold interest in the Audi car showroom in Huddersfield to the occupier for £5.5 million, representing a 3.8% premium on the book value at June 2021 and a net initial yield of 6.75%.

 

Post balance sheet highlights

·    On 3 February 2022, the Board declared an interim dividend of 1.3 p in respect of the period from 1 October 2021 to 31 December 2021. This was paid on 28 February 2022 to shareholders on the register as at 11 February 2022. The ex-dividend date was 10 February 2022.

·    By 2 March 2022, in respect of the March, June, September and December 2021 rent quarters, the Group has collected 100% of rent. All current tenants have repaid outstanding arrears/deferrals, including Pure Gym who accelerated repayment of all arrears from July 2022 to December 2021.

·    The portfolio is fully let following a further letting to Bgen Ltd at St Helens.

·    As announced on 31 January 2022, the Company completed the acquisition of the Volvo car showroom in a prime location on the A4 Bath Road, Slough for £5.0 million (net of acquisition costs to the Company) with a materially longer WAULT of 15 years. This acquisition redeployed the net proceeds from the Group's disposal, announced on 30 November 2021, of its Audi car showroom in Huddersfield for £5.5 million.

 

Alan Sippetts, Non-Executive Chairman of Alternative Income REIT plc, comments:

Our results clearly underline the strength of our resilient portfolio which is delivering strong increases in our like-for-like property valuation and unaudited NAV, with continuing income growth and very strong rent collection. We expect to provide our shareholders with further enhanced income and capital growth from our robust portfolio, which benefits from long leases, 92.6% of which have inflation linked uplifts, as well as from asset management activities, opportunistic transactions and further improvements in the market. When combined with our strong balance sheet and modest overhead, the Group has a strong foundation from which to deliver attractive total returns, including a potentially progressive dividend, and we are continuing to focus on identifying opportunities which can deliver further potential income, valuation enhancement and scale to the Company. 

 

The Board remains confident that the Company is on track to deliver on its target annual dividend of 5.5 pence per share ², with full dividend cover expected, all else being equal, by September 2022."

 

ENQUIRIES

Alternative Income REIT plc
Alan Sippetts - Chairman	via Maitland/AMO below
M7 Real Estate Ltd Richard Croft	+44 (0)20 3657 5500
Panmure Gordon (UK) Limited	+44 (0)20 7886 2500
Alex Collins
Tom Scrivens
Chloe Ponsonby
Maitland/AMO (Communications Adviser)	+44(0) 7747 113 930
James Benjamin	[email protected]

 

The Company's LEI is 213800MPBIJS12Q88F71.

 

Further information on Alternative Income REIT plc is available at www.alternativeincomereit.com ⁴

 

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, 220 employees in 15 countries across Europe. The team manages over 570 properties with a value of circa €4.3 billion.

⁴ 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.

 

Alternative Performance Measures ("APM")

In assessing the performance of the Group, the Board and the Investment Adviser use APMs including the European Public Real Estate ("EPRA") Best Practice Recommendations to supplement IFRS.  EPRA measures are widely recognised and used by public real estate companies and investors and seek to improve transparency, comparability and relevance of published results in the sector.

 

Reconciliations between EPRA measures, other APMs and IFRS disclosures can be found in Note 7 and immediately after the Notes the Consolidated Condensed Financial Statements in this report.

 

Definitions of APMs are given in the Key Performance Indicators, EPRA Performance Measures Calculations and APM Calculations sections or otherwise included in the Glossary section of this report.

 

 

Chairman's Statement

 

Overview

 

I am pleased to present the unaudited interim report and financial statements of Alternative Income REIT plc (the "Company") together with its subsidiaries (the "Group") for the half year ended 31 December 2021.

 

During the period and up to the date of this report, the portfolio has continued to prove its resilience. In spite of the resurgence of Covid-19 through the new Omicron variant and additional Government measures implemented, our rent collection from the Group's portfolio has remained very strong. Yields in our portfolio have remained robust, even in those sectors most impacted by the pandemic, and there is further potential for yield compression as trading and the market generally improves supported by the removal by the Government of Plan B restrictions. Together with our robust balance sheet, modest overhead, 92.6% of our portfolio's leases with inflation linked upwards only rent reviews and the potential for further enhancement through asset management initiatives and transactions initiated on an opportunistic basis only, the Board believes the Company is positioned well to deliver very attractive income and capital growth.

