Final Results, 11 Mar 2021 07:00

11 March 2021, 07:00

Source - LSE Regulatory

RNS Number : 8743R

Secure Income REIT PLC

11 March 2021

Secure Income REIT Plc

Results for the year ended 31 December 2020

Secure Income REIT Plc (AIM: SIR) (the "Company" or the "Group"), the specialist long term income UK REIT, today announces its results for the year ended 31 December 2020.

Aside from the immense tragedy of the loss of life and the disruption caused to individuals and businesses worldwide, the Covid-19 pandemic has created significant challenges for our leisure and hospitality tenants. The combination of the Company's robust balance sheet, strong liquidity and experienced Management Team has enabled us to support those of our tenants that suffered the sudden closure of their businesses, and therefore to aid the expected resumption of their strong performance track records once the effects of the pandemic diminish. Ultimately this should position the Company to regain its own strong growth trajectory.

Despite the interruption from the exceptional impact of the pandemic, the Company has continued to pay quarterly dividends throughout the year, delivering a Total Accounting Return IRR of 15.3% p.a. over the six and a half years since listing and a Total Shareholder Return IRR of 12.8% p.a. over the same period. This compares with the equivalent for the FTSE EPRA NAREIT UK Index over the same period of 2.8% p.a.

The Company has £1.95 billion of gross property assets, £1.2 billion of net assets, £192 million of uncommitted and unfettered cash, structurally protected non-recourse debt, and very long leases on Key Operating Assets in defensive sectors and which are difficult to replicate. The approval and rapid rollout of vaccines in the UK and elsewhere are cause for cautious optimism that life will soon start to return to normal and allow our leisure and hospitality tenants to be able to resume trading. The Management Team invested a further £5.8 million of cash in their interests in SIR during the year and holds a 12.4% interest in the business. The team remains energised, committed and aligned with all shareholders.

Highlights

Balance sheet and portfolio	31 December 2020	30 June 2020	31 December 2019
Properties at independent valuation	£1,946.9m	£1,958.7m	£2,083.1m
Net assets	£1,221.5m	£1,244.1m	£1,384.5m
EPRA NTA	£1,229.2m	£1,252.0m	£1,391.3m
EPRA NTA per share	379.3p	386.4p	429.4p
Uncommitted cash	£192.0m	£219.6m	£234.2m
Net Loan To Value ratio	36.4%	35.3%	31.9%
Annualised passing rent before Covid 19 concessions	£113.3m	£111.8m	£110.7m
Topped Up Net Initial Yield	5.42%	5.32%	4.95%
Running Yield by January 2022 ⁽¹⁾	5.58%	5.58%	5.25%
Weighted Average Unexpired Lease Term	20.2 years	20.8 years	21.0 years

(1) Using independent external valuers' RPI estimates averaging 2.5% (June 2020: 2.5%; December 2019: 2.6%)

Earnings and returns	Year to 31 December 2020	Year to 31 December 2019
Adjusted EPRA earnings per share:
Like for like rent net of all costs and tax, before rent concessions	14.0p	13.6p
Temporary rent concessions on a cash basis	(10.5)p	-
Like for like rents net of all costs and tax	3.5p	13.6p
Rent net of interest for properties sold in 2019	-	1.7p
Adjusted EPRA EPS	3.5p	15.3p
IFRS Earnings per share:
Like for like rent net of costs and tax, before revaluations and rent concessions	16.6p	16.3p
IFRS impact of temporary rent concessions, spread over lease terms	(0.3)p	-
IFRS like for like rent net of costs and tax, before revaluations	16.3p	16.3p
Rent net of interest and profit on disposal of Hospitals sold in 2019	-	9.4p
Property revaluations	(51.4)p	23.4p
Incentive fee	-	(1.6)p
IFRS EPS	(35.1)p	47.5p

Dividends per share	15.7p	16.3p
Total Accounting Return	- 8.0%	11.7%
Latest dividend per share annualised (% of EPRA NTA)	3.8%	3.9%
Latest dividend per share annualised (% of 31 Dec 2020 share price)	4.9%	3.9%
Total Accounting Return over 30 June 2014 EPRA NTA (IRR)	15.3% p.a.
Total Shareholder Return IRR over issue price at listing	12.8% p.a.

