Annual Results for the year ended 31.03.24

LEI: 213800BMY95CP6CYXK69

21 June 2024

ALPHA REAL TRUST LIMITED ("ART" OR THE "COMPANY" OR "THE GROUP")

ART ANNOUNCES ITS ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2024

·      NAV per ordinary share 207.3p as at 31 March 2024 (31 March 2023: 216.8p).

·      Basic losses for the year ended 31 March 2024 of (1.6)p per ordinary share (31 March 2023: earnings of 1.1p per ordinary share).

·      Adjusted earnings for the year ended 31 March 2024 of 10.3p per ordinary share (31 March 2023: 7.7p per ordinary share)*.

·      Declaration of a quarterly dividend of 1.0p per ordinary share expected to be paid on 26 July 2024.

·      Robust financial position: ART remains on a robust financial footing and is well positioned to take advantage of new investment opportunities.

·      Investment targets: the Company is currently focussed on selectively increasing its loan portfolio and opportunistically extending its wider investment strategy to target investments offering inflation protection via index linked income adjustments and investments that have potential for capital gains.

·      H2O Madrid: sale of the shopping centre investment completed post year end.

·      Diversified portfolio of secured senior and secured mezzanine loan investments: as at 31 March 2024, the size of ART's drawn secured loan portfolio was £46.4 million, representing 39.1% of the investment portfolio.

·      The senior portfolio has an average Loan to Value ('LTV')** of 62.5% based on loan commitments (with mezzanine loans having an LTV range of between 49.8% and 68.0% whilst the highest approved senior loan LTV is 64.1%).

·      Loan commitments: including existing loans at the balance sheet date and loans committed post period end, ART's current total committed but undrawn loan commitments amount to £1.0 million.

·      Cash management: during the year the Company invested £19.5 million in short term UK Treasury Bonds (Gilts) and £10.0 million in the Morgan Stanley Sterling Liquidity Fund to enhance returns on its liquid holdings. Post year end, ART invested a further £16.5 million in Gilts and short term UK Treasury Bills.

* The basis of the adjusted earnings per share is provided in note 9

** See below for more details

William Simpson, Chairman of Alpha Real Trust, commented:

"ART's investment portfolio benefits from diversification across geographies, sectors, and asset types. As inflationary pressures increasingly dominate the economic backdrop in which the Company operates, ART remains on a robust financial footing and is well placed to capitalise on new investment opportunities. 

ART remains committed to growing its diversified investment portfolio. In recent years the Company focused on reducing exposure to direct development risk and recycling capital into cashflow driven investments. The Company is currently focussed on its loan portfolio and also on its wider investment strategy which targets investments offering inflation protection via index linked income adjustments and investments that have potential for capital gains."

The Investment Manager of Alpha Real Trust is Alpha Real Capital LLP.

For further information please contact:

Alpha Real Trust Limited

William Simpson, Chairman, Alpha Real Trust +44 (0) 1481 742 742

Gordon Smith, Joint Fund Manager, Alpha Real Trust +44 (0) 207 391 4700

Brad Bauman, Joint Fund Manager, Alpha Real Trust +44 (0) 207 391 4700

Panmure Gordon, Broker to the Company

Atholl Tweedie +44 (0) 20 7886 2500

Notes to editors:

About Alpha Real Trust

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.

Further information on the Company can be found on the Company's website: www.alpharealtrustlimited.com.

About Alpha Real Capital LLP

Alpha Real Capital is a value-adding international property fund management group. Alpha Real Capital is the Investment Manager to ART. Brad Bauman and Gordon Smith of Alpha Real Capital are joint Fund Managers to ART. Both have experience in the real estate and finance industries throughout the UK, Europe and Asia. 

For more information on Alpha Real Capital please visit www.alpharealcapital.com.

Company's summary and objective

Strategy

ART 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.

ART currently selectively focusses on asset-backed lending, debt investments and high return property investments in Western Europe that are capable of delivering strong risk adjusted returns.

The portfolio mix at 31 March 2024, excluding sundry assets/liabilities, was as follows:

The Company is currently focussed on selectively increasing its loan portfolio and opportunistically extending its wider investment strategy to target high return property investments offering inflation protection via index linked income adjustments and investments that have potential for capital gains.

Dividends

The current intention of the Directors is to pay a dividend and offer a scrip dividend alternative quarterly to all shareholders.

Listing

The Company's shares are traded on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE"), ticker ARTL: LSE.

Management

The Company's Investment Manager is Alpha Real Capital LLP ("ARC"), whose team of investment and asset management professionals focus on the potential to enhance earnings in addition to adding value to the underlying assets, and also focus on the risk profile of each investment within the capital structure to best deliver attractive risk adjusted returns.

Control of the Company rests with the non-executive Guernsey based Board of Directors.

Financial highlights

* The adjusted earnings per share includes adjustments for the effect of the fair value revaluation of investment property and indirect property investments, capital element on Investment Manager's fees, the fair value movements on financial assets and deferred tax provisions: full analysis is provided in note 9 to the accounts.

Chairman's statement

I am pleased to present the Company's annual report and accounts for the year ended 31 March 2024.

ART's investment portfolio benefits from diversification across geographies, sectors and asset types and the Company remains on a robust financial footing and is well placed to capitalise on new investment opportunities.

The impact from higher interest rates, and speculation regarding the timing of a reduction, continues to dominate the economic backdrop in which the Company operates and clouds the outlook for the real estate market. The uncertain market offers potential opportunities in the medium term for ART to grow its diversified investment portfolio. The Company is currently focussed on risk managing and selectively growing its loan portfolio and opportunistically extending its wider investment strategy to target mezzanine opportunities as companies seek to refinance and recapitalise. The Company is also seeking to invest further in assets offering inflation protection via index linked income adjustments and investments that have potential for capital appreciation.

ART continues to take a cautious approach to new investment, including new lending, as we observe ongoing pressures in the economy. Recently the Company has again focused on recycling capital into more conservative 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.

ART continues to adhere to its disciplined strategy and investment underwriting principles which seek to manage risk through a combination of operational controls, diversification and an analysis of the underlying asset security.

