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Annual reportFor the year ended 31 March 2020 2020
Alp
ha Real Trust Lim
itedFo
r the year ended
31 March 2020
Annual rep
ort and
financial statements
1 Highlights
2 Trust summary and objective
4 Chairman’s statement
8 Investment review
20 Directors
21 Directors’ and corporate governance report
26 Directors’ statement pursuant to the Disclosure and Transparency Rules
27 Independent auditors’ report
32 Consolidated statement of comprehensive income
33 Consolidated balance sheet
34 Consolidated cash flow statement
35 Consolidated statement of changes in equity
36 Notes to the financial statements
67 Directors and Company information
68 Shareholder information
68 Financial calendar
Contents
www.alpharealtrustlimited.com
Alpha Real Trust Limited : Annual report 2020 1
• NAVperordinaryshare213.7pasat31 March 2020(31 March2019:204.3p).
• Basicearningsfortheyearended31 March 2020of5.8pperordinaryshare(31 March2019:33.1pperordinaryshareand 33.5pperAshare).
• Adjustedearningsfortheyearended31 March 2020of6.4pperordinaryshare(31 March2019:3.9pperordinaryandAshare)*.
• Declarationofaquarterlydividendof1.0pperordinaryshareexpectedtobepaidon17 July 2020.
• Postyearend,thesaleoftheUnityandArmouriessiteinBirminghamcompletedat the £4.5 millionbookvalue.
*Thebasisoftheadjustedearningspershareisprovidedinnote9
• Robust financial position:acautiousapproachtonewinvestmentisbeingtakenandcashconserveduntiltheCovid‑19situationunfolds.
• Diversified portfolio of secured senior and secured mezzanine loan investments;asat31 March2020,thesizeofART’ssecuredloanportfoliowas£39.9 million,representing31.9%oftheinvestmentportfolio.TheportfoliohasanaverageLoantoValue(‘LTV’)of55.7%(with averageapprovedLTVbetween58%and76%formezzaninewhilethehighestapprovedLTVforsenioris73.1%).
• Galaxia update:TheSupremeCourtofIndiaruledinfavourofART’sdisputeregardingitsGalaxiainvestment.InupholdingthearbitrationawardinfavourofARTanddismissingLogix’sappeal,thecourthasestablishedasettlementpathwaytoconcludethelegalprocess.
• UK industrial portfolio:phasedsaleoftheUKindustrialportfoliohassuccessfullyadvancedwiththesaleofthepenultimateassetcompleted.
Alpha Real Trust Limited targets investment, development, financing and other opportunities in real estate, real estate operating companies and securities, real estate services, infrastructure, infrastructure services, other asset-backed businesses and related operations and services businesses that offer attractive risk-adjusted total returns.
Highlights
Alpha Real Trust Limited : Annual report 20202
Trust summary and objective
Strategy
AlphaRealTrustLimited(‘theCompany’or‘ART’or‘the Group’)targetsinvestment,development,financingandotheropportunitiesinrealestate,realestateoperatingcompaniesandsecurities,realestateservices,infrastructure,infrastructureservices,otherasset‑backedbusinessesandrelatedoperationsandservicesbusinessesthatofferattractiverisk‑adjustedtotal returns.
ARTcurrentlyfocussesonasset‑backedlending,debtinvestmentsandhighreturnpropertyinvestmentsinWestern Europethatarecapableofdeliveringstrongriskadjustedcash flows.
Theportfoliomixat31 March2020,excludingsundryassets/liabilities,wasasfollows:
31 March 2020 31 March 2019
Highreturndebt: 31.9% 26.3%
Highreturnequityinproperty investments:
26.1% 25.1%
Otherinvestments: 6.2% 6.3%
Cash: 35.8% 42.3%
TheCompanycurrentlyplanstoinvestthemajorityofitscashintosecuredseniororsecuredmezzaninedebtinduecourseandsubjecttohowtheCovid‑19situationunfolds.
Hig
h re
turn
equity in
pro
per
ty in
vestments High return
debt
Oth
er
Cash
UK Industrial Portfolio 3.4%(previously AURE)
Secured mezzanine debt 16.4%
Secured senior debt 15.5%
Galaxia 2.0%
Cash 35.8%
Other 0.1%Realhousingco 0.5%
Cambourne 1.4%
Hamburg 5.7%
Unity & Armouries 3.6%
H2O 15.6%
26.1%
6.2%
35.8%
31.9%
Company’s asset allocation by sector and investment (by percentage of Group’s NAV, based on the balance sheet carrying values, excluding the Company’s sundry assets/ liabilities) at 31 March 2020 (seepage8forfurtherdetails).
Alpha Real Trust Limited : Annual report 2020 3
Trust summary and objective (continued)
Financialhighlights
12 months ended 31 March 2020
6 months ended 30 September 2019
12 months ended 31 March 2019
Net asset value (£’000) 127,627 126,440 136,673
Net asset value per ordinary and A share 213.7p 213.5p 204.3p
Earnings per ordinary share (basicanddiluted)(adjusted)* 6.4p 3.0p 3.9p
Earnings per A share (basicanddiluted)(adjusted)* - - 3.9p
Total earnings per ordinary and A share (basicanddiluted)(adjusted)* 6.4p 3.0p 3.9p
Earnings per ordinary share (basicanddiluted) 5.8p 2.7p 33.1p
Earnings per A share (basicanddiluted)** - - 33.5p
Total earnings per ordinary and A share (basicanddiluted) 5.8p 2.7p 33.2p
Dividend per share (paidduringtheperiod) 3.6p 1.6p 2.4p
* Theadjustedearningspershareincludesadjustmentsfortheeffectofthefairvaluerevaluationofinvestmentpropertyandindirectpropertyinvestments,capitalelementonInvestmentManager’sfees,thefairvaluemovementsonfinancialassetsanddeferredtaxprovisions:fullanalysisisprovidedinnote9totheaccounts.
** ThedifferenceinbasicanddilutedEPSbetweenordinaryandAshareswasduetotheRomulusinvestment,whichwasexclusivelyforthebenefitofARTAshareholders(note9).
3.6p Dividends per share paid and declared
6.4p Adjusted earnings per share of 6.4p
213.7p NAV per share 213.7p
Dividends
ThecurrentintentionoftheDirectorsistopayadividendandofferascripdividendalternativequarterlytoallshareholders.
Listing
TheCompany’ssharesaretradedontheSpecialistFundSegment(‘SFS’)oftheLondonStockExchange(‘LSE’),tickerARTL:LSE.
Management
TheCompany’sInvestmentManagerisAlphaRealCapitalLLP(‘ARC’),whoseteamofinvestmentandassetmanagementprofessionalsfocusonthepotentialtoenhanceearningsinadditiontoaddingvaluetotheunderlyingassets,andalsofocusontheriskprofileofeachinvestmentwithinthecapitalstructuretobestdeliverattractiveriskadjustedreturns.
ControloftheCompanyrestswiththenon‑executiveGuernseybasedBoardofDirectors.
Alpha Real Trust Limited : Annual report 20204
IampleasedtopresenttheCompany’sannualreportandaccountsfortheyearended31 March2020.
Giventheextraordinaryeventsofthepastfewmonths,thehealthandwellbeingofART’sstakeholdersisforemostinourminds.Covid‑19andtheunprecedentedactionsofGovernmentstolock‑downtheircitizensandshut‑downtheireconomieshasseverelyaffectedtheeconomicbackdropinwhichtheCompanyoperates.ART’sinvestmentportfoliobenefitsfromdiversificationacrossgeographies,sectorsandassettypes.Overthepastyear,theCompanyhasfocusedonrecyclingcapitalintoassetbackedlendingwhilereducingexposuretodevelopmentrisk.Inthistimeofheighteneduncertainty,theCompanyisbenefitingfromthatstrategyandit hasplacedtheCompanyonarobustfinancialfooting.
Wearetakingacautiousapproachtonewinvestment,including newlending,asweseehowCovid‑19unfolds.
Diversified secured lending investment
Overthepastyear,theCompany’sportfolioofsecuredseniorandmezzanineloaninvestmentshasincreasedinscaleanddiversity.Theloansaretypicallysecuredonrealestateinvestmentanddevelopmentassetswithattractiveriskadjustedincomereturns.Asat31 March2020,ARThadcommitted£47.2 millionacrossfortyloans,ofwhichonewascompletedduringthequarterto31 March2020andofwhich£39.9 millionwasdrawn.
Overthepasttwelvemonthstheloanportfoliohasincreasedby10.4%,with£3.7 millionofinvestments,netofrepayments,intothesecuredloanportfoliocompletingand£1.0 milliondrawnpostyearendfrompreviouslycommittedloans.Thelargestindividualloanintheportfolioasat31 March2020isaseniorloanof£3.4 millionwhichrepresents7.2%ofcommittedcapitaland2.7%oftheCompany’sNAV.
PortfolioloansareunderwrittenagainstvalueforinvestmentloansorgrossdevelopmentvaluefordevelopmentloansasrelevantandcollectivelyreferredtoasLTVinthisreport.TheportfoliohasanaverageLTVof55.7%(withanaverageapprovedLTVbetween58%and76%formezzanineloanswhilstthehighestapprovedLTVforseniorloansis73.1%).
Asat31 March2020,48.6%oftheCompany’sloaninvestmentswereseniorloansand51.4%weremezzanineloans,withaweightedaverageLTVratioof55.7%basedoncommitments,i.e.includingamountsavailablefordrawing.Theunderlyingassetsintheloanportfolioasat31 March2020hadgeographicdiversificationwithaLondonandSouthEastfocus.TheSouthofEngland(includingLondon)accountedfor62%,ofwhichLondonaccountedfor32%,ofthecommittedcapitalwithintheloaninvestmentportfolio.
TodatetheCompanyhasexperiencednodefaultsbuttheunderlyingloanportfoliocontinuestobecloselymonitoredespeciallyinlightoftheCovid‑19pandemic;whereitisconsideredappropriate,onacasebycasebasis,underlyingloantermsmaybeextended.
David Jeffreys
Chairman
Chairman’s statement
Over the past year, the Company has focused on recycling capital into asset backed lending while reducing exposure to development risk. In this time of heightened uncertainty, the Company is benefiting from that strategy and it has placed the Company on a robust financial footing.
Alpha Real Trust Limited : Annual report 2020 5
Capital recycling
ThephasedsaleoftheAlphaUKPropertyFundAssetCompany(No.2)Limited(‘Alpha2’)portfolioofUKindustrialassetshassuccessfullyadvancedandnearscompletionwiththesaleofthepenultimateassetcompletingduringtheyear.
InDecember2019,theGroupexchangedcontractsforthesaleoftheUnityandArmouriesassetinBirmingham(UK)at£4.5 million:thesalecompletedon11June2020.
H2O, Madrid
ARThasa30%stakeinjointventurewithCBREGlobalInvestorsintheH2OshoppingcentreinMadrid.OverthepastyearH2Ohascontinuedtobenefitfromongoingassetmanagementinitiatives,attractingrecordvisitornumbersduringthe2019calendaryear,increasing5.2%above2018.During2019,9,000squaremetresofbuildingrightsweretransferredtotheH2OplotfromasmallvacantsitelocatedinthesameplanningzoneandheldaspartoftheH2Oinvestment.Constructionofanew1,100squaremetreretailparkunitlocatedonpartofthecentre’ssurfacecarparkareahasrecentlybeencompleted.
TheGovernmentofSpainrequiredallnon‑essentialstorestocloseatshoppingcentresinSpainduringtheperiodmid‑Marchto23May2020aspartofastateofemergency.InthecaseofH2O,thesupermarketandpharmacywereopenduringtheentireperiodalongwithsomeotherservicessuchasmobilephoneshops.Shopswithexternalaccessandlessthan400 squaremetreshavenowbeenallowedtore‑openonaphasedbasis.Apracticalapproachisbeingtakenwithtenantstomanageanyrentarrearswhilstseekingtoprotectthelong‑termvalueofthecentre.RecognisingtheimpactthatCovid‑19ishavingonthecentre’slocalcommunity,re‑openingeventsarebeingundertakentosupportlocalcharitiesandalsopromotespendingwithinthecentreviaspend‑and‑winlotteriesthathelpbothH2O’scustomersandretailers.Covid‑19islikelytohaveasignificantimpactontheearningsofH2Oforthecurrentyear.
Galaxia, India
AsannouncedinFebruary2020,theSupremeCourtofIndiaruledinfavourofART’sdisputeregardingitsGalaxiainvestment,a50:50jointventurewithLogixGroup(‘Logix’)thatownsan11.2acredevelopmentsitelocatedinNOIDA,the NationalCapitalRegion,India.TheSupremeCourtrejectedLogix’schallengeofapreviousICCArbitrationawardinfavourofART,consistentwithpreviousrulingsbytheDelhiHighCourtandaDivisionBenchoftheDelhiHighCourt.
InupholdingthearbitrationawardinfavourofARTanddismissingLogix’sappeal,theSupremeCourtorderedLogixtopayARTatotalofINR 860 million(£9.2 million)within8monthsfrom18February2020:todate,INR 360 million(£3.8 million)hasbeendepositedwiththecourt.ThisamountisinadditiontoINR 215 million(£2.3 million)Logixhaddepositedwiththecourt,whichhassubsequentlybeenrecoveredbyART(INR 100 million(£1.1 million)wasreceivedinMay2018andafurtherINR 115 million(£1.2 million)inDecember2019).LogixisnowrequiredtodepositanamountofINR 33 millionby21 July 2020andtheremainderoftheliabilityundertheAwardofINR 467 millionby18August2020.ThecourtpermittedLogixtoselltheGalaxiasite,whichwaspreviouslychargedinfavourofART,inordertoraisecapital.ThesiteiscurrentlyunderofferforINR 568 million(£6.1 million)andthesesaleproceedswillbedepositedwiththeSupremeCourttowardsthesettlementamount.FailurebyLogixtomakepaymentwouldresultinhigherinterestratesapplicableunderthearbitration award.
WhilstARTcontinuestoactivelypursueitsclaim,theCompanycarriedthejointventureinarbitrationinitsaccountsasat31 March2020atINR 235 million(£2.5 million),whichisinlinewithART’sinitialinvestmentlessamountsrecoveredtodate;thisdoesnotincludetheadditionalcompensationawardedbythecourtsduetouncertaintyovertimingandfinalvalueofthe award.
Chairman’s statement (continued)
Alpha Real Trust Limited : Annual report 20206
Chairman’s statement (continued)
Results and dividends
Share buybacks
Underthegeneralauthority,approvedbyShareholderson8January2019,theCompanyannouncedatenderofferon14June2019forupto16,666,771ordinarysharesataprice(beforeexpenses)of175.0pencepershare.Intotal13,065,348ordinaryshareswerevalidlytenderedunderthetenderoffer.Allpurchasedordinaryshareswerecancelled.
TheCompanyadditionallypurchased62,124sharesinthemarketattheaveragepriceof£1.55pershareduringthetwelvemonthperiodended31 March2020:thesesharesareheldin treasury.
Asatthedateofthisannouncement,theordinarysharecapitaloftheCompanyis61,840,870(including1,940,797ordinarysharesheldintreasury)andthetotalvotingrightsintheCompanyare59,900,073.
Dividends
Adjustedearningsfortheyearended31 March2020are£3.9 million(6.4penceperordinaryshare,seenote9ofthefinancialstatements).Thiscompareswithadjustedearningsperordinaryshareof3.9penceforthepreviousyear.
TheBoardannouncesadividendof1.0penceperordinarysharewhichisexpectedtobepaidon17July2020(ex‑dividenddate25June2020andrecorddate26June2020).
Thedividendspaidanddeclaredinrespectoftheyearended31 March2020totalled4.0penceperordinarysharerepresentinganannualdividendyieldof2.3%p.a.byreferencetotheaverageclosingsharepriceoverthe12monthsto31 March2020.
Thenetassetvalueperordinaryshareat31 March2020is213.7pencepershare(31 March2019:204.3penceperordinaryshare)(seenote10ofthefinancialstatements).
Scrip dividend alternative
ShareholdersoftheCompanyhavetheoptiontoreceivesharesintheCompanyinlieuofacashdividend,attheabsolutediscretionoftheDirectors,fromtimetotime.
ThenumberofordinarysharesthatanOrdinaryShareholderwillreceiveundertheScripDividendAlternativewillbecalculatedusingtheaverageoftheclosingmiddlemarketquotationsofanordinaryshareforfiveconsecutivedealingdaysafterthedayonwhichtheordinarysharesarefirstquoted‘ex’therelevant dividend.
TheBoardhaselectedtoofferthescripdividendalternativetoShareholdersforthedividendforthequarterended31 March 2020.ShareholderswhoreturnedtheScripMandateFormandelectedtoreceivethescripdividendalternativewillreceivesharesinlieuofthenextdividend.ShareholderswhohavenotpreviouslyelectedtoreceivescripmaycompleteaScripMandateForm(thiscanbeobtainedfromtheregistrar:contactComputershare(detailsbelow)),whichmustbereturnedby3 July2020tobenefitfromthescripdividendalternativeforthenextdividend.
Financing
Asat31 March2020theGrouphasonedirectbankloanof€9.5 million(£8.4 million),anon‑recoursefacility,withnofinancialcovenanttests,toanSPVusedtofinancetheacquisitionoftheHamburgproperty.
Furtherdetailsofindividualassetfinancingcanbefoundundertheindividualinvestmentreviewsectionslaterinthisreport.
Brexit
InJanuary2020,theUKformallylefttheEuropeanUnion(‘EU’)andhasnowenteredatransitionperioduntiltheendof2020andmustnegotiateitsfuturetradingrelationshipwiththeEU.Whilstthesedevelopmentshaveprovidedsomeclarity,thereremainssignificantuncertaintyoverthefutureimpactofBrexit.TheabsoluteimpactwillbedependentonthetermsoftheUK’srelationshipwiththeEU.
WhiletheUKParliamenthasdemonstrateditswishtoavoida‘no‑dealBrexit’,thereappearslittleconsensusaboutwhatformanyfuturearrangementwiththeEUshouldtake.NomaterialadverseimpactshavebeennotedwithintheCompany’sportfoliotodateandrisksaremitigatedbytheCompany’sinvestmentsheldinEurope.However,theBoardcontinuestomonitorthesituationforpotentialriskstotheCompany’sinvestments.Theeconomicbackdropishighlydynamic,andthespreadofpossibleoutcomesiswide.Inthiscontext,ARTiswellplacedtobothweathermarketvolatilityandtakeadvantageofanydislocationshoulditarise.
Alpha Real Trust Limited : Annual report 2020 7
Chairman’s statement (continued)
Covid-19 pandemic
TheCompanyisnotisolatedfromtheimpactoftheCovid‑19pandemiconglobaleconomies.TheCompany’slongtermstrategyremainsresilientanditsshorttermmovetocashconservationandmaintainingacautiousapproachincommitmentstonewinvestmentsatthistime,whilepotentiallyreducingincomereturns,issupportingarobustbalancesheetpositionduringtheseuncertaintimes.AsnotedabovetheCompanyholdsapproximately36%ofitsassetscurrentlyincashwithnocurrentcontractualcapitalcommitments.WhilethereisexternalfinancingintheGroup’sinvestmentinterests,thisislimitedandnon‑recoursetotheCompany;theborrowingsinthesespecialpurposevehiclesarecompliantwiththeirbankingcovenants.WhiletheBoard’sdividendpolicyintentionisunchangedtheCompanycontinuestoactivelymonitoritsinvestmentsandtheimpactoftheseunusualeconomiccircumstancesonearningsanddividends.Seetheinvestmentreviewsectionformoredetailsonthepandemic’simpactonrelevantinvestments.
BearinginmindthenatureoftheGroup’sbusinessandassets,aftermakingenquiriesandconsideringtheabove,theDirectorsconsiderthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Forthisreason,theycontinuetoadoptthegoingconcernbasisinpreparingthefinancialstatements.
Foreign currency
TheCompanymonitorsforeignexchangeexposuresandconsidershedgingwhereappropriate.Foreigncurrencybalanceshavebeentranslatedattheperiodendratesof£1:€1.130or£1:INR93.539,asappropriate.
Strategy and outlook
Giventheextraordinaryeventsofthepastfewmonths,thehealthandwellbeingofART’sstakeholdersisforemostinourminds.Covid‑19andtheunprecedentedactionsofGovernmentstolock‑downtheircitizensandshut‑downtheireconomieshasseverelyaffectedtheeconomicbackdropinwhichtheCompanyoperates.ART’sinvestmentportfoliobenefitsfromdiversificationacrossgeographies,sectorsandassettypes.Overthepastyear,theCompanyhasfocusedonrecyclingcapitalintoassetbackedlendingwhilereducingexposuretodevelopmentrisk.Inthistimeofheighteneduncertainty,theCompanyisbenefitingfromthatstrategyandithasplacedtheCompanyonarobustfinancialfooting.
ARTiscommittedtoitsdisciplinedstrategyandinvestmentprincipleswhichfocusonopportunitiesthatcandeliverhighriskadjustedreturns,whileseekingtomanageriskthroughacombinationofoperationalcontrols,diversificationanddefensivereturnstructures.
Wearetakingacautiousapproachtonewinvestment,includingnewlending,asweseehowCovid‑19unfolds.Thiscautiousapproach,whileconservingcash,islikelytosignificantlyreduceearningsinthecurrentyear.
David Jeffreys Chairman 11June2020
ART is committed to its disciplined strategy and investment principles which focus on opportunities that can deliver high risk adjusted returns.
Alpha Real Trust Limited : Annual report 20208
Investment review
Portfoliooverview31March2020
Investment Carrying value
Income return p.a.
Investment location
Property type / underlying security
Investment notes % of portfolio 1
Note*
High return debt (31.9%)
Secured senior finance
Seniorsecuredloans(excludingcommittedbutundrawnfacilitiesof£7.3m)
£19.4m2 9.0%3 UK Diversifiedloanportfoliofocussedonrealestateinvestmentsanddevelopments
Seniorsecureddebt(duringtheperiodtheaverageseniorfacilitiescommitmentswere£31.1m)
15.5% 17
Secured mezzanine finance
Secondchargemezzanineloans
£20.5m2 14.2%3 UK Diversifiedloanportfoliofocussedonrealestateinvestmentsanddevelopments
Securedmezzaninedebtand subordinateddebt(duringtheperiodtheaveragemezzaninefacilitiescommitmentswere£17.8m)
16.4% 17
High return equity in property investments (26.1%)
H2O shopping centre
Indirectproperty £19.5m(€22.0m)
6.2%4 Spain DominantMadridshoppingcentreandseparatedevelopmentsite
30%shareholding;mediumtermmoderatelygearedbankfinancefacility
15.6% 12
Long leased industrial facility, Hamburg
Directproperty £7.2m5(€8.1m)
7.2%4 Germany LongleasedindustrialcomplexinmajorEuropeanindustrialandlogisticshub
Longtermmoderatelygearedbankfinancefacility
5.7% 13
Alpha UK Property Fund Asset Company (No 2) (‘Alpha2’)
Directproperty £4.3m 10.3%6 UK High‑yieldcommercialUKproperty
100%shareholding;noexternalgearing 3.4% 12‑14
Cambourne Business Park
Indirectproperty £1.7m 9.8%4 UK High‑yieldbusinessparklocatedinCambridge
Mediumtermmoderatelygearedbankfinancefacility
1.4% 12
Other investments (6.2%)
Unity and Armouries, Birmingham
Development,Site heldforsale
£4.5m n/a UK CentralBirminghamresidential Planningconsentfor90,000squarefeet/162unitspluscommercial.Exchangedcontractsforsaleat£4.5minDec2019;completionon11June2020.
3.6% 14
Galaxia
Jointventureinarbitration
£2.5m(INR 235m)
n/a India DevelopmentsitelocatedinNOIDA,Delhi,NCR
Legalprocessunderwaytorecoverinvestmentbyenforcingarbitrationaward
2.0% 15
Realhousingco
ResidentialInvestment
£0.6m n/a UK High‑yieldresidentialUK portfolio
100%shareholding;noexternalgearing 0.5% 13
Healthcare & Leisure Property Limited
Indirectproperty £0.1m n/a UK Leisurepropertyfund Noexternalgearing 0.1% 16
Cash and short-term investments (35.8%)
Cash7 £44.8m 0.1%8 UK ‘Oncall’andcurrentaccounts 35.8%
* Seenotestothefinancialstatements1 PercentageshareshownbasedonNAVexcludingthecompany’ssundryassets/liabilities2 Includingaccruedinterest/couponatthebalancesheetdate3 Theincomereturnsforhighreturndebtaretheannualisedactualfinanceincomereturnover
theperiodshownasapercentageoftheaveragecommittedcapitalovertheperiod
4 Yieldonequityover12monthsto31 March20205 Propertyvalueincludingsundryassets/liabilitiesandcash,netofassociateddebt6 Annualisedincomereturn,posttax7 Groupcashof£46.1mexcludingcashheldwiththeHamburgandAlpha2holdingcompanies8 Weightedaverageinterestearnedoncallaccounts
Alpha Real Trust Limited : Annual report 2020 9
Highreturndebt
ARThasaportfolioofsecuredloaninvestmentswhichcontributeadiversifiedreturntotheCompany’searningsposition.Theportfoliocompriseshighreturnsenior(first charge)loansandmezzanine(secondcharge)loanssecuredonrealestateassetsanddevelopments.ARTloanunderwritingissupportedbytheInvestmentManager’sasset‑backedlendingexperienceandknowledgeoftheunderlyingassetsandsectors,inadditiontotheGroup’spartnershipswithspecialistdebtproviders.