All capitalised terms are defined in the glossary at the end of this report

• EPRA NTA of £1.2 billion; 379.3 pence per share:

- 59.3 pence per share (15.8% of EPRA NTA) in unfettered cash plus 0.5p in other net assets

‐ 125.3 pence per share (33.0%) in Healthcare

‐ 112.8 pence per share (29.7%) in Leisure

‐ 81.4 pence per share (21.5%) in Budget Hotels

• Overall portfolio valuation down 6.5% to £1.95 billion in the year:

‐ 91% of the total decline was reflected in the June 2020 valuations, with the balance representing a modest decline of 0.6% in gross property values in the second half of the year

‐ Healthcare asset valuations up by 2.8%

‐ Budget Hotel valuations accounted for 69% of the net value decline, falling by 20.3% following Travelodge's CVA but remaining stable since 30 June 2020

‐ Leisure asset valuations down by 6.9%

• The Group's 20.2 year Weighted Average Unexpired Lease Term remains one of the longest in the UK quoted real estate sector

• Net LTV of 36.4% up from 31.9% at the start of the year and 35.3% at 30 June 2020:

‐ debt in six structurally separate non-recourse debt facilities

‐ appropriate levels of headroom over financial covenants remain in place

• Adjusted EPRA EPS of 3.5 pence per share after the full earnings impact of the temporary rent concessions granted to our Leisure and Budget Hotels tenants, reflected in this measure on a cash flow basis

‐ Total impact of concessions on Adjusted EPRA Earnings in 2020 of £34.0 million (10.5 pence per share)

‐ Travelodge rents reduced by a total of £23.4 million from 1 April 2020 to 31 December 2021, of which £14.5 million relates to cash flows in the year to 31 December 2020

‐ Merlin rents of £17.8 million (£17.7 million at the year end exchange rate) for June and September 2020 were deferred for collection in September 2021; rental cash flows returned to their previously contracted levels with effect from the December 2020 quarter

‐ Stonegate pubs were granted a six month rent free period of £1.1 million from April to September 2020 in exchange for strengthened lease alienation provisions and lease extensions to a 25.0 year term, up from 19.6 years at that time

‐ From January 2021 cash rents receivable amount to 92% of total contractual rents before concessions and under current arrangements, will revert to 100% of their originally contracted levels within ten months

‐ The expected impact of concessions on 2021 cash flow and Adjusted EPRA Earnings is a reduction in Travelodge rents of £8.9 million and the expected receipt of £17.7 million of deferred rent from Merlin, resulting in a net positive impact of £8.8 million (2.7 pence per share)

• Rent collections have remained strong with only 0.3% of passing rents after concessions in arrears at 31 December, all of which were collected after the year end

• Dividend payments were maintained throughout 2020 and since the year end

• Neither the Company nor the Investment Adviser has requested or utilised any form of Covid-19 Government support

• The Management Team's shareholding is the largest by value amongst UK REITs, underpinning very strong alignment with all shareholders:

· Management's 12.4% stake is worth £152.3 million at 31 December 2020 EPRA NTA

· Every member of the Management Team has a personally significant investment in the business

· During the year the Management Team invested a further £5.8 million of cash in their interests in the Company

Martin Moore, Non-Executive Chairman of the Company, commented:

"The Covid-19 pandemic has created significant challenges for our leisure and hospitality tenants, which has in turn had an impact on the Company's results, particularly in the first half of the year. However, the many inherent strengths of the Company, including its balance sheet, liquidity and management team, as well as the innately operational nature of our assets, means that the support we've been able to provide to occupiers should aid the resumption of their strong performance track record once the effects of the pandemic diminish. This in turn positions the Company to regain its own growth trajectory.

"Secure Income REIT was created to provide long term returns and, since listing, the Company has delivered a Total Accounting Return IRR of 15.8% p.a. and a Total Shareholder Return IRR of 12.8% p.a. This compares with the equivalent for the FTSE EPRA NAREIT Index which returned 2.8% p.a. over the same period. While we recognise the last twelve months have negatively impacted short term returns for many investors, the performance of the business over the medium to longer term and its prospects over similar time scales remains the principal focus of the management team and board. As economies and businesses hopefully emerge from these difficult circumstances, we believe that as and when pandemic restrictions are relaxed the bounce back in economic activity in the leisure and hospitality sectors will be significant and SIR's assets and tenants are well positioned to be early beneficiaries of any recovery. After a challenging period we are excited about opportunities for the business."