Long leased assets

The Company's portfolio of long leased properties, comprising three hotels leased to Travelodge in the UK and an industrial facility in Hamburg, Germany, leased to a leading industrial group are well positioned in the current inflationary environment. The leased assets have inflation linked rent adjustments which offer the potential to benefit from a long term, predictable, inflation linked income stream and the potential for associated capital growth.

Diversified secured lending investment

The Company invests in a diversified portfolio of secured senior and mezzanine loan investments. The loans are typically secured on predominately residential real estate investment and development assets with attractive risk adjusted income returns. As at 31 March 2024, ART had committed £53.4 million across thirteen loans, of which £46.4 million (excluding a £6.0 million provision for Expected Credit Loss discussed below) was drawn.

The Company's debt portfolio comprises predominately floating rate loans. Borrowing rates are typically set at a margin over Bank of England ('BoE') Base Rate and benefit from rising interest rates as outstanding loans deliver increasing returns as loan rates track increases in the BoE Base Rate.

During the year, two new loans were drawn for £7.8 million, eight loans totalling £30.8 million (including accrued interest and exit fees) were fully repaid and a further £2.7 million (including accrued interest) was received as part repayments. Post year end, no new loans were drawn but additional drawdowns of £0.9 million were made on existing loans and part loan repayments were received amounting to £0.7 million (including accrued interest).

As at 31 March 2024, 51.7% of the Company's loan investments were senior loans and 48.3% were mezzanine loans. The senior portfolio has an average LTV of 62.5% based on loan commitments (with mezzanine loans having an LTV range of between 49.8% and 68.0% whilst the highest approved senior loan LTV is 64.1%). Portfolio loans are underwritten against value for investment loans or gross development value for development loans as relevant and collectively referred to as LTV in this report.

The largest individual loan in the portfolio as at 31 March 2024 is a senior loan of £12.3 million which represents 23.0% of committed loan capital and 10.0% of the Company's NAV.

Four loans in the portfolio have entered receivership: ART is closely working with stakeholders to maximise capital recovery. The Company has considered the security on these loans (which are a combination of a first charge and a second charge over the respective assets and personal guarantees) and have impaired one loan, which is accounted for at fair value, by £0.3 million; the Group also calculated an Expected Credit Loss ('ECL') on the other three loans of approximately £4.1 million; the Group have also provided for an ECL on the remainder of the loans' portfolio for an additional £1.6 million: in total, the Group have provided for an ECL of £5.7 million (31 March 2023: £3.7 million) in its consolidated accounts.

Aside from the isolated cases of receivership, illustrated above, the Company's loan portfolio has proved to be resilient despite the recent extended period of heightened uncertainty and risk. In terms of debt servicing, allowing for some temporary agreed extensions, interest and debt repayments have been received in accordance with the loan agreements. Where it is considered appropriate, on a case-by-case basis, underlying loan terms may be extended or varied with a view to maximising ART's risk adjusted returns and collateral security position. The Company's loan portfolio and new loan targets continue to be closely reviewed to consider the potential impact on construction timelines, building cost inflation and sales periods.

The underlying assets in the loan portfolio as at 31 March 2024 had diversification throughout the UK and channel islands with the majority of assets held located in London, accounting for 34.0% of the total loan investment portfolio.

H2O, Madrid

ART held a 30% stake in a joint venture, CBRE H2O Rivas Holding NV ('CBRE H2O') with CBRE Investment Management that owned the shopping centre.

Post year end, on 03 April 2024, ART completed on the sale of its investment in the H2O shopping centre in Madrid.

CBRE H2O disposed of its Spanish subsidiaries for €48.4 million (£41.4 million): the price was based on the 31 December 2023 accounts of the Spanish subsidiaries and will be adjusted for the 3 April 2024 accounts (the adjustment is estimated to be immaterial for CBRE H2O). In April 2024, ART received €14.7 million as dividend and capital return from CBRE H2O.

Under Alpha Real Trust's ownership the shopping centre had benefited from a near 50% increase in annual visitor numbers. The centre's permitted leasable area was also extended, which enabled a new standalone retail park unit and two drive thru restaurant units to be created. In addition it has facilitated the creation of a new 3,000 square metre unit which was pre-leased to Primark. Further anchor tenants, including a number of Inditex group brands, have recently extended and upgraded their stores. Operational and physical improvements to the property have resulted in a BREEAM certification being awarded.

Other investments

Investment in listed and authorised funds

The Company invested a total of £6.0 million (value as at 31 March 2024: £4.2 million) across three investments that offered potential to generate attractive risk adjusted returns. The prevailing higher interest rate environment continues to have an impact on the capital value of these investments. The investment yield offers a potentially accretive return to holding cash while the Company deploys capital in opportunities in line with its investment strategy. These funds invest in ungeared long-dated leased real estate, debt and infrastructure.

Cash management

The Company adopts an active approach to enhance returns on its cash balances.

As at 31 March 2024, the Company had invested a total of £19.5 million in three short dated UK Treasury Bonds (Gilts) (annualised yield to maturity ranging from 4.7% to 4.9% with maturities in September 2024, March 2025 and October 2025). These government backed short term investments offer the Company enhanced returns over cash balances.

Post year end, the Company invested £6.5 million in a short dated UK Treasury Bill with an annualised yield to maturity of 5.2% with maturity in October 2024 and £10.0 million in Gilts with maturity 30 January 2026 and an annualised yield to maturity of 4.3%.

During the year, the Company also invested £10.0 million in the Morgan Stanley GBP Liquidity Fund, which invests in high quality short-term money market instruments denominated in sterling, offers same day liquidity and earns an annualised return, net of Morgan Stanley's fees, of 5.2%.

Results and dividends

Results

Basic losses for the year ended 31 March 2024 are £0.7 million ((1.1) pence per ordinary share, see note 9 of the financial statements).

Adjusted earnings, which the Board believes is a more appropriate assessment of the operational income accruing to the Group's activities, for the year ended 31 March 2024 are £6.0 million (10.3 pence per ordinary share, see note 9 of the financial statements). This compares with adjusted earnings of £4.5 million (7.7 pence per ordinary share) in the same period last year. Earnings have improved predominantly due to a stronger performance from the Company's loan portfolio and revenue from Gilts and UK Treasury Bills investments.