Investment review (continued)
Brad Bauman
Joint fund managerGordon Smith
Joint fund manager
Sector Secured finance
Underlying assets Diversified loan portfolio focussed on real estate investments and developments
Description The portfolio comprises high return senior (first charge) loans and mezzanine (second charge) loans secured on real estate assets and developments
Alpha Real Trust Limited : Annual report 202010
High return debt Diversifiedloanportfolio
Alpha Real Trust Limited : Annual report 2020 11
Investment review (continued)
Secured finance
Investment Investment type Carrying value Income return p.a. Property type / underlying security
Investment notes
Securedseniorfinance Firstchargesecuredloans
£19.4m* 9.0%** Diversifiedloanportfoliofocussedonrealestateinvestmentsanddevelopments
Secureddebt
Securedmezzaninefinance Secondchargesecuredloans
£20.5m* 14.2%** Diversifiedloanportfoliofocussedonrealestateinvestmentsanddevelopments
Secondchargesecureddebtandsubordinateddebt
* Includingaccruedinterest /couponatthebalancesheetdate**Theincomereturnsforhighreturndebtaretheannualisedactualfinanceincomereturnovertheperiodshownasapercentageoftheaveragecommittedcapitalovertheperiod
ARTportfolioofsecuredseniorandmezzanineloaninvestmentshaveincreasedinscaleanddiversityoverthepastyear.Theseloansaretypicallysecuredonrealestateinvestmentanddevelopmentassetswithattractiverisk‑adjustedincomereturnsfromeithercurrentorcapitalisedinterestorcoupon.
Asat31 March2020,ARThadinvestedatotalamountof£39.9 millionacrossfortyloans.Overthepasttwelvemonthstheloanportfoliohasincreasedby10.4%,with£3.7 millionofinvestments,netofrepayments,intothesecuredloanportfoliocompletingand£1.0 milliondrawnpostyearendfrompreviouslycommittedloans.
Duringtheyearended31 March2020,nineloanswerefullyrepaidandtenloanswerepartlyrepaidfortotalreceiptsof£25.1 million(includingaccruedinterestandexitfees).Post yearend,loanrepaymentsof£4.4 millionwerereceived(includingaccruedinterestandexitfees).
Eachloanwilltypicallyhaveatermofuptotwoyears,amaximum75%loantogrossdevelopmentvalueratioandbetargetedtogenerateattractiverisk‑adjustedincomereturns.Asat31 March2020,theportfoliohadanaverageLTVof55.7%(withaverageapprovedLTVbetween58%and76%formezzaninewhilethehighestapprovedLTVforsenioris 73.1%).
ConsideringtheCovid‑19impactonthecurrenteconomicenvironment,theGrouphascarriedoutastresstestofitstotalExpectedCreditLoss(‘ECL’)analysisand,inconsiderationofthemainqualitiesofitssecuredloanportfolio,theunderlyingloans’LTVs,thenumberofloanswheredevelopmentisadvancedandthenumberofseasonedfacilities,theresultingtotalECLwasimmaterial(see note2(b)(c)).
Loan portfolio by geography
7%
6%5%
18%
13%
13%
7%
31%
London
Regional - South East
Regional - North West
Regional - South West
Regional - Multiple
Regional - Scotland
Regional - East
Regional - Midlands
Loan portfolio by asset class (%ofapprovedprincipal)
83%
2%
4%
1%
4%
7% Care Home
Mixed - Residential & Commercial
Mixed - Residential & Office
Mixed - Student accomodation& Commercial
Residential
Commercial
Sector Retail
Asset Shopping centre
Tenants include Nike, Zara, Mango, Cortefiel, H&M, C&A and Massimo Dutti
Area 52,425 square metres
Description The property is located in the Rivas-Vaciamadrid district of Madrid.
H2O has a primary catchment area of 166,000 people but the location, due to the concentration of complementary retail, has a total catchment of 2.2 million people.
The weighted average lease length as at 31 March 2020 is 8.6 years to expiry and 2.2 years to next break.
Alpha Real Trust Limited : Annual report 202012
H2O Madrid‑Spain
Top ten tenants (31 March 2020)
13%
10%
10%10%
9%
8%
7%
7%5%
21%
n Inditex Group
n Grupo Zena Alsea
n C&A
n Yelmo
n Cortefiel Group
n Mercadona
n Nike
n H&M
n Sfera - Sportown
n Ozone
Alpha Real Trust Limited : Annual report 2020 13
Investment review (continued)
Highreturnequityinpropertyinvestments
ARTcontinuestoremainfocusedoninvestmentsthatofferthepotentialtodeliverattractiverisk‑adjustedreturnsbywayofvalueenhancementthroughactiveassetmanagement,improvementofincome,selectivedeploymentofcapitalexpenditureandtheabilitytoundertakestrategicsaleswhentheachievablepriceisaccretivetoreturns.
H2O Shopping Centre, Madrid
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
H2O Indirectproperty £19.5m(€22.0m) 6.2%* High‑yield,dominantMadridshoppingcentreandseparatedevelopmentsite
30%shareholding;6‑yeartermbankfinancefacility
* Yieldonequityovertwelvemonthsto31 March2020
H2Oshoppingcentrewasopenedin2007andbuilttoahighstandardprovidingshopping,restaurantsandleisurearoundacentralthemeoflandscapedgardensandanartificiallake.H2Ohasagrosslettableareaofapproximately52,425squaremetrescomprising123retailunits.Inadditiontoamultiplexcinema,supermarket(lettoleadingSpanishsupermarketoperatorMercadona)andrestaurants,ithasalargefashionretailerbase,includingsomeofthestrongestinternationalfashionbrands,suchasNike,Zara,Mango,Cortefiel,H&M,C&AandMassimo Dutti.
ARThasa30%stakeinajointventurewithCBREGlobalInvestors.ThecontinuedequityinterestallowsARTtoparticipateinthefuturegrowthofthecentre.ARC,theinvestmentmanagerofART,continuestomanagetheshoppingcentre.
Thejointventurehasa€65.0 millionbankloanwhichmaturesin2024,securedontheshoppingcentre.Asat31 March2020,theborrowingswerecompliantwiththeloan’scovenanttermsandaresecuredontheunderlyingassetandarenon‑recoursetotheGroup’sotherinvestments.
TheGovernmentofSpainrequiredallnon‑essentialstorestocloseatshoppingcentresinSpainduringtheperiodmid‑Marchto23May2020aspartofastateofemergency.InthecaseofH2O,thesupermarketandpharmacywereopenduringtheentireperiodalongwithsomeotherservicessuchasmobilephoneshops.Shopswithexternalaccessandlessthan400 squaremetreshavebeenallowedopenonaphasedbasis.Apracticalapproachisbeingtakenwithtenantstomanageanyrentarrearswhilstseekingtoprotectthelong‑termvalueofthe centre.
RecognisingtheimpactthatCovid‑19ishavingonthecentre’slocalcommunity,re‑openingeventsarebeingundertakentosupportlocalcharitiesandalsopromotespendingwithinthecentreviaspend‑and‑winlotteriesthathelpbothH2O’scustomersandretailers.Covid‑19islikelytohaveasignificantimpactontheearningsofH2Oforthecurrentyear.
Theassetmanagementhighlightsareasfollows:
● Valuation:€130.6 million(£115.5 million)asat31 March2020(31 March2019:€131.5 million(£113.2 million)).
● Centre occupancy:93.8%byareaasat31 March2020(97.6%byrentalvalue,excludingpotentialnewbuildleasable area).
● Weighted average lease length to next break:2.2yearsand8.6yearstoexpiry(31 March2020).
● Footfall:recordvisitornumberstotheshoppingcentrehavebeenrecordedin2019,Covid‑19hasresultedina‑16.1%decreaseoverthe3‑monthperiodto31 March2020.
● Building rights: theH2OinvestmentincludesasmallvacantsitelocatedinthesameplanningzoneasH2Ofromwhich9,000squaremetresofbuildinghavebeentransferredtotheH2Oplotwhich,subjecttoobtainingbuildinglicences,createspotentialforthefutureexpansionoftheshoppingcentre.
● New leasable area:anew1,100squaremetreretailparkunithasrecentlybeencompleted.Theunitislocatedonpartofthecentre’ssurfacecarparkarea,asenvisagedwithinarecentlycompletedmasterplandesignfortheshoppingcentre.
Sector Industrial
Underlying assets Industrial facility in Hamburg Germany
Tenant Veolia Umweltservice Nord GmbH, part of the Veolia group
Description Long leased investment with moderately geared, long term, bank finance facility.
Alpha Real Trust Limited : Annual report 202014
Long leased industrial facility Hamburg
Alpha Real Trust Limited : Annual report 2020 15
UK industrial portfolio
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
AlphaUKPropertyFundAssetCompany(No2)Limited
Directproperty £4.3m 10.3%* High‑yieldcommercialUKportfolio
100%ofthetotalordinarysharesinthe company
* Annualisedincomereturn;posttax
InSeptember2019,theCompanyannouncedthatitpurchased66.4%ofthesharesinAlphaUKPropertyFundAssetCompany(No2)Limited(‘Alpha2’).TheacquisitionincreasedART’sownershipinterestinAlpha2to100%(seenote2onpage 36forfurtherdetails).
ThephasedsaleoftheAlpha2portfolioofUKindustrialassetshassuccessfullyadvancedandnearscompletion.
Thepenultimateasset(apropertylocatedinWarrington)wassoldinOctober2019for£5.2 million.Theremainingasset,anindustrialpropertylocatedinWolverhampton,isheldforsale.
Asat31 March2020,Alpha2hadanetassetvalueof£4.3 million.
Long leased industrial facility, Hamburg
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
Industrialfacility,Werner‑Siemens‑StraßeHamburg,Germany
Directproperty £7.2m*(€8.1m) 7.2%** HighreturnindustrialfacilityinHamburgGermany
Longleasedinvestmentwithmoderatelygeared,longterm,bank finance facility
* Propertyvalueincludingsundryassets/ liabilitiesandcash,netofassociateddebt**Yieldonequityovertwelvemonthsto31 March2020
ARThasaninvestmentof€8.1 million(£7.2 million)inanindustrialfacilityleasedtoaleadinginternationalgroup.
Thepropertyisheldfreeholdandoccupiesasiteof11.8acresinBillbrook,awell‑establishedandwell‑connectedindustrialarealocatedapproximately8kilometressouth‑eastofHamburgcentre.HamburgisoneofthemainindustrialandlogisticsmarketsinGermany.
ThepropertyisleasedtoVeoliaUmweltserviceNordGmbH,partoftheVeoliagroup,aninternationalindustrialspecialistinwater,wasteandenergymanagement,witha23‑yearunexpiredleaseterm.Undertheoperatinglease,thetenantisresponsibleforbuildingmaintenanceandtherenthasperiodicinflationlinkedadjustments.
TheHamburgassetisfundedbywayofa€9.5 million(£8.4 million)non‑recourse,fixedrate,bankdebtfacilitywhichmaturesin2028.Thefacilitycarriesnofinancialcovenanttests.
Thisinvestmentoffersthepotentialtobenefitfromalongtermsecureandpredictableinflation‑linkedincomestreamwhichisforecasttogeneratestablehighsingledigitincomereturns.Inaddition,theinvestmentoffersthepotentialforassociatedcapitalgrowthfromanindustriallocationinamajorGermanlogisticsandinfrastructurehub.
Investment review (continued)
Sector Business parks
Underlying assets Office
Tenants Netcracker Technology EMEA Ltd, Cambridge Cambourne Centre Ltd (previously called ‘Regus (Cambridge Cambourne) Ltd’) and Carl Zeiss Microscopy Ltd & Carl Zeiss Ltd
Area 9,767 square metres
Description The asset consists of three Grade A specification modern office buildings located in the town of Cambourne.
Phase 1000 is situated at the front of the business park. It is an institutional quality asset with Open B1 Business user planning.
Alpha Real Trust Limited : Annual report 202016
Cambourne Business Park Cambridge
Alpha Real Trust Limited : Annual report 2020 17
Cambourne Business Park, Phase 1000, Cambridge
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
CambourneBusinessPark Indirectproperty £1.7m 9.8%* High‑yieldbusinessparklocatedinCambridge
Mediumtermmoderatelygearedbank financefacility
* Yieldonequityovertwelvemonthsto31 March2020
TheCompanyhasaninvestmentof£1.7 millioninajointventurethatownsPhase1000ofCambourneBusinessPark.ThepropertyconsistsofthreeGradeAspecificationmodernofficebuildingsconstructedin1999andlocatedinthetownofCambourne,approximately8mileswestofCambridgecitycentre.Thepropertycomprises9,767squaremetresoflettablearea,isself‑containedandhas475carparkingspaces.Phase 1000issituatedatthefrontofthebusinessparkwithgoodaccessandvisibility.
Phase1000isahigh‑qualityasset,fullylettoNetcrackerTechnologyEMEALtd,CambridgeCambourneCentreLtd(previouslycalled‘Regus(CambridgeCambourne)Ltd’)andCarlZeissMicroscopyLtd&CarlZeissLtd.ThepropertyhasopenB1Businessuserplanningpermissionandhaspotentialvalue‑addopportunities.
Phase1000waspurchasedinajointventurepartnershipwithamajoroverseasinvestor.ART’sequityinterestis10.0%ofthetotalequityinvestedintoajointventureentity,asubsidiaryofwhichholdstheproperty.
TheCambourneassetisfundedbywayofa£13.2 million(asat 31 March2020)non‑recoursebankdebtfacilitywhichmaturesin2023.
ARCistheinvestmentmanagertothejointventureowningtheCambournepropertyandcontinuestopursueopportunitiestoaddvaluetotheinvestment.
Investment review (continued)
ART has a diversified portfolio focussed on asset-backed lending and high return property investments in Western Europe that are capable of delivering strong risk adjusted returns. Over the past year, the Company has focused on recycling capital into asset backed lending while reducing exposure to development risk.
Alpha Real Trust Limited : Annual report 202018
Investment review (continued)
Cashbalances
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
Cashbalance* Cash £44.8m 0.1%** ‘Oncall’andcurrentaccounts
n/a
* Groupcashof£46.1mexcludingcashheldwiththeHamburgandAlpha2holdingcompanies**weightedaverageinterestearnedoncallaccounts
Asat31 March2020,theGrouphadcashbalancesof£46.1 million,excludingcashheldwiththeHamburgandAlpha2holdingcompanies(£1.3 million).
TheGroup’scashisheldwithestablishedbankswithstrongcreditratings.
Otherinvestments
Unity and Armouries, Birmingham
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
UnityandArmouries,Birmingham
PRSdevelopment,heldforsale
£4.5m n/a CentralBirminghamresidentialbuild‑to‑rent
Planningconsentfor90,000squarefeet/162unitspluscommercial
ARTownsUnityandArmouries,adevelopmentsitelocatedincentralBirminghamwithplanningconsentfor90,000squarefeetofnetsaleablespacecomprising162residentialapartmentswithgroundfloorcommercialareas.
DetailedplanningconsentforART’sproposedprojecthasbeengranted.TherearenooutstandingSection106/CommunityInfrastructureLevyrequirementsandthesitehasanaffordableunitdesignationfornineflats.Theapprovedprojectincludes162residentialunitswithgroundfloorcommercial(3,700squarefeet)andcarparkingspaces.
InDecember2019,theGroupexchangedcontractsforthesaleoftheUnityandArmouriesassetinBirmingham(UK)at£4.5 millionandthesalecompletedon11June2020:theDirectorsthereforeconsider£4.5 milliontorepresentfairvalueoftheUnityandArmouriespropertyatthebalancesheetdate.On14April2020,theGroupreceiveda20%non‑refundabledepositinrelationtothisdisposalamountingto£0.9 millionplusVATand£3.6 millionplusVATwerereceivedon11June2020.
Unity and Armouries, Birmingham (concept)Unity and Armouries, Birmingham (concept)
Alpha Real Trust Limited : Annual report 2020 19
Investment review (continued)
Galaxia, National Capital Region, NOIDA, India
Investment Investment type Carrying value Income return Property type / underlying security
Investment notes
Galaxia Jointventurein arbitration
£2.5m(INR 235m) n/a DevelopmentsitelocatedinNOIDA,Delhi, NCR
Legalprocessunderwaytorecoverinvestmentbyenforcingarbitration award
AsannouncedinFebruary2020,theSupremeCourtofIndiaruledinfavourofART’sdisputeregardingitsGalaxiainvestment,a50:50jointventurewithLogixGroup(‘Logix’)thatownsan11.2acredevelopmentsitelocatedinNOIDA,theNationalCapitalRegion,India.TheSupremeCourtrejectedLogix’schallengeofapreviousICCArbitrationawardinfavourofART,consistentwithpreviousrulingsbytheDelhiHighCourtandaDivisionBenchoftheDelhiHighCourt.
InupholdingthearbitrationawardinfavourofARTanddismissingLogix’sappeal,theSupremeCourtorderedLogixtopayARTatotalofINR 860 million(£9.2 million)within8 monthsfrom18February2020:todate,INR 360 million(£3.8 million)hasbeendepositedwiththecourt.ThisamountisinadditiontoINR 215 million(£2.3 million)Logixhaddepositedwiththecourt,whichhassubsequentlybeenrecoveredbyART(INR 100 million(£1.1 million)wasreceivedinMay2018andafurtherINR 115 million(£1.2 million)inDecember2019).
Logix is nowrequiredtodepositanamountofINR 33 millionby21July2020andtheremainderoftheliabilityundertheAwardofINR 467 millionby18August2020.ThecourtpermittedLogixtoselltheGalaxiasite,whichwaspreviouslychargedinfavourofART,inordertoraisecapital.ThesiteiscurrentlyunderofferforINR 568 million(£6.1 million)andthesesaleproceedswillbedepositedwiththeSupremeCourttowardsthesettlementamount.FailurebyLogixtomakepaymentwouldresultinhigherinterestratesapplicableunderthearbitration award.
WhilstARTcontinuestoactivelypursueitsclaim,theCompanycarriedthejointventureinarbitrationinitsaccountsasat31 March2020atINR 235 million(£2.5 million),whichisinlinewithART’sinitialinvestmentlessamountsrecoveredtodate;thisdoesnotincludetheadditionalcompensationawardedbythecourtsduetouncertaintyovertimingandfinalvalueofthe award.
SummaryARThasadiversifiedportfoliofocussedonasset‑backedlendingandhighreturnpropertyinvestmentsinWesternEuropethatarecapableofdeliveringstrongriskadjustedreturns.
Overthepastyear,theCompanyhasfocusedonrecyclingcapitalintoassetbackedlendingwhilereducingexposuretodevelopmentrisk.Inthistimeofheighteneduncertainty,theCompanyisbenefitingfromthatstrategyandithasplacedtheCompanyonarobustfinancialfooting.
Brad Bauman and Gordon Smith For and on behalf of the Investment Manager 11June2020
Alpha Real Trust Limited : Annual report 202020
David Jeffreys
Chairman
Aged 60
DavidJeffreysqualifiedasaCharteredAccountantwithDeloitte HaskinsandSellsin1985.Heworksasanindependentnon‑executivedirectortoanumberofGuernseybasedinvestmentfundcompaniesandmanagersandisaGuernseyresident.
From2007until2009DavidwastheManagingDirectorofEQT FundsManagementLimited,theGuernseymanagementofficeoftheEQTgroupofprivateequityfunds.HewaspreviouslytheManagingDirectorofAbacusFundManagers(Guernsey)Limitedbetween1993and2004,athirdpartyadministrationserviceprovidertoprimarilycorporateandfundclients.
Phillip Rose
Director
Aged 60
PhillipRoseisaFellowoftheSecuritiesInstituteandholdsaMasterofLawdegree.Hehasover30years’experienceintherealestate,fundsmanagementandbankingindustriesinEurope,theUSAandAustralasia.HehasbeentheHeadofRealEstateforABN AMROBank,ChiefOperatingOfficerofEuropeanshoppingcentreinvestoranddeveloperTrizecHahnEurope,ManagingDirectorofretailandcommercialpropertydeveloperandinvestorLendLeaseGlobalInvestmentandExecutiveManageroflistedfundGeneral Property Trust.
PhillipiscurrentlyCEOofAlphaRealCapitalLLPandhasbeenamemberoftheManagementCommitteeforHermesPropertyUnitTrustanditsAuditCommittee,andhasbeenaNon‑ExecutiveDirectorofGreatPortlandEstatesplc.
William Simpson
Director
Aged 64
WilliamSimpsonhasover30years’experienceasalawyerinfinancialservices,28oftheminGuernsey.Hisfocushasbeenonregulatedandunregulatedinvestmentvehicles,encompassingbanking,finance,corporate,investment,trustandregulatorywork.
WilliamstudiedlawatLeedsUniversityandpractisedattheBarinEnglandbeforemovingtotheCaymanIslandsandthentheBritishVirginIslands.WilliamwasapartneratOzannes,nowMourant,andthenmanagingpartnerofOgierGuernsey,duringwhichtimehealsoservedontheOgierGroupboard.
In2017WilliambecameanindependentlegalconsultantandremainsadirectorofanumberofGuernseybasedfinancialservicescompanies.WilliamisamemberoftheEnglish,VirginIslandsandGuernseyBarsandisalsoamemberofTheSocietyofTrustandEstatePractitioners.
Jeff Chowdhry
Director
Aged 59
Jeffhasover35yearsofinvestmentexperience,thelast25ofwhichhavebeeninEmergingMarkets,focusingonkeycountriesinAsia,LatinAmericaandEMEA.
Jeffbeganhiscareerin1982andhasheldportfoliomanagementpositionsatRoyalInsuranceplcandBZWInvestmentManagementwherehelaunchedandmanagedoneoftheveryfirstIndiafundsavailabletoforeigninvestors.
HehasheldanumberofseniorpositionsatF&CAssetManagement(nowBMO)includingHeadofEmergingMarketEquities,leadingateamof12investmentprofessionalsresponsibleforover$5billioninAUM.
Currently,JeffisChairmanofRLCVentures.HehasanMBAfromKingstonBusinessSchoolandaBSc(Hons)inEconomicsfromBrunelUniversity,London.
Mel Torode
Director
Aged 40
MelisManagingDirectorofOcorianAdministration(Guernsey)Limited(‘Ocorian’)inGuernsey.SheoverseestheGuernseyteam,leadsthefinancial,businessdevelopmentandstrategicobjectivesofthebusinessandalsoretainsstrategicoversightofaportfolioof clients.
Melhasmorethan20years’experienceinthefundadministrationindustryinGuernsey,specificallyinprivateequity,propertyandmezzaninedebt.PriortofoundingMorganSharpeinApril2008(afundadministrationcompanysoldtoOcorian*in2017),MelwastheCompanySecretaryofAssuraAdministration,overseeingtheadministrationoflistedpropertyfunds.MelbeganhercareeratGuernseyInternationalFundManagers(nowNorthernTrust),workingonlargeprivateequityfundsandEuropeanholdingcompanies,movingtoMourantInternationalFinanceAdministration(nowStateStreet)whereshespentmorethantwoyearsconcentratingprimarilyonlistedpropertyfunds.
MelisanexperiencedNon‑ExecutiveDirectorwithaportfolioconsistingoffunds,generalpartnersandassociatedGuernseyandEuropeanholdingcompanies.
*EsteraAdministration(Guernsey)LimitedpriortoitsmergerwithOcorianinearly2020.
Directors
Alpha Real Trust Limited : Annual report 2020 21
TheDirectorspresenttheirreportandfinancialstatementsoftheAlphaRealTrustLimitedgroup(‘theGroup’)fortheyearended31 March2020.
Principal activities and status
Duringtheyear,theCompany,anauthorisedclosed‑endedGuernseyregisteredinvestmentcompany,carriedonbusinessasaninvestmentcompany,investingindirectproperty,development,financingandotheropportunitiesinrealestate,realestateoperatingcompaniesandsecurities,realestateservices,infrastructure,infrastructureservices,otherasset‑backedbusinessesandrelatedoperationsandservices businesses.
TheCompany’ssharesaretradedontheSpecialistFundSegment(‘SFS’)oftheLondonStockExchange(‘LSE’).
Business review, results and dividend
AreviewofthebusinessduringtheyeariscontainedintheChairman’sStatementonpages4to7.
Theresultsfortheyearto31 March2020aresetoutinthefinancialstatements.
On28February2020,theCompanydeclaredadividendof1.0p pershare,whichwaspaidtoshareholderson9April2020.TheintentionoftheCompanyistopayadividendquarterly.
Share buybacks
Underthegeneralauthority,approvedbyShareholderson8January2019,theCompanyannouncedatenderofferon14June2019forupto16,666,771ordinarysharesataprice(beforeexpenses)of175.0pencepershare.Intotal13,065,348ordinaryshareswerevalidlytenderedunderthetenderoffer.Allpurchasedordinaryshareswerecancelled.
TheCompanyadditionallypurchased62,124sharesinthemarketduringtheyearended31 March2020:thesesharesareheldintreasury.
Asatthedateofthisannouncement,theordinarysharecapitaloftheCompanyis61,840,870(including1,940,797ordinarysharesheldintreasury)andthetotalvotingrightsintheCompanyare59,900,073.
Scrip dividend alternative
Inthecircularpublishedon18December2018,theCompanysoughtshareholders’approvaltoenableascripdividendalternativetobeofferedtoordinaryshareholderswherebytheycouldelecttoreceiveadditionalordinarysharesinlieuofacashdividend,attheabsolutediscretionoftheDirectors,fromtimetotime.Thiswasapprovedbyshareholdersattheextraordinarygeneralmeetingon8January2019.
Thenumberofordinarysharesthatanordinaryshareholderwillreceiveunderthescripdividendalternativewillbecalculatedusingtheaverageoftheclosingmiddlemarketquotationsofanordinaryshareforfiveconsecutivedealingdaysafterthedayonwhichtheordinarysharesarefirstquoted‘ex’therelevant dividend.
TheBoardelectedtoofferthescripdividendalternativetoshareholdersforthedividendforthequarterended31 December2019:forthisperiod,scripdividendalternativeelectionswerereceivedinrespectof29,972,146sharesoftheCompany,whichhasresultedintheissueof186,628newordinarysharesinApril2020.
Furtherdetailsondividendsaregiveninnote8ofthefinancialstatements.