For further information on the Company, please contact:

Secure Income REIT Plc Nick Leslau Mike Brown Sandy Gumm	+44 20 7647 7647 enquiries@SecureIncomeREIT.co.uk

Stifel Nicolaus Europe Limited (Nominated Adviser) Mark Young Stewart Wallace	+44 20 7710 7600 StifelSecureIncomeREIT@stifel.com

FTI Consulting LLP Dido Laurimore Claire Turvey Eve Kirmatzis	+44 20 3727 1000 SecureIncomeREIT@FTIconsulting.com

Results Presentation

Secure Income REIT Plc will be holding a presentation for analysts and investors today at 10am. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email SecureIncomeREIT@FTIconsulting.com.

The presentation will be on the Company's website www.SecureIncomeREIT.co.uk and a conference call facility will be available. The dial-in details are:

Participants, - Local, United Kingdom: +44 (0)330 336 9411

Confirmation code: 8535975

Webcast link: https://webcasting.brrmedia.co.uk/broadcast/602faf0e1fc46330548fae22

About Secure Income REIT Plc

Secure Income REIT Plc ("SIR") is a specialist UK REIT, investing in real estate assets that provide long term rental income with upwards only inflation protection.

The Company owns a £1.95 billion portfolio at the 31 December 2020 independent external valuation. With net assets of £1.22 billion and some £192 million of Uncommitted Cash held at 31 December 2020, the Company has been well positioned to provide support to its tenants through the Covid-19 pandemic while maintaining its strong financial discipline and balance sheet strength.

SIR has a highly experienced board, chaired by Martin Moore, and is advised by Prestbury Investment Partners Limited. Prestbury is owned and managed by Nick Leslau, Mike Brown, Tim Evans, Sandy Gumm and Ben Walford, a team with a long and successful track record of creating value in real estate investment and asset management and, with an investment worth over £152 million in the Company (at 31 December 2020 EPRA NTA), very close alignment with the interests of SIR shareholders.

The Company is a UK REIT which floated on the AIM market of the London Stock Exchange in June 2014.

The Company's LEI is 213800M1VI451RU17H40

Further information on Secure Income REIT is available at www.SecureIncomeREIT.co.uk.

Forward looking statements

This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may differ materially from those made in, or suggested by, the forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.

Chairman's Statement

Dear Shareholder,

Following a year dominated by a devastating human toll and by extraordinary stresses on so many businesses around the world arising from the Covid-19 pandemic, progress with the rollout of vaccines gives us cause for cautious optimism and more confidence in assessing the outlook for the Company than when we reported our interim results six months ago. The pandemic has presented significant challenges to our leisure and hospitality tenants, but the Company's robust balance sheet, strong liquidity and experienced Management Team have enabled us to support those of our tenants that suffered the sudden closure of their businesses, to aid the resumption of their strong performance track records once the effects of the pandemic diminish and, as a result, to position the Company to regain its own strong growth trajectory.

The Company was established six and a half years ago to deliver attractive returns over the long term. Even with the interruption of the exceptional events of 2020, the Company has delivered a Total Accounting Return IRR of 15.3% p.a. since listing, a Total Shareholder Return IRR of 12.8% p.a. over the same period and has maintained its core dividend payments throughout the turbulence of the pandemic disruption. This compares with the equivalent for the FTSE EPRA NAREIT Index of 2.8% p.a. over the same period. The Company has ended 2020 with a robust balance sheet with £1.2 billion of net assets, £192.0 million of uncommitted and unfettered cash, structurally protected non-recourse debt and very long leases which are very difficult to replicate.

Results and financial position

The impact of the pandemic has meant that Group EPRA NTA per share, disappointingly, declined by 50.1 pence per share ending the year at 379.3 pence. Dividends paid in the year of 15.7 pence per share result in the Total Accounting Return of negative 34.4 pence per share or negative 8.0% in the year.