The net asset value per ordinary share at 31 March 2024 is 207.3 pence per share (31 March 2023: 216.8 pence per ordinary share) (see note 10 of the financial statements). The decrease in value over the period mainly reflects the reduction in fair value of investment properties and of the H2O joint venture investment, which was sold after the year end, on 3 April 2024.

Dividends

The Board announces a dividend of 1.0 pence per ordinary share which is expected to be paid on 26 July 2024 (ex-dividend date 4 July 2024 and record date 5 July 2024).

The dividends paid and declared in respect of the year ended 31 March 2024 totalled 4.0 pence per ordinary share representing an annual dividend yield of 3.1% p.a. by reference to the average closing share price over the year ended 31 March 2024.

During the period, dividends of £205,762 were paid in cash and £2,126,498 settled by scrip issue of shares.

Scrip dividend alternative

Shareholders of the Company have the option to receive shares in the Company in lieu of a cash dividend, at the absolute discretion of the Directors, from time to time.

The number of ordinary shares that an Ordinary Shareholder will receive under the Scrip Dividend Alternative will be calculated using the average of the closing middle market quotations of an ordinary share for five consecutive dealing days after the day on which the ordinary shares are first quoted "ex" the relevant dividend.

The Board has elected to offer the scrip dividend alternative to Shareholders for the dividend for the quarter ended 31 March 2024. Shareholders who returned the Scrip Mandate Form and elected to receive the scrip dividend alternative will receive shares in lieu of the next dividend. Shareholders who have not previously elected to receive scrip may complete a Scrip Mandate Form (this can be obtained from the registrar: contact Computershare (details below)), which must be returned by 11 July 2024 to benefit from the scrip dividend alternative for the next dividend.

Financing

As at 31 March 2024 the Group has one direct bank loan of €9.5 million (£8.1 million), with no financial covenant tests, to a subsidiary used to finance the acquisition of the Hamburg property. The loan is secured over the Hamburg property and has no recourse to the other assets of the Group.

Further details of individual asset financing can be found under the individual investment review sections later in this report.

Share buybacks

Following the Annual General Meeting held on 7 September 2023 the Company has the authority to buy back 14.99% of its share capital (assessed on 29 June 2023) for a total of 8,709,579 shares. No shares have been yet bought back under this authority.

During the period and post period end, the Company did not purchase any shares in the market.

As at the date of this announcement, the ordinary share capital of the Company is 67,536,128 (including 7,717,581 ordinary shares held in treasury) and the total voting rights in the Company is 59,818,547.

Foreign currency

The Company monitors foreign exchange exposures and considers hedging where appropriate. Foreign currency balances have been translated at the period end rates of £1: €1.170 as appropriate.

Going concern

The Company has adopted a prudent short-term strategy to move to cash conservation and a cautious approach to commitments to new investments over this uncertain time. Alert to the impact of potentially reducing income returns, this approach has supported a robust balance sheet position. The Company continues to adopt this cautious approach to new investment and is conserving cash because of the uncertainty that has characterised the past few months; this ensures the Company retains a robust financial footing, making it well positioned to take advantage of new investment opportunities.

As noted above, the Company held approximately (as at 31 March 2024) 14.1% of its assets (excluding sundry net assets) in cash (including the investment in the Morgan Stanley GBP Liquidity Fund) and 16.5% in highly liquid UK Treasury Bonds with limited current contractual capital commitments. While there is external financing in the Group's investment interests, this is limited and non-recourse to the Company; the borrowings in these special purpose vehicles are compliant with their banking covenants. See the investment review section for more details on relevant investments.

Bearing in mind the nature of the Group's business and assets, after making enquiries, with the support of revenue forecasts for the next twelve months and considering the above, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

ART has no arrangements with any person currently on (or potentially on) any sanctions list. The Board continues to monitor the global political and economic situation regularly assessing impacts arising from inflation and interest rate changes for a potential material impact on ART's portfolio.

Strategy and outlook

ART's investment portfolio benefits from diversification across geographies, sectors, and asset types. As inflationary pressures increasingly dominate the economic backdrop in which the Company operates, ART remains on a robust financial footing and is well placed to capitalise on new investment opportunities. 

ART remains committed to growing its diversified investment portfolio. In recent years the Company focused on reducing exposure to direct development risk and recycling capital into cashflow driven investments. The Company is currently focussed on its loan portfolio and also on its wider investment strategy which targets investments offering inflation protection via index linked income adjustments and investments that have potential for capital gains. 

William Simpson
Chairman

20 June 2024

Investment review

Portfolio overview as at 31 March 2024

* Return from underlying investments excluding Fund fees

** See notes to the financial statements

¹ Percentage share shown based on NAV excluding the company's sundry assets/liabilities

² Including accrued interest/coupon at the balance sheet date

³ The income returns for high return debt are the annualised actual finance income return over the period shown as a percentage of the average committed

   capital over the period

⁴ Yield on equity over 12 months to 31 March 2024

⁵ Property value including sundry assets/liabilities, net of associated debt

⁶ Annualised monthly return

⁷ Range of annualised yields to maturity

⁸ Range of fixed annual coupons

⁹ Group cash of £7.2m excluding cash held with the Hamburg holding company of £0.4m

¹⁰ Weighted average interest earned on call accounts

¹¹ Annualised daily return

High return debt

Overview

ART has a portfolio of secured loan investments which contribute a diversified return to the Company's earnings position. The portfolio comprises high return senior (first charge) loans and mezzanine (second charge) loans secured on real estate investment assets and developments. ART loan underwriting is supported by the Investment Manager's asset-backed lending experience, developer and investor relationships and knowledge of the underlying assets and sectors, in addition to the Group's partnerships with specialist debt providers.

Secured Finance

*      Including accrued interest/coupon at the balance sheet date

**     The income returns for high return debt are the annualised actual finance income return over the period shown as a percentage of the average committed capital over the period

ART's portfolio of secured senior and mezzanine loan investments have increased in scale and diversity over the past year. These loans are typically secured on real estate investment and development assets with attractive risk-adjusted income returns from either current or capitalised interest or coupons.

