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.

2. Accounting policies

2.1

Basis of preparation

These consolidated financial statements (the ‘financial statements’) are prepared and approved by the directors in accordance with

International Financial Reporting Standards (‘IFRS’) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union

(‘EU’) and in accordance with the Companies Act 2006 and Article 4 of the International Accounting Standards (‘IAS’) Regulations.

These financial statements have been prepared under the historical-cost convention, except for investment properties that have been

measured at fair value.

The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£’000), except where otherwise

indicated.

Basis of consolidation

The financial statements incorporate the financial statements of the Company and its subsidiaries (the ‘Group’).

Subsidiaries are the entities controlled by the Company, being Alternative Income Limited and Alternative Income REIT Holdco Limited.

New standards, amendments and interpretations, and forthcoming requirements

The Group has applied the following amendments for the first time for their annual reporting period commencing 1 July 2022:

•

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) (effective 1 January 2023)

•

IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts (effective 1 January 2023)

•

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) (effective 1 January 2023)

•

Definition of Accounting Estimates (Amendments to IAS 8) (effective 1 January 2023)

•

Initial Application of IFRS 17 and IFRS 9 – Comparative Information (Amendments to IFRS 17) (effective 1 January 2023)

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect

the current or future periods.

Certain new accounting standards and interpretations have been published that are not mandatory for annual periods beginning after 1 July

2022 and early application is permitted; however, the Group has not early adopted the new or amended standards in preparing these financial

statements:

•

Classification of liabilities as current or non-current (Amendments to IAS 1) (effective 1 January 2024)

•

Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) (effective 1 January 2024)

•

Non-current Liabilities with Covenants (Amendments to IAS 1) (effective 1 January 2024)

•

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) (effective date

deferred indefinitely).

Forthcoming requirements

The following are new standards, interpretations and amendments, which are not yet effective, and have not been early adopted in this

financial information, that will or may have an effect on the Group’s future financial statements:

•

Amendments to IAS 1 which clarifies the criteria used to determine whether liabilities are classified as current or non-current (effective

1 January 2023). These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of

the reporting period to defer settlement of the liability for at least 12 months after the reporting period. The amendment is not expected

to have an impact on the presentation or classification of the liabilities in the Group based on rights that are in existence at the end of the

reporting period.

2.2

Significant accounting judgements and estimates

In the application of the Group’s accounting policies the directors are required to make judgements, estimates and assumptions that affect

the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result

in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future. The estimates and associated

assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next

financial year are outlined below:

Valuation of investment properties

The fair value of investment properties is determined by external property valuation experts to be the estimated amount for which a property

should exchange on the date of the valuation in an arm’s length transaction. The Group’s properties have been valued on an individual basis.

The valuation experts use recognised valuation techniques, applying the principles of both IAS 40 and IFRS 13.

The valuations have been prepared in accordance with the Royal Institution of Chartered Surveyors (‘RICS’) Valuation. Factors include current

market conditions, annual rentals, the contractual terms of the leases and their lengths and location. The significant methods and assumptions

used by valuers in estimating the fair value of investment properties are set out in note 10.

Provision for expected credit losses (‘ECL’) of trade receivables

Rent collection rates since the start of the Group are in the region of 100%. As a result, the Group does not have the data to establish historical

loss rates for the expected credit loss analysis.

In determining the provision on a tenant by tenant basis, the Group considers both recent payment history and future expectations of the

tenant’s ability to pay or possible default, in order to recognise an expected credit loss allowance. The Group also considers the risk factors

associated by sector in which the tenant operates and the nature of the debt. Based on sector and rent receivable type, a provision is provided

in addition to full provision for maximum risk tenants or known issues.

Principal versus agent considerations – services to tenants

The Group arranges for certain services to be provided to tenants. These arrangements are included in the contract the Group enters into as a

lessor. The Group has determined that it controls the services before they are transferred to tenants, because it has the ability to direct the use

of these services and obtain the benefits from them. The Group has determined that it is primarily responsible for fulfilling these services as it

directly deals with tenants’ complaints and is primarily responsible for the quality or sustainability of the services. In addition, the Group has

discretion in establishing the price that it charges to the tenants for the specified services.

Therefore, the Group has concluded that it is the principal in these contracts. In addition, the Group has concluded that it transfers control of

these services over time, as services are rendered by the third-party service providers, because this is when tenants receive and, at the same

time, consume the benefits from these services.