	IFRS Net Assets		EPRA NTA
	£m	Pence per share	£m	Pence per share
1 January 2020	1,384.5	428.8	1,391.3	429.4
Investment property revaluation	(166.6)	(51.4)	(142.5)	(44.0)
Other retained earnings	54.4	15.3	31.2	9.6
Dividends paid	(50.8)	(15.7)	(50.8)	(15.7)
31 December 2020	1,221.5	377.0	1,229.2	379.3

Property values decreased over the year by a net 6.5%. Of the total decline, 91% was reported in the six months ended 30 June 2020, with the fall since then limited to a further 0.6% of gross property values. 69% of the net fall in valuation over the year was accounted for by the decline in the value of the Budget Hotels portfolio at the half year, following Travelodge's Company Voluntary Arrangement in June 2020.

Contractual passing rent grew by 2.0% across the portfolio at constant currency and by 2.3% overall, following rent reviews on 77% of total portfolio income. The blended Topped Up Net Initial Yield on the portfolio was 5.42% at 31 December 2020 compared with 5.32% at 30 June 2020 and 4.95% at the start of the year. The Investment Adviser reports on the valuation movements and changes in rental income over the year in detail in its report on the following pages.

	IFRS EPS		Adjusted EPRA EPS
	2020 Pence per share	2019 Pence per share	2020 Pence per share	2019 Pence per share
Like for like net rent after all costs and tax, before rent concessions and revaluations	16.6	16.3	14.0	13.6
Rent concessions	(0.3)	-	(10.5)	-
Like for like net rent after of all costs and tax, before revaluations	16.3	16.3	3.5	13.6
Rent net of interest for hospitals sold in 2019	-	2.1	-	1.7
Profit on sale of hospitals	-	7.3	-	-
Property revaluations	(51.4)	23.4	-	-
Incentive fee	-	(1.6)	-	-
Earnings per share	(35.1)	47.5	3.5	15.3

The Group's EPS measured on an IFRS basis without the industry standard EPRA adjustments includes the property revaluations and also the profit on the sale of the hospitals in 2019, resulting in a swing from positive to negative earnings compared to last year. The Group's Adjusted EPRA EPS, which excludes the impact of property revaluations and profits on property sales, was 3.5 pence per share for the year, against 15.3 pence per share reported for 2019. In our Adjusted EPRA EPS we eliminate the spreading of the rent concessions which is required by IFRS, instead reporting to you our earnings on a basis that reflects the cash flow impact of these concessions over the limited period over which they apply which is a 10.5 pence per share reduction in earnings in 2020. On this adjusted basis, the impact of the rent concessions is at its greatest in the 2020 financial year. Since the end of 2020, annualised rent receivable after rent concessions has increased by £5.8 million as a result of the increase in the Travelodge rents for the 2021 calendar year and the expectation is that 2022 will see a return in full to the originally contracted rent profiles.

In our interim results announcement, we reported that at 30 June 2020 the Company's shares stood at a 30% discount to EPRA NTA. At 31 December 2020, with the shares having closed at 300.0 pence per share the discount was 21%. On 9 March 2021 the discount had further narrowed to 6.7% at the closing price of 354.0 pence per share. The Board regularly examines options for managing any persistent share price discount including the risks and benefits of buying in the Company's shares with the aim of eliminating the share price discount while enhancing net asset value per share. To date, our conclusion has been that any positive impact would be marginal without allocating a substantial proportion of the Company's liquidity buffer to a share buy back, and that the resultant increase in Net LTV and reduction in the options available to the Company to deploy surplus cash for opportunities or liability management would outweigh the potential benefits. This remains under very regular review and re-assessment. However, we note that during 2020 the Board and Management Team invested £0.6 million in shares purchased on the market and the Management Team invested a further £5.3 million of cash in their interests in the Company through buying out a retiring non-executive director in the management company. The team remains energised, committed and aligned with all shareholders.

Outlook

The Government's road map envisions the reopening of outdoor visitor attractions from mid-April, followed by indoor activity in most hospitality assets permitted from mid-May, with the caveat that these dates are not cast in stone. The expectation that the rollout of vaccinations to the entire UK adult population by the middle of this year provides much stronger foundations for an enduring release from the impact of the pandemic. The capital markets reflect this view, pricing in a strong recovery in both the publicly traded equity and debt of many companies in the leisure and hospitality sectors. While many of our leisure and hospitality assets have been closed for an extended period, 78 of our 123 hotels are already open, serving those unable to work from home. But we expect clear benefits for our leisure, hotels and pubs tenants from the easing of restrictions anticipated in May. In the meantime, our healthcare assets have proved very resilient and remain in strong demand, further underpinned by an NHS tender valued at £10 billion over four years to the independent hospital sector to try to clear the backlog of procedures.