As at 31 March 2024, ART had invested a total amount of £46.4 million across thirteen loans. Over the past twelve months the loan portfolio has decreased by 16.2%.

During the year, two new loans were drawn for £7.8 million, eight loans totalling £30.8 million (including accrued interest and exit fees) were fully repaid and a further £2.7 million (including accrued interest) was received as part repayments. Post year end, no new loans were drawn but additional drawdowns of £0.9 million were made on existing loans and part loan repayments were received amounting to £0.7 million (including accrued interest).

Each loan will typically have a term of up to two years (one loan has a term of four years), a maximum 75% loan to gross development value ratio and be targeted to generate attractive risk-adjusted income returns. As at 31 March 2024, the portfolio had an average LTV of 62.5% (with average approved LTV between 49.8% and 68.0% for mezzanine facilities while the highest approved LTV for senior loans is 64.1%).

Four loans in the portfolio have entered receivership: ART is closely working with stakeholders to maximise capital recovery. The Company has considered the security on these loans (which are a combination of a first charge and a second charge over the respective assets and personal guarantees) and have impaired one loan, which is accounted for at fair value, by £0.3 million; the Group also calculated an ECL on the other three loans of approximately £4.1 million; the Group have also provided for an ECL on the remainder of the loans' portfolio for an additional £1.6 million: in total, the Group have provided for an ECL of £5.7 million (31 March 2023: £3.7 million) in its consolidated accounts.

Current loan investment examples:

High return equity in property investments

Overview

ART continues to remain focused on investments that offer the potential to deliver attractive risk-adjusted returns by way of value enhancement through active asset management, improvement of income, selective deployment of capital expenditure and the ability to undertake strategic sales when the achievable price is accretive to returns.

H2O Shopping Centre, Madrid

*      Yield on equity over twelve months to 31 March 2024, excluding Fund fees

ART held a 30% stake in a joint venture with CBRE Investment Management that owns the shopping centre. 

Post year end, on 03 April 2024, ART completed on the sale of its investment in the H2O shopping centre in Madrid.

CBRE H2O disposed of its Spanish subsidiaries for €48.4 million (£41.4 million): the price was based on the 31 December 2023 accounts of the Spanish subsidiaries and will be adjusted for the 3 April 2024 accounts (the adjustment is estimated to be immaterial for CBRE H2O). In April 2024, ART received €14.7 million as dividend and capital return from CBRE H2O.

Under Alpha Real Trust's ownership the shopping centre has benefited from a near 50% increase in annual visitor numbers. Alpha Real Capital, the Company's Investment Manager has actively managed the asset and through the addition of top tier brands and targeted capital expenditure has successfully repositioned the centre. The shopping centre's leasable area has been extended, partly enabled by the transfer of building rights from a nearby separate vacant site, strategically acquired for that purpose. This has permitted a new retail box and two drive thru restaurant units to be created on the shopping centre's surface car park. More recently it has facilitated a major reconfiguration and upgrade of a mall area to create a new 3,000 square metre anchor tenant unit pre-leased to Primark. Further anchor tenants, including a number of Inditex group's brands, have recently extended and upgraded their stores.  Upgrades to the property have resulted in a BREEAM certification being awarded and the centre receiving a two notch uplift in its energy rating, resulting in a Green Loan certificate being granted from the lending bank.

Long leased industrial facility, Hamburg

*      Property value including sundry assets/liabilities and cash, net of associated debt

**     Yield on equity over twelve months to 31 March 2024, excluding Fund fees

ART has an investment of €8.6 million (£7.3 million) in an industrial facility leased to a leading international group.

The property is held freehold and occupies a site of 11.8 acres in Billbrook, a well-established and well-connected industrial area located approximately 8 kilometres south-east of Hamburg centre. Hamburg is one of the main industrial and logistics markets in Germany.

The property is leased to Veolia Umweltservice Nord GmbH, part of the Veolia group, an international industrial specialist in water, waste and energy management, with a 19-year unexpired lease term. Under the operating lease, the tenant is responsible for building maintenance and the rent has periodic inflation linked adjustments.

The Hamburg asset is funded by way of a €9.5 million (£8.1 million) non-recourse, fixed rate, bank debt facility which matures on 31 July 2028. The facility carries no financial covenant tests.

This investment offers the potential to benefit from a long term secure and predictable inflation-linked income stream which is forecast to generate stable high single digit income returns. In addition, the investment offers the potential for associated capital growth from an industrial location in a major German logistics and infrastructure hub.

Long leased hotel, Wadebridge, Cornwall

*      Annualised monthly return, excluding Fund fees

ART has an investment of £3.3 million (property valuation as at 31 March 2024) in a 55-bedroom property, which is held freehold and is situated on the outskirts of Wadebridge in the county of Cornwall. The hotel is in a well-connected location in close proximity to the A39. 

The property is leased to Travelodge Hotels Limited on a 20 year unexpired lease term. Under the lease, the tenant is responsible for building maintenance.

The passing rent of £0.3 million p.a. has inflation linked adjustments.

Long leased hotel, Lowestoft

*      Annualised monthly return, excluding Fund fees

ART has an investment of £2.7 million (property valuation as at 31 March 2024) in a 47-bedroom property, which is held freehold and occupies a site of 1.08 acres in Lowestoft, a well established and well connected area located in close proximity to the A47 which runs to Norwich.

The property is leased to Travelodge Hotels Limited on an 18 year unexpired lease term. Under the lease, the tenant is responsible for building maintenance.

The passing rent of £0.2 million p.a. has inflation linked adjustments.

Long leased hotel, Yardley, Birmingham

*      Annualised monthly return, excluding Fund fees

ART has an investment of £4.8 million (property valuation as at 31 March 2024) in a 64-bedroom property, which is held freehold and occupies a site of 1.42 acres and has 116 car parking spaces in Yardley. The hotel is situated to the east of Birmingham City Centre off the A45. The hotel is in a well-connected location equidistant between Birmingham City Centre to the west and Birmingham Airport to the east. The property was purchased in August 2023 and subsequently independently valued as at 31 March 2024.