Corporate governance
AsaGuernseyregisteredcompanytradedonSFS,theCompanyisnotrequiredtocomplywiththeUKCorporateGovernanceCode(‘UKCode’).However,asacompanyauthorisedbytheGuernseyFinancialServicesCommission(‘GFSC’),itisrequiredtofollowtheprinciplesandguidancesetoutintheFinanceSectorCodeofCorporateGovernanceissuedbytheGFSCandeffectivefrom1January2012(re‑issuedin2016,effectivefrom1April2016yearendsonwards)(‘GuernseyCode’).CompliancewiththeGuernseyCodeandgeneralprinciplesofgoodcorporategovernancearereviewedbytheBoardatleastannuallyand,atthedateofsigningthesefinancialstatements,theBoardissatisfiedthattheCompanyisfullycompliantwiththeGuernseyCode.TheGuernseyCodeisavailableforconsultationontheGFSCwebsite:www.gfsc.gg.
Directors’ and corporate governance report
Alpha Real Trust Limited : Annual report 202022
The Board
BiographiesoftheDirectorsaresetoutonpage20.
TheDirectors’interestsinthesharesoftheCompanyasat31 March2020aresetoutbelow:
Number of ordinary shares 31 March 2020
Number of ordinary shares 31 March 2019
DavidJeffreys 15,082 15,000
PhillipRose 908,691 892,220
JeffChowdhry 5,000 10,000
MelanieTorode ‑ ‑
WilliamSimpson 18,000 ‑
Postyearend,PhillipRoseincreasedhisshareholdinginARTto918,726ordinaryshares.
Non‑executivedirectorsarenotappointedforspecifiedterms;appointmentsofBoardmemberscanbeterminatedatanytimewithoutpenaltyandtheCompany’sArticlesofAssociation(‘Articles’)requireeachDirectortoretireandsubmithimself/herselftore‑electionbytheshareholdersateverythirdyear.Inaddition,theBoardbelievesthatcontinuityandexperienceaddtoitsstrength.
TheAnnualGeneralMeetingoftheCompanywilltakeplaceon7August2020.Atthismeeting,PhillipRoseandJeffChowdhrywillretireandsubmitthemselvesforre‑election.TheremainderoftheBoardrecommendtheirre‑appointment.
IndividualDirectorsmayseekindependentlegaladviceinrelationtotheirdutiesonbehalfoftheCompany.
Operations of the Board
TheBoardhasdeterminedthatitsroleistoconsideranddeterminethefollowingprincipalmatterswhichitconsidersareofstrategicimportancetotheCompany:
1) ReviewtheoverallobjectivesfortheCompanyandsettheCompany’sstrategyforfulfillingthoseobjectiveswithinanappropriateriskframework
2) Consideranyshiftsinstrategythatitconsidersmaybeappropriateinlightofmarketconditions
3) ReviewthecapitalstructureoftheCompanyincludingconsiderationofanyappropriateuseofgearingbothfortheCompanyandinanyjointventuresinwhichtheCompanymayinvestfromtimetotime
4) AppointtheInvestmentManager,Administratorandotherappropriatelyskilledserviceprovidersandmonitortheireffectivenessthroughregularreportsandmeetings
5) ReviewkeyelementsoftheCompany’sperformanceincludingNetAssetValueandpaymentofdividends.
AtBoardmeetings,theBoardensuresthatallthestrategicmattersareconsideredandresolvedbytheBoard.CertainissuesassociatedwithimplementingtheCompany’sstrategyaredelegatedeithertotheInvestmentManagerortheAdministrator.SuchdelegationisoverminorincidentalmattersandtheBoardcontinuallymonitorstheservicesprovidedbytheseindependentagents.TheBoardconsidersmattersthataresignificantenoughtobeofstrategicimportanceandarethereforereservedsolelyfortheBoard(e.g.allacquisitions,alldisposals,significantcapitalexpenditure,leasinganddecisionsaffectingtheCompany’sfinancialgearing).
TheBoardmeetsatleastquarterlyandasrequiredfromtimetotimetoconsiderspecificissuesreservedfordecisionbytheBoard,asnotedabove.
AttheBoard’squarterlymeetingsitconsiderspaperscirculatedinadvanceincludingreportsprovidedbytheInvestmentManagerandtheAdministrator.TheInvestmentManager’sreportcommentson:
● ThepropertyanddebtmarketsoftheUK,EuropeandIndiaincludingrecommendationsforanychangesinstrategythattheInvestmentManagerconsidersmaybeappropriate
● PerformanceoftheGroup’sportfolioandkeyassetmanagementinitiatives
● Transactionalorlendingactivityundertakenoverthepreviousquarterandbeingcontemplatedforthefuture
● TheGroup’sfinancialpositionincludingrelationshipswithbankers,borrowersandlenders.
ThesereportsenabletheBoardtoassessthesuccesswithwhichtheGroup’sinvestmentstrategyandotherassociatedmattersarebeingimplementedandalsoconsideranyrelevantrisksandtoconsiderhowtheyshouldbeproperlymanaged.
TheCompany’sserviceprovidersissuereportsontheirowninternalcontrolsandthesereportsareconsideredbytheBoard periodically.
Inbetweenitsregularquarterlymeetings,theBoardhasalsometonanumberofoccasionsduringtheyeartoapprovespecifictransactionsandforothermatters.
Board and Directors’ appraisals
TheBoardcarriesoutanannualreviewofitscompositionandperformance(includingtheperformanceofindividualDirectors)andthatofitsstandingcommittees.SuchappraisalincludesreviewingtheperformanceandcompositionoftheBoard(andwhetherithasanappropriatemixofknowledge,skillsandexperience),therelationshipsbetweentheBoardandtheInvestmentManagerandAdministrator,theprocessesinplaceandtheinformationprovidedtotheBoardandcommunicationbetweenBoardmembers.
Directors’ and corporate governance report (continued)
Alpha Real Trust Limited : Annual report 2020 23
Board Meeting attendance
ThetablebelowshowstheattendanceatBoardmeetingsduringtheyearto31 March2020:
Director No of meetings attended
DavidJeffreys 18
PhillipRose 5
JeffChowdhry 10
MelanieTorode 19
WilliamSimpson 14
No. of meetings during the year 22
Directors’ and officers’ insurance
AnappropriatelevelofDirectors’andofficers’insuranceismaintainedwherebyDirectorsareindemnifiedagainstliabilitiestothirdpartiestotheextentpermittedbyGuernseycompanylaw.
Board Committees
TheBoardhasestablishedthreestandingcommittees,allofwhichoperateunderdetailedtermsofreference,copiesofwhichareavailableonrequestfromtheCompanySecretary.
Audit and Risk Committee
TheAuditandRiskCommitteeconsistsofDavidJeffreys(Chairman),JeffChowdhryandWilliamSimpson.TheBoardissatisfiedthatDavidJeffreyscontinuestohavetherequisiterecentandrelevantfinancialexperiencetofulfilhisroleasChairmanoftheAuditandRiskCommittee.
Role of the Committee
TheroleoftheAuditandRiskCommittee,whichmeetsatleasttwiceayear,includes:
● Theengagement,reviewoftheworkcarriedoutbyandtheperformanceoftheGroup’sexternalauditor
● Tomonitorandreviewtheindependence,objectivityandeffectivenessoftheexternalauditor
● Todevelopandapplyapolicyfortheengagementoftheexternalauditfirmtoprovidenon‑auditservices
● ToassisttheBoardindischargingitsdutytoensurethatfinancialstatementscomplywithalllegalrequirements
● ToreviewtheGroup’sfinancialreportingandinternalcontrolpoliciesandtoensurethattheproceduresfortheidentification,assessmentandreportingofrisksare adequate
● Toreviewregularlytheneedforaninternalauditfunction
● TomonitortheintegrityoftheGroup’sfinancialstatements,includingitsannualandhalf‑yearreportsandannouncementsrelatingtoitsfinancialperformance,reviewingthesignificantfinancialreportingissuesandjudgementswhichtheycontain
● Toreviewtheconsistencyofaccountingpoliciesandpractices
● ToreviewandchallengewherenecessarythefinancialresultsoftheGroupbeforesubmissiontotheBoard.
TheAuditandRiskCommitteemakesrecommendationstotheBoardwhicharewithinitstermsofreferenceandconsidersanyothermattersastheBoardmayfromtimetotimerefertoit.
MembersoftheAuditandRiskCommitteemayalso,fromtimetotime,meetwiththeGroup’sindependentpropertyvaluerstodiscussthescopeandconclusionsoftheirwork.
Committee meeting attendance
Director No of meetings attended
DavidJeffreys 4
WilliamSimpson 4
JeffChowdhry 4
No. of meetings during the year 4
Policy for non audit services
TheCommitteehasadoptedapolicyfortheprovisionofnon‑auditservicesbytheCompany’sexternalauditor,BDOLimited,andreviewsandapprovesallmaterialnon‑auditrelatedservicesinaccordancewiththeneedtoensuretheindependenceandobjectivityoftheexternalauditor.Noservices,otherthanaudit‑relatedones,werecarriedoutbyBDOLimitedduringtheyear.
Internal audit
TheBoardreliesuponthesystemsandproceduresemployedbytheInvestmentManagerandtheAdministratorwhichareregularlyreviewedandareconsideredtobesufficienttoprovideitwiththerequireddegreeofcomfort.Therefore,theBoardcontinuestobelievethatthereisnoneedforaninternalauditfunction,althoughtheAuditandRiskCommitteeconsidersthisannually,reportingitsfindingstotheBoard.
Directors’ and corporate governance report (continued)
Alpha Real Trust Limited : Annual report 202024
Nomination Committee and attendance
TheNominationCommitteeconsistsofDavidJeffreys(Chairman),PhillipRoseandMelanieTorode.
TheCommittee’sprincipaltaskistoreviewthestructure,sizeandcompositionoftheBoardinrelationtoitssizeandpositioninthemarketandtomakerecommendationstofillBoardvacanciesastheyariseanditmeetsatleastannually.ItmetonceduringtheyearandallCommitteememberswerepresent.
Remuneration Committee and attendance
TheRemunerationCommitteeconsistsofMelanieTorode(Chairman),JeffChowdhryandDavidJeffreys.
TheBoardhasapprovedformaltermsofreferencefortheCommitteeandacopyoftheseisavailableonrequestfromthe CompanySecretary.
AstheCompanycomprisesonlynon‑executivedirectors,theCommittee’smainroleistodeterminetheirremunerationwithinthecapsetoutintheCompany’sArticles.ItmetonceduringtheyearandallCommitteememberswerepresent.
Remuneration report
TheaggregatefeespayabletotheDirectorsarelimitedto£200,000perannumundertheCompany’sArticlesandtheannualfeespayabletoeachDirectorhavebeenincreasedbyonly10%(Chairman)and15%(otherDirectors)sincetheCompany’sshareswerelistedin2006.ThefeespayabletotheDirectorsareexpectedtoreflecttheirexpertise,responsibilitiesandtimespentonthebusinessoftheGroup,takingintoaccountmarketequivalents,theactivities,thesizeoftheGroupandmarketconditions.Undertheirrespectiveappointmentletters,eachDirectorisentitledtoanannualfeetogetherwithaprovisionforreimbursementforanyreasonableoutofpocket expenses.
DuringtheyeartheDirectorsreceivedthefollowingemolumentsintheformoffeesfromGroupcompanies:
Year ended 31 March 2020
£
Year ended 31 March 2019
£
DavidJeffreys 36,000 33,000
PhillipRose 25,000 23,000
SerenaTremlett* ‑ 18,950
JeffChowdhry 25,000 23,000
WilliamSimpson 25,000 11,063
MelanieTorode 50,375 32,453
Total 161,375 141,466
* resignedon8October2018
Internal control and risk management
TheBoardunderstandsitsresponsibilityforensuringthattherearesufficient,appropriateandeffectivesystems,procedures,policiesandprocessesforinternalcontroloffinancial,operational,complianceandriskmanagementmattersinplaceinordertomanagetheriskswhichareaninherentpartofbusiness.SuchrisksaremanagedratherthaneliminatedinordertopermittheCompanytomeetitsfinancialandotherobjectives.
TheBoardreviewstheinternalproceduresofbothitsInvestmentManageranditsAdministratoruponwhichitisreliant.TheInvestmentManagerhasascheduleofmatterswhichhavebeendelegatedtoitbytheBoardanduponwhichitreportstotheBoardonaquarterlybasis.Thesemattersincludequarterlymanagementaccountsandreportingbothagainstkeyfinancialperformanceindicatorsanditspeergroup.Further,acompliancereportisproducedbytheAdministratorfortheBoardonaquarterlybasis.
TheCompanymaintainsariskmanagementframeworkwhichconsidersthenon‑financialaswellasfinancialrisksandthisisreviewedbytheAuditandRiskCommitteepriortosubmissiontotheBoard.
Investment management agreement
TheCompanyhasanagreementwiththeInvestmentManager.ThissetsouttheInvestmentManager’skeyresponsibilities,whichincludeproposingapropertyinvestmentstrategytotheBoard,identifyingpropertyinvestmentstorecommendforacquisitionandarrangingappropriatelendingfacilities.TheInvestmentManagerisalsoresponsibletotheBoardforallissuesrelatingtopropertyassetmanagement.
Substantial shareholding
Shareholderswithholdingsofmorethan3percentofthevotingrightsoftheCompanyasat20May2020wereasfollows:
Name of investor No. of voting rights % held
AlphaGlobalPropertySecuritiesFundPte.Ltd 23,162,181 38.67%
AntlerInvestmentHoldings 17,968,851 30.00%
MitonGlobalOpportunities 2,842,084 4.75%
RockmountVenturesLtd 2,318,863 3.87%
Shareholder relations
TheBoardplaceshighimportanceonitsrelationshipwithitsshareholders,withmembersoftheInvestmentManager’sInvestmentCommitteemakingthemselvesavailableformeetingswithkeyshareholdersandsectoranalysts.ReportingofthesemeetingsandmarketcommentaryisreceivedbytheBoardonaquarterlybasistoensurethatshareholdercommunicationfulfilstheneedsofbeinguseful,timelyandeffective.OneormoremembersoftheBoardandtheInvestmentManagerwillbeavailableattheAnnualGeneralMeetingtoansweranyquestionsthatshareholdersattendingmaywishtoraise.
Directors’ and corporate governance report (continued)
Alpha Real Trust Limited : Annual report 2020 25
Directors’ Responsibilities Statement
TheDirectorsareresponsibleforpreparingtheannualreportandthefinancialstatementsinaccordancewiththeapplicablelawandregulations.
CompanylawrequirestheDirectorstopreparefinancialstatementsforeachfinancialyear,whichgiveatrueandfairviewofthestateofaffairsoftheGroupattheendoftheyearandoftheprofitorlossoftheGroupforthatyear.
Inpreparingthosefinancialstatements,theDirectorsarerequired to:
1) selectsuitableaccountingpoliciesandthenapplythemconsistently;
2) makejudgementsandestimatesthatarereasonableandprudent;
3) statewhetherapplicableaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;and
4) preparethefinancialstatementsonthegoingconcernbasisunlessitisappropriatetoassumethattheGroupwillnotcontinueinbusiness.
SofaraseachoftheDirectorsisaware,thereisnorelevantinformationofwhichtheGroup’sauditorisunaware,andtheyhavetakenallthestepstheyoughttohavetakenasDirectorstomakethemselvesawareofanyrelevantinformationandtoestablishthattheGroup’sauditorisawareofthatinformation.
TheDirectorsareresponsibleforkeepingproperaccountingrecordswhichdisclosewithreasonableaccuracyatanytimethefinancialpositionoftheGroupandwhichenablethemtoensurethatthefinancialstatementscomplywiththeCompanies(Guernsey)Law,2008.TheyarealsoresponsibleforsafeguardingtheassetsoftheGroupandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.
TheDirectorsconfirmthattheyhavecompliedwiththeaboverequirementsinpreparingthefinancialstatements.
Going concern and Covid-19 pandemic
TheCompanyisnotisolatedfromtheimpactoftheCovid‑19pandemiconglobaleconomies.TheCompany’slongtermstrategyremainsresilientanditsshorttermmovetocashconservationandmaintainingacautiousapproachincommitmentstonewinvestmentsatthistime,whilepotentiallyreducingincomereturns,issupportingarobustbalancesheetpositionduringtheseuncertaintimes.AsnotedabovetheCompanyholdsapproximately36%ofitsassetscurrentlyincashwithnocurrentcontractualcapitalcommitments.WhilethereisexternalfinancingintheGroup’sinvestmentinterests,thisislimitedandnon‑recoursetotheCompany;theborrowingsinthesespecialpurposevehiclesarecompliantwiththeirbankingcovenants.WhiletheBoard’sdividendpolicyintentionisunchangedtheCompanycontinuestoactivelymonitoritsinvestmentsandtheimpactoftheseunusualeconomiccircumstancesonearningsanddividends.Seetheinvestmentreviewsectionformoredetailsonthepandemic’simpactonrelevantinvestments.
BearinginmindthenatureoftheGroup’sbusinessandassets,aftermakingenquiriesandconsideringtheabove,theDirectorsconsiderthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Forthisreason,theycontinuetoadoptthegoingconcernbasisinpreparingthefinancialstatements.
Annual General Meeting
TheAGMoftheCompanywillbeheldinGuernseyat9.00amon7August2020atFloor2,TrafalgarCourt,LesBanques,St PeterPort,Guernsey.ThemeetingwillbeheldtoreceivetheAnnualReportandFinancialStatements,re‑electDirectorsandproposethereappointmentoftheauditorandthattheDirectorsbeauthorisedtodeterminetheauditor’sremuneration.
Independent Auditor
BDOLimitedhasexpresseditswillingnesstocontinueinofficeas auditor.
David Jeffreys
DirectorMelanie Torode Director
ByorderoftheBoard,
11June2020
Directors’ and corporate governance report (continued)
Alpha Real Trust Limited : Annual report 202026
EachoftheDirectors,whosenamesandfunctionsarelistedintheDirectors’andcorporategovernancereportconfirmthat,tothebestofeachperson’sknowledgeandbelief:
● Thefinancialstatements,preparedinaccordancewithIFRSsasadoptedbytheEU,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitoftheGroup,and
● TheChairman’sstatementandtheinvestmentreviewincludeafairreviewofthedevelopmentandperformanceofthebusinessandthepositionoftheGroupandnote26tothefinancialstatementsprovidesadescriptionoftheprincipalrisksanduncertaintiesthattheGroupfaces.BrexitandtheCovid‑19pandemicarealsoconsideredtobeasignificantriskanduncertaintyfortheGroup(pages6and7)thattheBoardwillcontinuetomonitor.
David Jeffreys
DirectorMelanie Torode Director
ByorderoftheBoard,
13June2020
Directors’ statement pursuant to the Disclosure and Transparency Rules
Alpha Real Trust Limited : Annual report 2020 27
Opinion
WehaveauditedtheconsolidatedfinancialstatementsofAlpha Real TrustLimited(‘theparentcompany’)anditssubsidiaries(the‘group’)fortheyearended31 March2020whichcomprisetheConsolidatedStatementofComprehensiveIncome,theConsolidatedBalanceSheet,theConsolidatedCashFlowStatement,theConsolidatedStatementofChangesinEquityandnotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnion.
Inouropinion,thefinancialstatements:
● giveatrueandfairviewofthestateofthegroup’saffairsasat31 March2020andofthegroup’sprofitfortheyearthenended;
● havebeenproperlypreparedinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnion;and
● havebeenproperlypreparedinaccordancewiththerequirementsoftheCompanies(Guernsey)Law,2008.
Basis for opinion
WeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(‘ISAs(UK)’)andapplicablelaw.OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.WeareindependentofthethegroupinaccordancewiththeethicalrequirementsrelevanttoourauditoffinancialstatementsintheUK,includingtheFRC’sEthicalStandardasappliedtolistedentities,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
Emphasis of Matter – property valuations
WedrawattentiontoNote2(a)ofthefinancialstatements,whichdetailstheadditionaluncertaintyinrelationtopropertyvaluationsasaresultofCovid‑19whichhasresultedintheindependentvaluersincluding‘MaterialUncertainty’paragraphsinrelationtothevaluationsandCovid‑19withintheirvaluationreports.Ouropinionisnotmodifiedinrespectofthismatter.
Conclusions relating to going concern
WehavenothingtoreportinrespectofthefollowingmattersinrelationtowhichtheISAs(UK)requireustoreporttoyouwhere:
● theDirectors’useofthegoingconcernbasisofaccountinginthepreparationofthefinancialstatementsisnotappropriate;
or
● theDirectorshavenotdisclosedinthefinancialstatementsanyidentifiedmaterialuncertaintiesthatmaycastsignificantdoubtaboutthegroup’sabilitytocontinuetoadoptthegoingconcernbasisofaccountingforaperiodofatleasttwelvemonthsfromthedatewhenthefinancialstatementsareauthorisedforissue.
Key audit matters
Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)weidentified,includingthosewhichhadthegreatesteffecton:theoverallauditstrategy,theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.
Independent auditors’ reportTo the Members of Alpha Real Trust Limited
Alpha Real Trust Limited : Annual report 202028
Independent auditors’ report (continued)
Key audit matter Audit response
Property valuations (notes2(a),12,13,14and27)
Thegroupholdsseveralinvestmentpropertieswithinitssubsidiariesandjointventurestructures.
Allpropertieshavebeenvaluedusingeither:
● anindependentRICSvaluationperformedbyindependentvaluers.Thisisthecasefor£14.8 million(96%)oftheinvestmentproperties,£3.6 million(45%)oftheassetsheldforsaleand£34.7 million(92%)oftheshareofpropertieswithinjointventurestructures;or
● directors’valuation.Thisisthecasefor£0.6 million(4%)oftheinvestmentproperties,£4.5 million(55%)oftheassetsheldforsaleand£3 million(8%)oftheshareofpropertieswithinjointventure structures.
Suchpropertyvaluationsareahighlysubjectiveareaasthevaluerswillmakejudgementsastopropertyyields,qualityoftenants,developmentcostsandothervariablestoarriveatthecurrentopenmarketvalueoftheproperty.
SuchsubjectivityandjudgementsaregreaterthisyearduetotheCovid‑19pandemicandwewereexpectingvaluerstoinclude‘MaterialUncertainty’paragraphswithintheirvaluation reports.
Anyinputinaccuraciesorunreasonablebasesusedinthevaluationjudgements(suchasinrespectofestimatedrentalvalueandyieldprofileapplied)couldresultinamaterialmisstatementoftheConsolidatedStatementofComprehensiveIncomeandtheConsolidatedBalanceSheet.
Independent valuations
Forallindependentpropertyvaluations,weevaluatedthecompetenceoftheexternalvaluers,whichincludedconsiderationoftheirqualificationsandexpertise.Wereadthetermsofengagementwiththegrouptodeterminewhethertherewereanymattersthatmighthaveaffectedtheirobjectivityormayhaveimposedscopelimitationsupontheir work.
Wehavereadthevaluationreportsfortheproperties,notedthematerialuncertaintyclausesinsertedasresultoftheimpactofCovid‑19onthepropertymarkets,discussedthebasisofthepropertyvaluations,includingtheCovid‑19impact,withthevaluerstounderstandtheprocessundertakenbythemandconfirmedthatthevaluationswerepreparedinaccordancewithprofessionalvaluationstandardsandIFRS.
Wehaveconsideredthereasonableness,andwhereappropriateagreedthroughtosupportingdocumentation(forexamplerentalincome)oftheinputsusedbythevaluersinthevaluations,suchasthetermsofvoidperiods,rentfreeperiodsandotherassumptionsthatimpactthevalue.
Directors’ valuations
Forthedirectors’valuationsweobtainedthedirectors’valuationoftheseassetsandnotedthatthevaluationwasheldatthatoftheprioryearorrecentacquisitioncosts.WechallengedwhetherCovid‑19wouldhavecreatedadecreaseinvalueandtheDirectorshaveconcludedthat,whilstthisisfeasible,anydecreasewouldnotbematerial,giventhequantumoftheassetsatdirectors’valuation.
Fortheassetheldforsaleatdirectors’valuation,weobtainedthedirectors’valuationandnotedthatthiswasbasedonanexchanged,butnotcompleted,contract.Weobtainedthecontract,togetherwiththeamendedversionshortlyaftertheyearend,whichfullysupportedthecarryingvalue.Wechallengedwhethertherecouldbeadefaultbythebuyerand,giventhelargenon‑refundabledeposit,managementandtheDirectorsconsiderthistobeunlikely.
Disclosures
Wereviewedandchallengethedisclosuresinrelationtopropertyvaluationswithinnote2(a),12,13,14andinparticularnote27(sensitivities)giventhe‘MaterialUncertainty’paragraphswithinthevaluationsreports.
Key observations
Basedontheproceduresperformed,wedidnotidentifyanyindicationstosuggestthatthepropertyvaluationsweremateriallymisstated.
GivenCovid‑19’simpactonthevaluationsandthevaluersinclusionofa‘MaterialUncertainty’paragraphwithintheirvaluationreports,wehaveconcludedthatitisappropriateforthisauditreporttocontainan‘EmphasisofMatter’paragraph,assetoutabove,inrelationtothepropertyvaluations.
Alpha Real Trust Limited : Annual report 2020 29
Independent auditors’ report (continued)
Key audit matter Audit response
Loans advanced and IFRS 9(note17)
Thegroup’sactivitiesincludeadvancingseniorloansandmezzanineloanssecuredoverrealestateassets.TheamountsadvancedrepresentamaterialbalanceinthefinancialstatementsandIFRS9requireslossestoberecognisedonanexpected,forwardlookingbasis,reflectingthegroup’sviewofpotentialfutureeconomicevents.
Asaresult,thegroup’sIFRS9methodologyincorporatesanumberofestimatestodeterminetheexpectedcreditloss provisions.
ThejudgementandfocusaroundthishaveincreasedfollowingtheCovid‑19pandemic,whichwillneedtobefactoredintotheforwardlookinginformation.
Analysiswasobtainedfrommanagementinrelationtotheloansandtheexpectedcreditlossmethodologyapplied.ThisincludedupdatestotheexistingmethodologyforchangesrequiredduetotheCovid‑19pandemic,forexampleincreasingtheprobabilityofdefaultandalsotheconsequential loss.