The pandemic has created a recession unlike any other with its economic effects felt very unevenly - devastating for a minority but leaving a surprising number financially untroubled. Lockdown restrictions have pushed up household savings ratios to record levels, creating high levels of enforced savings in the UK which provide the means to accompany the natural desire to make the most of leisure and hospitality when it reopens. In tandem, the unprecedented size and nature of Government financial support has driven down interest rates to record lows and unleashed a surge of liquidity seeking a suitable investment home - a home that may soon require inflation protection. Highly expansionary monetary policy has seen the Bank of England continue to increase its quantitative easing programme to a level over four times higher than after the Great Financial Crisis. With debt levels hitting unprecedented heights the Government has a strong incentive to manage its cost and deflate its value by letting inflation run above interest rates. Unfortunately, the other side of the same coin is the prospect of a protracted period of negative real interest rates which would pose a challenge for savers. This is where REITs with long-dated Inflation linked leases can prove their worth, delivering healthy dividend yields and inflation protection.

Unfortunately, the pandemic has disrupted the businesses of our leisure and hospitality tenants but there are increasingly good grounds to believe that this will prove temporary. Theme parks and budget hotels typically recover quickly from any economic downturn and we were encouraged by the speed with which their trade began to rebuild last summer after the first lockdown. It is still possible that there will be further bumps along the road, however, and we consider it prudent to continue to hold high levels of cash as a shock absorber. The Management Team has a long-established track record of delivering strong performance in public markets and rarely have their property vehicles traded at a persistent discount to net asset value. We remain committed to ensuring that the share price reflects the prospects of our business and the resumption of its growth trajectory.

Martin Moore

Chairman

10 March 2021

Investment Adviser's Report

Prestbury Investment Partners Limited, investment adviser to Secure Income REIT Plc, presents this report on the operations of the Group for the year ended 31 December 2020. Capitalised terms within this report are explained in the glossary that follows the financial information.

Our Management Team together owns 12.4% of the Company, worth £152.3 million at 31 December 2020 EPRA NTA, making ours the largest management holding by value of any UK REIT. Every member of the team holds a personally significant investment in Secure Income REIT. We believe that this aligns our interests very strongly with those of all shareholders and motivates us to work hard to deliver attractive risk adjusted returns for all shareholders over the medium to long term.

Secure Income REIT was created to provide attractive long term returns. The reporting cycle of half year and annual results necessarily focuses on those discrete six-monthly periods and we appreciate the relevance of short term performance for many investors. However, the performance of the business over the medium to longer term and its prospects over similar timescales remains the principal focus of the Management Team and Board, as we consider that this leads to better decision making and therefore better outcomes in the long run.

In this report, we aim to explain the fundamentals of the business, the unique characteristics underlying the property portfolio including the key terms of the leases and the important features of the tenant operations that stand behind the lease obligations and therefore underpin the value of this Company. Our assessment of the tenant operations this year is focussed in large part on the impact of the Covid-19 pandemic, but we also look to their past performance and the medium and longer term prospects for their businesses and their potential impact upon the Group.

The performance of the Company since the onset of the pandemic breaks a long track record of strong performance year on year and in each reporting period. However, as we emerge from the pandemic the reasons for investing in the Company set out in our explanation of the business model remain as valid as they have been since it listed in 2014.

The business model

The Company is a UK REIT specialising in real estate assets that provide long term rental income with inflation protection. The business is financed with leverage considered by the Board to be appropriate to asset specific and wider market risks, with significant in-built protections intended to enhance returns for shareholders without taking undue borrowing risk.

The Board exercises strict asset selection and stress testing criteria for acquisitions with a view to delivering income streams that are not just long, but also secure and predictable. The Board seeks to build on the Company's existing, high quality portfolio by only sourcing assets let on long leases to businesses of appropriate financial strength or backing by residual asset value, and with inflation protected rental streams whether by way of fixed uplifts or inflation linked reviews. Acquisitions should be accretive to shareholder returns and meet the following criteria:

i) the properties should be Key Operating Assets: assets that are essential for the tenant to carry out their business and generate earnings, and which the tenant is therefore significantly more motivated to invest in and to retain in order to continue to generate earnings;

ii) the relevant businesses should be in sectors which are likely to be more resilient to disruption from technology, including the internet, to economic downturn or other threats to their sustainability including climate risk; and

iii) the properties should have high barriers to entry, making them difficult to replace whether by way of the costs of acquiring and developing the assets in question (for example, the significant investment and planning challenges required to create a theme park or hospital), of building the networks and brand investments that underpin the operations of a business (for example, the nationwide coverage of the Budget Hotels portfolio and its 81 year old brand) or in some cases, such as the Budget Hotels portfolio, where assets are held by the Company at a significant discount to replacement cost.