The property is leased to Travelodge Hotels Limited until November 2060 with a tenant only break option in 2035. Under the lease, the tenant is responsible for building maintenance.

The passing rent of £0.4 million p.a. has inflation linked adjustments.

Other Investments

Listed and authorised fund investments

*Yield on equity based on 12 months to 31 March 2024

The Company invested a total of £6.0 million (value as at 31 March 2024: £4.2 million) across three investments that offered potential to generate attractive risk adjusted returns. Current market volatility and rise in interest rates has impacted the capital value of these investments. The investment yield offers a potentially accretive return to holding cash while the Company deploys capital in opportunities in line with its investment strategy. These funds invest in ungeared long-dated leased real estate, debt and infrastructure.

Affordable Housing

The Company's wholly owned investment, RealHousingCo Limited ("RHC") has obtained successful registration with the Regulator of Social Housing as a For Profit Registered Provider of affordable homes. This status provides RHC with a platform to undertake future investment in the affordable housing sector which offers scope to generate long term, inflation-linked returns while addressing the chronic undersupply of affordable homes in the UK.

RHC owns a residential property located in Liverpool (UK), which is comprised of seven units, all of which are occupied by private individuals, each with a six month term contract. The fair value of the Liverpool property as at 31 March 2024 was £0.6 million.

UK Treasury Bonds (Gilts) and Bills

*      Annualised yield to maturity

**     Weighted average

These government backed short term investments offer the Company enhanced returns over cash balances.

As at 31 March 2024, the Company had invested a total of £19.5 million in three short dated UK Treasury Bonds (Gilts) (annualised yield to maturity ranging from 4.7% to 4.9% with maturities in September 2024, March 2025 and October 2025). These government backed short term investments offer the Company enhanced returns over cash balances.

Post year end, the Company invested £6.5 million in a short dated UK Treasury Bill with an annualised yield to maturity of 5.2% with maturity in October 2024 and £10.0 million in Gilts with maturity 30 January 2026 and an annualised yield to maturity of 4.3%.

Cash balances

*      Group cash of £7.2m excluding cash held with the Hamburg holding company of £0.4m

**     weighted average interest earned on call accounts

As at 31 March 2024, the Group had cash balances of £6.8 million, excluding cash held with the Hamburg holding company of £0.4 million.

The Group's cash is held with established banks with strong credit ratings.

Summary

ART has a diversified portfolio focussed on asset-backed lending and property investments in Western Europe. 

The Company is currently focussed on selectively increasing its loan portfolio and extending its wider investment strategy to opportunistically target investments offering inflation protection via index linked income adjustments and investments that have potential for capital gains

Brad Bauman and Gordon Smith

For and on behalf of the Investment Manager

20 June 2024

Directors

William Simpson (aged 68)

Chairman

William Simpson has over 30 years' experience as a lawyer in financial services. His focus has been on regulated and unregulated investment vehicles, encompassing banking, finance, corporate, investment, trust and regulatory work.

William studied law at Leeds University and practised at the Bar in England before moving to the Cayman Islands and then the British Virgin Islands. William was a partner at Ozannes, now Mourant, and then managing partner of Ogier Guernsey, during which time he also served on the Ogier Group board.

In 2017 William became an independent consultant and remains a director of a number of Guernsey based financial services companies. William is a member of the English and Guernsey Bars.

Phillip Rose (aged 64)

Phillip Rose is a Fellow of the Securities Institute and holds a Master of Law degree.  He has over 40 years' experience in the real estate, funds management and banking industries in Europe, the USA and Australasia. He has been the Head of Real Estate for ABN AMRO Bank, Chief Operating Officer of European shopping centre investor and developer TrizecHahn Europe, Managing Director of retail and commercial property developer and investor Lend Lease Global Investment and Executive Manager of listed fund General Property Trust.

Phillip is currently CEO of Alpha Real Capital LLP and has been a member of the Management Committee for Hermes Property Unit Trust and its Audit Committee, and has been a Non-Executive Director of Great Portland Estates plc.

Jeff Chowdhry (aged 63)

Jeff is currently General Partner at Concept Ventures, an early stage, software focused, VC fund. It is currently the largest dedicated pre-seed fund in the UK.

He has an investment career which spans over 40 years having held senior positions at F&C, as head of emerging markets and BMO Asset Management where he was responsible for AUM of over $5 billion. He has specific expertise in ESG related matters.

He is an active Angel investor having backed over 30 start-up companies and has several board advisory positions within these rapidly growing businesses.

Melanie Torode (aged 44)

Mel Torode has 20 years' experience in the fund administration industry specifically including private equity, property and mezzanine debt and is an Independent Non-Executive Director.

Prior to founding Morgan Sharpe in April 2008 (a fund administration company sold to Estera, subsequently Ocorian, in 2017), Mel was the Company Secretary of Assura Administration, overseeing the administration of listed property funds. During the period from 2017 to 2021, Mel held the roles of Operations Director, Managing Director and subsequently Non-Executive of Ocorian Guernsey.

Mel began her career at Guernsey International Fund Managers (now Northern Trust), working on large private equity funds and European holding companies, moving to Mourant International Finance Administration (now State Street) where she spent more than two years concentrating primarily on listed property funds.

Peter Griffin (aged 65)

Peter Griffin has over 30 years' experience in financial services and is a qualified chartered accountant.

He is currently a director of Handelsbanken Alternatives Fund Limited, an investment company listed on The International Stock Exchange.

Peter previously had various senior roles in the trust services industry in the Channel Islands and Isle of Man.

Directors' and Corporate Governance report

The Directors present their report and financial statements of the Group for the year ended 31 March 2024.

Principal activities and status

During the year, the Company, an authorised closed-ended Guernsey registered investment company, carried on business as an investment company, investing in direct property, 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.

The Company's shares are traded on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE").

Business review, results and dividend

A review of the business during the year is contained in the Chairman's Statement above.

The results for the year to 31 March 2024 are set out in the financial statements. On 1 March 2024, the Company declared a dividend of 1.0p per share, which was paid to shareholders on 12 April 2024. The intention of the Company is to pay a dividend quarterly.