Throughchallenge,discussionandreviewofexamplescenarios,wegainedadetailedunderstandingof,andevaluated,theexpectedcreditlossmethodologyapplied.Thiswasundertakenwithreferencetoaccountingstandardsandindustrypractice.
Wethentestedthemethodologyusedindeterminingtheamortisedcostamountandrecognitionofanyimpairmentloss.Ourtestingincluded:
● updatingourunderstandingoftheexpectedcreditlossmethodologyusedunderIFRS9;
● conductingareviewofthemethodology,includingkeyassumptionsandparameters,toensureitisinlinewithIFRS9andappropriate,givenourunderstandingoftheloansadvanced;
● challengingthemethodologyfortheforward‑lookingimpactofCovid‑19,togetherwiththeadjustmentsmadebymanagementforincreasedprobabilityofdefaultandconsequentialloss;
● testingthemethodologyonasamplebasis;
● assessingtheappropriatenessofstagingcriteriaassumptionsandadherencetoIFRS9requirements;
● evaluatingthereasonablenessofeconomicscenariosapplied;
● testingonasamplebasistheintegrityofthedatausedinthemodels;
● testingthecollateralcoverageofthebalancesheetloansandreviewingloancovenants;
● challengingmanagement’sexpectedcreditlossoutputinlightoftheCovid‑19pandemiconindividualloansandwhethermanualadjustmentswererequiredoverthemechanicalmodel.
Disclosures
Wehavechallengedthedisclosuresmadeinrelationtotheexpectedcreditlossassessmentwithinnote2tothefinancialstatementsandconsiderthesetobeappropriategiventhatexpectedcreditlossesarenotmaterialtothefinancialstatements.
Key observations
Basedontheproceduresperformed,wedidnotidentifyanyindicationstosuggestthattheexpectedcreditlossesweremateriallymisstated.
Alpha Real Trust Limited : Annual report 202030
Independent auditors’ report (continued)
Our application of materiality
Weapplytheconceptofmaterialitybothinplanningandperformingouraudit,andinevaluatingtheeffectofmisstatements.Weconsidermaterialitytobethemagnitudebywhichmisstatements,includingomissions,couldinfluencetheeconomicdecisionsofreasonableusersthataretakenonthebasisofthefinancialstatements.Importantly,misstatementsbelowtheselevelswillnotnecessarilybeevaluatedasimmaterialaswealsotakeaccountofthenatureofidentifiedmisstatements,andtheparticularcircumstancesoftheiroccurrence,whenevaluatingtheireffectonthefinancialstatementsasawhole.
Basedonourprofessionaljudgment,wedeterminedmaterialityforthefinancialstatementsasawholetobe£2,060,000(2019: £2,250,000),whichisbasedonalevelof1.5%(2019: 1.5%)oftotalassets.Weconsideredtotalassetstobethemostappropriatebenchmarkduetothegroupbeinganinvestmentfundwiththeobjectiveoflong‑termcapitalgrowth.
Performancematerialityforthegrouphasbeensetat£1,545,000(2019:£1,688,000)whichis75%(2019:75%)ofmateriality.Thishasbeensetbaseduponthecontrolenvironmentinplace,theDirectors’assessmentofriskandour pastexperienceofadjustments.
InternationalStandardsonAuditing(UK)alsoallowtheauditortosetalowermaterialityforparticularclassesoftransaction,balancesordisclosuresforwhichmisstatementsoflesseramountsthanmaterialityforthefinancialstatementsasawholecouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthefinancialstatements.Inthiscontext,wesetalowerlevelofmaterialitytoapplytosensitivefeesincluding:managementfees,performancefees,legalfees,directors’feesandauditfees.Wedeterminedmaterialityfortheseareastobe£206,000(2019: £225,000).
Componentmaterialityhasbeensetforthecomponentwhichissignificanttothegroupfinancialstatements.Materialityforthiscomponentwassetat£1,018,250(2019:£1,125,000).
WeagreedwiththeAuditandriskCommitteethatwewouldreporttothecommitteeallindividualauditdifferencesidentifiedduringthecourseofourauditinexcessof£61,000(2019:£68,000).Wealsoagreedtoreportdifferencesbelowthesethresholdsthat,inourview,warrantedreportingonqualitative grounds.
An overview of the scope of our audit
Wetailoredthescopeofouraudittakingintoaccountthenatureofthegroup’sinvestments,involvementoftheInvestmentManager,theaccountingandreportingenvironmentandtheindustryinwhichthegroupoperates.
Thisassessmenttookintoaccountthelikelihood,natureandpotentialmagnitudeofanymisstatement.Aspartofthisriskassessment,weconsideredthegroup’sinteractionwiththeInvestmentManager.Weassessedthecontrolenvironmentinplacewithinthegrouptotheextentthatitwasrelevanttoouraudit.Followingthisassessment,weappliedprofessionaljudgementtodeterminetheextentoftestingrequiredovereachbalanceinthefinancialstatements.
Thegroupconsistsoftheparentcompany,numeroussubsidiariesand,asattheyearend,twojointventureentities.Weconcludedthatthemosteffectiveauditapproachtothegroup,withtheexceptionofthejointventurestructures,wastoaudittheconsolidatedfinancialstatementsasiftheywereoneentity,duringwhichwehaveperformedauditproceduresonallkeyriskareas.Thematerialityappliedwasthatcalculatedabove,whichhadbeenbasedontheconsolidatedfinancial information.
FortheH2Ojointventureentity,weassessedthemainpropertyholdingcompanywithinthisstructuretobeasignificantcomponent.Thiscomponentwassubjecttoafullscopeauditandwascompletedbythecomponentauditor.Weissuedgroupinstructionstothecomponentauditorandreviewedthekeyriskareasoftheirwork.Inadditiontotheworkperformedbythecomponentauditor,wehavealsoperformedourownauditproceduresonthepropertyvaluation.
Fortheremainingjointventureentity,weconcludedthatitwassignificantduetorisksidentifiedonlyandnotduetosize.Thiscomponentwasnotsubjecttoafullscopeauditbutinsteadweperformedauditproceduresoveralloftheriskareasidentified.
Alpha Real Trust Limited : Annual report 2020 31
Independent auditors’ report (continued)
Other information
TheDirectorsareresponsiblefortheotherinformation.Theotherinformationcomprisestheinformationincludedintheannualreport,otherthanthefinancialstatementsandourauditor’sreportthereon.Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.
Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatementsoramaterialmisstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.
Wehavenothingtoreportinthisregard.
Matters on which we are required to report by exception
WehavenothingtoreportinrespectofthefollowingmatterswheretheCompanies(Guernsey)Law,2008requiresustoreporttoyouif,inouropinion:
● properaccountingrecordshavenotbeenkeptbytheparentcompany;or
● thefinancialstatementsarenotinagreementwiththeaccountingrecords;or
● wehavefailedtoobtainalltheinformationandexplanationswhich,tothebestofourknowledgeandbelief,arenecessaryforthepurposesofouraudit.
Responsibilities of Directors
AsexplainedmorefullyintheDirectors’andCorporateGovernanceReport,theDirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairviewandforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Inpreparingthefinancialstatements,theDirectorsareresponsibleforassessingthegroup’sandparentcompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheDirectorseitherintendtoliquidatethegrouportoceaseoperations,orhavenorealisticalternativebuttodoso.
Auditor’s responsibilities for the audit of the financial statements
Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.ReasonableassuranceisahighlevelofassurancebutisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.
AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedattheFinancialReportingCouncil’swebsiteat:www.frc.org.uk /auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.
Use of our report
Thisreportismadesolelytotheparentcompany’smembers,asabody,inaccordancewithSection262oftheCompanies(Guernsey)Law,2008.Ourauditworkhasbeenundertakensothatwemightstatetotheparentcompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheparentcompanyandtheparentcompany’smembers,asabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.
Justin Marc Hallett FCA For and on behalf of BDO LimitedCharteredAccountantsandRecognisedAuditorPlaceduPré,RueduPré,StPeterPort,GuernseyDate:11June2020
Alpha Real Trust Limited : Annual report 202032
For the year ended 31 March 2020 For the year ended 31 March 2019
Notes
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Income
Revenue 3 6,119 ‑ 6,119 3,237 ‑ 3,237
Changeintherevaluationofinvestmentpropertyand assetsheldforsale
13‑14 ‑ 1,194 1,194 ‑ 1,316 1,316
Gains/(losses)onfinancialassetsandliabilitiesheldatfairvaluethroughprofitorloss
26 393 (204) 189 1,451 689 2,140
(Loss)/profitoninvestmentpropertydisposal 13 ‑ (167) (167) ‑ 18,061 18,061
Total income 6,512 823 7,335 4,688 20,066 24,754
Expenses
Propertyoperatingexpenses 3 (74) ‑ (74) (96) ‑ (96)
InvestmentManager’sfee 25 (2,335) ‑ (2,335) (2,236) (771) (3,007)
Otheradministrationcosts 4 (1,647) ‑ (1,647) (1,217) ‑ (1,217)
Total operating expenses (4,056) - (4,056) (3,549) (771) (4,320)
Operating profit 2,456 823 3,279 1,139 19,295 20,434
Shareofprofit /(loss)ofjointventuresandassociates 12 1,579 (1,107) 472 1,678 1,917 3,595
Financeincome 5 118 ‑ 118 31 734 765
Financecosts 6 (204) (55) (259) (123) ‑ (123)
Profit /(loss) before taxation 3,949 (339) 3,610 2,725 21,946 24,671
Taxation 7 (93) ‑ (93) (57) (2,123) (2,180)
Profit /(loss) for the year 3,856 (339) 3,517 2,668 19,823 22,491
Other comprehensive income/(expense) for the year
Items that may be classified to profit and loss in subsequent periods
Exchangedifferencesarisingontranslationofforeign operations
‑ 610 610 ‑ (392) (392)
Other comprehensive income/(expense) for the year - 610 610 - (392) (392)
Total comprehensive income for the year 3,856 271 4,127 2,668 19,431 22,099
Earnings per ordinary share (basic & diluted) 9 5.8p 33.1p
Earnings per A share (basic & diluted) 9 n/a 33.5p
Total earnings per ordinary and A share (basic & diluted)
9 5.8p 33.2p
Adjusted earnings per ordinary and A share (basic & diluted)
9 6.4p 3.9p
ThetotalcolumnofthisstatementrepresentstheGroup’sstatementofcomprehensiveincome,preparedinaccordancewithIFRS.The revenueandcapitalcolumnsaresuppliedassupplementaryinformationpermittedunderIFRS(seepage37).Allitemsintheabovestatementderivefromcontinuingoperations.
Theaccompanyingnotesonpages36to66formanintegralpartofthefinancialstatements.
Consolidated statement of comprehensive income
Alpha Real Trust Limited : Annual report 2020 33
Notes
31 March 2020
£’000
31 March 2019
£’000
Non-current assets
Investmentproperty 13 15,389 13,764
Jointventureinarbitration 15 2,510 3,882
Investmentsheldatfairvalue 16 139 390
Investmentinjointventuresandassociates 12 21,227 28,535
Loansadvanced 17 8,631 15,036
Tradeandotherreceivables 19 ‑ 1,929
47,896 63,536
Current assets
Assetheldforsale 14 8,065 4,500
Derivativesheldatfairvaluethroughprofitorloss 27 203 514
Loansadvanced 17 31,253 21,100
Collateraldeposit 18 1,364 1,302
Tradeandotherreceivables 19 2,427 353
Cashandcashequivalents 46,068 58,181
89,380 85,950
Total assets 137,276 149,486
Current liabilities
Tradeandotherpayables 20 (1,291) (2,097)
Corporationtax 7 (51) (2,647)
Bankborrowings 21 (32) (30)
(1,374) (4,774)
Total assets less current liabilities 135,902 144,712
Non-current liabilities
Bankborrowings 21 (8,275) (8,039)
Deferredtax 7 ‑ ‑
(8,275) (8,039)
Total liabilities (9,649) (12,813)
Net assets 127,627 136,673
Equity
Sharecapital 22 ‑ ‑
Specialreserve 23 65,118 76,032
Translationreserve 23 28 (582)
Capitalreserve 23 40,350 40,689
Revenuereserve 23 22,131 20,534
Total equity 127,627 136,673
Net asset value per ordinary share 10 213.7p 204.3p
ThefinancialstatementswereapprovedbytheBoardofDirectorsandauthorisedforissueon11June2020.
TheyweresignedonitsbehalfbyDavidJeffreysandMelanie Torode.
Theaccompanyingnotesonpages36to66formanintegralpart ofthefinancialstatements.
Consolidated balance sheet
David Jeffreys
DirectorMelanie Torode Director
Alpha Real Trust Limited : Annual report 202034
For the year ended 31 March 2020
£’000
For the year ended 31 March 2019
£’000
Operating activities Profitfortheyearaftertaxation 3,517 22,491Adjustments for:Changeinrevaluationofinvestmentpropertyandassetsheldforsale (1,194) (1,316)Netgainsonfinancialassetsandliabilitiesheldatfairvaluethroughprofitorloss (189) (2,140)Loss/(profit)onsubsidiaryandinvestmentpropertydisposals 167 (18,061)Taxation 93 2,180Shareofprofitofjointventuresandassociates (472) (3,595)Interestreceivableonloanstothirdparties (4,952) (2,709)Financeincome (118) (765)Financecosts 259 123Operating cash flows before movements in working capital (2,889) (3,792)
Movements in working capital:Movementintradeandotherreceivables 2,311 2,416
Movementintradeandotherpayables (1,141) 457Cash flows used in operations (1,719) (919)
Interestreceived 118 31Interestpaid (188) (93)Taxpaid (2,761) (82)Cash flows used in operating activities (4,550) (1,063)
Investing activitiesAcquisitionofinvestmentproperty (610) (14,795)Proceedsondisposalofinvestmentproperty 5,058 52,474Redemptionofinvestments ‑ 34,065Redemptiononpreferenceshares’investment 193 343CashrecognisedonAlpha2transaction(note2) 5,787 ‑Capitalexpenditureoninvestmentproperty ‑ (5,203)Loaninterestreceived 2,099 1,061Loansgrantedtothirdparties (24,483) (32,586)Loansrepaidbythirdparties 23,982 11,465Dividendincomefromjointventuresandassociates 2,805 385Dividendincomefromotherinvestments ‑ 805Capitaldistributionfromotherinvestments ‑ 14Capitalreturnfromjointventureinarbitration 1,232 1,107Collateraldepositincrease (62) (452)Cash flows from investing activities 16,001 48,683
Financing activitiesBankloanadvanced ‑ 8,377Bankloancosts ‑ (151)Sharebuyback (22,960) (2,200)Sharebuybackcosts (72) (29)Shareissuecosts (102) ‑Cashreceived/(paid)onmaturityofforeignexchangeforward 165 (118)Ordinarydividendspaid (673) (1,634)SpecialdividendpaidtoAshareholders ‑ (14)Cash flows (used in)/from financing activities (23,642) 4,231
Net (decrease)/increase in cash and cash equivalents (12,191) 51,851
Cash and cash equivalents at beginning of year 58,181 6,273Exchangetranslationmovement 78 57Cash and cash equivalents at end of year 46,068 58,181
Theaccompanyingnotesonpages36to66formanintegralpartofthefinancialstatements.
Consolidated cash flow statement
Alpha Real Trust Limited : Annual report 2020 35
For the year ended 31 March 2019
Special reserve
£’000
Translation reserve
£’000
Capital reserve
£’000
Revenue reserve
£’000
Total equity
£’000
At 1 April 2018 78,261 (190) 20,880 19,500 118,451
Total comprehensive income for the year
Profitfortheyear ‑ ‑ 19,823 2,668 22,491
Othercomprehensiveexpensefortheyear ‑ (392) ‑ ‑ (392)
Total comprehensive (expense)/income for the year - (392) 19,823 2,668 22,099
Transactions with owners
Dividends ‑ ‑ (14) (1,634) (1,648)
Sharebuyback (2,200) ‑ ‑ ‑ (2,200)
Sharebuybackcosts (29) ‑ ‑ ‑ (29)
Total transactions with owners (2,229) - (14) (1,634) (3,877)
At 31 March 2019 76,032 (582) 40,689 20,534 136,673
Notes22,23
For the year ended 31 March 2020
Special reserve
£’000
Translation reserve
£’000
Capital reserve
£’000
Revenue reserve
£’000
Total equity
£’000
At 1 April 2019 76,032 (582) 40,689 20,534 136,673
Total comprehensive income for the year
(Loss)/profitfortheyear ‑ ‑ (339) 3,856 3,517
Othercomprehensiveincomefortheyear ‑ 610 ‑ ‑ 610
Total comprehensive income/(expense) for the year - 610 (339) 3,856 4,127
Transactions with owners
Cashdividends ‑ ‑ ‑ (673) (673)
Scripdividends 1,586 ‑ ‑ (1,586) ‑
Shareissueforacquisition(note2) 10,634 ‑ ‑ ‑ 10,634
Shareissuecosts (102) ‑ ‑ ‑ (102)
Sharebuyback (22,960) ‑ ‑ ‑ (22,960)
Sharebuybackcosts (72) ‑ ‑ ‑ (72)
Total transactions with owners (10,606) - - (2,567) (13,173)
At 31 March 2020 65,118 28 40,350 22,131 127,627
Notes22,23
Theaccompanyingnotesonpages36to66formanintegralpartofthefinancialstatements.
Consolidated statement of changes in equity
Alpha Real Trust Limited : Annual report 202036
1. General informationTheCompanyisalimitedliability,closed‑endedinvestmentcompanyincorporatedinGuernsey.Theaddressoftheregisteredofficeisgivenonpage57.ThenatureoftheGroup’soperationsanditsprincipalactivitiesaresetoutintheChairman’sStatementonpages4to7.Thefinancialstatementswereapprovedandauthorisedforissueon11June2020andsignedbyDavidJeffreysandMelanieTorodeonbehalfoftheBoard.
2. (a) Significant accounting policiesAsummaryoftheprincipalaccountingpoliciesissetoutbelow.Thepolicieshavebeenconsistentlyappliedforallperiodspresentedunlessotherwisestated.
ThepreparationoffinancialstatementsinconformitywithIFRS,asadoptedbytheEU,requirestheuseofcertaincriticalaccountingestimates.Italsorequiresmanagementtoexerciseitsjudgementintheprocessofapplyingtheaccountingpolicies.Theareasinvolvingahighdegreeofjudgementorcomplexity,orareaswheretheassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinthisnote.
Basis of preparationThesefinancialstatementshavebeenpreparedinaccordancewithIFRS,whichcomprisestandardsandinterpretationsapprovedbytheInternationalAccountingStandardsBoard(‘IASB’),andInternationalAccountingStandardsandStandardsInterpretationsCommittee’sinterpretationsapprovedbytheInternationalAccountingStandardsCommittee(‘IASC’)thatremainineffect,andtotheextentthattheyhavebeenadoptedbytheEuropeanUnion.
Alpha2 acquisitionInSeptember2019,theCompanyannouncedthatitacquired66.4%ofthesharesinAlpha2.TheacquisitionincreasedART’sownershipinterestinAlpha2to100%.TheacquisitionwasforAlpha2netassetvalueand,duetothisinvestmentbeingpreviouslyequityaccounted,nogainorlossontheacquisitionwasgenerated.TheAlpha2portfolioconsistedoftwounleveragedindustrialassetslocatedinEnglandandhadatotalnetassetvalueof£16.2 millionasat30September2019.
Asfrom18September2019,inaccordancewithIFRS3(Businesscombinations),theGrouphasthereforeconsolidatedits100%investmentinAlpha2.
ThesharesinAlpha2werepurchasedfromAntlerInvestmentHoldingsLimited,arelatedpartytotheCompany.ThesharesinAlpha2werepurchasedatitsadjustednetassetvalueof£10.6 millionwithitsportfolioindependentlyvaluedasat31August2019.ThepurchaseconsiderationfortheincreasedAlpha2shareholdingwassatisfiedbythere‑issuefromtreasuryof5,030,284ordinarysharesinARTatanissuepriceequivalenttoART’sestimatedadjustednetassetvalueof211.4ppershare(£10.6 million):thiswasasharebasedtransactioninaccordancewithIFRS2.Giventhenatureofthetransactionandtheunderlyingassets,theCompanyhasaccountedforthetransactionasapropertyacquisitionasopposedtoabusinesscombination.Asaresult,thesharesissuedasconsiderationfortheacquisitionhavebeenrecognisedatthefairvalueoftheassetsreceivedasopposedtothetradedpriceonthedayofissue.
Uptothe18September2019,theGroupaccountedforits33.6%investmentinAlpha2asanassociatebytheequitymethod,inaccordancewithIFRS11.Asfrom18September2019,incomeandexpensesrelatedtotheAlpha2investmenthavebeenrecognisedinthestatementofcomprehensiveincome.
Going concern and Covid-19 pandemicTheCompanyisnotisolatedfromtheimpactoftheCovid‑19pandemiconglobaleconomies.TheCompany’slongtermstrategyremainsresilientanditsshorttermmovetocashconservationandmaintainingacautiousapproachincommitmentstonewinvestmentsatthistime,whilepotentiallyreducingincomereturns,issupportingarobustbalancesheetpositionduringtheseuncertaintimes.AsnotedabovetheCompanyholdsapproximately36%ofitsassetscurrentlyincashwithnocurrentcontractualcapitalcommitments.WhilethereisexternalfinancingintheGroup’sinvestmentinterests,thisislimitedandnon‑recoursetotheCompany;theborrowingsinthesespecialpurposevehiclesarecompliantwiththeirbankingcovenants.WhiletheBoard’sdividendpolicyintentionisunchangedtheCompanycontinuestoactivelymonitoritsinvestmentsandtheimpactoftheseunusualeconomiccircumstancesonearningsanddividends.Seetheinvestmentreviewsectionformoredetailsonthepandemic’simpactonrelevantinvestments.
BearinginmindthenatureoftheGroup’sbusinessandassets,aftermakingenquiriesandconsideringtheabove,theDirectorsconsiderthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Forthisreason,theycontinuetoadoptthegoingconcernbasisinpreparingthefinancialstatements.
(a) Adoption of new and revised StandardsThefollowingnewstandardsorinterpretations,whichwereeffectiveforthefirsttimeforperiodsbeginningonorafter1January2019,impactedtheGroup’saccountingpolicies:
IFRS 16: LeasesTheGrouphasadoptedIFRS16(Leases),whichwasdueforaccountingperiodscommencingonorafter1January2019.
IFRS16substantiallycarriesforwardthelessoraccountingrequirementsofIAS17.Accordingly,alessorwillcontinuetoclassifyitsleasesasfinanceleasesoroperatingleases,andaccountforthosetwotypesofleasesdifferently.TheadoptionofIFRS16hasnothadamaterialimpactonthefinancialstatements.
Notes to the financial statementsFor the year ended 31 March 2020
Alpha Real Trust Limited : Annual report 2020 37
Notes to the financial statements (continued)For the year ended 31 March 2020
(b) Standards and Interpretations in issue and not yet effectiveAtthedateofauthorisationofthesefinancialstatements,thereareanumberofstandardsandinterpretations,whichhavenotbeenappliedinthesefinancialstatementsthatwereinissuebutnotyeteffective.TheDirectorsanticipatethattheadoptionofthesestandardsandinterpretationswillnothaveamaterialimpactonthefinancialstatementsoftheGroup.
Basis of consolidation
(a) SubsidiariesTheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandthesubsidiaryundertakingscontrolledbytheCompany,madeupto31 Marcheachyear.ControlisachievedwheretheCompanyhaspowerovertheinvestee,exposureorrights,tovariablereturnsfromitsinvolvementwiththeinvesteeandtheabilitytouseitspowertoaffecttheamountoftheinvestor’sreturns.
Theresultsofsubsidiaryundertakingsacquiredordisposedofduringtheyearareincludedintheconsolidatedstatementofcomprehensiveincomefromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposalasappropriate.
Whennecessary,adjustmentsaremadetothefinancialstatementsofsubsidiaryundertakingstobringtheaccountingpoliciesusedintolinewiththoseusedbytheGroup.
Allintra‑grouptransactions,balances,incomeandexpensesareeliminatedonconsolidation.
ARTholdsanumberofdirectpropertyinvestmentsthroughsubsidiaryundertakings.TheGroupisactivelyinvolvedinthemanagementofthesepropertyinvestmentsanditsinvestmentplansdonotincludespecifiedexitstrategiesfortheseinvestments.Asaresult,ARTplanstoholdthesepropertyinvestmentsindefinitely.ARTreportsitsinvestmentpropertiesatfairvalueinitsfinancialstatementsbutthisisnottheprimarymeasurementattributeusedbymanagementtoevaluatetheperformanceoftheseinvestments.Inaddition,ARTholdsanumberofloansthroughsubsidiaryundertakingsandmanagementdonotmeasuretheperformanceoftheseonafairvaluebasis.Inconsequence,managementhaveconcludedthatARTdoesnotmeetthedefinitionofaninvestmententityandthesubsidiarieshavebeenconsolidatedintotheGroup’sbalancesheet,ratherthanbeingcarriedatfairvalue.
Whenapartialdisposalofasubsidiaryoccurswhichcausestheentitytonolongerbecontrolledandhencenolongerasubsidiary,theCompanyderecognisesthesubsidiaryandrecognisestheretainedinterestinitiallyatfairvalue.
WhencalculatingtheprofitorlossondisposaltheCompanymeasurestheretainedinterestatfairvalueandincludesthisinthefairvalueoftheconsiderationreceived.Theprofitorlossondisposalisthedifferencebetweenthefairvalueoftheconsiderationreceivedandthecarryingvalueoftheassetsandliabilitiesdisposedof,asreducedbytransactionscostsincurredandanyforeigncurrencygainsorlossesrecycledondisposalaspertheforeigncurrencyaccountingpolicyinrespectofgroupcompanies.
(b) Joint ventures and associatesTheGroupappliesIFRS11toitsjointarrangement.UnderIFRS11investmentsinjointarrangementsareclassifiedaseitherjointoperationsorjointventuresdependingonthecontractualrightsandobligationsofeachinvestor.TheGrouphasassessedthenatureofitsjointarrangementsanddeterminedthemtobejointventures.Jointventuresareaccountedforusingtheequitymethod.