By meeting these tests, the Board considers that tenants should be more likely to renew or extend their leases and to continue to invest in the assets, transferring the burden of obsolescence from the owner to the occupier and thus preserving value for the Company's shareholders.

While any investment is required to have a Weighted Average Unexpired Lease Term of 15 years or more at the time of acquisition, income longevity alone is not enough. When we and the Board consider how sustainable the rental income is likely to be, we evaluate various aspects of income security including:

i) protections at site level, such as the profitability of a given site enhancing its attractiveness to the incumbent and alternative operators, high residual value and alternative use value;

ii) protections relating to the tenants, including financial strength, the sustainability of their business models, the strength of any restrictions relating to lease assignability and the spread of tenant operations, whether that is by segment or geography; and

iii) protections afforded by any lease guarantor in addition to the direct tenant, including its financial strength and spread of operations which add to those at site and tenant level.

Financing the assets that meet these criteria with a combination of equity and appropriately structured debt means that returns to shareholders can be enhanced in a way that properly reflects risk. To date all credit facilities have been strictly non-recourse secured credit facilities where the equity at risk is limited to the net assets within ring-fenced subgroups. There are currently six such subgroups which are self-contained, with no cross-default provisions between them. In all cases, substantial financial covenant headroom was negotiated into the credit agreements at the outset together with appropriate cure rights where cash can be diverted to a security group to maintain covenant compliance if that becomes necessary. As new investments are acquired or existing facilities refinanced, or if debt market conditions change, the appropriateness of the financing structure is kept under review in order to deliver well priced borrowings while protecting shareholders' equity. We recognise that the additional protections can increase the cost of debt and that trade-off is evaluated relative to the risks in the specific assets and in the debt structure. Where equity is raised to finance acquisitions, the Board has undertaken that share issues will be at or above net asset value in order to protect against dilution of shareholder returns.

With the Group's debt costs largely fixed and its running costs predominantly represented by the advisory fee which is a simple calculation on a reducing scale relative to net asset value (further explained in note 25c to the financial information), the medium to long term prospects for shareholder returns on the basis of a small number of simple assumptions are largely predictable and transparent.

The portfolio

The Group held 161 properties at 31 December 2020 with contracted annual passing rent before Covid related concessions of £113.3 million and a very long Weighted Average Unexpired Lease Term of 20.2 years without break. Movements in the independent property valuations and passing rents together with the key terms of leases are set out in the following sections. First though, we set out the Covid-related temporary concessions granted, as these have had a significant impact on the results of the Group for the year and its financial position at 31 December 2020.

Covid-19 tenant support provided

The Covid-19 pandemic presented a great many businesses globally with major challenges, most particularly in the hospitality and leisure sectors, and this Company and its tenants have not gone unscathed from the impact of the lockdowns in the UK and elsewhere. The resilience of this Company and that of our tenants has certainly been tested, but all have thus far proved to be able to withstand these extraordinary events.

As reported in the 30 June 2020 interim results, the sudden forced closure of all of the Group's leisure and hospitality assets and the majority of its Budget Hotels created immediate operational and liquidity pressures on certain tenants. As a result, the Company granted rent concessions, tailored in each case to provide the breathing space needed to assist our tenants with the recovery of their businesses and in so doing to support the Company's return to its own growth trajectory. Under current arrangements all rents are contracted to revert to the levels set out in the original lease terms by January 2022 at the latest. No rent reductions have been granted with enduring effect on cash flows after January 2022.