Share buybacks

Following the Annual General Meeting held on 7 September 2023 the Company has the authority to buy back 14.99% of its share capital (assessed on 29 June 2023) for a total of 8,709,579 shares. No shares have been yet bought back under this authority.

During the period and post period end, the Company did not purchase any shares in the market.

As at the date of this announcement, the ordinary share capital of the Company is 67,536,128 (including 7,717,581 ordinary shares held in treasury) and the total voting rights in the Company is 59,818,547.

Scrip dividend alternative

In the circular published on 18 December 2018, the Company sought shareholders' approval to enable a scrip dividend alternative to be offered to ordinary shareholders whereby they could elect to receive additional ordinary shares in lieu of a cash dividend, at the absolute discretion of the Directors, from time to time. This was approved by shareholders at the extraordinary general meeting on 8 January 2019.

The number of ordinary shares that an ordinary shareholder will receive under the scrip dividend alternative will be calculated using the average of the closing middle market quotations of an ordinary share for five consecutive dealing days after the day on which the ordinary shares are first quoted "ex" the relevant dividend.

The Board elected to offer the scrip dividend alternative to shareholders for the dividend for the quarter ended 31 December 2023: for this period, scrip dividend alternative elections were received in respect of 54,457,721 shares of the Company, which has resulted in the issue of 437,407 new ordinary shares in April 2024.

Further details on dividends are given in note 8 of the financial statements.

Corporate governance

As a Guernsey registered company traded on SFS, the Company is not required to comply with the UK Corporate Governance Code ("UK Code").  However, as a company authorised by the Guernsey Financial Services Commission ("GFSC"), it is required to follow the principles and guidance set out in the Finance Sector Code of Corporate Governance issued by the GFSC and effective from 1 January 2012 (amended in February 2016 and November 2021) ("Guernsey Code").  Compliance with the Guernsey Code and general principles of good corporate governance are reviewed by the Board at least annually and, at the date of signing these financial statements, the Board is satisfied that the Company is fully compliant with the Guernsey Code. The Guernsey Code is available for consultation on the GFSC website: www.gfsc.gg.

The Board

Biographies of the Directors are set out above.

The Directors' interests in the shares of the Company as at 31 March 2024 are set out below:

Post year end, Phillip Rose and William Simpson increased their shareholding in ART to 1,039,179 and 50,671 ordinary shares, respectively.

Non-executive directors are not appointed for specified terms; appointments of Board members can be terminated at any time without penalty and the Company's Articles of Association ("Articles") require each Director to retire and submit himself/herself to re-election by the shareholders at every third year.  In addition, the Board believes that continuity and experience add to its strength. 

The Annual General Meeting of the Company will take place on 5 September 2024.  At this meeting, Melanie Torode and Phillip Rose will retire and submit themselves for re-election. The remainder of the Board recommend their re-appointment.

Individual Directors may seek independent legal advice in relation to their duties on behalf of the Company.

Operations of the Board

The Board has determined that its role is to consider and determine the following principal matters which it considers are of strategic importance to the Company:

1)    Review the overall objectives for the Company and set the Company's strategy for fulfilling those objectives within an appropriate risk framework

2)    Consider any shifts in strategy that it considers may be appropriate in light of market conditions

3)    Review the capital structure of the Company including consideration of any appropriate use of gearing both for the Company and in any joint ventures in which the Company may invest from time to time

4)    Appoint the Investment Manager, Administrator and other appropriately skilled service providers and monitor their effectiveness through regular reports and meetings

5)    Review key elements of the Company's performance including Net Asset Value and payment of dividends.

At Board meetings, the Board ensures that all the strategic matters are considered and resolved by the Board. Certain issues associated with implementing the Company's strategy are delegated either to the Investment Manager or the Administrator. Such delegation is over minor incidental matters and the Board continually monitors the services provided by these independent agents. The Board considers matters that are significant enough to be of strategic importance and are therefore reserved solely for the Board (e.g. all acquisitions, all disposals, significant capital expenditure, leasing and decisions affecting the Company's financial gearing).

The Board meets at least quarterly and as required from time to time to consider specific issues reserved for decision by the Board, as noted above.

At the Board's quarterly meetings, it considers papers circulated in advance including reports provided by the Investment Manager and the Administrator. The Investment Manager's report comments on:

·          The property and debt markets of the UK and Europe including recommendations for any changes in strategy that the Investment Manager considers may be appropriate

·          Performance of the Group's portfolio and key asset management initiatives

·          Transactional or lending activity undertaken over the previous quarter and being contemplated for the future

·          The Group's financial position including relationships with bankers, borrowers and lenders.

These reports enable the Board to assess the success with which the Group's investment strategy and other associated matters are being implemented and also consider any relevant risks and to consider how they should be properly managed.

The Company's service providers issue reports on their own internal controls and these reports are considered by the Board periodically.

In between its regular quarterly meetings, the Board has also met on a number of occasions during the year to approve specific transactions and for other matters.

Board and Directors' appraisals

The Board carries out an annual review of its composition and performance (including the performance of individual Directors) and that of its standing committees.  Such appraisal includes reviewing the performance and composition of the Board (and whether it has an appropriate mix of knowledge, skills and experience), the relationships between the Board and the Investment Manager and Administrator, the processes in place and the information provided to the Board and communication between Board members.

Board Meeting attendance

The table below shows the attendance at Board meetings during the year to 31 March 2024:

Directors' and officers' insurance

An appropriate level of Directors' and officers' insurance is maintained whereby Directors are indemnified against liabilities to third parties to the extent permitted by Guernsey company law.

Board Committees

The Board has established three standing committees, all of which operate under detailed terms of reference, copies of which are available on request from the Company Secretary.

Audit and Risk Committee

The Audit and Risk Committee consists of Peter Griffin (Chairman), Jeff Chowdhry and William Simpson. The Board is satisfied that Peter Griffin continues to have the requisite recent and relevant financial experience to fulfil his role as Chairman of the Audit and Risk Committee.

