Chairman’s Statement

Overview

I am pleased to present the unaudited half-yearly report of Alternative Income REIT plc (the Company) together with its subsidiaries (the Group) for the half year ended 31 December 2023.

During the period under review the Company’s portfolio was not immune to the sector wide downward movement in valuations and for the half year ended 31 December 2023 the Group’s net asset value fell by £2.1 million to £65.7 million (30 June 2023: £67.8 million). That said, our portfolio has shown some resilience as the valuation fall has, in the main part, been materially lower than the benchmark property indices and the Company’s peer group.

95.8% of the Group’s portfolio benefits from index-linked rent reviews, 35.9% on an annual basis. Combining this with a strong balance sheet, modest overheads and low fixed borrowing costs until 2025, helps ensure that the Company is well positioned to ride-out the current economic storm and to continue to deliver attractive, secure and progressive income to our shareholders. The biggest risk factor for the Group remains tenant default, although the Group has an excellent record of rent collection in recent years.

Portfolio Performance

The fair value of the Group’s property portfolio amounted to £103.3 million across 19 properties (30 June 2023: £107.0 million across 19 properties).  On a like for like basis, the Company’s property values decreased by £1.9 million or 1.8% for the half year ended 31 December 2023. The portfolio had a net initial yield of 6.9% at 31 December 2023 (30 June 2023: 6.6%), and a WAULT to the first break of 16.6 years (30 June 2023: 17.0 years) and a WAULT to expiry of 18.5 years (30 June 2023: 18.9 years).

Property Transactions

On 8 August 2023, the Company completed the sale of the Mercure City Hotel, Ingram Street, Glasgow, for a total consideration of £7.5 million to the current tenant, S Hotels & Resorts (UK) Limited. This property represented 6.5% of the Group’s portfolio capital valuation at 30 June 2023. The disposal represented a 7.9% premium above the book value at 30 June 2023 and a net exit yield of 8.9%. The sale proceeds are being reinvested, firstly, through the acquisition of the Virgin Active in Ockley Road, Streatham for £5.5 million (gross of acquisition costs) with the transaction completed on 18 December 2023 and the Group is looking to reinvest the remaining proceeds in another property by the end of March 2024.

Dividends & Earnings

The Company declared increased interim dividends totalling 2.85pps in respect of the half year ended 31 December 2023 (half year ended 31 December 2022: 2.75pps). Dividends declared for the Period are in line with the Board’s target annual dividend of at least 5.9pps , which is expected to be fully covered.

As set out in Note 8 to the Condensed Consolidated Financial Statements, these dividends were marginally uncovered by the Group’s EPRA Earnings  of 2.75pps (31 December 2022: 3.45pps), but were well covered by the Group’s Adjusted EPS  (representing cash) of 2.96pps (31 December 2022: 3.35pps). All dividends were paid as Property Income Distributions.

Financing

At 31 December 2023, the Group had fully utilised its £41 million loan facility with Canada Life Investments. The weighted average interest cost of the Group’s facility is 3.19% and the loan is repayable on 20 October 2025.

Discount

The discount of the Company’s share price to NAV at 31 December 2023 reduced to 12.4% from 23.1% at 30 June 2023. The Board monitored the discount level throughout the Period and has the requisite authority from shareholders to both issue and buy back shares.