TheGroupalsoappliesIAS28:thisstandarddefinesanassociateasanentityoverwhichaninvestorexercisessignificantinfluence.UnderIAS28significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheinvesteebutisnotcontrolorjointcontrolofthosepoliciesand,whereanentityholds20%ormoreofthevotingpower(directlyorthroughsubsidiaries)ofaninvestee,itispresumedthattheinvestorhassignificantinfluenceunlessitcanbeclearlydemonstratedthatthisisnotthecase.Associatesareaccountedforusingtheequitymethod.
Undertheequitymethodofaccounting,interestsinjointventuresandassociatesareinitiallyrecognisedatcostandadjustedthereaftertorecognisetheGroup’sshareofthepost‑acquisitionprofitsorlossesandmovementsinothercomprehensiveincome.WhentheGroup’sshareoflossesinajointventureorassociateequalsorexceedsitsinterestsinthejointventureorassociate(whichincludesanylong‑termintereststhat,insubstance,formpartoftheGroup’snetinvestmentinthejointventureorassociate)theGroupdoesnotrecognisefurtherlosses,unlessithasincurredobligationsormadepaymentsonbehalfofthejointventureorassociate.
UnrealisedgainsontransactionsbetweentheGroupanditsjointventuresorassociatesareeliminatedtotheextentoftheGroup’sinterestinthejointventuresorassociates.Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentoftheassettransferred.
TheGalaxiajointventureisclassifiedasjointventureinarbitrationandhasbeenincludedwithinthefinancialstatementsbasedonthecurrentestimateofrealisablevaluetotheGroup.
Presentation of statement of comprehensive incomeInordertobetterreflecttheactivitiesofaninvestmentcompanyandinaccordancewithguidanceissuedbytheAssociationofInvestmentCompanies(‘AIC’),supplementaryinformation,whichanalysesthestatementofcomprehensiveincomebetweenitemsofarevenueandcapitalnature,hasbeenpresentedalongsidethestatementofcomprehensiveincome(seenote23).
2. (a) Significant accounting policies (continued)
Alpha Real Trust Limited : Annual report 202038
Notes to the financial statements (continued)For the year ended 31 March 2020
Revenue recognitionRentalincomeandservicechargeincomefrominvestmentpropertyleasedoutunderanoperatingleasearerecognisedinthestatementofcomprehensiveincomeonastraightlinebasisoverthetermofthelease.Leaseincentivesgrantedarerecognisedasanintegralpartofthenetconsiderationfortheuseofthepropertyandarethereforealsorecognisedonthesamestraightlinebasis.Rentalrevenuesareaccountedforonanaccrualsbasis.Therefore,deferredrevenuegenerallyrepresentsadvancepaymentsfromtenants.RevenueisrecognisedwhenitisprobablethattheeconomicbenefitsassociatedwiththetransactionwillflowtotheGroupandtheamountofrevenuecanbemeasuredreliably.Uponearlyterminationofaleasebythelessee,thereceiptofasurrenderpremium,netofdilapidationsandnon‑recoverableoutgoingsrelatingtotheleaseconcerned,isimmediatelyrecognisedasrevenue.
Interestincomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandtheeffectiveinterestrateapplicable.
Otherincomeisrecognisedwhenreceived.
Leasing
(a) Company as a lessorLeasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.
(b) Company as a lesseeUnderIFRS16,allleasesarerecordedonthebalancesheetasliabilities,atthepresentvalueofthefutureleasepayments,alongwithanassetreflectingtherighttousetheassetovertheleaseterm.
TheoneleaseholdpropertyownedbytheCompanydoesnotgiverisetoamaterialleaseobligation.
Foreign currencies
(a) Functional and presentation currencyItemsincludedinthefinancialstatementsofeachoftheGroupentitiesaremeasuredinthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(the‘functionalcurrency’).TheconsolidatedfinancialstatementsarepresentedinSterling,whichistheCompany’sfunctionalandpresentationcurrency.
(b) Transactions and balancesTransactionsincurrenciesotherthanthefunctionalcurrencyarerecordedattheratesofexchangeprevailingonthedatesofthetransactions.Ateachbalancesheetdate,monetaryassetsandliabilitiesthataredenominatedinforeigncurrenciesareretranslatedattheratesprevailingonthebalancesheetdate.Gainsandlossesarisingonretranslationareincludedinprofitorlossfortheyear.
(c) Group companiesTheresultsandfinancialpositionofalltheGroupentitiesthathaveafunctionalcurrencywhichdiffersfromthepresentationcurrencyaretranslatedintothepresentationcurrencyasfollows:
(i) assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateatthebalancesheetdate;
(ii) incomeandexpensesforeachstatementofcomprehensiveincomearetranslatedattheaverageexchangerateprevailingintheperiod;and
(iii) allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.
Onconsolidation,theexchangedifferencesarisingfromthetranslationofthenetinvestmentinforeignentitiesaretakentoequity.Whenaforeignoperationissold,suchexchangedifferencesarerecognisedinthestatementofcomprehensiveincomeaspartofthegainorlossonsale.
ForEurobasedbalancestheyearendexchangerateusedis£1:€1.130(2019:£1:€1.161)andtheaverageratefortheyearusedis£1:€1.144(2019:£1:€1.134).Theyear‑endexchangerateusedforIndianrupee(INR)balancesis£1:INR93.539(2019:£1:INR90.155)andtheaverageratefortheyearusedis£1:INR90.127(2019:£1:INR91.777).
ExpensesAllexpensesareaccountedforonanaccrualsbasisandincludefeesandotherexpensespaidtotheAdministrators,theInvestmentManagerandtheDirectors.Inrespectoftheanalysisbetweenrevenueandcapitalitems,presentedwithinthestatementofcomprehensiveincome,allexpenseshavebeenpresentedasrevenueitemsexceptexpenseswhichareincidentaltotheacquisitionofaninvestmentpropertywhichareincludedwithinthecostofthatinvestmentproperty.TheInvestmentManager’sperformancefeeischargedtothecapitalcolumninthestatementofcomprehensiveincomeinordertoreflectthatthefeeisdueprimarilytothecapitalperformanceofthe Group.
2. (a) Significant accounting policies (continued)
Alpha Real Trust Limited : Annual report 2020 39
Notes to the financial statements (continued)For the year ended 31 March 2020
TaxationTheCompanyisexemptfromGuernseytaxationonincomederivedoutsideofGuernseyandbankinterestearnedinGuernsey.Afixedannualfeeof£1,200waspayabletotheStatesofGuernseyinrespectofthisexemptionfortheyear.NochargetoGuernseytaxationarisesoncapitalgains.TheGroupisliabletoforeigntaxarisingonactivitiesintheoverseassubsidiaries.TheGrouphassubsidiaryoperationsinCyprusandIndia.TheGroupalsoholdsinvestmentsinSpain,ownedthroughinvestmententitiesinLuxembourgandtheNetherlands,inGermany,ownedthroughalimitedpartnershipincorporatedinGermanywithcorporatepartnersincorporatedinLuxembourg,intheUnitedKingdomeitherdirectlyorownedthroughinvestmententitiesincorporatedinJersey(CambourneandWolverhampton)orownedthroughlimitedpartnershipsincorporatedintheUK(PRSinvestment).TheGroupmaythereforebeliabletotaxationintheseoverseasjurisdictions.
Thetaxexpenserepresentsthesumofthetaxcurrentlypayableanddeferredtax.
Thetaxcurrentlypayableisbasedontaxableprofitfortheyear.Taxableprofitdiffersfromnetprofitasreportedinthestatementofcomprehensiveincomebecauseitexcludesitemsofincomeandexpensethataretaxableordeductibleinotheryearsanditfurtherexcludesitemsthatarenevertaxableordeductible.TheGroup’sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeensubstantivelyenactedatthebalancesheetdate.
Deferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofitandisaccountedforusingthebalancesheetliabilitymethod.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletimingdifferencescanbeutilised.
Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheyearwhentheliabilityissettledortheassetrealised.Deferredtaxischargedorcreditedinthestatementofcomprehensiveincome,exceptwhenitrelatestoitemschargedorcrediteddirectlytoequity,inwhichcasethedeferredtaxisalsodealtwithinequity.
DividendsDividendsarerecognisedasaliabilityintheGroup’sfinancialstatementsintheperiodinwhichtheybecomeobligationsoftheGroup.
Investment propertyInvestmentproperty,whichispropertyheldtoearnrentalsand/orforcapitalappreciation,isinitiallyrecognisedatcostbeingthefairvalueofconsiderationgivenincludingrelatedtransactioncosts.
Afterinitialrecognitionatcostand/oruponcommencementofconstruction,investmentpropertyiscarriedatitsfairvaluebasedonhalfyearlyprofessionalvaluationsmadebyindependentvaluersorbasedonDirectors’valuations.Theindependentvaluers’valuationsareinaccordancewithstandardscomplyingwiththeRoyalInstitutionofCharteredSurveyorsAppraisalandValuationmanualandtheInternationalValuationStandardsCommittee.
Gainsorlossesarisingfromchangesinfairvalueofinvestmentpropertyareincludedinthestatementofcomprehensiveincomeintheperiodinwhichtheyarise.InvestmentpropertyistreatedasacquiredwhentheGroupassumesthesignificantrisksandreturnsofownershipandasdisposedofwhenthesearetransferredtothebuyer.
Allcostsdirectlyassociatedwiththepurchaseofaninvestmentpropertyandallsubsequentexpendituresqualifyingasacquisitioncostsarecapitalised.
Assets held for saleAssetsareclassifiedasheldforsaleiftheircarryingamountwillberecoveredbysaleratherthanbycontinuinguseinthebusiness.Forthistobethecase,theassetmustbeavailableforimmediatesaleinitspresentcondition,managementmustbecommittedtoandhaveinitiatedaplantoselltheassetwhich,wheninitiated,wasexpectedtoresultinacompletedsalewithintwelvemonths.PropertyassetsthatareclassifiedasheldforsalearemeasuredatfairvalueinaccordancewithIAS40InvestmentProperty.
Segmental reportingOperatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision‑maker.Thechiefoperatingdecision‑maker,whichisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedastheBoardofDirectorsoftheCompany.
TheinvestingpolicymeanstheGroupmayinvestinrealestateopportunitiesunconstrainedbygeography,butwithaparticularfocusontheUK,EuropeandAsia.Atpresent,formanagementpurposes,theGroupisorganisedintoonemainoperatingsegmentbeingEurope.
TheGroup’srevenuehasbeengeneratedintheUKfor£5,287,000andinGermanyfor£832,000(Yearended31 March2019:£2,721,000intheUKand£516,000inGermany).
2. (a) Significant accounting policies (continued)
Alpha Real Trust Limited : Annual report 202040
Notes to the financial statements (continued)For the year ended 31 March 2020
TheGroup’snon‑currentassetsarelocatedinthefollowingcountries:
Country 2020
£’000
2019
£’000
UK 11,121 24,527
Germany 14,779 15,693
Spain 19,486 19,434
India 2,510 3,882
Total 47,896 63,536
Financial instrumentsFinancialassetsandfinancialliabilitiesarerecognisedontheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.TheGroupshalloffsetfinancialassetsandfinancialliabilitiesiftheGrouphasalegallyenforceablerighttosetofftherecognisedamountsandinterestsandintendstosettleonanetbasis.
(a) Financial assetsUnderIFRS9,oninitialrecognition,afinancialassetisclassifiedasmeasuredat:
● Amortisedcost;
● Fairvaluethroughothercomprehensiveincome(‘FVOCI’)–debtinvestment;
● FVOCI–equityinvestment;or
● Fairvaluethroughprofitorloss(‘FVTPL’).
TheclassificationoffinancialassetsunderIFRS9isgenerallybasedonthebusinessmodelinwhichafinancialassetismanagedanditscontractualcashflowcharacteristics.
TheGrouponlyhasfinancialassetsthatareclassifiedasamortisedcostorFVTPL.
(a) (i) Financial assets held at amortised costAfinancialassetismeasuredatamortisedcostifitmeetsbothofthefollowingconditionsandisnotdesignatedasatFVTPL:
● itisheldwithinabusinessmodelwhoseobjectiveistoholdassetstocollectcontractualcashflows;and
● itscontractualtermsgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding.
Financialassetsatamortisedcostareinitiallymeasuredatfairvalueplustransactioncoststhataredirectlyattributedtoitsacquisition,unlessitisatradereceivablewithoutasignificantfinancingcomponentwhichisinitiallymeasuredatitstransactionprice.
Theseassetsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.Theamortisedcostisreducedbyimpairmentlossesasdetailedin(b)below.Loansadvanced,tradeandotherreceivablesthatwereclassifiedasloansandreceivablesunderIAS39arenowclassifiedatamortisedcost.
Cashdepositswithbanksthatcannotbeaccessedwithinaperiodofthreemonthsarenotconsideredtobecashandcashequivalents.
(a) (ii) FVTPLAllfinancialassetsnotclassifiedasmeasuredatamortisedcostorFVOCIaremeasuredatFVTPLwhichincludesderivativefinancialassets.FinancialassetsatFVTPLareinitiallyandsubsequentlymeasuredatfairvalue.
Fair value measurementTheGroupmeasurescertainfinancialinstrumentssuchasderivativesandnon‑financialassetssuchasinvestmentproperty,atfairvalueattheendofeachreportingperiod,usingrecognisedvaluationtechniquesandfollowingtheprinciplesofIFRS13.Inaddition,fairvaluesoffinancialinstrumentsmeasuredatamortisedcostaredisclosedinthefinancialstatements.
Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thefairvaluemeasurementisbasedonthepresumptionthatthetransactiontoselltheassetortransfertheliabilitytakesplaceeither:
● intheprincipalmarketfortheassetorliability
or
● intheabsenceofaprincipalmarket,inthemostadvantageousmarketfortheassetorliability.
2. (a) Significant accounting policies (continued)
Alpha Real Trust Limited : Annual report 2020 41
Notes to the financial statements (continued)For the year ended 31 March 2020
TheGroupmustbeabletoaccesstheprincipalorthemostadvantageousmarketatthemeasurementdate.Thefairvalueofanassetoraliabilityismeasuredusingtheassumptionsthatmarketparticipantswouldusewhenpricingtheassetorliability,assumingthatmarketparticipantsactintheireconomicbestinterest.
Afairvaluemeasurementofanon‑financialassettakesintoaccountamarketparticipant’sabilitytogenerateeconomicbenefitsbyusingtheassetinitshighestandbestuseorbysellingittoanothermarketparticipantthatwouldusetheassetinitshighestandbestuse.
TheGroupusesvaluationtechniquesthatareappropriateinthecircumstancesandforwhichsufficientdataareavailabletomeasurefairvalue,maximisingtheuseofrelevantobservableinputsandminimisingtheuseofunobservableinputssignificanttothefairvaluemeasurementasawhole:
● Level1—Quoted(unadjusted)marketpricesinactivemarketsforidenticalassetsorliabilities.
● Level2—Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisdirectlyorindirectly observable.
● Level3—Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisunobservable.
Forassetsandliabilitiesthatarerecognisedinthefinancialstatementsonarecurringbasis,theGroupdetermineswhethertransfershaveoccurredbetweenlevelsinthehierarchybyre‑assessingcategorisation(basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole)attheendofeachreportingperiod.
(a) (iii) Impairment of financial assetsIFRS9hasintroducedtheExpectedCreditLoss(‘ECL’)modelwhichbringsforwardthetimingofimpairments.
(i) Trade receivables
UnderIFRS9fortradereceivables,includingleasereceivables,theGrouphaselectedtoapplythesimplifiedmodelasthetradereceivablesallhaveamaturityoflessthanoneyearanddonotcontainasignificantfinancingcomponent.UnderthesimplifiedapproachtherequirementistoalwaysrecogniselifetimeECL.UnderthesimplifiedapproachpracticalexpedientsareavailabletomeasurelifetimeECLbutforwardlookinginformationmuststillbeincorporated.UnderthesimplifiedapproachthereisnoneedtomonitorsignificantincreasesincreditriskandentitieswillberequiredtomeasurelifetimeECLsatalltimes.
ThedirectorshaveconcludedthatanyECLontradereceivableswouldbehighlyimmaterialtothefinancialstatementsduetothelowcreditriskoftherelevanttenants.
(ii) Other receivables
ThedirectorshaveconcludedthatanyECLonotherreceivableswouldbehighlyimmaterialtothefinancialstatementsdueto:
● collateralbeingheldintheformofasecuritydepositfortheGroup’shedgingstrategywhichcanbecalledbackatanytimewithnocapitallossshouldtheGroupdecidetoterminateitsforeignexchangecontractsbeforetheircontractualmaturity;
● Thecreditriskoftheunderlyingbankswhichareutilisedbythelawfirmsbywhomcashonescrowiskeptbeforecompletionofagivenseniorormezzanineloan.
TheremainingotherreceivablesareimmaterialtothefinancialstatementsandthereforenoassessmentoftheECLhasbeencompleted.
(iii) Loans advanced
Despitetheloanshavingasetrepaymentterm,allbutoneoftheloanshavearepayableondemandfeaturesotheGroupmaycallforanearlyrepaymentoftheirprincipal,interestandapplicablefeesatanytime.
Consideringthe‘ondemand’clause,theGroupconcludedthattheloansareinstage3oftheIFRS9modelasshouldtheloansbecalledondemandtheborrowerswouldtechnicallybeindefaultasrepaymentwouldonlybepossibleondemandifthepropertyhadalreadybeen sold.
TheoneloanthathasarepaymenttermhasanimmateriallifetimeECLandhencenodetailedanalysisofwhethertheloanhassufferedasignificantincreaseincreditriskhasbeenperformed.
(b) Financial liabilities TheGroupclassifiesitsfinancialliabilitiesintooneoftwocategories,dependingonthepurposeforwhichtheliabilitywasissuedanditscharacteristics.AlthoughtheGroupusesderivativefinancialinstrumentsineconomichedgesofcurrencyandinterestraterisk,itdoesnothedgeaccountforthesetransactions.
Unlessotherwiseindicated,thecarryingamountsoftheGroup’sfinancialliabilitiesareareasonableapproximationoftheirfairvalues.
(b) (i) Derivatives at fair value through profit or lossThiscategorycomprisesonly‘out‑of‑the‑money’financialderivatives.Theyarecarriedinthebalancesheetatfairvaluewithchangesinfairvaluerecognisedinthestatementofcomprehensiveincome.Otherthanderivativefinancialinstruments,theGroupdoesnothaveanyliabilitiesheldfortradingnorhasitdesignatedanyotherfinancialliabilitiesasbeingatfairvaluethroughprofitorloss.
ThefairvalueoftheGroup’sderivativesisbasedonthevaluationsasdescribedinnote27.
2. (a) Significant accounting policies (continued)
Alpha Real Trust Limited : Annual report 202042
Notes to the financial statements (continued)For the year ended 31 March 2020
(b) (ii) Financial liabilities measured at amortised costOtherfinancialliabilitiesincludethefollowingitems:
● Tradepayablesandothershort‑termmonetaryliabilities,whichareinitiallyrecognisedatfairvalueandsubsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod;
● Bankborrowingswhichareinitiallyrecognisedatfairvaluenetofattributabletransactioncostsincurred.Suchinterestbearingliabilitiesaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestratemethod.
(b) (iii) Derecognition of financial liabilitiesAfinancialliability(inwholeorinpart)isderecognisedwhentheCompanyorGrouphasextinguisheditscontractualobligations,itexpiresoriscancelled.Anygainorlossonderecognitionistakentothestatementofcomprehensiveincome.
(c) Share capitalFinancialinstrumentsissuedbytheGrouparetreatedasequityonlytotheextentthattheydonotmeetthedefinitionofafinancialliability.TheCompany’sordinarysharesandclassAsharesareclassifiedasequityinstruments.Forthepurposesofthedisclosuresgiveninnote22theGroupconsidersallitssharecapital,sharepremiumandallotherreservesasequity.TheGroupisnotsubjecttoanyexternallyimposedcapitalrequirements.
(d) Effective interest rate methodTheeffectiveinterestratemethodisamethodofcalculatingtheamortisedcostofafinancialassetorliabilityandofallocatinginterestincomeorexpenseovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashreceiptsorpayments(includingallfeesonpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiumsordiscounts)throughtheexpectedlifeofthefinancialassetorliability,or,whereappropriate,ashorterperiod.
2. (b) Significant accounting estimates and judgementsTheGroupmakesestimatesandassumptionsconcerningthefuture.Theresultingaccountingestimateswill,bydefinition,seldomequaltherelatedactualresults.Theestimatesandassumptionsthathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow.
Estimatesandjudgementsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.
(a) Investment propertyTheGroupusesthevaluationscarriedoutbyitsindependentvaluersasthefairvalueofitsinvestmentproperties,wheneverpossible.Thevaluationsarebaseduponassumptionsincludingfuturerentalincome,anticipatedmaintenancecosts,futuredevelopmentcostsandtheappropriatediscountrate.Thevaluersalsomakereferencetomarketevidenceoftransactionpricesforsimilarproperties.InvestmentpropertywhichisinthecourseofconstructioniscarriedatcostplusassociatedcostsandthishasbeenconsideredbytheDirectorstorepresentfairvalueatthebalancesheetdate:uponcommencementofconstruction,valuationswillbecarriedoutbyindependentvaluers.
Asattheyearended31 March2020,thefollowingvaluationshavebeencarriedout:
(a) (i) Independent valuationsIndependentvaluationswerecarriedoutforthefollowinginvestmentproperties:
● ThedirectlyownedpropertieslocatedinHamburg(Germany)andWolverhampton(UK)(notes13,14and27);
● AnindirectlyownedpropertylocatedinMadrid(Spain),heldthroughCBREH2ORivasHoldingNV(note12and27)
Thevaluationsreportsreceivedfromtheindependentvaluersincludeda‘MaterialValuationUncertainty’paragraphinrelationtothemarketriskslinkedtotheCovid‑19pandemic:thisparagraphexplainsthatvaluershaveattachedlessweighttopreviousmarketevidenceforcomparisonpurposestoachieveaninformedopiniononvalue.Valuersthereforerecommendthatahigherdegreeofcautionshouldbeattachedtothesevaluationscomparedtovaluationscarriedoutundernormalcircumstances.
2. (a) Significant accounting policies (continued)
Alpha Real Trust Limited : Annual report 2020 43
Notes to the financial statements (continued)For the year ended 31 March 2020
(a) (ii) Directors’ valuationsDirectors’valuationswerecarriedoutforthefollowinginvestmentproperties:
● ThedirectlyownedpropertieslocatedinBirminghamandLiverpool(UK)(notes13,14and27);
● AnindirectlyownedpropertylocatedinCambridge(UK),heldthroughScholarPropertyHoldingsLimited(note12and27)
InDecember2019,theGroupexchangedcontractsforthesaleoftheUnityandArmouriesassetinBirmingham(UK)at£4.5 millionandthesalecompletedon11June2020:theDirectorsthereforeconsider£4.5 milliontorepresentfairvalueofthepropertyatthebalancesheet date.
On22November2019,theGroupcompletedtheacquisitionofaresidentialpropertylocatedinLiverpool,UKfor£0.6 million:giventherecenttimingoftheacquisition,theDirectorsconsider£0.6 milliontorepresentfairvalueofthepropertyatthebalancesheetdate.
WiththemarketuncertaintycausedbytheCovid‑19pandemicandasnotedbyexternalvaluersabove,atthepresenttime,ahigherdegreeofcautionshouldbeattachedtovaluations.
(b) Estimate of fair value of joint venture in arbitration – Galaxia TheGalaxiajointventureisclassifiedasajointventureinarbitrationandhasbeenincludedwithinthefinancialstatementsbasedonthecurrentestimateofrealisablevaluetotheGroup(seenote15).
TheDirectors,takingintoconsiderationlegaladvicereceivedthroughoutthelegalprocess,consideritappropriatetocarrythisjointventureintheCompany’saccountsatINR 235.0 million,whichistheamountinvestedlesstheINR 215 million(£2.3 million)depositrecoverydescribedinnote15.TheamountrecognisedintheaccountsexcludestheadditionalcompensationawardedbythecourtsduetouncertaintyovertimingoftheAward:thiscouldamounttofurtherproceedsofINR 860 million(£9.2 million).
(c) Loans advanced – ECLs TheGrouphascalculatedthelifetimeECLsoftheloansadvancedusingthefollowingthreescenarios:
1. Creditcriteriaunchangedorstrengthenedsinceinceptionandexpectationofrepaymentinfull;
2. Creditcriteriaweakenedsinceinceptionbutexpectationoffullrecovery;
3. Creditcriteriasignificantlyweakenedandpotentialforrepaymenttonotbefullyachieved.
Thecriteriareferredtoaboveincorporatethefollowing:
● Progressofdevelopmentagainstplan;
● Borrower’sfinancialposition;
● Propertymarketdata.
Incalculatingtherecoverableamountsunderthethreescenarios,theDirectorshavetakenintoaccounttheavailablecollateralundertheloanagreementsincludingchargesoverpropertyandotherguarantees.
BasedontheaboveprocesstheDirectorshaveconcludedthatECLsonloansadvancedareimmaterialtothefinancialstatements.
ConsideringtheCovid‑19impactonthecurrenteconomicenvironment,theGrouphascarriedoutastresstestofitstotalExpectedCredit Loss(‘ECL’)analysisand,inconsiderationofthemainqualitiesofitssecuredloanportfolio,theunderlyingloans’LTVs,thenumberofloanswheredevelopmentisadvancedandthenumberofseasonedfacilities,theresultingtotalECLwasimmaterial.