Role of the Committee

The role of the Audit and Risk Committee, which meets at least twice a year, includes:

·      The engagement, review of the work carried out by and the performance of the Group's external auditor

·      To monitor and review the independence, objectivity and effectiveness of the external auditor

·      To develop and apply a policy for the engagement of the external audit firm to provide non-audit services

·      To assist the Board in discharging its duty to ensure that financial statements comply with all legal requirements

·      To review the Group's financial reporting and internal control policies and to ensure that the procedures for the identification, assessment and reporting of risks are adequate

·      To review regularly the need for an internal audit function

·      To monitor the integrity of the Group's financial statements, including its annual and half-year reports and announcements relating to its financial performance, reviewing the significant financial reporting issues and judgements which they contain

·      To review the consistency of accounting policies and practices

·      To review and challenge where necessary the financial results of the Group before submission to the Board.

The Audit and Risk Committee makes recommendations to the Board which are within its terms of reference and considers any other matters as the Board may from time to time refer to it.

Members of the Audit and Risk Committee may also, from time to time, meet with the Group's independent property valuers to discuss the scope and conclusions of their work.

Committee meeting attendance

Policy for non audit services

The Committee has adopted a policy for the provision of non-audit services by the Company's external auditor, BDO Limited, and reviews and approves all material non-audit related services in accordance with the need to ensure the independence and objectivity of the external auditor. No services, other than audit-related ones, were carried out by BDO Limited during the year.

Internal audit

The Board relies upon the systems and procedures employed by the Investment Manager and the Administrator which are regularly reviewed and are considered to be sufficient to provide it with the required degree of comfort. Therefore, the Board continues to believe that there is no need for an internal audit function, although the Audit and Risk Committee considers this annually, reporting its findings to the Board.

Nomination Committee and attendance

The Nomination Committee consists of William Simpson (Chairman), Phillip Rose and Melanie Torode.

The Committee's principal task is to review the structure, size and composition of the Board in relation to its size and position in the market and to make recommendations to fill Board vacancies as they arise and it meets at least annually.  It met once during the year and all Committee members were present.

Remuneration Committee and attendance

The Remuneration Committee consists of Melanie Torode (Chairman), Jeff Chowdhry and William Simpson.

The Board has approved formal terms of reference for the Committee and a copy of these is available on request from the Company Secretary.

As the Company comprises only non-executive directors, the Committee's main role is to determine their remuneration within the cap set out in the Company's Articles and it meets at least annually.  It met once during the year with Melanie Torode and William Simpson present.

Remuneration report

The aggregate fees payable to the Directors are limited to £200,000 per annum under the Company's Articles. The annual fees payable to each Director, which were last reviewed in 2019, have been increased by 10% with effect from 1 April 2022. The fees payable to the Directors are expected to reflect their expertise, responsibilities and time spent on the business of the Group, taking into account market equivalents, the activities, the size of the Group and market conditions.  Under their respective appointment letters, each Director is entitled to an annual fee together with a provision for reimbursement for any reasonable out of pocket expenses. 

During the year the Directors received the following emoluments in the form of fees from Group companies:

* This comprises £20,500 for the ART's directorship plus fees for directorships of ART's subsidiaries and joint ventures

Internal control and risk management

The Board understands its responsibility for ensuring that there are sufficient, appropriate and effective systems, procedures, policies and processes for internal control of financial, operational, compliance and risk management matters in place in order to manage the risks which are an inherent part of business. Such risks are managed rather than eliminated in order to permit the Company to meet its financial and other objectives.

The Board reviews the internal procedures of both its Investment Manager and its Administrator upon which it is reliant. The Investment Manager has a schedule of matters which have been delegated to it by the Board and upon which it reports to the Board on a quarterly basis. These matters include quarterly management accounts and reporting both against key financial performance indicators and its peer group. Further, a compliance report is produced by the Administrator for the Board on a quarterly basis.

The Company maintains a risk management framework which considers the non-financial as well as financial risks and this is reviewed by the Audit and Risk Committee prior to submission to the Board.

Investment management agreement

The Company has an agreement with the Investment Manager. This sets out the Investment Manager's key responsibilities, which include proposing a property investment strategy to the Board, identifying property investments to recommend for acquisition and arranging appropriate lending facilities. The Investment Manager is also responsible to the Board for all issues relating to property asset management.

Substantial shareholding

Shareholders with holdings of more than 3 per cent of the voting rights of the Company as at 24 May 2024 were as follows:  

Shareholder relations

The Board places high importance on its relationship with its shareholders, with members of the Investment Manager's Investment Committee making themselves available for meetings with key shareholders and sector analysts. Reporting of these meetings and market commentary is received by the Board on a quarterly basis to ensure that shareholder communication fulfils the needs of being useful, timely and effective. One or more members of the Board and the Investment Manager will be available at the Annual General Meeting to answer any questions that shareholders attending may wish to raise.

Directors' Responsibilities Statement

The Directors are responsible for preparing the annual report and the financial statements in accordance with the applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Group at the end of the year and of the profit or loss of the Group for that year.

In preparing those financial statements, the Directors are required to:

1)    select suitable accounting policies and then apply them consistently;

2)    make judgements and estimates that are reasonable and prudent;

3)    state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

4)    prepare the financial statements on the going concern basis unless it is appropriate to assume that the Group will not continue in business.

So far as each of the Directors is aware, there is no relevant information of which the Group's auditor is unaware, and they have taken all the steps they ought to have taken as Directors to make themselves aware of any relevant information and to establish that the Group's auditor is aware of that information.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and which enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group can be outlined as follows:

·      Rental income, fair value of investment properties (directly or indirectly held) and fair value of the Group's equity investments are affected, together with other factors, by general economic conditions and/or by the political and economic climate of the jurisdictions in which the Group's investments and investment properties are located.

·      The Group's loan investments are exposed to credit risk which arise by the potential failure of the Group's counter parties to discharge their obligations when falling due; this could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date; the Group receives regular updates from the relevant investment manager as to the performance of the underlying investments and assesses their credit risk as a result.

Going concern

The Company has adopted a prudent short-term strategy to move to cash conservation and a cautious approach to commitments to new investments over this uncertain time. Alert to the impact of potentially reducing income returns, this approach has supported a robust balance sheet position. The Company continues to adopt this cautious approach to new investment and is conserving cash because of the uncertainty that has characterised the past few months; this ensures the Company retains a robust financial footing, making it well positioned to take advantage of new investment opportunities.