REIT status

The Group is a Real Estate Investment Trust (REIT) and does not pay tax on its property income or gains on property sales, provided that at

least 90% of the Group’s property income is distributed as a dividend to shareholders, which becomes taxable in their hands. In addition, the

Group has to meet certain conditions such as ensuring the property rental business represents more than 75% of total profits and assets. Any

potential or proposed changes to the REIT legislation are monitored and discussed with HMRC. It is the Board’s intention that the Group will

continue as a REIT for the foreseeable future.

Classification of lease arrangements – the Group as lessor (note 14)

The Group has acquired investment properties that are leased to tenants. In considering the classification of lease arrangements, at inception

of each lease the Group considers the economic life of the asset compared with the lease term and the present value of the minimum lease

payments and any residual value compared with the fair value and associated costs of acquiring the asset as well as qualitative factors as

indicators that may assert to the risks and rewards of ownership having been substantially retained or transferred. The Group has determined

that it retains all the significant risks and rewards of ownership of its investment property and accounts for the lease arrangements as operating

leases.

2.3 Segmental information

Each property held by the Group is reported to the chief operating decision maker. In the case of the Group, the chief operating decision maker

is considered to be the Board of directors. The review process for segmental information includes the monitoring of key performance indicators

applicable across all properties. These key performance indicators include Net Asset Value, Earnings per Share and valuation of properties. All

asset cost and rental allocations are also reported by property. The internal financial reports received by the directors cover the Group and all

its properties and do not differ from amounts reported in the financial statements. The directors have considered that each property has similar

economic characteristics and have therefore aggregated the portfolio into one reportable segment under the provisions of IFRS 8.

2.4 Going concern

The financial statements have been prepared on a going concern basis.

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the

Strategic Report. The robust financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the

financial statements and the accompanying notes. The financial statements also include the Group’s objectives, policies and processes for

managing its capital, its financial risk management objective and its exposures to market price risk, real estate risk, credit risk and liquidity risk.

The Investment Adviser on behalf of the Board has projected the Group’s cash flows for the period up to 30 September 2024, challenging

and sensitising inputs and assumptions to ensure that the cash forecast reflects a realistic outcome given the uncertainties associated with

the current economic environment. The scenarios applied were designed to be severe but plausible, and to take account of the availability of

mitigating actions that could be taken to avoid or reduce the impact or probability of the underlying risks.

The Group’s debt of £41 million does not mature until 2025 and the Group has reported full compliance with its loan covenants to date. Based

on cash flow projections, the directors expect the Group to continue to remain compliant. The headroom of the loan to value covenant is

significant and any reduction in property values that would cause a breach would be significantly more than any reduction currently envisaged.

Based on the above, the Board believes that the Group has the ability and adequate resources to continue in operational existence for the

foreseeable future, being at least 12 months from the date of approval of the financial statements

2.5

Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below.

a) Functional and presentation currency

These financial statements are presented in Sterling, which is the functional and presentational currency of the Group and its subsidiary

undertakings. The functional currency of the Group and its subsidiaries is principally determined by the primary economic environment in

which it operates. The Group did not enter into any transactions in foreign currencies during the period.

b) Revenue recognition

i) Rental income

Rental income under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income,

which is recognised when it arises. For leases, which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised

on a straight-line basis over the lease term.

Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis.

The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the

lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.

Lease modifications, such as lease extensions and rent reductions, are accounted for either as a separate lease or not a separate lease.

A modification will only be treated as a separate lease if it involves the addition of one or more underlying assets at a price that is

commensurate with the standalone price of the increase in scope. All other modifications are not treated as a separate lease.

If a modification is a separate lease, a lessee applies the requirements of IFRS 16 to the newly added asset, due as a result of the modification,

independently of the original lease. The accounting for the original lease continues unchanged.

If a modification is not a separate lease, the accounting reflects that there is a linkage between the original lease and the modified lease. The

existing lease liability is remeasured with a corresponding adjustment to the right-of-use asset on the effective date of the modification.

ii) Service charges and direct recharges

Revenue from service charges is recognised in the accounting period in which the service is rendered. For certain service contracts, revenue is

recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided because

the customer receives and uses the benefits simultaneously.

iii) Deferred income

Deferred income is rental income received in respect of future accounting periods.

(iv) Dilapidation and lease surrender premium

Amounts received from tenants to terminate leases or to compensate for dilapidations are recognised in the Consolidated Statement of

Comprehensive Income when the right to receive them arises.

c) Financing income and expenses

Financing income comprises interest receivable on funds invested. Financing expenses comprise interest and other costs incurred in connection

with the borrowing of funds. Interest income and interest payable are recognised in profit or loss as they accrue, using the effective interest

method which is significantly the same as the contracted interest.

d) Investment property

Property is classified as investment property when it is held to earn rentals or for capital appreciation or both. Investment property is measured

initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition

necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at

the time that cost is incurred if the replacement of that part will prolong or improve the life of the asset.

Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair values are included

in profit or loss.

Investment properties are valued by the external valuer. Any valuation of investment properties by the external valuer must be undertaken in

accordance with the current issue of RICS Valuation – Professional Standards (the ‘Red Book’).

The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings,

tenants’ profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall

repair and condition of the property) and yield applicable to those cash flows.

For the purposes of the financial statements, the assessed fair value is:

•

reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives; and increased by the carrying

amount of leasehold obligations.

Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is

expected after its disposal or withdrawal.

The profit on disposal is determined as the difference between the net sales proceeds and the carrying amount of the asset at the

commencement of the accounting period plus capital expenditure in the period. Any gains or losses on the retirement or disposal of investment

property are recognised in profit or loss in the year of retirement or disposal.

e) Cash and cash equivalents

Cash and short-term deposits in the Consolidated Statement of Financial Position comprise cash at bank and short-term deposits with an

original maturity of three months or less.

f) Receivables and prepayments

Rent and other receivables are initially recognised at fair value and subsequently at amortised cost. Impairment provisions are recognised based

on the process as described in note 2.2. Any adjustment is recognised in profit or loss as an impairment gain or loss.

g) Other payables and accrued expenses

Other payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost.

h) Interest bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest bearing

loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowing costs are amortised over

the lifetime of the facilities through profit or loss.

i) Provisions

A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation

as a result of a past event that can be reliably measured and is probable that an outflow of economic benefits will be required to settle the

obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

j) Dividend payable to shareholders

Equity dividends are recognised when they become legally payable.

k) Share issue costs

The costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity.

l) Lease obligations

Lease obligations relate to the head rent of investment property and are capitalised at the lease commencement, at the lower of fair value of

the property and present value of the minimum lease payments and held as a liability within the Consolidated Statement of Financial Position.

The lease payments are discounted using the interest rate implicit in the lease. Where the Group is exposed to potential future increases

in variable lease payments based on an index or rate, these are not included in the lease liability until they take effect. Lease payments are

allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant

periodic rate of interest on the remaining balance of the liability for each period.

m) Taxes

Corporation tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is

recognised in equity.

As a REIT, the Group is exempt from corporation tax on the profits and gains from its investments, provided it continues to meet certain

conditions as per REIT regulations.

Taxation on the profit or loss for the period not exempt under UK REIT regulations comprises current and deferred tax. Current tax is expected

tax payable on any non-REIT taxable income for the year, using tax rates applicable in the year.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes

and the amounts used for taxation purposes. The amount of deferred tax that is provided is based on the expected manner of realisation or

settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the period end date.

n) European Public Real Estate Association

The Group has adopted the European Public Real Estate Association (‘EPRA’) best practice recommendations, which it expects to broaden the

range of potential institutional investors able to invest in the Company’s Ordinary Shares. For the year ended 30 June 2023, audited EPS and

NAV calculations under EPRA’s methodology are included in note 8 and further unaudited measures are included on page 66.

o) Capital and reserves

Share capital

Share capital is the nominal amount of the Company’s Ordinary Shares in issue, and is non-distributable.

Capital reserve

The capital reserve is a distributable reserve and represents the cancelled share premium less dividends paid from this reserve.

Retained earnings

Retained earnings represent the profits of the Group less dividends paid from revenue profits to date.

2.6 Fair value measurement

The Group measures financial and non-financial assets such as investment properties at fair value at each reporting date.

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets

and liabilities. Fair value is defined in IFRS 13 Fair Value Measurement as the price that would be received to sell an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date. Fair values have been determined for measurement

and/or disclosure purposes based on methods described below. Where applicable, further information about the assumptions made in

determining fair values is disclosed in the notes specific to that asset or liability.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,

maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to fair value measurement as a

whole:

Fair value hierarchy:

Level 1:

Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or

indirectly (i.e. derived from prices).

Level 3:

Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether

transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the

fair value measurement as a whole) at the end of each reporting period.

There were no transfers between any of the levels during the year.

Investment property

The valuation of investment property by valuers engaged by the Group who are independently appointed and have the relevant professional

qualifications and with recent experience in the location and category of the investment property being valued. Further information in relation

to the valuers is provided in note 10.