 

On 1 December 2021, we completed the disposal of the freehold interest in the Audi car showroom in Huddersfield to the occupier for £5.5 million, representing a 3.8% premium on the book value as at June 2021 and a net exit yield of 6.75%. As announced on 31 January 2022, we were delighted to have subsequently swiftly redeployed these proceeds through the acquisition of a state-of-the-art car showroom let to Volvo for £5.0 million (net of acquisition costs to the Company) with a materially longer WAULT of 15 years. The Board believes that the asset has the potential to deliver excellent long term returns to shareholders, particularly with the strength of the tenant covenant on a long lease with index-linked rent reviews. This transaction was the second investment introduced by M7 Real Estate Limited ("M7"), the Company's Investment Adviser. M7 continues to consider asset management initiatives and transactions initiated on an opportunistic basis to further enhance income and capital growth; further information can be found in the Investment Adviser's Report below.  

 

By 2 March 2022, in respect of the March, June, September and December 2021 rent quarters, the Group has collected 100% of rent. All current tenants have repaid outstanding arrears/deferrals, including Pure Gym who accelerated repayment of all arrears from July 2022 to December 2021. The portfolio is fully let following a further letting to Bgen Ltd at St Helens. A total of four rent reviews took place during the period with a combined uplift of £70,361 representing a 3.54% increase in contracted rent on those properties. A further five are expected to take place in the year ending 30 June 2022, with an expected increase of c.3.7% in contracted rent across the portfolio.

 

Financial Results	Half year ended 31 December 2021 (unaudited)		Half year ended 31 December 2020 (unaudited)		Year ended 30 June 2021 (audited)
IFRS performance measures: Operating profit before fair value changes [£'000]	3,445		3,475		6,311
Operating profit [£'000]	6,939		3,745		6,993
Profit before tax [£'000]	6,228		3,033		5,572
Profit per share - basic and diluted	7.74 p		3.77 p		6.92 p
Dividend per share	2.60 p		2.25 p		5.14 p
Net Asset Value per share	90.38 p		84.68 p		85.58 p
Alternative performance measures: EPRA EPS - basic and diluted	3.28 p		2.90 p		5.55 p
Adjusted EPS - basic and diluted	2.79 p		2.66 p		5.07 p

 

Financing

As at 31 December 2021, the Group had fully utilised its £41.0 million loan facility with Canada Life Investments (31 December 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, which as at 31 December 2021 would have been £2,551,803.

 

Dividends & Earnings

 

The Company declared interim dividends of 2.6 p in respect of the half year ended 31 December 2021, an increase of 15.6% on the dividends declared for the half year ended 31 December 2020 of 2.25 p.

 

As set out in Note 7 to the Consolidated Condensed Financial Statements, these dividends were covered by both EPRA Earnings ^A of 3.28 p (31 December 2020: 2.90 p), and the Group's Adjusted EPS (representing cash) were 2.79 p (31 December 2020: 2.66 p).

 

Future Growth and Outlook

Our results clearly underline the strength of our resilient portfolio which is delivering strong increases in our like-for-like property valuation and unaudited NAV, with continuing income growth and very strong rent collection. We expect to provide our shareholders with further enhanced income and capital growth from our robust portfolio, which benefits from long leases, 92.6% of which have inflation linked uplifts, as well as from asset management activities, opportunistic transactions and further improvements in the market. When combined with our strong balance sheet and modest overhead, the Group has a strong foundation from which to deliver attractive total returns, including a potentially progressive dividend, and we are continuing to focus on identifying opportunities which can deliver further potential income, valuation enhancement and scale to the Company. 

The Board remains confident that the Company is on track to deliver on its target annual dividend of 5.5 pence, with full dividend cover expected, all else being equal, by September 2022⁵.

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 during the period.

 

Alan Sippetts

Chairman

4 March 2022

^A Considered to be an Alternative Performance Measure. Further details can be found at the end of this section and full calculations are set out following the financial statements.

⁵ This is a target only and not a profit forecast. There can be no assurance that the target will be met and it should not be taken as an indicator of the Company's expected or actual results.