2. (b) Significant accounting estimates and judgements (continued)
Alpha Real Trust Limited : Annual report 202044
Notes to the financial statements (continued)For the year ended 31 March 2020
3. Revenue
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Rentalincome 1,075 486
Servicechargeincome 90 42
Rental revenue 1,165 528
Interestreceivableonloanstothirdparties(note17) 4,952 2,709
Interest revenue 4,952 2,709
Otherincome 2 ‑
Other revenue 2 -
Total 6,119 3,237
At31 March2020,theGrouprecognisednonrecoverablepropertyoperatingexpenditureasfollows:
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Servicechargeincome 90 42
Propertyoperatingexpenditure (74) (96)
Non recoverable property operating income/(expenditure) 16 (54)
TheGrouprecognisesrevenuefromitsinvestmentintwocommercialproperties:alongleasedindustrialfacilityinHamburg,GermanyandanindustrialpropertyinWolverhampton,UK.
TheGroupalsoownsaresidentialpropertylocatedinLiverpool,UK.
TheHamburgpropertyisleasedtoVeoliaUmweltserviceNordGmbH,partoftheVeoliagroup,aninternationalindustrialspecialistinwater,wasteandenergymanagement,witha24‑yearunexpiredleaseterm.Undertheoperatinglease,thetenantisresponsibleforbuildingmaintenanceandtherenthasperiodicinflationlinkedadjustments.
TheWolverhamptonproperty,whichisbeingactivelymarketedforsale,isleasedtoBritishSteelLtd,acompanycurrentlyinliquidation.
TheLiverpoolresidentialpropertyiscomprisedofsevenunits,fiveofwhichareinoccupationbyprivateindividualswithasixmonthterm contract.
At31 March2020,theGrouphadcontractedwithitstenantsforthefollowingfutureminimumleasepayments:
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Withinoneyear 1,389 754
Inthesecondtofifthyearsinclusive 3,404 3,018
Afterfiveyears 13,663 13,393
Total 18,456 17,165
Alpha Real Trust Limited : Annual report 2020 45
Notes to the financial statements (continued)For the year ended 31 March 2020
4. Other administration costs
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Auditors’remunerationforauditservices 106 94
Accountingandadministrativefees 537 443
Non‑executivedirectors’fees 161 141
Otherprofessionalfees 843 539
Total 1,647 1,217
5. Finance income
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Bankinterestreceivable 118 31
Foreignexchangegain ‑ 734
Total 118 765
6. Finance costs
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Interestonbankborrowings 204 123
Foreignexchangeloss 55 ‑
Total 259 123
Theabovefinancecostsariseonfinancialliabilitiesmeasuredatamortisedcostusingtheeffectiveinterestratemethod.Nootherlosseshavebeenrecognisedinrespectoffinancialliabilitiesatamortisedcostotherthanthosedisclosedabove.
Alpha Real Trust Limited : Annual report 202046
Notes to the financial statements (continued)For the year ended 31 March 2020
7. Taxation
(a) Parent CompanyTheParentCompanyisexemptfromGuernseytaxationonincomederivedoutsideofGuernseyandbankinterestearnedinGuernsey.Afixedannualfeeof£1,200(31 March2019:£1,200)waspayabletotheStatesofGuernseyinrespectofthisexemptionfortheyear.No chargetoGuernseytaxationarisesoncapitalgains.TheGroupisliabletoforeigntaxarisingonactivitiesinitsoverseassubsidiaries.TheCompanyhasinvestments,subsidiariesandjointventureoperationsinLuxembourg,theUnitedKingdom,Germany,theNetherlands,Spain,Cyprus,JerseyandIndia.
(b) GroupTheGroup’staxexpensefortheyearcomprises:
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Deferredtax ‑ (526)
Currenttax 93 2,706
Tax Expense 93 2,180
Thechargefortheyearcanbereconciledtotheprofitpertheconsolidatedstatementofcomprehensiveincomeasfollows:
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Tax expense reconciliation
Profitbeforetaxation 3,610 24,671
Less:incomenottaxable (12,163) (18,586)
Add:expenditurenotdeductible 8,029 7,468
Un‑provideddeferredtaxassetmovement 757 184
Total 233 13,737
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Analysed as arising from
Cyprusentities 148 114
Dutchentity 127 176
Indiaentity ‑ ‑
Luxembourgentities ‑ ‑
Germaninvestments (42) 13,447
UKinvestment ‑ ‑
Total 233 13,737
Taxatdomesticratesapplicabletoprofitsinthecountriesconcernedisasfollows:
Year ended 31 March 2020
£’000
Year ended 31 March 2019
£’000
Cypriottaxationat12.50% 19 14
Dutchtaxationat20% 25 35
Indiataxationat22.66% ‑ ‑
Luxembourgentitiesatanaveragerateof29.22%* 55 3
Germantaxationat15.825% (6) 2,128
UKtaxationat20% ‑ ‑
Total 93 2,180
*ThetaxationincurredinLuxembourgrelatestothenetwealthtaxcharge
Alpha Real Trust Limited : Annual report 2020 47
Notes to the financial statements (continued)For the year ended 31 March 2020
(c) Deferred taxationThefollowingisthedeferredtaxrecognisedbytheGroupandmovementsthereon:
Revaluation of Investment Property
£’000
Accelerated tax depreciation
£’000
Tax Losses
£’000
Other temporary differences
£’000
Total
£’000
At 31 March 2018 526 - (119) 119 526
Releasetoincome (526) ‑ (61) 61 (526)
At 31 March 2019 - - (180) 180 -
Releasetoincome ‑ ‑ (277) 277 ‑
At 31 March 2020 - - (457) 457 -
Certaindeferredtaxassetsandliabilitieshavebeenoffset.Thefollowingistheanalysisofthedeferredtaxbalances(afteroffset)forfinancialreportingpurposesavailableforoffsetagainstfutureprofits.
2020
£’000
2019
£’000
Deferredtaxliabilities 457 180
Deferredtaxassets (457) (180)
Total - -
AtthebalancesheetdatetheGrouphasunusedtaxlossesof£1.5 million(2019:£0.6 million).Duetotheunpredictabilityoffuturetaxableprofits,theDirectorsbelieveitisnotprudenttorecogniseadeferredtaxassetfortheunusedtaxlossesattheyearend.
UnusedtaxlossesinLuxembourg,Spain,GermanyandtheUnitedKingdomcanbecarriedforwardindefinitely.UnusedtaxlossesintheNetherlandscanbecarriedforwardfornineyears.UnusedtaxlossesinCypruscanbecarriedforwardforfiveyears.
8. Dividends
Dividend reference period Shares
’000
Dividend
pershare
Paid
£
Date of payment
Quarterended31 December2018 23,259 0.8p 186,069 26April2019
Quarterended31 March2019 23,117 0.8p 184,933 19July2019
Quarterended30June2019 17,602 1.0p 176,019 18October2019
Quarterended30September2019 12,583 1.0p 125,833 10January2020
Total 672,854
On9April2020,theCompanypaidadividendforthequarterended31 December2019of297,417(1.0ppershare).
TheCompanywillpayadividendforthequarterended31 March2020on17July2020.
InaccordancewithIAS10,thedividendsforquartersended31 December2019and31 March2020havenotbeenincludedinthesefinancialstatementsasthedividendsweredeclaredorpaidaftertheyearend.ThecurrentintentionoftheDirectorsistopayadividendquarterly.
Scrip dividend alternativeInthecircularpublishedon18December2018,theCompanysoughtshareholders’approvaltoenableascripdividendalternativetobeofferedtoordinaryshareholderswherebytheycouldelecttoreceiveadditionalordinarysharesinlieuofacashdividend,attheabsolutediscretionoftheDirectors,fromtimetotime.Thiswasapprovedbyshareholdersattheextraordinarygeneralmeetingon8January2019.
Thenumberofordinarysharesthatanordinaryshareholderwillreceiveunderthescripdividendalternativewillbecalculatedusingtheaverageoftheclosingmiddlemarketquotationsofanordinaryshareforfiveconsecutivedealingdaysafterthedayonwhichtheordinarysharesarefirstquoted‘ex’therelevantdividend.
Duringtheyear,theBoardelectedtoofferthescripdividendalternativetoshareholdersforeveryquarterlydividend,whichresultedintheissueof908,291newordinaryshares.ThesesharesarerankparipassuinallrespectswiththeCompany’sexistingissuedordinaryshares.
TheBoardalsoelectedtoofferthescripdividendalternativetoshareholdersforthedividendforthequarterended31 December2019:electionswerereceivedinrespectof29,972,146shares,whichresultedintheissueof186,628newordinaryshares.Theseshareshavebeenissuedatapriceof160.6penceeachandwererankparipassuinallrespectswiththeCompany’sexistingissuedordinaryshares.ThesenewshareshavebeenadmittedtotradingontheSFSoftheLSEon9April2020.
7. Taxation (continued)
Alpha Real Trust Limited : Annual report 202048
Notes to the financial statements (continued)For the year ended 31 March 2020
9. Earnings per shareThecalculationofthebasicanddilutedearningspershareisbasedonthefollowingdata:
Year ended 31 March 2020
Ordinaryshare
Year ended 31 March 2019
Ordinaryshare
Year ended 31 March 2019
Ashare
Year ended 31 March 2019
Total
Earningsperstatementofcomprehensiveincome(£’000) 3,517 21,181 1,310 22,491
Basic and diluted earnings pence per share 5.8 33.1 33.5 33.2
Earningsperstatementofcomprehensiveincome(£’000) 3,517 21,181 1,310 22,491
Netchangeintherevaluationofinvestmentpropertiesandassetsheldforsale (1,194) (1,240) (76) (1,316)
Loss/(profit)oninvestmentpropertydisposal 167 (17,020) (1,041) (18,061)
Movementinfairvalueofinvestments 58 (260) (17) (277)
Loss/(profit)onforeignexchangeforward 146 (375) (23) (398)
Netchangeintherevaluationofthejointventures’andassociates’investmentpropertyandinterestrateswaption
1,107 (1,807) (110) (1,917)
InvestmentManager'sfees(performancefee) ‑ 726 45 771
Taxanddeferredtax ‑ 2,000 123 2,123
Romuluscapitalreturn ‑ ‑ (14) (14)
Foreignexchangeloss/(gain) 55 (692) (42) (734)
Adjusted earnings 3,856 2,513 155 2,668
Adjusted earnings per share 6.4 3.9 3.9 3.9
Weighted average number of shares (‘000s) 60,381 63,905 3,907 67,812
TheadjustedearningsarepresentedtoprovidewhattheBoardbelievesisamoreappropriateassessmentoftheoperationalincomeaccruingtotheGroup’sactivities.Hence,theGroupadjustsbasicearningsforincomeandcostswhicharenotofarecurrentnatureorwhichmaybemoreofacapitalnature.
10. Net asset value per share
31 March 2020 31 March 2019
Netassetvalue(£’000) 127,627 136,673
Net asset value per ordinary share 213.7p 204.3p
Total number of shares (‘000s) 59,713 66,902
Alpha Real Trust Limited : Annual report 2020 49
Notes to the financial statements (continued)For the year ended 31 March 2020
11. Investment in subsidiary undertakingsAlistofthesignificantinvestmentsinsubsidiariesasat31 March2020,includingthename,countryofincorporationandtheproportionofownershipinterestisgivenbelow.
Name of subsidiary undertaking Class of share % of class held with voting rights
Country of incorporation
Principal activity
AlphaTigerCyprusHoldingsLimited Ordinaryshares 100 Cyprus HoldingCompany
AlphaTigerCyprusInvestmentsNo.2Limited Ordinaryshares 100 Cyprus HoldingCompany
AlphaTigerCyprusInvestmentsNo.3Limited Ordinaryshares 100 Cyprus HoldingCompany
Luxco111SARL Ordinaryshares 100 Luxembourg HoldingCompany
SkyredInternationalSARL Ordinaryshares 100 Luxembourg HoldingCompany
IronBridgeFinanceLuxembourgSARL Ordinaryshares 100 Luxembourg HoldingCompany
SixteenRockRoseSARL Ordinaryshares 100 Luxembourg HoldingCompany
SixteenRockRose2SARL Ordinaryshares 100 Luxembourg HoldingCompany
SixteenGuavaSARL Ordinaryshares 100 Luxembourg HoldingCompany
KMSHoldingNV Ordinaryshares 100 Netherlands HoldingCompany
AlphaTigerGuernseyHoldingsNo.1Ltd Ordinaryshares 100 Guernsey HoldingCompany
ARTGermany1Ltd Ordinaryshares 100 Guernsey PropertyCompany
AlphaUKPropertyFundAssetCompany(‘No.2’)Limited Ordinaryshares 100 Jersey PropertyCompany
RealhousingcoLtd Ordinaryshares 100 UnitedKingdom PropertyCompany
TheGroupalsoownsonelimitedpartnershipinGermany(SixteenRockRoseSàrl&CoVermögensverwaltungsKG),whichhelditsFrankfurtdatacentreinvestment,soldon13February2019.
12. Investment in joint ventures and associates ThemovementintheGroup’sshareofnetassetsofthejointventuresandassociatescanbesummarisedasfollows:
Alpha2
31 March 2020
£’000
H2O
31 March 2020
£’000
SPHL
31 March 2020
£’000
Total
31 March 2020
£’000
Alpha2
31 March 2019
£’000
H2O
31 March 2019
£’000
SPHL
31 March 2019
£’000
Total
31 March 2019
£’000
As at 1 April 7,403 19,434 1,698 28,535 - 17,653 1,679 19,332
Additions ‑ ‑ ‑ ‑ 6,347 ‑ ‑ 6,347
Group’sshareofjointventureandassociateprofitsbeforefairvaluemovementsand dividends
117 1,318 144 1,579 196 1,355 127 1,678
Fairvalueadjustmentforinterestrateswaption ‑ (3) ‑ (3) ‑ (63) ‑ (63)
Fairvalueadjustmentforinvestmentproperty (421) (650) (33) (1,104) 860 843 277 1,980
DividendspaidbyjointventureandassociatetotheGroup
(1,597) (1,141) (68) (2,806) ‑ ‑ (385) (385)
Foreignexchangemovements ‑ 528 ‑ 528 ‑ (354) ‑ (354)
Transferoftheassociate’sassetsandliabilitiesforconsolidation(note2)
(5,502) ‑ ‑ (5,502) ‑ ‑ ‑ ‑
As at 31 March - 19,486 1,741 21,227 7,403 19,434 1,698 28,535
TheGroup’sinvestmentsinjointventuresandassociatescanbesummarisedasfollows:
● JointventureinvestmentintheH2OshoppingcentreinMadrid,Spain:theGroupholdsa30%equityinvestmentinCBREH2ORivasHoldingNV(‘CBREH2O’),acompanybasedintheNetherlands,whichinturnowns100%oftheSpanishentitiesthatareownersofH2O.CBREH2OisaEurodenominatedcompanyhencetheGrouptranslatesitsshareofthisinvestmentattherelevantyearendexchangeratewithmovementsintheperiodtranslatedattheaverageratefortheperiod.Asat31 March2020,thecarryingvalueofART’sinvestmentinCBREH2Owas£19.5 million(€22.0 million)(31 March2019:£19.4 million(€22.5 million)).
● JointventureinvestmentinthePhase1000ofCambourneBusinessPark,Cambridge,UK:theGroupholdsa10%equityinvestmentintheScholarPropertyHoldingsLimited(‘SPHL’)group,owneroftheproperty.Asat31 March2020,thecarryingvalueofART’sinvestmentinScholarPropertyHoldingsLimitedwas£1.7 million(31 March2019:£1.7 million).
● AssociateinvestmentinaportfolioofinvestmentpropertiesintheUKindustrialsector:until18September2019,theGrouphelda33.6%equityinvestmentinAlpha2,owneroftwoindustrialassetsintheUnitedKingdom.On18September2019,theGroupacquiredtheremaining66.4%oftheAlpha2sharesfromAntlerInvestmentHoldingsLimited,arelatedpartytotheGroup.Asfrom18September2019,theGrouphasthereforeconsolidatedits100%investmentinAlpha2.
Alpha Real Trust Limited : Annual report 202050
Notes to the financial statements (continued)For the year ended 31 March 2020
Foreignexchangemovementisrecognisedinothercomprehensiveincome.
TheinvestmentsinCBREH2OandAlpha2aredeemedtobesignificantandmaterialfortheGroup;theCBREH2OandAlpha2financialinformationcanthereforebesummarisedasfollows:
Statement of comprehensive income Alpha2
Period ended 18 September 2019
£’000
H2O
Year ended 31 March 2020
£’000
Alpha2
Year ended 31 March 2019
£’000
H2O
Year ended 31 March 2019
£’000
Revenue 732 11,749 906 11,313
Changeintherevaluationofinvestmentproperty (628) (2,167) 2,557 2,810
Lossoninvestmentpropertydisposal (625) ‑ ‑ ‑
Total (expense)/income (521) 9,582 3,463 14,123
Operatingexpenses (385) (5,428) (323) (5,055)
Operating (loss)/profit (906) 4,154 3,140 9,068
Financecosts ‑ (1,310) ‑ (1,522)
(Loss)/profit before taxation (906) 2,844 3,140 7,546
Taxation ‑ (629) ‑ (960)
(Loss)/profit for the period (906) 2,215 3,140 6,586
Othercomprehensiveincome/(expense) ‑ ‑ ‑ ‑
Total comprehensive (expense)/income (906) 2,215 3,140 6,586
Balance sheet H2O
31 March 2020
£’000
Alpha2
31 March 2019
£’000
H2O
31 March 2019
£’000
Investmentproperty 115,531 20,375 113,243
Derivativesheldatfairvaluethroughprofitorloss ‑ ‑ 10
Non-current assets 115,531 20,375 113,253
Tradedebtors 2,003 234 1,449
Otherdebtors 209 448 449
Cash 7,230 1,794 7,623
Current assets 9,442 2,476 9,521
Tradeandotherpayables (3,266) (834) (2,967)
Bankborrowings (130) ‑ (123)
Current liabilities (3,396) (834) (3,090)
Bankborrowings (56,626) ‑ (54,903)
Non-current liabilities (56,626) - (54,903)
Net assets 64,951 22,017 64,781
Equity 51,728 40,883 51,728
Translationreserve ‑ ‑ (892)
Capitalandrevenuereserve 13,223 (18,866) 13,945
Total equity 64,951 22,017 64,781
ThefairvalueoftheH2OpropertyinMadrid(Spain)of€130.6 million(£115.5 million)(31 March2019:€131.5 million(£113.2 million))hasbeenarrivedatonthebasisofanindependentvaluationcarriedoutatthebalancesheetdatebySavillsAguirreNewmanValoracionesyTasacionesS.A.(‘SavillsAguirre’),anindependentvaluernotconnectedtotheGroup.TheSavillsAguirre’svaluationasat31 March2020includedaMaterialUncertaintyclauseduetosignificantmarketriskslinkedtotheCovid‑19pandemic(seenote2(b)(a)(i)formoredetails).
ThevaluationbasisusedisfairvalueasdefinedbytheRoyalInstitutionofCharteredSurveyorsAppraisalandValuationsStandards(‘RICS’).TheapprovedRICSdefinitionoffairvalueis“thepricethatwouldbereceivedtosellanasset,orpaidtotransferaliability,inanorderlytransactionbetweenmarketparticipantsatthemeasurementdate”.
12. Investment in joint ventures and associates (continued)
Alpha Real Trust Limited : Annual report 2020 51
Notes to the financial statements (continued)For the year ended 31 March 2020
ThefairvalueoftheH2OandWolverhamptonpropertiesarebasedonunobservableinputs.Thefollowingmethods,assumptionsandinputswereusedtoestimatefairvaluesoftheinvestmentproperties:
31 March 2020 – H2O Shopping centre, Madrid (Spain)
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Weighted average / Value
Europe £115,531(€130,550) 51,825 Discountedcashflow GrossEstimatedRentalValue(‘ERV’)persqmp.a.
€189.4
Discountrate 12.21%
Sensitivityanalysisforthe31 March2020valuationoftheH2Oshoppingcentre:
Significant unobservable inputs Change applied Fair value change
€’000
Change applied Fair value change
€’000
ERVpersqmp.a. ‑10% €121,280 +10% €136,458
Discountrate ‑1% €138,260 +1% €120,309
31 March 2019 – H2O Shopping centre, Madrid (Spain)
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Weighted average / Value
Europe £113,243(€131,475) 51,825 Discountedcashflow GrossEstimatedRentalValue(‘ERV’)persqmp.a.
€170.6
Discountrate 12.90%
31 March 2019 – Wolverhampton, UK
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Weighted average / Value
UK £5,675 16,355 Comparabletransactionsanalysis
Comparableevidence Notapplicable
ThefairvalueofPhase1000ofCambourneBusinessPark,Cambridge(UK)of£30.5 million(31 March2019:£30.5 million(independentvaluationbyAvisonYoung))hasbeenarrivedatonthebasisofaDirectors’valuationcarriedoutatthebalancesheetdate(seenote2(b)(a)(ii)formoredetails).
TheCBREH2Ogroupbankborrowingsrepresentthe€65.0 millionprovidedbyAarealBanktoAlphaTigerSpain1,SLUlessthebalanceofunamortiseddeferredfinancecostsof€1.0 million.Thisloanhasa1.887%fixedcoupon,matureson18May2024andissecuredbyafirstchargemortgageagainsttheSpanishproperty.Theborrowingsarenon‑recoursetotheGroup’sotherinvestments.
TheScholarPropertyHoldingsLimitedgroupbankborrowings’balanceasat31 March2020is£13.2 million:thisisaloanprovidedbyNatwestPLCtoScholarPropertyInvestmentsLimited,whichissecuredbyafirstchargemortgageagainsttheUKproperty.Thisloanhasa2.0%marginover3monthLIBORandmatureson6September2023.
Alpha2hasnobankborrowings.
12. Investment in joint ventures and associates (continued)
Alpha Real Trust Limited : Annual report 202052
Notes to the financial statements (continued)For the year ended 31 March 2020
13. Investment property
31 March 2020
£’000
31 March 2019
£’000
Fair value of investment property at 1 April 13,764 33,021
Additions 610 14,795
Subsequentcapitalexpenditureafteracquisition ‑ 5,203
Disposals ‑ (35,864)
Fairvalueadjustmentintheyear 629 1,316
Foreignexchangemovement 386 (207)
Transfertoassetheldforsale ‑ (4,500)
Fair value of investment property at 31 March 15,389 13,764
InvestmentpropertyisrepresentedbyapropertylocatedinHamburg(Werner‑Siemens‑Straße),GermanyandapropertylocatedinLiverpool,UK.
ThefairvalueoftheHamburgpropertyof€16.7 million(£14.8 million)(31 March2019:€16.0 million(£13.8 million))hasbeenarrivedatonthebasisofanindependentvaluationcarriedoutatthebalancesheetdatebyCushman&Wakefield(‘C&W’)(note27).
C&WareindependentvaluersandarenotconnectedtotheGroup.
ThevaluationbasisusedisfairvalueasdefinedbytheRoyalInstitutionofCharteredSurveyorsAppraisalandValuationsStandards(‘RICS’).TheapprovedRICSdefinitionoffairvalueis“thepricethatwouldbereceivedtosellanasset,orpaidtotransferaliability,inanorderlytransactionbetweenmarketparticipantsatthemeasurementdate”.
On22November2019,theGroupcompletedtheacquisitionofaresidentialpropertylocatedinLiverpool,UKfor£0.6 million.ThefairvalueofthispropertyhasbeenarrivedatonthebasisofaDirectors’valuation.
Foreignexchangemovementisrecognisedinothercomprehensiveincome.
14. Asset held for sale
31 March 2020
£’000
31 March 2019
£’000
Fair value at 1 April 4,500 -
Additions 8,225 ‑
Disposals (5,225) ‑
Fairvalueadjustmentintheyear 565 ‑
Transferfrominvestmentproperty ‑ 4,500
Fair value at 31 March 8,065 4,500
AssetsheldforsalearerepresentedbytheUnityandArmouriespropertyinBirmingham(UK),soldpostyearend,andapropertylocatedinWolverhampton(UK),whichisactivelymarketedfordisposal.
Thedisposalof£5.2 millionrepresentsthesaleoftheWarringtonproperty,acquiredinSeptember2019aspartoftheAlpha2transaction(seepage 36).
InDecember2019,theGroupexchangedcontractsforthesaleoftheUnityandArmouriesassetinBirmingham(UK)at£4.5 millionandthesalecompletedon11June2020:theDirectorsthereforeconsider£4.5 milliontorepresentfairvalueoftheUnityandArmouriespropertyatthebalancesheetdate(31 March2019:£4.5 millionasperGVA’svaluation)(seenote2(b)(a)(ii)formoredetails).
ThefairvalueoftheWolverhamptonpropertyintheUKof£3.6 million(31 March2019:£5.7 million)hasbeenarrivedatonthebasisofanindependentvaluationcarriedoutatthebalancesheetdatebyCBRE(note27).TheCBRE’svaluationasat31 March2020includedaMaterialUncertaintyclauseduetosignificantmarketriskslinkedtotheCovid‑19pandemic(seenote2(b)(a)(i)formoredetails).
CBREareindependentvaluersandarenotconnectedtotheGroup.
ThevaluationbasisusedisfairvalueasdefinedbytheRoyalInstitutionofCharteredSurveyorsAppraisalandValuationsStandards(‘RICS’).TheapprovedRICSdefinitionoffairvalueis“thepricethatwouldbereceivedtosellanasset,orpaidtotransferaliability,inanorderlytransactionbetweenmarketparticipantsatthemeasurementdate”.
Alpha Real Trust Limited : Annual report 2020 53
Notes to the financial statements (continued)For the year ended 31 March 2020
15. Joint venture in arbitration
31 March 2020
£’000
31 March 2019
£’000
As at 1 April 3,882 4,921
Capitalreturn (1,232) (1,106)
Foreignexchangemovement (140) 67
As at 31 March 2,510 3,882
TheGalaxiainvestmentiscarriedatINR 235.0 million(£2.5 million)(31 March2018:INR 350.0 million,£3.9 million),adjustedtoreflecttherecoverybytheCompanyofINR 115 million(£1.2 million)duringtheyear.