Property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer which may not prove to be

accurate. For these reasons, and consistent with EPRA’s guidance, we have classified the valuations of the property portfolio as Level 3 as

defined by IFRS 13. The inputs to the valuations are defined as ‘unobservable’ by IFRS 13 and these are analysed in note 10

3. Rental and other income

2023

2022

£’000

£’000

Gross rental income

7,429

7,036

Spreading of minimum contracted future rent – indexation

423

541

Spreading of tenant incentives – rent free periods

(58)

(73)

Other property income

294

1

Gross rental income (adjusted)

8,088

7,505

Service charges and direct recharges (see note 4)

572

396

Total rental and other income

8,660

7,901

All rental, service charges, direct recharges and other income are derived from the United Kingdom.

Other property income for the year ended 30 June 2023 mainly relates to the allocation to revenue of £219,000 arising from a settlement of the

litigation in respect of replacement of defective cladding for Travelodge, Swindon. Further detail is provided in note 15.3.

4. Expenses

2023

2022

£’000

£’000

Property operating expenses

177

136

Service charges and direct recharges (see note 3)

572

396

Provision/(reversal) of provision for impairment of trade receivables

6

(202)

Property operating expenses

755

330

Investment adviser fee

371

368

Auditor’s remuneration

87

63

Operating costs*

481

588

Directors’ remuneration (note 5)

110

82

Other operating expenses

1,049

1,101

Total operating expenses

1,804

1,431

Total operating expenses (excluding service charges and direct recharges)

1,232

1,035

* Included in the operating costs for year ended 30 June 2022 is £1,250 of fees paid to Stephanie Eastment for due diligence incurred in advance of her appointment as a

director.

2023

2022

£’000

£’000

Audit

Statutory audit of Annual Report and Accounts

76*

53

Statutory audit of Subsidiary Accounts

11

10

Total fees due to auditor

87

63

*Include £6,000 fees relating to year ended 30 June 2022.

Moore Kingston Smith LLP has not provided any non-audit services to the Group.

5. Directors’ remuneration

2023

2022

£’000

£’000

Directors’ fees

99

75

Tax and social security

11

7

Total fees

110

82

A summary of the director’s remuneration is set out in the Directors’ Remuneration Report on page 44.

The Group had no employees during the year.

6. Finance expenses

2023

2022

£’000

£’000

Interest payable on loan (note 13)

1,307

1,307

Amortisation of finance costs (note 13)

104

104

Other finance costs

14

12

Total

1,425

1,423

7. Taxation

2023

2022

£’000

£’000

Tax charge comprises:

Analysis of tax charge in the year

(Loss)/profit before tax

(5,240)

13,166

Theoretical tax (refund)/charge at UK corporation tax standard rate of 20.50% (2022: 19.00%)

(1,074)

2,502

Effects of tax-exempt items under the REIT regime

(1,074)

(2,502)

Total

–

–

The Group maintained its REIT status and as such, no deferred tax asset or liability has been recognised in the current year.

Factors that may affect future tax charges

Due to the Group’s status as a REIT and the intention to continue meeting the conditions required to retain approval as a REIT in the foreseeable

future, the Group has not provided deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.

8. (Loss per share)/Earnings per share (EPS) and Net Asset Value (NAV) per share

2023

2022

£’000

£’000

(Loss per share)/EPS:

Total comprehensive (loss)/income (£’000)

(5,240)

13,166

Weighted average number of shares (number)

80,500,000

80,500,000

(Loss per share)/EPS (basic and diluted)

(6.51p)

16.36p

EPRA EPS (£’000):

Total comprehensive (loss)/income

(5,240)

13,166

Adjustment to total comprehensive income:

Change in fair value of investment properties

10,671

(8,023)

Gain on disposal of investment property

–

(96)

EPRA earnings (basic and diluted) (£’000)

5,431

5,047

EPRA EPS (basic and diluted)

6.75p

6.27p

Adjusted EPS:

EPRA earnings (basic and diluted) (£’000) – as above

5,431

5,047

Adjustments (£'000):

Rental income recognised in respect of guaranteed fixed rental uplifts (note 3)

(423)

(541)

Rental income recognised in respect of rent free periods (note 3)

58

73

Amortisation of loan finance costs (note 6)

104

104

Write-off of rent

16

4

Reversal of provision for impairment of trade receivables (note 4)

(10)

(202)

Adjusted earnings (basic and diluted) (£’000)

5,176

4,485

Adjusted EPS (basic and diluted)*

6.43p

5.57p

* Adjusted EPS is a measure used by the Board to assess the level of the Group’s dividend payments. This metric adjusts EPRA earnings for non-cash items in arriving at an

adjusted EPS as supported by cash flows.

Earnings per share are calculated by dividing profit/(loss) for the year attributable to ordinary equity holders of the Company by the weighted

average number of Ordinary Shares in issue during the year.