Concessions agreed prior to 30 June 2020 and disclosed in the June 2020 interim results

· Merlin Entertainments Limited took prudent action in April 2020 to significantly bolster its liquidity position, and part of the package of measures was an open and constructive discussion and then agreement with the Company (and a number of its other landlords) to reschedule certain rental payments. Deferrals of quarterly rents due in June 2020 and September 2020 amounting in total to £17.8 million (£17.7 million at the year end exchange rate) were agreed with the Company. The deferred rent is receivable in September 2021. Rents reverted to their originally contracted payment schedule from the December quarter and that rent was received in full when due.

· In direct response to the pandemic and having had to close almost all of its over 570-strong hotel network in March 2020, Travelodge launched a Company Voluntary Arrangement ("CVA") which was approved by its creditors in June 2020. As a result, rent of £14.5 million was foregone by the Group in the 2020 financial year (including £0.2 million of the rental uplifts that took effect during the year). The annualised cash rents receivable from Travelodge increased by £5.6 million with effect from January 2021 and will return to their original contractual levels and terms in January 2022. At that point, the uplifts from the RPI-linked rent reviews that would have been receivable in the concession period will also become due. Certain other lease variations were also agreed as part of the CVA including the payment of the majority of rents monthly rather than quarterly during the concession period.

Unusually for a CVA, Travelodge did not use the process to exit any of its leases, preferring to keep as much of its estate intact as possible, demonstrating the value of maintaining a national network with sophisticated yield management systems and perhaps a reflection of the fact that the business had been performing well before the pandemic, with a strong five year track record of profits growth and sector outperformance in its key metric of revenue per available room.

· A six month rent free period, reducing rent by £1.1 million, was agreed in respect of the Stonegate pubs portfolio from April 2020 in consideration for extending lease terms from 19.6 to 25.0 years and strengthening the lease alienation clauses. The rent free period ended in September 2020 and rents have reverted to their originally contracted level since then.

Concessions agreed subsequent to the 30 June 2020 interim results announcement

Rent concessions granted since the interim results announcement relate only to changes in the timing of rental receipts for limited periods, with the amounts receivable over the relevant lease terms unchanged. The following changes were agreed between 1 July and 31 December 2020:

· The Board agreed with Travelodge that any rents that were still receivable on a quarterly payment schedule following the CVA, totalling £0.8 million for the quarter, would instead be receivable in monthly instalments between January and March 2021 before reverting to their originally contracted quarterly payment schedule in April 2021.

· Quarterly rents of £0.8 million receivable in respect of the Brewery on Chiswell Street in each of September 2020, December 2020 and March 2021 are instead receivable in equal instalments, monthly in advance.

· A deferral totalling £0.1 million of rent from TeamSport, a tenant at Manchester Arena, for the period from May to September 2020, was agreed. The amount will instead be receivable in equal monthly instalments over 18 months commencing in January 2021.

The Company has experienced very low levels of arrears of rent, as demonstrated by the rent collection statistics presented later in this report. No further concessions have been granted since 31 December 2020.

Earnings and cash flow impact of concessions

The impact of rent concessions on Adjusted EPRA EPS for the 2020 financial year is a reduction of £33.3 million in rent plus costs of £0.7 million, amounting to 10.5 pence per share in total. Assuming that there are no changes in the composition of the portfolio or further variations to any of the leases, we are also able to reliably predict the impact on 2021 earnings, which is expected to be a positive effect of £8.8 million or 2.7 pence per share. Only the 2020 and 2021 financial years are affected by concessions granted to date, after which the Adjusted EPRA earnings and cash flows are expected to revert to their pre pandemic trajectory.

	Year to 31 December 2020 actual £m	Year to 31 December 2021 contracted * £m
Annualised contractual rent before concessions at start of year	110.7	113.3
Fixed rental uplifts	0.7	1.1
RPI uplifts (expected uplifts in 2021 estimated in line with RPI swap curve)	0.9	0.7
Expiry of Manchester car park lease net of new operating agreement	(1.0)	-
Exchange rate movement	0.3	-
Expected rent before temporary concessions	111.6	115.1
Merlin leisure rent deferral	(17.8)	17.7
Exchange rate movement on Merlin leisure rent deferral	0.1	-
Budget Hotels rent reduction	(14.3)	(8.6)
Reduction in Budget Hotels rental uplifts for 2020 and 2021	(0.2)	(0.3)
Rent on Stonegate pubs reduced for two quarters in exchange for improved lease terms	(1.1)	-
Rental cash flow impact of temporary concessions	(33.3)	8.8
Annualised cash rent receivable	78.3	123.9

	Year to 31 December 2020 actual £m	Year to 31 December 2021 contracted * £m
Rental cash flow impact of concessions	(33.3)	8.8
Costs of concessions charged to direct property costs	(0.7)	-
Impact on Adjusted EPRA Earnings (£m)	(34.0)	8.8

Impact on Adjusted EPRA EPS (Pence)	(10.5)p	2.7p

* this is an illustration of rents receivable on their current contractual terms and is not a profit forecast.