As noted above, the Company held approximately (as at 31 March 2024) 14.1% of its assets (excluding sundry net assets) in cash (including the investment in the Morgan Stanley GBP Liquidity Fund) and 16.5% in highly liquid UK Treasury Bonds with limited current contractual capital commitments. While there is external financing in the Group's investment interests, this is limited and non-recourse to the Company; the borrowings in these special purpose vehicles are compliant with their banking covenants. See the investment review section for more details on relevant investments.

Bearing in mind the nature of the Group's business and assets, after making enquiries, with the support of revenue forecasts for the next twelve months and considering the above, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

ART has no arrangements with any person currently on (or potentially on) any sanctions list. The Board continues to monitor the global political and economic situation regularly assessing impacts arising from inflation and interest rate changes for a potential material impact on ART's portfolio.

Annual General Meeting

The AGM of the Company will be held in Guernsey at 9.00 am on 5 September 2024 at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey.  The meeting will be held to receive the Annual Report and Financial Statements, re-elect Directors and propose the reappointment of the auditor and that the Directors be authorised to determine the auditor's remuneration.

Independent Auditor

BDO Limited has expressed its willingness to continue in office as auditor.

By order of the Board,

William Simpson                                                                                                   Peter Griffin

Director                                                                                                                  Director

20 June 2024

Directors' statement pursuant to the Disclosure Guidance and Transparency Rules

Each of the Directors, whose names and functions are listed in the Directors' and corporate governance report confirm that, to the best of each person's knowledge and belief:

·      The financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group, and

·      The Chairman's statement and the investment review include a fair review of the development and performance of the business and the position of the Group and a description of the principal risks and uncertainties that the Group faces is provided above.

By order of the Board,

William Simpson                                                                                                   Peter Griffin

Director                                                                                                                  Director

20 June 2024

Independent Auditor's Report

To the Members of Alpha Real Trust Limited

Opinion on the financial statements

In our opinion, the financial statements of Alpha Real Trust Limited ("the Parent Company") and its subsidiaries (the "Group"):

·      give a true and fair view of the state of the Group's affairs as at 31 March 2024 and of its  loss for the year then ended;

·      have been properly prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union; and

·      have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

We have audited the financial statements of the Group for the year ended 31 March 2024 which comprise the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity, and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and IFRS as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group ability to continue to adopt the going concern basis of accounting included:

·      Obtaining those charged with governance and directors' assessment in respect of going concern and challenging this, based on our knowledge of the Group, with both those charged with governance and management; 

·      Challenging the directors' cash flow forecasts for the twelve months from the approval of these financial statements by stress testing future income and expenditure and the impact on the going concern assessment;

·      Consideration of the cash available together with the expected annual running expenses of the Group and determining whether these assumptions were reasonable based on our knowledge of the Group; and 

·      Reviewing the minutes of meetings of those charged with governance, the RNS announcements and the compliance reports for indication of any events or conditions which may impact on going concern. 

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Overview

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements.  We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

We tailored the scope of our audit taking into account the nature of the Group's investments, involvement of the Investment Manager, the accounting and reporting environment and the industry in which the Group operates.

The Group consists of the Parent Company, numerous subsidiaries and a joint venture entity. We concluded that the most effective audit approach to the Group, due to the same accounting processes and control environment was to audit the consolidated financial statements as if they were one entity, during which we have performed audit procedures on all key risk areas. The materiality applied was based on the consolidated financial information (see Materiality section below).

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.  We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

Specific materiality

We also determined that for sensitive fees including: management fees, performance fees, legal fees, directors' fees and audit fees, a misstatement of less than materiality for the financial statements as a whole, specific materiality, could influence the economic decisions of users. As a result, we determined materiality for these items based on 10% (2023: 10%) of materiality being £199,000 (2023: £202,300). We further applied a performance materiality level of 75% (2023: 75%) of specific materiality to ensure that the risk of errors exceeding specific materiality was appropriately mitigated.

Reporting threshold 

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £59,700 (2023: £61,230).  We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

Other information

The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Other Companies (Guernsey) Law, 2008 reporting

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

·      proper accounting records have not been kept by the Parent Company; or

·      the financial statements are not in agreement with the accounting records; or

·      we have failed to obtain all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.

Responsibilities of Directors

As explained more fully in the Directors' responsibilities statement within the Directors' and Corporate Governance Report, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Based on our understanding of the Group and the industry in which it operates, we identified that the principal risks of non-compliance with laws and regulations related to its investment activities, and we considered the extent to which non-compliance might have a material effect on the Group's financial statements.

We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and have a direct impact on the preparation of the financial statements. We determined that the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting framework such as IFRS as adopted by the EU and the Companies (Guernsey) Law, 2008. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of management override of controls), and determined that the principal risks were related to revenue recognition in relation to the rental income from properties held, revenue recognition in relation to loan interest  from loans advanced and management bias and judgement involved in accounting estimates, specifically in relation to the valuation of properties and the expected credit loss provisions (the response to which are detailed in our key audit matters above).

We communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and the component auditor, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Audit procedures performed by the engagement team to respond to the risks identified included:

·      Discussion with and enquiry of management and those charged with governance concerning known or suspected instances of non-compliance with laws and regulations and fraud;

·      Obtaining an understanding of the internal control environment in place to prevent and detect irregularities;

·      Reading minutes of meetings of those charged with governance, correspondence with the Guernsey Financial Services Commission, internal compliance reports, complaint registers and breach registers to identify and consider any known or suspected instances of non-compliance with laws and regulations and fraud;

·      Recalculating loan interest income based on the underlying loan agreements; and

·      Recalculating the rental income based on the lease agreements and required accounting by IFRS as adopted by the EU and comparing to that of management.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available at the Financial Reporting Council's website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

The engagement audit director on the audit resulting in this independent auditor's opinion is Simon Hodgson.

Use of our report

This report is made solely to the Parent Company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

.......................................................

Simon Hodgson

For and on behalf of BDO Limited

Chartered Accountants and Recognised Auditor

Place du Pré, Rue du Pré

St Peter Port, Guernsey

Date: 20 June 2024