2023

2022

£’000

£’000

NAV per share:

Net assets (£'000)

67,750

77,599

Ordinary Shares (Number)

80,500,000

80,500,000

NAV per share

84.16p

96.40p

EPRA Net Reinvestment Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV)

EPRA NRV

EPRA NTA and

EPRA NDV

At 30 June 2023

Net assets value (£'000)

67,750

67,750

Purchasers' cost (£'000)

6,957

–

Break cost on bank borrowings (£'000)

–

–

74,707

67,750

Ordinary Shares (Number)

80,500,000

80,500,000

Per share measure

92.80p

84.16p

At 30 June 2022

Net assets value (£'000)

77,599

77,599

Estimated purchasers’ cost (£'000)

7,664

–

Break cost on bank borrowings (£'000)

(486)

(486)

84,777

77,113

Ordinary Shares (Number)

80,500,000

80,500,000

Per share measure

105.31p

95.79p

9. Dividends

All dividends were paid as PIDs

Quarter

Ended

Rate

2023

£’000

2022

£’000

Dividends in respect of year ended 30 June 2021

4th dividend

30-Jun-21

1.640p

–

1,320

Dividends in respect of year ended 30 June 2022

1st dividend

30-Sep-21

1.300p

–

1,047

2nd dividend

31-Dec-21

1.300p

–

1,046

3rd dividend

31-Mar-22

1.300p

–

1,047

4th dividend

30-Jun-22

1.600p

1,288

–

Dividends in respect of year ended 30 June 2023

1st dividend

30-Sep-22

1.375p

1,107

–

2nd dividend

31-Dec-22

1.375p

1,107

–

3rd dividend

31-Mar-23

1.375p

1,107

–

Total dividends paid*

4,609

4,460

4th dividend

30-Jun-21

1.640p

–

(1,320)

4th dividend

30-Jun-22

1.600p

(1,288)

1,288

4th dividend**

30-Jun-23

1.920p

1,545

–

Total dividends payable in respect of the year

4,866

4,428

Total dividends per share payable in respect of the year

6.045p

5.50p

* Dividends paid per Consolidated Statement of Cash Flows amount to £4,692,000 (2022: £4,455,000), the difference between the amount disclosed above is due to

withholding tax.

** Dividends declared after the year end are not included in the financial statements as a liability.

10. Investment properties

2023

2022

Freehold

Investment

properties

£’000

Leasehold

Investment

properties

£’000

Total

£’000

Total

£’000

At the beginning of the year

80,980

36,925

117,905

109,230

Acquisition during the year

–

–

–

5,375

Reduction in acquisition costs (note 15.3)

(606)

–

(606)

–

Disposal during the year

–

–

–

(5,300)

Change in value of investment properties

(6,549)

(3,725)

(10,274)

8,600

Valuation provided by Knight Frank LLP

73,825

33,200

107,025

117,905

Adjustment to fair value for minimum rent indexation of lease income (note 11)

(3,542)

(3,177)

Adjustment for lease obligations

364

396

Total investment properties

103,847

115,124

Change in fair value of investment properties

Change in fair value before adjustments for lease incentives and lease obligations

(10,274)

8,600

Movement in lease obligations

(32)

(109)

Adjustment to spreading of contracted future rent indexation and tenant incentives

(365)

(468)

(10,671)

8,023

There were no acquisitions nor disposals of properties in the year being reported. During 2022, the Group acquired the property known as Volvo,

Slough and disposed of the investment property known as Audi, Huddersfield. The table below shows a reconciliation of the gain recognised on

disposal through the Consolidated Statement of Comprehensive Income.

2023

2022

£’000

£’000

Gross proceeds on disposal

–

5,500

Selling costs

–

(104)

Net proceeds on disposal

–

5,396

Carrying value

–

(5,300)

Gain on disposal of investment property

–

96

Valuation of investment properties

Valuation of investment properties is performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional

qualifications and recent experience of the location and category of the investment property being valued. The valuation of the Group’s investment

properties at fair value is determined by the external valuer on the basis of market value in accordance with the internationally accepted RICS

Valuation – Professional Standards (incorporating the International Valuation Standards).

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as lettings,

tenants’ profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair

and condition of the property) and yield applicable to those cash flows.

The right of use asset is valued at future lease payments discounted using the net equivalent yield on the relevant asset.

Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the fair value hierarchy

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the entity’s portfolios

of investment properties are:

1) Estimated Rental Value (‘ERV’)

2) Net Initial Yield

Increases/(decreases) in the ERV (per sq. ft. per annum) in isolation would result in a higher/(lower) fair value measurement. Increases/(decreases) in

the yield in isolation would result in a lower/(higher) fair value measurement.