 

 

Key Performance Indicators ('KPIs')

 

KPI AND DEFINITION	RELEVANCE TO STRATEGY	PERFORMANCE
1.  Net Initial Yield ('NIY') 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.	The NIY is an indicator of the ability of the Company to meet its target dividend after adjusting for the impacts of leverage and deducting operating costs.	5.71% at 31 December 2021 (30 June 2021: 5.93%; 31 December 2020: 5.53%)
2.   Weighted Average Unexpired Lease Term ('WAULT') to break and expiry The average lease term remaining to expiry across the portfolio, weighted by contracted rent.	The WAULT is a key measure of the quality of the portfolio. Long leases underpin the security of our future income.	18.1 years to break and 20.2 years to expiry   at 31 December 2021 (30 June 2021: 17.8 years to break and 19.8 years to expiry; 31 December 2020: 18.3 years to break and 20.3 years to expiry)
3.  Net Asset Value ('NAV') per share NAV is the value of an entity's assets minus the value of its liabilities.	Provides stakeholders with the most relevant information on the fair value of the assets and liabilities of the Group.	£72.75 million/90.38 p at 31 December 2021 (30 June 2021: £68.89 million, 85.58 p and 31 December 2020: £68.17 million, 84.68 p)
4.  Dividend per share Dividends declared in relation to the period are in line with the stated dividend target as set out in the Prospectus at IPO. The Company targets a dividend of 5.50 pence per Ordinary Share per annum once fully invested and leveraged2.	The Company seeks to deliver a sustainable income stream from its portfolio, which it distributes as dividends.	2.60 p for the half year ended 31 December 2021 (year ended 30 June 2021: 5.14 p; half year ended 31 December 2020: 2.25 p)
5.  Adjusted EPS Adjusted EPS from core operational activities, as adjusted for non-cash items. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings. See Note 7 to the Consolidated Condensed Financial Statements.	This reflects the Company's ability to generate earnings from the portfolio which underpins dividends.	2.79 p for the half year ended 31 December 2021 (year ended 30 June 2021: 5.07 p; half year to 31 December 2020: 2.66 p)
6.  Leverage (Loan-to-GAV) The proportion of the Group's assets that is funded by borrowings.	The Group utilises borrowings to enhance returns over the medium term. Borrowings will not exceed 40% of GAV (measured at drawdown).	35.22% at 31 December 2021 (30 June 2021: 36.30% and 31 December 2020: 36.62%)

 

 

EPRA Performance Measures

 

The table below shows EPRA performance measures (which are all alternative performance measures) of the Group.

 

MEASURE AND DEFINITION	PURPOSE	PERFORMANCE
EPRA NIY 6 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 (estimated) purchasers' costs.	A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of two portfolios compare.	5.72% at 31 December  2021 (30 June 2021: 5.94% and 31 December 2020: 5.49%)
EPRA 'Topped-Up' NIY 6 This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents).	A comparable measure for portfolio valuations. This measure should make it easier for investors to judge themselves, how the valuation of two portfolios compare.	6.68% at 31 December 2021 (30 June 2021: 6.95% and 31 December 2020: 7.04 %)
EPRA NAV 7 Net asset value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business.	Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a real estate investment company with a long-term investment strategy.	£72.75 million/90.38 p at 31 December 2021 (30 June 2021: £68.89 million, 85.58 p and 31 December 2020: 68.17 million, 84.68 p)
EPRA Earnings/EPS 7 Earnings from operational activities.	A key measure of a company's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings.	£2.64 million/3.28 p EPRA earnings for the half year ended 31 December 2021 (30 June 2021: £4.47 million/5.55 p and 31 December 2020: £2.34 million/2.9 p)
EPRA Vacancy 6 Estimated Rental Value ('ERV') of vacant space divided by ERV of the whole portfolio.	A 'pure' percentage measure of investment property space that is vacant, based on ERV.	0.6 % EPRA vacancy as at 31 December 2021 (30 June 2021: 0% and 31 December 2020: 0%)
EPRA Cost Ratio 6 Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income.	A key measure to enable meaningful measurement of the changes in a company's operating costs.	10.3% EPRA Cost Ratio as at 31 December 2021. The ratio is the same both including and excluding the vacancy costs. (30 June 2021: 18.4% and 31 December 2020: 12.6%)
EPRA Net Reinstatement Value 7 The EPRA NRV adds back the purchasers' costs deducted from the EPRA NAV and deducts the break cost of bank borrowings.	A measure that highlights the value of net assets on a long-term basis.	£77.20 million/95.91 p EPRA NRV for the half year ended 31 December 2021 (30 June 2021: £72.53 million/90.09p and 31 December 2020: £71.04 million/88.25p)
EPRA Net Tangible Assets 7 The EPRA NTA deducts the break cost of bank borrowings from the EPRA NAV.	A measure that assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. The Group has UK REIT status and as such no deferred tax is required to be recognised in the accounts.	£70.20 million/87.21 p EPRA NTA for the half year ended 31 December 2021 (30 June 2021: £65.43 million/81.27 p and 31 December 2020: £62.90 million/78.14 p)
EPRA Net Disposal Value 7 The EPRA NDV deducts the break cost of bank borrowings from the EPRA NAV.	A measure that shows the shareholder value if assets and liabilities are not held until maturity.	£70.20 million/87.21 p EPRA NDV for the half year ended 31 December 2021 (30 June 2021: £65.43 million/81.27 p and 31 December 2020: £62.90 million/78.14 p)