In2007theGroupenteredintoajointventureagreementwithLogixGroup.ShortlyafterenteringintotheagreementbothpartiesenteredintoaSettlementAgreementtosellthelandanddistributetheproceeds.LogixdidnotcompletetheirresponsibilitiesundertheSettlementAgreementandtheGrouptheninitiatedarbitrationagainstLogix.
InJanuary2015,theInternationalChamberofCommerce(‘ICC’)ArbitrationconcludeditsarbitrationproceedingsanddeclaredinfavouroftheGroup’sclaimsagainstLogixGroup,whichwasfoundtohavebreachedtheTermsoftheShareholdersAgreementwiththeGroup.TheICCawardedtheGroupthereturnofitsentirecapitalinvestedofINR 450.0 million,withinterestat18%p.a.from31January2011to20January2015,andtherefundofallcostsincurredtowardstheArbitration.Thetotalawardamountedto£9.2 millionbasedonexchangeratesatthetime.Additionally,afurther15%p.a.interestonallsumswasawardedtotheGroupfrom20January2015untiltheactualdateofpaymentbyLogixoftheAward.
LogixappealedtheICCdecisionattheDelhiHighCourtbutthecourtruledintheGroup’sfavour.LogixcontinuedtoappealattheSupremeCourtofIndiauntilFebruary2020whentheSupremeCourtofIndiaupheldtheAwardanddismissedtheSpecialLeavePetitionfiledbytheLogixGroupanditsPromoterschallengingthesaidAward:thisrepresentstheendofthelegalprocesssincetheAwardcannotbechallengedanymoreinanyforuminIndia.Asaresultofthisprocess,theSupremeCourtorderedLogixtopaytotheCompanyafinalAward(the‘Award’)amountofINR 1,075.0 million(£11.5 millionattheyearendexchangerate).Previously,theSupremeCourthadalreadyorderedLogixtodepositINR 200 millionwiththecourtandpermittedtheCompanytounconditionallywithdrawINR 100 million(£1.1 million)inMay2018andINR 100 millionplusINR 15 millionofinterestaccrued(£1.2 million,includinginterestaccrued)inDecember2019.AfurtherINR 360 millioniscurrentlyondepositwiththeSupremeCourthowevertheSupremeCourtmaydirectthesefundstowardspaymentofoutstandingliabilitieswithlocalauthoritieswherethepropertyislocated.LogixGroupisnowrequiredtodepositanamountofINR 33 millionby21July2020andtheremainderoftheliabilityundertheAwardofINR 467 millionby18August2020.ARTcontinuestoactivelypursueLogixanditsdirectorsfortherecoveryoftheAward.
TheDirectors,takingintoconsiderationlegaladvicereceivedthroughoutthelegalprocess,consideritappropriatetocarrythisjointventureintheCompany’saccountsatINR 235.0 million,whichistheamountinvestedlesstheINR 215 million(£2.3 million)depositrecoverydescribedabove.TheamountrecognisedintheaccountsexcludestheadditionalcompensationawardedbythecourtsduetouncertaintyovertimingoftheAward.
Foreignexchangemovementisrecognisedinothercomprehensiveincome.
16. Investments held at fair value
31 March 2020
£’000
31 March 2019
£’000
Non-current
As at 1 April 390 6,798
Disposals ‑ (6,347)
Redemptionsduringtheyear (193) (343)
Movementinfairvalueofinvestments (58) 282
As at 31 March 139 390
Theinvestments,whicharedisclosedasnon‑currentinvestmentsheldatfairvalue,areasfollows:
● Europip(participatingredeemablepreferenceshares):duringtheyear,ARTreceived£0.2 millionasreturnofcapitalfromEuropip,whichiscurrentlyintheprocessofbeingvoluntarilywoundup;ART’sresidualvalueoftheinvestmentasat31 March2020wasapproximately£30,000(31 March2019:£0.2 million).
● HLP(participatingredeemablepreferenceshares):HLPprovidesquarterlyvaluationsofthenetassetvalueofitsshares;thenetassetvalueoftheinvestmentasat31 March2020was£0.1 million(31 March2019:£0.2 million).
TheBoardconsidersthattheinvestmentsinEuropip(duetotimingforcompletionofthewindingupprocedures)andHLPwillbeheldforthelongtermandhasthereforedisclosedthemasnon‑currentassets.
Alpha Real Trust Limited : Annual report 202054
Notes to the financial statements (continued)For the year ended 31 March 2020
17. Loans advanced
31 March 2020
£’000
31 March 2019
£’000
Non-current
Loansgrantedtothirdparties 8,523 14,983
Interestreceivablefromloansgrantedtothirdparties 108 53
Total loans at amortised cost 8,631 15,036
Loansatfairvaluethroughprofitorloss ‑ ‑
Total non-current loans 8,631 15,036
Current
Loansgrantedtothirdparties 28,569 16,363
Interestreceivablefromloansgrantedtothirdparties 1,421 1,026
Total loans at amortised cost 29,990 17,389
Loansatfairvaluethroughprofitorloss 1,263 3,711
Total current loans 31,253 21,100
Asat31 March2020,theGrouphadgrantedatotalof£38.4 million(31 March2019:£35.1 million)ofseniorandmezzanineloanstothirdparties.ThesecomprisedfortyloanstoUKentities,whichassistedwiththepurchaseofpropertydevelopments,predominantlyresidential,intheUK.Thesefacilitiestypicallyrangefroma6to36monthtermandentitletheGrouptoaweightedaverageoverallreturnontheinvestmentof14.2%formezzanineloansand9.0%forseniorloans.
AllseniorandmezzanineloansgrantedbytheGrouparesecuredassetbackedrealestateloans.Seniorloanshaveafirstchargesecurityandmezzanineloanshaveasecondchargesecurityonthepropertydevelopments.
Loansatfairvaluethroughprofitorlossrepresentsloansthatfailedthe‘solelypaymentofprincipalandinterest’criteriaofIFRS9tobemeasuredatamortisedcost:thisisduetoaloanfacilityagreement’sclausethatlinksthoseloanstoareturnotherthaninterest.
Loansmaturityofthetotal£38.4 millionloansgrantedbytheGroupatyearend,canbeanalysedasfollows:
Less than 6 months
£m
6 to 12 months
£m
12 to 24 months
£m
Over 24 months
£m
Total
£m
Non‑current ‑ ‑ 5,023 3,500 8,523
Current 17,372 12,460 ‑ ‑ 29,832
Asat31 March2020,noloansareoverdueforpayment.
Postyearend,furtherloanstotalling£1.0 millionhavebeenfundedandloanrepaymentsof£4.4 millionwerereceived(includingaccruedinterestandexitfees).
DespitealloftheloanshavingasetrepaymenttermallbutoneoftheloanshavearepayableondemandfeaturesotheGroupmaycallforanearlyrepaymentoftheirprincipal,interestandapplicablefeesatanytime.
Consideringthe‘ondemand’clause,theGroupconcludedthattheloansareinstage3oftheIFRS9modelasshouldtheloansbecalledondemandtheborrowerswouldtechnicallybeindefaultasrepaymentwouldonlybepossibleondemandifthepropertyhadalreadybeen sold.
Theloanwithoutarepayableondemandclauseamountsto£3.5 million,hasrepaymenttermof4July2022andremainsinstage1oftheIFRS9model.
TheGrouphascalculatedthelifetimeECLsoftheloansadvanced(seenote2(b)(c)):basedonthisprocesstheDirectorshaveconcludedthatECLsonloansadvancedareimmaterialtothefinancialstatements.
Alpha Real Trust Limited : Annual report 2020 55
Notes to the financial statements (continued)For the year ended 31 March 2020
18. Collateral deposit
31 March 2020
£’000
31 March 2019
£’000
Collateraldeposit 1,364 1,302
Thecollateraldepositof£1.4 million(31 March2019:£1.3 million)isacashdepositwithBarclaysBankPLC(‘Barclays’)inGuernseyinrelationtotheforeignexchangeforwardcontractenteredintobytheGroupatyearend:thiscashhasbeenplacedondeposittomatchthematurityofthecontract.
19. Trade and other receivables
31 March 2020
£’000
31 March 2019
£’000
Non-current
Otherdebtors ‑ 1,929
Total - 1,929
Current
Tradedebtors 189 28
VAT 4 28
Otherdebtors 2,234 297
Total 2,427 353
Aspartofotherdebtors,anamountof£2.0 million(€2.2 million)(31 March2019:£1.9 million(€2.2 million))representaresidualreceivableoftheinvestmentpropertiesdisposedofintheprioryear.
TheDirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatestotheirfairvalue.Seenote2(a)(a)(iii)‘financialinstruments’formoredetails.
20. Trade and other payables
31 March 2020
£’000
31 March 2019
£’000
Tradecreditors 205 356
Deferredrevenue 143 ‑
InvestmentManager’sfeepayable 561 1,439
Accruals 342 289
Othercreditors 40 13
Total 1,291 2,097
Tradecreditorsandaccrualsprimarilycompriseamountsoutstandingfortradepurchasesandongoingcosts.TheGrouphasfinancialmanagementpoliciesinplacetoensurethatallpayablesarepaidwithinthecredittimeframe.
TheDirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatestotheirfairvalue.
Alpha Real Trust Limited : Annual report 202056
Notes to the financial statements (continued)For the year ended 31 March 2020
21. Bank borrowings
31 March 2020
£’000
31 March 2019
£’000
Currentliabilities:interestpayable 32 30
Currentliabilities:bankborrowings ‑ ‑
Total current liabilities 32 30
Non‑currentliabilities:bankborrowings 8,275 8,039
Total liabilities 8,307 8,069
The borrowings are repayable as follows:
Interestpayable 32 30
Ondemandorwithinoneyear ‑ ‑
Inthesecondtofifthyearsinclusive ‑ ‑
Afterfiveyears 8,275 8,039
Total 8,307 8,069
MovementsintheGroup’sbankborrowingsareanalysedasfollows:
31 March 2020
£’000
31 March 2019
£’000
As at 1 April 8,039 -
Borrowings,additions ‑ 8,377
Deferredfinancecosts,additions ‑ (151)
Amortisationofdeferredfinancecosts 16 4
Foreignexchangemovement 220 (191)
As at 31 March 8,275 8,039
Asat31 March2020,bankborrowingsrepresenttheNordLB(aGermanbank)loanfor€9.5 million(£8.3 million)(31 March2019:€9.5 million(£8.2 million)),whichwasusedtopartlyfundtheacquisitionoftheinvestmentpropertyinHamburg(Werner‑Siemens‑Straße),Germany.Thisloaniscomposedoftwotranchesof€4.9 millionand€4.6 million,whichbeara1.85%and2.7%fixedraterespectivelyandthatareduetomatureinAugust2028.
Theborrowingsarenon‑recoursetoARTandthefacilitycarriesnofinancialcovenanttests.
Thefairvalueofbankborrowingsatthebalancesheetdateis€9.5 million(£8.3 million).
Foreignexchangemovementisrecognisedinothercomprehensiveincome/(expense).
Thetablesbelowsetoutananalysisofnetdebtandthemovementsinnetdebtfortheyearended31 March2020andprioryear.
Other assets Derivatives Liabilities from financing activities
Cash
£’000
Foreign exchange forward
£’000
Interest payable
£’000
Borrowings
£’000
Total
£’000
Net asset /(debt) as at 1 April 2019 58,181 514 (30) (8,039) 50,626
Cashmovements (12,356) (165) 188 ‑ (12,333)
Non cash movements
Foreignexchangeadjustments 243 ‑ (2) (220) 21
Unrealisedlossonforeignexchangeforward contract
‑ (146) ‑ ‑ (146)
Loanfeeamortisationandothercosts ‑ ‑ ‑ (16) (16)
Interestcharge ‑ ‑ (188) ‑ (188)
Net asset /(debt) as at 31 March 2020 46,068 203 (32) (8,275) 37,964
Alpha Real Trust Limited : Annual report 2020 57
Notes to the financial statements (continued)For the year ended 31 March 2020
Other assets Derivatives Liabilities from financing activities
Cash
£’000
Foreign exchange forward
£’000
Interest payable
£’000
Borrowings
£’000
Total
£’000
Net asset /(debt) as at 1 April 2018 6,273 100 - - 6,373
Cashmovements 51,951 17 93 (8,226) 43,835
Non cash movements
Foreignexchangeadjustments (43) ‑ ‑ 191 148
Unrealisedgainonforeignexchangeforward contract
‑ 397 ‑ ‑ 397
Loanfeeamortisationandothercosts ‑ ‑ (8) (4) (12)
Interestcharge ‑ ‑ (115) ‑ (115)
Net asset /(debt) as at 31 March 2019 58,181 514 (30) (8,039) 50,626
22. Share capital
Number of shares
Authorised
Ordinarysharesofnoparvalue Unlimited
Issued and fully paid Ordinary treasury
Ordinary external
Ordinary total
A shares external
Total shares
At 1 April 2018 6,702,586 63,462,102 70,164,688 5,034,804 75,199,492
Shareconversion ‑ 5,034,804 5,034,804 (5,034,804) ‑
Sharescancelledfollowingbuyback ‑ (1,388,193) (1,388,193) ‑ (1,388,193)
Sharesboughtback 206,371 (206,371) ‑ ‑ ‑
At 1 April 2019 6,908,957 66,902,342 73,811,299 - 73,811,299
Shareissueforscripdividend ‑ 908,291 908,291 ‑ 908,291
Shareissuefromtreasury(note2) (5,030,284) 5,030,284 ‑ ‑ ‑
Sharesboughtback 62,124 (62,124) ‑ ‑ ‑
Sharescancelledfollowingbuyback ‑ (13,065,348) (13,065,348) ‑ (13,065,348)
At 31 March 2020 1,940,797 59,713,445 61,654,242 - 61,654,242
TheCompanyhasoneclassofordinaryshares.TheCompanyhastherighttoreissueorcanceltheremainingtreasurysharesatalater date.
Inprioryears,theCompanyalsohadclassAshares,whichcarriedthesamerightsasordinarysharessavethatclassAsharescarriedtheadditionalrighttoparticipationintheCompany’sinvestmentinRomulusandtherighttoconvertintoordinarysharesonaoneforonebasis.Duringthequarterended31 December2018,ARTreceivedthefinalliquidationproceedsfromitsRomulus,whichgenerated£13,686forARTAshareholders:thisamountwasthereforepaidtoARTAshareholdersasaspecialdividendon4January2019.Consequently,on24January2019,alloutstandingAsharesweremandatorilyconvertedintoordinaryshares.
Underthegeneralauthority,approvedbyShareholderson8January2019,theCompanyannouncedatenderofferon14June2019forupto16,666,771ordinarysharesataprice(beforeexpenses)of175.0pencepershare.Intotal13,065,348ordinaryshareswerevalidlytenderedunderthetenderofferforatotalcostof£22.9 million.Allpurchasedordinaryshareswerecancelled.
Duringtheyear,theCompanyadditionallypurchased62,124sharesinthemarketattheweightedaveragepricepershareof155p(totalcostof£0.1 million)and,inSeptember2019,ARTre‑issuedfromtreasury5,030,284ordinarysharesasconsiderationforAlpha2.The5,030,284ordinaryshareswereissuedatanissuepriceequivalenttoART’sestimatedadjustednetassetvalueof211.4ppersharebasedupontheCompany’snetassetvalueasat30June2019withadjustmentsmadefordividendspaidandsharebuybackscompleted,includingtheCompany’stenderoffer,followingthisdate.Thetotalconsiderationwastherefore£10.6 millionandhasbeenaccountedforasasharebasedpaymentinaccordancewithIFRS2.
Asat31 March2020,theordinarysharecapitaloftheCompanywas61,654,242(including1,940,797ordinarysharesheldintreasury)andthetotalvotingrightsintheCompanyis59,713,445.
21. Bank borrowings (continued)
Alpha Real Trust Limited : Annual report 202058
Notes to the financial statements (continued)For the year ended 31 March 2020
Scrip dividend alternativeInthecircularpublishedon18December2018,theCompanysoughtshareholders’approvaltoenableascripdividendalternativetobeofferedtoordinaryshareholderswherebytheycouldelecttoreceiveadditionalordinarysharesinlieuofacashdividend,attheabsolutediscretionoftheDirectors,fromtimetotime.Thiswasapprovedbyshareholdersattheextraordinarygeneralmeetingon8January2019.
Thenumberofordinarysharesthatanordinaryshareholderwillreceiveunderthescripdividendalternativewillbecalculatedusingtheaverageoftheclosingmiddlemarketquotationsofanordinaryshareforfiveconsecutivedealingdaysafterthedayonwhichtheordinarysharesarefirstquoted‘ex’therelevantdividend.
Duringtheyear,theBoardelectedtoofferthescripdividendalternativetoshareholdersforeveryquarterlydividend,whichresultedintheissueof908,291newordinaryshares.ThesesharesarerankparipassuinallrespectswiththeCompany’sexistingissuedordinaryshares.
TheBoardalsoelectedtoofferthescripdividendalternativetoshareholdersforthedividendforthequarterended31 December2019:electionswerereceivedinrespectof29,972,146shares,whichresultedintheissueof186,628newordinaryshares.Theseshareshavebeenissuedatapriceof160.6penceeachandwererankparipassuinallrespectswiththeCompany’sexistingissuedordinaryshares.ThesenewshareshavebeenadmittedtotradingontheSFSoftheLSEon9April2020.
Atthedateofsigningthesefinancialstatements,theordinarysharecapitaloftheCompanywas61,840,870(including1,940,797ordinarysharesheldintreasury)andthetotalvotingrightsintheCompanyis59,900,073.
23. ReservesThemovementsinthereservesfortheGroupareshownonpage35.
Special reserveThespecialreserveisadistributablereservetobeusedforallpurposespermittedunderGuernseycompanylaw,includingthebuy‑backofsharesandpaymentofdividends.
Translation reserveThetranslationreservecontainsexchangedifferencesarisingonconsolidationoftheGroup’soverseasoperations.Theseamountsmaybesubsequentlyreclassifiedtoprofitorloss.
Capital reserveThecapitalreservecontainsincreasesanddecreasesinthefairvalueoftheGroup’sinvestmentproperty,gainsandlossesonthedisposalofproperty,gainsandlossesarisingfromindirectpropertyinvestmentatfairvaluetogetherwithexpensesallocatedtocapital.
Revenue reserveAnysurplusarisingfromnetprofitaftertaxistakentothisreserve,whichmaybeutilisedforthebuy‑backofsharesandpaymentof dividends.
24. Events after the balance sheet dateBetweenAprilandJune2020,furtherloanstotalling£1.0 millionhavebeenfundedandloanrepaymentsof£4.4 millionwerereceived(includingaccruedinterestandexitfees).
InApril2020,scripdividendalternativeelectionswerereceivedinrespectof29,972,146sharesoftheCompany,whichhasresultedintheissueof186,628newordinaryshares.
On9April2020,theCompanypaidadividendforthequarterended31 December2019of£297,417(1.0ppershare).
On14April2020,theGroupreceiveda20%non‑refundabledepositinrelationtotheexchangeofcontractsfortheUnityandArmouriesassetdisposalamountingto£0.9 millionplusVATand£3.6 millionplusVATwerereceivedatcompletion,on11June2020(note14).
22. Share capital (continued)
Alpha Real Trust Limited : Annual report 2020 59
Notes to the financial statements (continued)For the year ended 31 March 2020
25. Related party transactionsPartiesareconsideredtoberelatedifonepartyhastheabilitytocontroltheotherpartyorexercisesignificantinfluenceovertheotherpartyinmakingfinancialoroperationaldecisions.ARCistheInvestmentManagertotheCompanyunderthetermsoftheInvestmentManagerAgreementandisthusconsideredarelatedpartyoftheCompany.ThecurrentmanagementagreementwiththeInvestmentManagerwillexpireon21December2022.
TheInvestmentManagerisentitledtoreceiveafeefromtheCompanyatanannualrateof2percentofthenetassetsoftheCompany,payablequarterlyinarrears.Duringtheyearatotalof£2.3 million(31 March2019:£2.2 million),netofrebates,wasbilledbyARCtoART.Asat31 March2020,atotalof£0.6 million(31 March2019:£0.6 million)wasoutstanding.
TheInvestmentManagerisalsoentitledtoreceiveanannualperformancefeecalculatedwithreferencetototalshareholderreturn(‘TSR’),wherebythefeeis20percentofanyexcessoveranannualisedTSRof15percentsubjecttoarolling3yearhighwatermark.Asat31 March2020,noperformancefeewasduetoARC(31 March2019:£0.8 million).
Priortothe70%disposaloftheH2Oproperty,ARChadamanagementagreementdirectlywiththeH2Opropertycompany,AlphaTigerSpain1,SLU(‘ATS1’)underwhichitearnedafeeof0.9%perannumbaseduponthegrossassetsofATS1.Inordertoavoiddoublecountingoffees,ARCprovidedarebatetotheCompanyofaproportionofitsfeeequivalenttothevalueoftheGroup’snetassetvalueattributabletotheH2Oinvestment.SubsequenttothesaleofATS1toCBREH2ORivasHoldingNV(‘CBREH2O’),ARChasbeenappointedasAssetManagertoATS1andInvestmentManagertoCBREH2O.ARChasagreedtorebatetoARTallofthefeeschargedbyARCdirectlytoCBREH2OandATS1thatrelatetotheCompany’s30%shareinCBREH2O.
TheCompanyinvestsinAlpha2,whereARCistheInvestmentManager.ARCrebatesfeesearnedinrelationtotheCompany’sinvestmentinAlpha2.
InSeptember2019,theCompanyannouncedthatitacquired66.4%ofthesharesinAlpha2.TheacquisitionincreasedART’sownershipinterestinAlpha2to100%(note2).ThesharesinAlpha2werepurchasedfromAntlerInvestmentHoldingsLimited,arelatedpartytotheCompany.
TheCompanyhasinvestedinEuropip,whereARPIA,asubsidiaryofARC,istheInvestmentAdviser.ARCrebatesfeesearnedinrelationtotheCompany’sinvestmentinEuropip.
TheCompanyhasinvestedinPhase1000,CambourneBusinessPark,Cambridge,andARCwasappointedasAssetandPropertyManagerofthejointventureentity.ARCrebatestoARTtherelevantproportionoffeesearnedbyARC,whichapplytotheCompany’sinvestment.
Totalrebatesfortheyearwere£0.6 million(31 March2019:£0.7 million).
DetailsoftheInvestmentManager’sfeesfortheyeararedisclosedonthefaceoftheconsolidatedstatementofcomprehensiveincomeandthebalancepayableat31 March2020isprovidedinnote20.
AlphaGlobalPropertySecuritiesFundPte.Ltd,acompanyregisteredinSingapore,owneddirectlybythepartnersofARC,held23,018,851sharesintheCompanyat31 March2020(31 March2019:22,550,000).
ARCdidnotholdanysharesintheCompanyat31 March2020(31 March2019:nil).
Thefollowing,beingpartnersofARC,haveinterestsinthefollowingsharesoftheCompanyat31 March2020:
31 March 2020
Numberofsharesheld
31 March 2019
Numberofsharesheld
RockmountVenturesLimited* 2,304,512 2,257,575
BrianFrith 1,148,390 1,125,000
PhillipRose 908,691 892,220
BradBauman 55,613 55,006
*ceasedtobeapartnerofARCon5February2020
DetailsoftheDirectors’feesandshareinterestsintheCompanyareincludedintheDirectorsReport.
KarlDevon‑Lowe,apartnerofARC,receivedfeesof£7,200(31 March2019:£5,100)inrelationtodirectorialresponsibilitiesonanumberoftheCompany’ssubsidiarycompanies.
MelanieTorodeistheOperationsDirectorofOcorianAdministration(Guernsey)Limited(‘Ocorian’;previouslyEsteraAdministration(Guernsey)Limited),theCompany’sadministratorandsecretary.DuringtheperiodtheCompanypaidOcorianfeesof£95,600(31 March2019:£96,500)andnoamountwasoutstandingatyearend.
Alpha Real Trust Limited : Annual report 202060
Notes to the financial statements (continued)For the year ended 31 March 2020
26. Financial instruments risk exposure and managementTherehavebeennosubstantivechangesintheGroup’sexposuretofinancialinstrumentrisks,itsobjectives,policiesandprocessesformanagingthoserisksorthemethodsusedtomeasurethemfrompreviousperiodsunlessotherwisestatedinthisnote.
Principal financial instrumentsTheprincipalfinancialinstrumentsusedbytheGroupfromwhichfinancialinstrumentriskarises,areasfollows:
Financial assets and liabilities carrying value 31 March 2020
£’000
31 March 2019
£’000
Financial assets at fair value through profit or loss
Investmentsheldatfairvalue 139 390
Foreignexchangeforwardcontract 203 514
Loansadvanced 1,263 3,711
Total financial assets at fair value through profit or loss 1,605 4,615
Financial assets at amortised cost
Loansadvanced 38,621 32,425
Collateraldeposit 1,364 1,302
Tradeandotherreceivables 2,427 2,282
Cashandcashequivalents 46,068 58,181
Total loans and receivables 88,480 94,190
Total financial assets 90,085 98,805
Financial liabilities at amortised cost
Tradeandotherpayables (1,291) (2,097)
Bankborrowings (8,307) (8,069)
Total financial liabilities (9,598) (10,166)
Netchangesinrealisedandunrealisedgainsorlossesonfinancialinstrumentsatfairvaluethroughprofitorlosscanbesummarisedas follows:
31 March 2020
£’000
31 March 2019
£’000
Unrealised gains and losses on financial assets and liabilities held at fair value through profit or loss
Unrealisedgainonforeignexchangeforwardcontract 203 514
Movementinfairvalueofinvestments (58) 297
Movementinfairvalueofloansadvanced 393 267
Realised gains and losses on financial assets and liabilities held at fair value through profit or loss
Realisedlossonforeignexchangeforwardcontract (349) (116)
Dividendreceivedfrominvestmentsheldatfairvalue ‑ 1
Distributedinvestmentincome ‑ 1,177
Net gains on financial assets and liabilities held at fair value through profit or loss 189 2,140
Netinterestincomecanbesummarisedasfollows
31 March 2020
£’000
31 March 2019
£’000
Bankinterestreceivable 118 31
Interestreceivableonloansgrantedtothirdparties 4,952 2,709
Interestonbankborrowings (204) (123)
Net interest income 4,866 2,617
Alpha Real Trust Limited : Annual report 2020 61
Notes to the financial statements (continued)For the year ended 31 March 2020
General objectives, policies and processesTheBoardhasoverallresponsibilityforthedeterminationoftheGroup’sriskmanagementobjectivesandpoliciesand,whilstretainingultimateresponsibilityforthem,ithasdelegatedtheauthorityfordesigningandoperatingprocessesthatensuretheeffectiveimplementationoftheobjectivesandpoliciestotheGroup’sfinancefunction.