The significant unobservable inputs used in the fair value measurement, categorised within Level 3 of the fair value hierarchy of the portfolio of

investment property and investments are:

Class

Fair

value

£’000

Valuation

technique

Significant

unobservable

inputs

Range

30 June 2023

Investment Properties*

107,025

Income

capitalisation

ERV

Net Initial yield

£4.39 – £21.97

4.70% – 10.25%**

30 June 2022

Investment Properties*

117,905

Income

capitalisation

ERV

Net Initial yield

£4.00 – £21.96

4.65% – 9.16%**

* Valuation per Knight Frank LLP

**Hotels, petrol stations, residential & healthcare are excluded from this range

Sensitivity analysis below.

2023

Change in ERV

Change in net initial yield

£’000

£’000

£’000

£’000

Sensitivity Analysis

+10%

-10%

+10%

-10%

Resulting fair value of investment properties

109,412

104,542

101,214

114,027

2022

Change in ERV

Change in net initial yield

£’000

£’000

£’000

£’000

Sensitivity Analysis

+10%

-10%

+10%

-10%

Resulting fair value of investment properties

121,583

114,850

111,837

126,023

11. Receivables and prepayments

2023

2022

£’000

£’000

Receivables

Trade debtor

122

284

Less: Provision for impairment of trade receivables

(2)

(11)

Other debtors

326

244

Total receivables and prepayments

446

517

Spreading of minimum contracted future rent indexation

3,132

2,709

Spreading of tenant incentives – rent free periods

410

468

3,542

3,177

Tenant deposit asset (note 12)

118

118

Other prepayments

87

222

205

340

Total receivables and prepayments

4,193

4,034

The aged debtor analysis of receivables which are past due but not impaired is as follows:

2023

2022

£’000

£’000

Less than 3 months due

464

515

Between 3 and 6 months due

(18)

2

Between 6 and 12 months due

–

–

446

517

12. Payables and accrued expenses

2023

2022

£’000

£’000

Deferred income

1,568

1,501

Trade creditors

24

51

Accruals

374

576

Tenant deposit liability (note 11)

118

118

Loan interest payable (note 13)

258

258

Other creditors

409

642

2,751

3,146

13. Interest bearing loans and borrowings

2023

2022

£’000

£’000

Facility drawn

41,000

41,000

Unamortised finance costs brought forward

(380)

(484)

Amortisation of finance costs

104

104

At end of year

40,724

40,620

Repayable between 1 and 2 years

–

–

Repayable between 2 and 5 years

41,000

41,000

Repayable in over 5 years

–

–

Total at end of the year

41,000

41,000

At 30 June 2023, the Group had utilised all of its £41 million fixed interest loan facility with Canada Life Investments and was geared at a loan to

Gross Asset Value (‘GAV’) of 36.8% (2022: 33.7%). The weighted average interest cost of the Group’s facility is 3.19% and the facility is repayable on

20 October 2025. Interest expense incurred during the year amounted to £1.31 million (2022: £1.31 million), £0.26 million was outstanding as at 30 June

2023 (2022: £0.26 million). The loan is secured against 17 properties in the Group’s portfolio.

2023

2022

£’000

£’000

Reconciliation to cash flows from financing activities

At beginning of the year

40,620

40,516

Non-cash changes

Amortisation of loan issue costs

104

104

Total at end of the year

40,724

40,620

14. Lease obligations

At the commencement date, the lease liability is measured at the present value of the lease payments that are not paid on that date.

The following table analyses the minimum lease payments due under non-cancellable leases:

2023

2022

£’000

£’000

Within 1 year

50

50

After 1 year but not more than 5 years

150

150

More than 5 years

463

513

Total undiscounted lease liabilities

663

713

Less: Future finance charge on lease obligations

(364)

(378)

Present value of lease liabilities

299

335

Lease liabilities included in the Consolidated Statement of Financial Position

Current

33

36

Non-current

266

299

299

335

15. Commitments

15.1. Operating lease commitments – as lessor

The Group has 19 commercial properties with 33 units on its investment property portfolio as set out on pages 16 to 19. These non-cancellable

leases have a remaining term of between 10 months and 111 years (2022: 7 months to 112 years), excluding ground leases.

Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2023 are as follows:

2023

2022

£’000

£’000

Within 1 year

7,179

7,071

After 1 year, but not more than 2 years

6,804

7,015

After 2 years, but not more than 3 years

6,548

6,754

After 3 years, but not more than 4 years

7,034

7,011

After 4 years, but not more than 5 years

6,416

7,045

After 5 years, but not more than 10 years

28,307

29,896

After 10 years, but not more than 15 years

24,085

25,935

More than 15 years

50,689

55,472

137,062

146,199

During the year ended 30 June 2023 there were no material contingent rents recognised as income (2022: £Nil).