EPRA NNNAV is equal to EPRA NAV as there are no adjusting items. As such, this measure has not been presented.

 

⁶ The reconciliation of this APM is set out in the EPRA Performance Measures Calculations section following the Notes to the Consolidated Condensed Financial Statements.

 

⁷ The reconciliation of this APM is set out in Note 7 of the Notes to the Consolidated Condensed Financial Statements.

 

 

Investment Adviser's Report

Market Outlook

UK Economic Outlook

Headline GDP growth in 2022 could be between 4.5% and 5.1% but this is largely driven by base effects. The annual growth figures in the first half of 2022 are expected to be skewed as the economy comes off its low base due to the national lockdown in early 2021. Core underlying growth will continue to be relatively modest, continuing the low-growth trend we have seen this year driven by the normalisation of economic activity.

 

PricewaterhouseCoopers (PwC) anticipate GDP growth to slow down in 2022 as the economy returns to its pre-pandemic trend with the UK economy anticipated by the end of 2022 to be roughly 1% to 2% above the pre-COVID levels. From 2023 onwards, the pace of growth is projected to slow down further as base effects fall out of the annual figures. Under PwC's two scenarios, growth is expected to range between 1.3% and 1.8% in 2023.

 

Research produced by PwC in December 2021⁸ suggested that the end of the furlough scheme has not set back the labour market recovery. Various indicators and surveys suggest that a significant majority of the 1.1 million workers still on furlough at the end of September remain in employment. However, it will take some months to understand the full impact of the end of furlough. This is because furloughed employees that have been made redundant will still be included in the payroll data while they serve out their notice periods. This means the short-term outlook for the labour market is cautiously optimistic.

 

Inflation is likely to reach its highest level for three decades in Q2 2022, before returning gradually back to target. Ofgem's price cap review, combined with the scheduled reversal of the VAT cuts for hospitality and tourism, is expected to create a perfect storm that creates upward pressure on inflation rates in the first half of 2022. This increase in inflation is expected to positively impact the income profile of the Alternative Income REIT plc with several tenants having index linked rent reviews. Inflation is expected to gradually fall back to target over the next 1-2 years, as the impact of these two factors fade, supply bottlenecks ease, and base effects dissipate.

 

⁸ UK Economic Outlook, December 2021, PricewaterhouseCoopers

 

UK Real Estate Outlook

Although the UK isn't in the clear with regards to the Covid-19 pandemic, progress has been made and people are moving forward with a renewed sense of optimism. An improving economy and the labour market holding stable following the removal of the furlough scheme provide a generally positive backdrop for real estate in 2022.

 

Whilst there is a general positivity around real estate in 2022, following the easing of Covid-19 related lockdown measures, sectors such as industrial are assumed to continue to thrive, which will benefit the Group's industrial exposure. It is expected that the rental growth experienced in recent years will continue into 2022, with speculative development at an all-time high, but insufficient to meet the current demand, causing vacancy rates to remain low and created upward pressure on rents. Additionally, retail is expected to recover during 2022, driven by a pick-up in spend in 2022 leading to increased occupier demand. Retail warehousing and parks are expected to continue to be the strongest performers during 2022.