TheoverallobjectiveoftheBoardistosetpolicesthatseektoreduceriskasfaraspossiblewithoutundulyaffectingtheGroup’scompetitivenessandflexibility.Furtherdetailsregardingthesepoliciesaresetoutbelow.
Project monitoringProjectsaremonitoredthroughregularProjectControlMeetingsheldwithdevelopmentpartnerstodiscussprogressandmonitorrisks.TheInvestmentManagerattendsthesemeetingsandreportstotheBoardonaquarterlybasis.
Credit riskCreditriskariseswhenafailurebycounterpartiestodischargetheirobligationscouldreducetheamountoffuturecashinflowsfromfinancialassetsonhandatthebalancesheetdate.
At31 March2020,tradeandotherreceivablespastduebutnotimpairedamountedtonil(31 March2019:nil).
Thecarryingamountoffinancialassetsrecordedinthefinancialstatements,whichisnetofimpairmentlosses,representstheGroup’smaximumexposuretocreditrisk.
TheGrouppolicyistomaintainitscashandcashequivalentbalanceswithanumberoffinancialinstitutionsasameansofdiversifyingcreditrisk.TheGroupmonitorstheplacementofcashbalancesonanongoingbasisandhaspoliciestolimittheamountofcreditexposuretoanyfinancialinstitution.TheGroup’scashisheldwithestablishedbankswithstrongcreditratings.
Withregardstotheinvestmentpropertybusiness,apropertyadvisormonitorsthetenantsinordertoanticipateandminimisetheimpactofdefaultbyoccupationaltenants.Wherepossible,tenants’riskismitigatedthroughrentalguarantees.TheGroupmeetswithtenantsfrequentlyandmonitorstheirfinancialperformanceclosely.
TheGroupownsaportfolioofsecuredrealestateloansandmezzanineloaninvestments.Theseloansaretypicallysecuredonrealestateinvestmentanddevelopmentassetswithattractiverisk‑adjustedincomereturns.TheGroupreceivesmonthlyupdatesfromitsinvestmentadvisorsregardingthecreditworthinessoftheborrowersandvaluesoftherealestateinvestmentanddevelopmentassets,whichtheloansaresecuredon,andassessestherecoverabilityofeachloaninvestment.
TheCompanyannouncedon28May2010thatithadenteredintoaSettlementAgreementwithLogixGroupunderwhichithassolditsinterestinitsTechnovainvestmentandhasagreedafloorpricemechanismforthesaleoftheGalaxiaproject.TheSettlementAgreementlapsedon28May2011returningthepartiestothepre‑existingagreement.Thetermsofthepre‑existingagreementprovideforaminimumreturnofINR 450.0 millionandanadditionalpreferredreturnandprofit.Asdetailedinnote15,inJanuary2015,theICCArbitrationconcludeditsarbitrationproceedingsanddeclaredinfavouroftheGroup’sclaimsagainstLogixGroup.TheawardgrantedbytheICCtotheGroupamountedto£9.2 millionbasedonexchangeratesatthetime.Additionally,afurther15%p.a.interestonallsumswasawardedtotheGroupfrom20January2015untiltheactualdateofpaymentbyLogixoftheaward.LogixappealedtotheSupremeCourtofIndia,whichadmittedtheappealandorderedLogixtodeposit£2.2 million(INR 200 million)withthecourt:subsequently,theSupremeCourtofIndiapermittedtheGrouptounconditionallywithdrawINR 100 million(£1.1 million)inMay2018andINR 100 millionplusINR 15 millionofinterestaccrued(£1.2 million,includinginterestaccrued)inDecember2019.
LogixcontinuedtoappealattheSupremeCourtofIndiauntilFebruary2020whentheSupremeCourtofIndiaupheldtheawardanddismissedtheSpecialLeavePetitionfiledbytheLogixGroupanditsPromoterschallengingthesaidaward:thisrepresentstheendofthelegalprocesssincetheawardcannotbechallengedanymoreinanyforuminIndia.Asaresultofthisprocess,theSupremeCourtorderedLogixtopaytotheCompanyafinalaward(the‘Award’)amountofINR 1,075.0 million(£11.5 millionattheyearendexchangerate).
TheDirectors,takingintoconsiderationlegaladvicereceivedthroughoutthelegalprocess,consideritappropriatetocarrythisjointventureintheCompany’saccountsatINR 235.0 million,whichistheamountinvestedlesstheINR 215 million(£2.3 million)depositrecoverydescribedabove.TheamountrecognisedintheaccountsexcludestheadditionalcompensationawardedbythecourtsduetouncertaintyovertimingoftheAward.
Withregardstoitsotherinvestments,theGroupreceivesregularupdatesfromtherelevantInvestmentManagerastotheperformanceoftheunderlyinginvestmentsandassessescreditriskasaresult.
Liquidity riskLiquidityriskistheriskthatariseswhenthematurityofassetsandliabilitiesdoesnotmatch.Anunmatchedpositionpotentiallyenhancesprofitabilitybutcanalsoincreasetheriskoflosses.TheGrouphasprocedureswiththeobjectofminimisingtheseriskssuchasmaintainingsufficientcashandotherhighlyliquidcurrentassets.CashandcashequivalentsareplacedwithfinancialinstitutionsonashorttermbasisreflectingtheGroup’sdesiretomaintainahighlevelofliquidityinordertoenabletimelycompletionofinvestmenttransactions.
26. Financial instruments risk exposure and management (continued)
Alpha Real Trust Limited : Annual report 202062
Notes to the financial statements (continued)For the year ended 31 March 2020
ThefollowingtableillustratesthecontractualmaturityanalysisoftheGroup’sfinancialliabilities.
31 March 2020 Within 1 year
£’000
1-2 years
£’000
2-5 years
£’000
Over 5 years
£’000
Total
£’000
Total carrying amount
£’000
Tradeandotherpayables 1,291 ‑ ‑ ‑ 1,291 1,291
Interestpayableonbankborrowings 190 190 570 635 1,585 32
Bankborrowings ‑ ‑ ‑ 8,275 8,275 8,275
Total 1,481 190 570 8,910 11,151 9,598
31 March 2019 Within 1 year
£’000
1-2 years
£’000
2-5 years
£’000
Over 5 years
£’000
Total
£’000
Total carrying amount
£’000
Tradeandotherpayables 2,097 ‑ ‑ ‑ 2,097 2,097
Interestpayableonbankborrowings 185 185 555 804 1,729 30
Bankborrowings ‑ ‑ ‑ 8,039 8,039 8,039
Total 2,282 185 555 8,843 11,865 10,166
Market risk
(a) Foreign exchange riskTheGroupoperatesinIndia,GermanyandSpainandisexposedtoforeignexchangeriskarisingfromcurrencyexposureswithrespecttoIndianRupeesandEuros.Foreignexchangeriskarisesfromrecognisedmonetaryassetsandliabilities.
TheGroup’spolicyis,wherepossible,toallowGroupentitiestosettleliabilitiesdenominatedintheirfunctionalcurrencywiththecashgeneratedfromtheirownoperationsinthatcurrency.
Duringtheyear,theGroupenteredintoaoneyearcontracttohedge€15.0 millionofitsEuroexposureinthebalancesheet;thiscontractwillterminateon5October2020.
TheBoardmonitorstheGroup’sexposuretoforeigncurrenciesonaquarterlybasisaspartofitsRiskManagementreview.
AstrengtheningoftheRupeeby10%againstSterling(representingmanagement’sassessmentofareasonablypossiblechange)wouldincreasethenetassetsby£279,000(2019:£431,000).AweakeningoftheRupeeby10%woulddecreasenetassetsby£228,000(2019:£353,000).AstrengtheningoftheEuroby5centswouldincreasethenetassetsby£1,235,000(2019:£1,142,000).AweakeningoftheEuroby5centswoulddecreasenetassetsby£1,130,000(2019:£1,048,000).
(b) Cash flow and fair value interest rate riskTheGroup’sinterestrateriskaroseprimarilyfrombankborrowings.TheGroupisnotdirectlyexposedtointerestrateriskrelatedtobankborrowings:thebankdebtofARTGermany1Ltd,owneroftheHamburginvestmentpropertyinGermany,bearsafixedcouponuntilmaturityin2028(note21).
TheGroupholdssignificantcashbalancesandloanassetswhichaccrueinterestbasedonvariableinterestrates.
TheGroup’scashflowisperiodicallymonitoredbytheBoard.
Thesensitivityanalysisbelowisbasedonachangeinanassumptionwhileholdingallotherassumptionsconstant.Inpractice,thisisunlikelytooccur,andchangesinsomeoftheassumptionsmaybecorrelated–forexample,changesininterestrateandchangesinmarket value.
FortheGroup,adecreaseof25basispointsininterestrateswouldresultina£0.1 milliondecreaseinpost‑taxprofits(2019:£0.2 milliondecrease).Anincreaseof25basispointsininterestrateswouldresultina£0.1 millionincreaseinpost‑taxprofits(2019:£0.2 millionincrease).
(c) Price riskTheGrouphasinvestedinparticipatingredeemablepreferencesharesinEuropipandHLP;thevalueofthesesharesisassessedregularlyandissubjecttofluctuation:EuropipprovidepricingquarterlyandHLPhalfyearly.
Ifthepriceoftheaggregatedinvestmentsinordinaryandparticipatingredeemablepreferenceshareshadincreasedby5%,withallothervariablesheldconstant,thiswouldhaveincreasedthenetassetsvalueoftheGroupby£7,000(31 March2019:£20,000).Conversely,ifthepriceoftheaggregatedinvestmentsinordinaryandparticipatingredeemablepreferenceshareshaddecreasedby5%thiswouldhavedecreasedthenetassetsvalueoftheGroupby£7,000(31 March2019:£20,000).
26. Financial instruments risk exposure and management (continued)
Alpha Real Trust Limited : Annual report 2020 63
Notes to the financial statements (continued)For the year ended 31 March 2020
(d) Fair valuesThefollowingmethodsandassumptionswereusedtoestimatefairvalues:
● Cashandshort‑termdeposits,tradereceivables,tradepayables,andothercurrentliabilitiesapproximatetheircarryingamountsduetotheshort‑termmaturitiesoftheseinstruments.
● Thefairvalueoftheforeignexchangeforwardcontractisdeterminedbyreferencetotheyearendforwardmarketrateandbasedonobservableinputs;thisinvestmentisthereforedeemedtobealevel2financialasset(seenote27).
● ThefairvalueoftheHLPinvestmentisbaseduponthepriceprovidedbytheissuerfortherelevantshareclassowned:thisiscalculatedbyreferencetothenetassetvalueoftheinvestmentandprincipallydrivenbythefairvalueofHLP’sunderlyingpropertyinvestments.Thisnetassetvalueisthereforemainlybasedonunobservableinputsandisdeemedtobelevel3financialassets(seenote27).
● ThefairvalueoftheEuropipinvestmentisbaseduponthepriceprovidedbytheissuerfortherelevantshareclassowned:thisiscalculatedbyreferencetothenetassetvalueoftheinvestmentandprincipallydrivenbythefairvalueofEuropip’sunderlyingpropertyinvestments.Thisnetassetvalueisthereforemainlybasedonunobservableinputsandisdeemedtobelevel3financialassets(seenote27).Europip’saccountsareauditedannually.Asat31 March2020,Europipholdsnoinvestmentpropertyandispreparingtodistributeitsfinalliquidationproceedstoshareholders.
● Theloansatfairvaluehavebeenvaluedbasedonthediscountedcashflowoftherespectiveinstruments.Duetotheshorttimesinceinceptionandtomaturitytherehasnotbeenamaterialmovementindiscountratesorcashflows.
● ThefairvalueofbankborrowingshasbeencalculatedbasedonthediscountedcashflowsoftheNordLBbankloanuptomaturitydateinJuly2028;thefairvalueofbankborrowingsatthebalancesheetdateis€9.5 million(£8.3 million).
Asaresultthecarryingvalueslessimpairmentprovisionofloansandreceivablesandfinancialliabilitiesmeasuredatamortisedcostareapproximatetotheirfairvalues.
Capital risk managementTheBoard’sobjectiveswhenmanagingcapitalaretosafeguardtheGroup’sabilitytocontinueasagoingconcerninordertoprovidereturnsforshareholdersandbenefitsforotherstakeholdersandtomaintainanoptimalcapitalstructuretoreducethecostofcapital.
Inordertomaintainoradjustthecapitalstructure,theGroupmayadjusttheamountofdividendspaidtoshareholders,returncapitaltoshareholders,issuenewsharesorsellassetstoreducedebt.
TheBoardregularlyreviewstheadequacyoftheGroup’slevelofborrowingsbymonitoringitscompliancewiththerelevantbankcovenants.
27. Fair value measurementIFRS13requiresdisclosureofthefairvaluemeasurementoftheGroup’sassetsandliabilities,therelatedvaluationtechniques,thevaluations’recurrenceandtheinputsusedtoassessanddevelopthosemeasurements.
TheGroupdisclosesfairvaluemeasurementsbylevelofthefollowingfairvaluemeasurementhierarchy:
● Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).
● Inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliability,eitherdirectly(thatis,asprices)orindirectly(thatis,derivedfromprices)(level2).
● Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis,unobservableinputs)(level3).
Thelevelinthefairvaluehierarchywithinwhichtheassetorliabilityiscategorisedisdeterminedonthebasisofthelowestinputthatissignificanttothefairvaluemeasurement.Assetsandliabilitiesareclassifiedintheirentiretyintooneofthethreelevels.
Investmentpropertyisvaluedonarecurringbasis:halfyearly.
TheGroup’svaluersderivethefairvalueoftheinvestmentpropertybyapplyingthemethodologyandvaluationguidelinesassetoutbytheRoyalInstitutionofCharteredSurveyorsintheUnitedKingdom.
Thevaluationapproachadoptedbyvaluersdiffersbetweeninvestmentpropertyavailabletorent(H2O,CambourneandWolverhampton)andinvestmentpropertyunderdevelopment(UnityandArmouries).Fortheyearended31 March2020,thefairvalueoftheCambourneandUnityandArmouriespropertiesreflectDirectors’valuations.
Thevaluationapproachforinvestmentpropertyavailabletorentisbasedondiscountingthefuturenetincomereceivablefrompropertiestoarriveatthenetpresentvalueofthatfutureincomestream.Futurenetincomecomprisestherentsecuredunderexistingleases,lessanyknownorexpectednon‑recoverablecostsandthecurrentmarketrentattributabletovacantunits.Theconsiderationbasisforthiscalculationexcludestheeffectsofanytaxesonthenetincome.Thediscountfactorsusedtocalculatefairvalueareconsistentwiththoseusedtovaluesimilarproperties,withcomparableleasesineachoftherespectivemarkets.Adecreaseinthenetrentalincomeoranincreaseinthediscountratewilldecreasethefairvalueoftheinvestmentproperty.
Thevaluationapproachforinvestmentpropertyunderdevelopmentisbasedontheresidualdevelopmentappraisal,whichassessestheamountadevelopercanaffordtospendforanundevelopedsiteandproject,consideringthepotentialincomefromsaleofthesiteandtotalcostforitsfullconstruction.Thepotentialsalepriceisbasedontheincomecapitalisationapproachwherebytheestimatedrentalvaluefor
26. Financial instruments risk exposure and management (continued)
Alpha Real Trust Limited : Annual report 202064
Notes to the financial statements (continued)For the year ended 31 March 2020
theinvestmentpropertyhasbeencapitalisedinperpetuity.Thevaluationalsoconsiderscomparableevidenceforlandtransactionswithsimilarparametersandmarketlocations.
Theinvestmentsandloansadvancedheldatfairvalueandderivativecontractsarevaluedonarecurringbasisasindicatedinnote27.
Thefollowingtableshowsananalysisofthefairvaluesofassetsandliabilitiesrecognisedinthebalancesheetbylevelofthefairvaluehierarchydescribedabove:
31 March 2020
Assets measured at fair value Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Non-current
Investmentproperty(note13,14) ‑ ‑ 15,389 15,389
Investmentsheldatfairvalue(note16) ‑ ‑ 139 139
Loansadvanced ‑ ‑ 1,263 1,263
Current
Foreignexchangeforwardcontract(note26) ‑ 203 ‑ 203
31 March 2019
Assets measured at fair value Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Non-current
Investmentproperty(note13,14) ‑ ‑ 18,264 18,264
Investmentsheldatfairvalue(note16) ‑ ‑ 390 390
Loansadvanced ‑ ‑ 3,711 3,711
Current
Foreignexchangeforwardcontract(note26) ‑ 514 ‑ 514
ThecarryingamountsoftheGroup’sfinancialliabilitiesandassetsnotcarriedatfairvaluethroughprofitorlossareareasonableapproximationoftheirfairvaluesduetoeithertheirshorttermnatureorshortperiodoftimesincetheywereacquired.
TheGroupdetermineswhethertransfershaveoccurredbetweenlevelsinthehierarchybyre‑assessingcategorisation(basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole)attheendofeachreportingperiod.
Movementsinlevel3ofthefairvaluemeasurements,duringtheyearended31 March2020andprioryear,canbesummarisedasfollows:
Loans advanced
£’000
Investment property and asset
held for sale
£’000
Investments held at fair value
£’000
Total
£’000
At 1 April 2019 3,711 18,264 390 22,365
Additions 386 8,835 ‑ 9,221
Subsequentcapitalexpenditureafteracquisition ‑ ‑ ‑ ‑
Disposals ‑ (5,225) ‑ (5,225)
Redemptions (3,227) ‑ (193) (3,420)
Fairvalueadjustment 393 1,194 (58) 1,529
Effectofforeignexchange ‑ 386 ‑ 386
At 31 March 2020 1,263 23,454 139 24,856
27. Fair value measurement (continued)
Alpha Real Trust Limited : Annual report 2020 65
Notes to the financial statements (continued)For the year ended 31 March 2020
Loans advanced
£’000
Investment property and asset
held for sale
£’000
Investments held at fair value
£’000
Total
£’000
At 1 April 2018 - 33,021 6,091 39,112
Additions 3,444 14,795 ‑ 18,239
Subsequentcapitalexpenditureafteracquisition ‑ 5,203 ‑ 5,203
Disposals ‑ (33,441) (5,336) (38,777)
Redemptions ‑ ‑ (343) (343)
Fairvalueadjustment 267 (1,107) (22) (862)
Effectofforeignexchange ‑ (207) ‑ (207)
At 31 March 2019 3,711 18,264 390 22,365
Therewerenotransfersbetweenlevel1andlevel2fairvaluemeasurementsandnotransfersintooroutoflevel3fairvaluemeasurementsduringtheyearended31 March2020andprioryear.
Thefairvalueofinvestmentpropertyisbasedonunobservableinputsanditisthereforedisclosedaslevel3.
Thevaluationsreportsreceivedfromtheindependentvaluersincludeda‘MaterialValuationUncertainty’paragraphinrelationtothemarketriskslinkedtotheCovid‑19pandemic(seenote2(b)(a)(i)formoredetails).
InDecember2019,theGroupexchangedcontractsforthesaleoftheUnityandArmouriesassetinBirmingham(UK)at£4.5 millionandthesalecompletedon11June2020:theDirectorsthereforeconsider£4.5 milliontorepresentfairvalueoftheUnityandArmouriespropertyatthebalancesheetdate.On14April2020,theGroupreceiveda20%non‑refundabledepositinrelationtothisdisposalamountingto£0.9 millionplusVATand£3.6 millionplusVATwerereceivedatcompletion,on11June2020.
Thefollowingmethods,assumptionsandinputswereusedtoestimatefairvaluesofinvestmentproperty:
31 March 2020 - Unity and Armouries, Birmingham (UK)
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Range/Value
Europe £4,465 90,000netdevelopablesquarefeet
Directors’valuation:saleat£4.5 millioncompletedon11June2020.
Notapplicable Notapplicable
Notapplicable Notapplicable
Notapplicable Notapplicable
Notapplicable Notapplicable
31 March 2019 - Unity and Armouries, Birmingham (UK)
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Range/Value
Europe £4,500 90,000netdevelopablesquarefeet
Incomecapitalisationandresidualdevelopmentappraisal
Investmentyield 4.3%
Marketrent £925/£1,200permonth
Developmentcosts £209persquarefoot
Developer’sprofits 18%/19%
27. Fair value measurement (continued)
Alpha Real Trust Limited : Annual report 202066
Notes to the financial statements (continued)For the year ended 31 March 2020
31 March 2020 - Hamburg (Werner-Siemens-Straße), Germany
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Range/Value
Europe €15,980(£13,764) 11.8 Discountedcashflow GrossEstimatedRentalValue(‘ERV’)persqmp.a.
€60
Discountrate 5.00%
Sensitivityanalysisforthe31 March2020valuationoftheHamburginvestmentproperty:
Significant unobservable inputs Change applied Fair value change
€’000
Change applied Fair value change
€’000
ERVpersqmp.a. ‑10% €15,100 +10% €18,400
Discountrate ‑1% €18,100 +1% €15,500
31 March 2019 - Hamburg (Werner-Siemens-Straße), Germany
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Range/Value
Europe €15,980(£13,764) 11.8 Discountedcashflow GrossEstimatedRentalValue(‘ERV’)persqmp.a.
€60
Discountrate 5.00%
31 March 2020 – Wolverhampton, UK
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Range/Value
UK £3,600 16,355 Comparabletransactionsanalysis
Comparableevidence Notapplicable
31 March 2020 – Liverpool, UK
Class of investment property Carrying amount / fair value
’000
Area
(squaremeters)
Valuation technique Significant unobservable inputs Range/Value
UK £610 475 Directors’valuation:acquisitionrecentlycompleted(on 22 November2019)for£0.6 million.
Notapplicable Notapplicable
27. Fair value measurement (continued)
Alpha Real Trust Limited : Annual report 2020 67
DirectorsDavidJeffreys(Chairman)JeffChowdhryMelanieTorodePhillipRoseWilliamSimpson
Registered officeFloor2,TrafalgarCourtLesBanquesStPeterPortGuernseyGY14LY
Investment ManagerAlphaRealCapitalLLPLevel6,338EustonRoadLondonNW13BG
Administrator and secretaryOcorianAdministration(Guernsey)Limited(previously Estera Administration (Guernsey) Limited)Floor2TrafalgarCourtLesBanquesStPeterPortGuernseyGY14LY
BrokerPanmureGordon(UK)LimitedOneNewChangeLondonEC4M9AF
Independent valuers in the UKGVA3BrindleyplaceBirminghamB12JB
SavillsGroundFloor,CityPoint12KingStreetLeedsLS12HL
CBRELimitedHenriettaHouseHenriettaPlaceLondonW1G0NB
Independent valuers in IndiaColliersInternational(Hong Kong)LimitedSuite5701CentralPlaza18HarbourRoadWanchai,HongKong
Independent valuers in SpainSavillsAguirreNewmanPaseodelaCastellana,81Madrid,28046Spain
Independent valuers in GermanyCushman&WakefieldRathenauplatz,1Frankfurt,60313Germany
Independent AuditorBDOLimitedPlaceduPré,RueduPréStPeterPortGuernseyGY13LL
Tax advisors in EuropeKPMGLLP15CanadaSquareLondonE145GL
GrantThorntonUKLLP30FinsburySquareLondonEC2A1AG
Legal advisors in GuernseyCareyOlsenPOBox98,CareyHouseLesBanquesStPeterPortGuernseyGY14BZ
Legal advisors in the UKNortonRose3MoreLondonRiversideLondonSE12AQ
Legal advisors in IndiaAZB&PartnersPlotA‑8Sector4NOIDA201301India
Legal advisors in SpainAshurstLLPAlcalá,44Madrid,28014Spain
RegistrarComputershareInvestorServices(Jersey)LimitedQueenswayHouseHilgroveStreetStHelierJerseyJE11ES
Directors and Company information
Alpha Real Trust Limited : Annual report 202068
FurtherinformationontheCompany,compliantwiththeSFS regulations,canbefoundattheCompany’swebsite:www.alpharealtrustlimited.com
Change of address
Communicationswithshareholdersaremailedtotheaddressesheldontheshareregister.Intheeventofachangeofaddressorotheramendment,pleasenotifytheCompany’sRegistrarunderthesignatureoftheregisteredholder.
Share price
TheCompany’sOrdinarySharesarelistedontheSFSoftheLSE.
Investment Manager
TheCompanyisadvisedbyAlphaRealCapitalLLPwhichisauthorisedandregulatedbytheFinancialConductAuthorityintheUnitedKingdom.
Financial calendar
Financial reporting Reporting/ Meeting dates
Dividend period
Ex-dividend date
Record date
Last date for election to scrip dividend (if applicable)
Share certificates posted (if applicable)
Payment date
Annual report published and dividend announcement 26Jun2020 Quarterended
31Mar2020 25Jun2020 26Jun2020 3Jul2020 16Jul2020 17Jul2020
Annual General Meeting 7Aug2020
Trading update statement (Quarter 1) 18Sep2020 Quarterending
30Jun2020 1Oct2020 2Oct2020 9Oct2020 22Oct2020 23Oct2020
Half year report 27Nov2020 Quarterending30Sep2020 10Dec2020 11Dec2020 18Dec2020 7Jan2021 8Jan2021
Shareholder information
Des
ign:O
ttleyDes
ignCom
pan
y,Lon
don
.020
719
379
50w
ww.ottleyd
esign.co
.uk
www.alpharealtrustlimited.com