15.2. Capital commitments

There were no capital commitments at 30 June 2023 (2022: none).

15.3. Financial commitments

In the 2022 Annual Report, it was disclosed that the Group was involved in litigation against two parties to recover £1.1 million of costs. The

costs were incurred for work in the period September to December 2020 to replace defective cladding elements uncovered in the external walls

of the top floors and rear lift core of the Travelodge Hotel, Swindon. The defective cladding was installed when the property was extended in

2007 and the Group’s claims were against the architect and cladding sub-contractor involved. During the year, the Board engaged in mediation

with both parties and agreed a full and final settlement of £825,000. Consequent to the resolution of that litigation, the Group have no

financial commitments other than those arising from its normal business operations.

The settlement was in respect of the Group’s costs to replace the defective cladding, which had been charged to capital, and in respect of

the professional fees incurred by the Group to undertake the litigation, which had been charged to revenue. Accordingly, the settlement has

been proportionally allocated £606,000 to capital, as a reduction in acquisition costs (see note 10), and £219,000 to revenue, as other property

income (see note 3).

There are no other commitments other than those shown above at the year end (2022: same).

16. Investments in subsidiaries

The Company has two wholly owned subsidiaries as disclosed below:

Name and company number

Country of

registration and

incorporation

Date

of

incorporation

Principal

activity

Ordinary

Shares

held

Alternative Income REIT Holdco Limited

(Company number 11052186)

England and

Wales

7 Nov 2017

Real Estate

Company

73,158,502*

Alternative Income Limited

(Company number 10754641)

England and

Wales

4 May 2017

Real Estate

Company

73,158,501*

* Ordinary shares of £1.00 each.

Alternative Income REIT Plc as at 30 June 2022 owns 100% of Alternative Income REIT Holdco Limited.

Alternative Income REIT Holdco Limited holds 100% of Alternative Income Limited.

Both Alternative Income REIT Holdco Limited and Alternative Income Limited are registered at 1 King William Street, London, United Kingdom,

EC4N 7AF.

17. Issued share capital

2023

2022

£’000

Number of

Ordinary

Shares

£’000

Number of

Ordinary

Shares

Ordinary Shares of £0.01 each issued and fully paid

At the beginning and end of the year

805

80,500,000

805

80,500,000

18. Financial risk management and policies

The Group’s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and further risks inherent to investing in investment

property. The Group has limited exposure to foreign currency risk as most of its transaction is in Sterling. The Group’s objective in managing risk is the

creation and protection of shareholder value. Risk is inherent in the Group’s activities, but it is managed through a process of ongoing identification,

measurement and monitoring, subject to risk limits and other controls. The principal risks facing the Group in the management of its portfolio

follows.

18.1

Market price risk

Market price risk is the risk that future values of investments in property will fluctuate due to changes in market prices. To manage market price

risk, the Group diversifies its portfolio geographically in the UK and across property sectors.

The disciplined approach to the purchase, sale and asset management ensures that the value is maintained to its maximum potential. Prior to

any property acquisition or sale, detailed research is undertaken to assess expected future cash flow. The Board and the Investment Adviser

meet regularly and are responsible for recommending investment purchases or sales to the AIFM which makes the ultimate decision. In order

to monitor property valuation fluctuations, the Investment Adviser meets with the independent external valuer on a regular basis. The valuer

provides a property portfolio valuation quarterly, so any movements in the value can be accounted for in a timely manner and reflected in the

NAV every quarter.

 

18.2 Real estate risk

Property investments are illiquid assets and can be difficult to sell, especially if local market conditions are poor. Illiquidity may also result from

the absence of an established market for investments, as well as legal or contractual restrictions on resale of such investments.

There can be no certainty regarding the future performance of any of the properties acquired for the Group. The value of any property can go

down as well as up.

Real property investments are subject to varying degrees of risk. The yields available from investments in real estate depend on the amount of

income generated and expenses incurred from such investments.

There are additional risks in vacant, part vacant, redevelopment and refurbishment situations, although these are not prospective investments

for the Group.

These aspects, and their effect on the Group from a going concern perspective are discussed in more detail in the Going Concern policy

note.

 

18.3 Credit risk

Credit risk is the risk that the counterparty (to a financial instrument) or tenant (of a property) will cause a financial loss to the Group by failing

to meet a commitment it has entered into with the Group.

It is the Group’s policy to enter into financial instruments with reputable counterparties. All cash deposits are placed with an approved

counterparty, Barclays International.