 

The Group's hotel assets struggled throughout the pandemic, however, hotel revenues are expected to recover during 2022, driven by increases in international travel and the removal of national lockdown restrictions. Increased investor appetite will support recovery in asset values and liquidity. Healthcare was another sector that struggled during 2022, however, CBRE expect the market to recover to pre pandemic levels, boosting investor confidence and leading to prime yields of 4.5%. Furthermore, they are anticipating record M&A activity in the leisure industry during 2022, because of investors looking to capitalise on operational risk with the market.

 

Student housing is another sector in which the Group has a large exposure. At the end of 2021, it was reported that 2021 saw significant confidence return to the UK's purpose build student accommodation sector with over £2.5 billion invested and companies, such as Unite, reporting occupancy figures of 94%.

 

2021 saw an emphasis placed on the importance of ESG related credentials. Normally associated with sustainability, and gaining in prominence, ESG is a growing and has quickly become an ethical priority for businesses, both large and small. It is becoming a central aspect of how businesses define themselves. This is having significant impacts on the occupational market with perspective tenants taking ESG values into account when considering their next office, making ESG related credentials a key selling point.

 

Portfolio Activity During the Period

 

The following asset management initiatives were undertaken during the half year:

·         Rent Reviews: A total of four rent reviews took place during the period with a combined uplift of £70,361 representing an average of 3.54% growth in contracted rent across those properties affected and 1.07% across the portfolio.

·         Covid-19 rent arrangements: All Covid-19 related arrears have now been repaid.

o  Premier Inn - the tenant did not utilise the option to defer the payment of 50% of rent due at the end of September & December 2021, having paid all rents in accordance with their obligations.

o  Pets at Home - continue to pay monthly although contracted to pay quarterly.

o  Pure Gym - 10 month's rent, deferred by agreement due to Covid closures, was repaid in full 7 months early in December 2021.

o  Snap Fitness - rent deposit is being repaid by instalments through to March 2022.

·         Grazebrook Industrial Estate, Dudley: major new machinery and steel installation works by Meridian Steel in their Dudley operation is due to complete in Spring 2022.

·         Pocket Nook Estate, St Helens: A 5 year lease extension of Unit 2 by Bgen Limited, on expiry of their lease in April 2022, completed on 21 February 2022 at a 5.6% increased rent.

·         Travelodge, Swindon: Travelodge Hotels Limited, who entered CVA in June 2020 have performed in accordance with their agreement. Following a rent review in June 2021, 100% of the reviewed rent (£403,147 per annum) became due from 1 January 2022. As previously reported, work was completed in December 2020 to replace the combustible 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, at a cost (including professional fees) of c.£1.2 million.  The property was extended in 2007 and both the architect and cladding sub-contractor involved are being pursued for reimbursement of the costs. Particulars of Claim were lodged with the Court on 12 November 2021, Defences were lodged on 7 February 2022.

·         Huddersfield, Audi car showroom was sold for £5.5 million on 1 December 2021 to the occupier. The lease has a WAULT of 3.86 years and rent reflecting £13.49 per sq ft, significantly in excess of industrial rents in the vicinity.

 

The following asset management initiatives were undertaken between the half year and the date of this report:

·         Acquisition of a state-of-the-art car showroom let to Volvo for £5.0 million (net of acquisition costs to the Company) with a materially longer WAULT (15 years compared with Huddersfield of 3.86 years) on 28 January 2022. The rent reflects £18.05 per sq ft, a level underpinned by alternative use (industrial and retail warehouse) rental values in the vicinity.

·         Bgen Limited has taken a 3 year lease of an adjacent yard so that the only unlet property at the period end is now let, returning the Group's portfolio to 100% occupancy.

 

Financial Results

 

Net rental income earned from the portfolio for the half year ended 31 December 2021 was £3.73 million excluding service and direct recharges (half year to 31 December 2020: £3.49 million; year to 30 June 2021: £7.21 million), contributing to an operating profit before fair value changes of £3.35 million (half year to 2020: £3.05 million; year to 30 June 2021: £5.89 million).

 

The portfolio has seen a gain of £3.49 ⁹ million in fair value of investment property over the half year (half year to 31 December 2020: gain of £0.27 million; year to 30 June 2021: gain of £0.68 million). This is primarily due to improved market conditions, with previous year valuations impacted by poorer market conditions due to Covid-19. 