In respect of property investments, in the event of a default by a tenant, the Group will suffer a rental shortfall and additional costs concerning

re-letting the property. The Investment Adviser monitors tenant arrears in order to anticipate and minimise the impact of defaults by

occupational tenants.

The table below shows the Group’s exposure to credit risk:

2023

2022

£’000

£’000

Debtors

448

528

Cash and cash equivalents

3,484

2,542

Total

3,932

3,070

18.4 Liquidity risk

Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its borrowings.

It is the risk the Group will encounter difficulty in meeting its financial obligations as they fall due as the majority of the Group’s assets are

investment properties and therefore not readily realisable. The Group’s objective is to ensure it has sufficient available funds for its operations

and to fund its capital expenditure. This is achieved by quarterly review/monitoring of forecast and actual cash flows by the Investment Adviser

and Board.

The below table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.

2023

On

demand

£’000

< 3

months

£’000

3 - 12

months

£’000

1 - 5

years

£’000

> 5

years

£’000

Total

£’000

Interest bearing loans and borrowings

–

–

–

41,000

–

41,000

Interest payable

–

327

980

1,959

–

3,266

Payables and accured expenses

24

651

–

–

–

675

Lease obligations

–

13

38

200

413

664

Total

24

991

1,018

43,159

413

45,605

2022

On

demand

£’000

< 3

months

£’000

3 - 12

months

£’000

1 - 5

years

£’000

> 5

years

£’000

Total

£’000

Interest bearing loans and borrowings

–

–

–

41,000

–

41,000

Interest payable

–

327

980

3,266

–

4,573

Payables and accured expenses

134

863

–

–

–

997

Lease obligations

–

13

38

200

463

714

Total

134

1,203

1,018

44,466

463

47,284

18.5 Fair value of financial instruments

There is no material difference between the carrying amount and fair value of the Group’s financial instruments.

18.6 Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The

Group’s exposure to the risk of changes in market interest rates is minimal because the Group’s loan is at a fixed rate of 3.19% (note 13).

19. Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for

shareholders and to maintain an optimal capital structure to reduce the cost of capital.

To enhance returns over the medium term, the Group utilises borrowings on a limited recourse basis for each investment or all or part of the total

portfolio. The Group’s policy is to borrow up to a maximum of 40% loan to GAV (measured at drawdown). Alongside the Group’s borrowing policy,

the directors intend, at all times, to conduct the affairs of the Group so as to enable the Group to qualify as a REIT for the purposes of Part 12 of the

Corporation Tax Act 2010 (and the regulations made thereunder). The REIT status compliance requirements include 90% distribution test, interest

cover ratio, 75% assets test and the substantial shareholder rule, all of which the Group remained compliant in both this and the prior year.

The monitoring of the Group’s level of borrowing is performed primarily using a Loan to GAV ratio. The Loan to GAV ratio is an alternative

performance measure and its calculation is shown on page 83. The Group Loan to GAV ratio at the year end was 36.8% (2022: 33.7%).

Breaches in meeting the financial covenants would permit the lender to immediately call loans and borrowings. During the year, the Group did not

breach any of its loan covenants, nor did it default on any other of its obligations under its loan agreements.

20. Transactions with related parties

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in

making financial or operational decisions.

Directors

Directors of the Group are related party. Directors’ remuneration is disclosed in note 5.

Investment Adviser

M7 Real Estate Limited

M7 Real Estate Ltd was appointed as Investment Adviser on 14 May 2020. The Interim Investment Advisory agreement (amended with Deed of

Variation dated 21 February 2021) specifies that from 1 October 2020, the annual management fee is calculated at a rate equivalent of 0.50% per

annum of NAV (subject to a minimum fee of £90,000 per quarter), payable quarterly in advance, with no fee payable from 14 May to 30 September

2020. During the year ended 30 June 2023, the Group incurred £371,000 (2022: £368,000) in respect of investment advisory fees, none of which was

outstanding at 30 June 2023 (2022: £98,000).

21. Events after reporting date

Dividend

On 3 August 2023, the Board approved the interim dividend for the quarter ended 30 June 2023 of 1.92pps. This was paid on 25 August 2023 to

shareholders on the register at 11 August 2023. The ex-dividend date was 10 August 2023. The dividend was paid as a PID. Details are disclosed in the

Chair’s Statement on page 6.

Sale of property

On 8 August 2023, the Group completed the disposal of Mercure Hotel, Ingram Street, Glasgow to the occupier for £7.5 million, a 7.9% premium on

the book value at 30 June 2023. The net proceeds from the sale have been deposited to the lenders bank account and the Board intends to reinvest

this as soon as practical.