Administrative and property operating expenses, which include the Investment Manager's fee and other costs attributable to the running of the Group, were £0.38 million for the half year excluding service and direct recharges (half year to 31 December 2020: £0.44 million; year to 30 June 2021: £1.32 million).  Ongoing charges for the half year were 1.44% (half year to 31 December 2020: 1.45%; year to 30 June 2021: 1.27%). The increase compared with the year to 30 June 2021 is caused by the Investment Adviser's fee holiday which the Company benefited from during 2020.

 

The Group incurred finance costs of £0.71 million during the half year (half year to 31 December 2020: £0.71 million; year to 30 June 2021: £1.42 million).

 

The profit before tax for the half year of £6.23 million (half year to 31 December 2020: profit before tax of £3.03 million; year to 30 June 2021: profit before tax of £5.57 million) equates to a basic earnings per share of 7.74 p (half year to 31 December 2020: basic earnings per share of 3.77 p; year to 30 June 2021: basic earnings per share of 6.92 p).

 

EPRA EPS for the half year was 3.28 p which, based on dividends declared of 2.6 p, reflects a dividend cover of 126.15% (half year to 31 December 2020: EPRA EPS of 2.90 p, dividends declared of 2.25 p and dividend cover of 128.89%; year to 30 June 2021: EPRA EPS of 5.55 p, dividends declared of 5.14 p and dividend cover of 107.98%).

 

Adjusted EPS for the period 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 2.79 p which, based on dividends declared of 2.6p, reflect a dividend cover of 107.31% (half year to 31 December 2020: Adjusted EPS of 2.66 p, dividends declared of 2.25 p and dividend cover of 118.22%; year to 30 June 2021: Adjusted EPS of 5.07 p, dividends declared of 5.14 p and dividend cover of 98.64%).

 

The Group's NAV as at 31 December 2021 was £72.75 million or 90.38 p (31 December 2020: £68.17 million or 84.68 p; 30 June 2021: £68.89 million or 85.58 p). This is an increase of 4.8 pps or 5.61% over the half year ended 31 December 2021, and an increase of 5.7 p or +6.73% over the year to 31 December 2021, with the underlying movement in NAV set out in the table below:

 

	Half year ended 31 December 2021		Half year ended 31 December 2020		Year ended 30 June 2021
	Pence per         share	£ million	Pence per              share	£ million	Pence per  share	£ million
NAV as at beginning of period/ year	85.58	68.89	83.58	67.27	83.58	67.29
Change in fair value of investment property	4.34	3.49	0.34	0.27	0.85	0.68
Income earned for the year	4.75	3.83	4.38	3.53	9.20	7.41
Gain on sale of property	0.12	0.10	0.53	0.43	0.53	0.42
Finance costs for the year	(0.88)	(0.71)	(0.88)	(0.71)	(1.77)	(1.42)
Other expenses for the year	(0.59)	(0.48)	(0.59)	(0.47)	(1.89)	(1.52)
Dividends paid during the year	(2.94)	(2.37)	(2.68)	(2.15)	(4.92)	(3.97)
NAV as at the end of the year	90.38	72.75	84.68	68.17	85.58	68.89

 

⁹ the fair value increase includes accounting adjustments relating to rent smoothing of (£0.30m) and movement in finance lease obligation of (£0.05m).

 

Valuation

 

At the period end (31 December 2021) the Group owned 18 assets, following the sale of Trident Business Park, Huddersfield. The fair value of these 18 assets had increased from £103.03 million at 31 December 2020 to £107.73 million at the period end, an increase of £4.70 million or 4.6%.

 

The Group has experienced valuation increases across its retail warehousing, industrial and student housing assets. Additionally, following the easing of Covid-19 related lockdown restrictions, the Group has experienced valuation increases during 2021 across is leisure and hotel assets, two asset classes that were hit hardest by the pandemic.

 

Financing

 

As at 31 December 2021, the Group had fully utilised its £41 million loan facility with Canada Life Investments (31 December 2020 and 30 June 2021: £41 million facility utilised). This term facility, which is repayable on 20 October 2025, allows up to 40% loan to property value at drawdown, is provided on a portfolio basis and has a loan to value covenant of 60%.

 

As at 31 December 2021, the weighted average interest cost of the Group's £41 million facility is 3.19% (31 December 2021 and 30 June 2021: same).