The impact of the rent concessions on IFRS earnings reflects the spreading of those concessions over the remaining, very long period to the end of each lease. This has the effect of muting the impact of the concessions such that they reflect a materially smaller impact each year for a very long time. In the case of the deferred Merlin rent, which is reflected in the Adjusted EPRA earnings on a cash basis, the IFRS results do not change as a result of the variation in timing of the receipt.

	Year to 31 December 2020 actual £m	Year to 31 December 2021 contracted * £m
Rent before temporary concessions	111.6	115.1
Budget Hotels rent reduction spread over average remaining 22 year lease term	(0.9)	(1.4)
Pubs rent reduction in 2020 spread over average remaining 25 year lease term	-	(0.1)
Decrease in revenue from concessions on an IFRS basis	(0.9)	(1.5)
	110.7	113.6
Other adjustments to cash rents reported in the income statement:
Rent smoothing adjustments from originally contracted uplifts	8.9	7.3
Recovery of head rent and other service charge costs	1.7	1.7
Back rent recognised from 2017 hospitals rent review	0.4	0.4
IFRS rent receivable in the income statement	121.7	123.0

* this is an illustration of rents receivable on their current contractual terms and is not a profit forecast.

The IFRS rental income already includes rent smoothing in respect of the leases where rent concessions were granted, amounting to £0.9 million. Therefore, the incremental increase from the IFRS basis of measurement to Adjusted EPRA earnings is an additional £32.4 million of rent smoothing, bringing the total to £33.3 million.

The accounting policies for rent concessions and their impact on earnings are explained in the Financial Review section of this Investment Adviser's Report and in note 2d to the financial information.

No Group or Investment Adviser Covid-19 support received

Neither the Group nor the Investment Adviser or any part of the Investment Adviser's group has taken advantage of any Government support packages offered to businesses during the pandemic. No employees of the Investment Adviser or its wider group have been furloughed or laid off and their salaries have continued to be paid in full.

Rent collections

Over the 2020 financial year, the Group reported only minimal rent arrears following each quarterly collection cycle. Collection rates for each quarter were as follows:

	25 March to 7 April 2020 £m	24 June to 7 July 2020 £m	29 September to 7 October 2020 £m	25 December 2020 to 7 January 2021 £m
Originally contracted	27.3	27.5	27.6	27.8
Rent concessions:
Deferred	-	(8.9)	(8.9)	-
Reduced	(4.8)	(4.9)	(4.8)	(2.2)
Rescheduled to monthly payment	-	(1.0)	(1.6)	(4.0)
Due in the period	22.5	12.7	12.3	21.6
Collected on or before the due date	(20.2)	(12.7)	(12.3)	(21.3)
Collected after the due date but before 31 December 2020	(2.3)	-	-	-
Rent arrears at 31 December 2020	-	-	-	0.3
Collected subsequently *		-	-	(0.3)
Rents demanded prior to 31 December 2020 in arrears at the date of this report	-	-	-	-

Collected within seven days (%)	89.8% ^*	100.0%	99.9%	98.6%

* the collection rate for the March and April rent collections is lower as a result of the delay in receipt of Travelodge rents while their CVA ran its course. The rents as amended by the CVA were received after the conclusion of that process.

The portfolio

Portfolio rents and valuation

The portfolio is valued by qualified independent external valuers every six months.

	Leisure		Healthcare		Budget Hotels		Total
Passing rent before concessions	£m	Change	£m	Change	£m	Change	£m	Change
31 December 2019	46.8		35.6		28.3		110.7
Uplifts	0.3	0.7%	1.0	2.8%	0.9	2.9%	2.2	2.0%
Exchange rate movement	0.4	0.9%	-	-	-	-	0.4	0.3%
Total movement in rents	0.7	1.6%	1.0	2.8%	0.9	2.9%	2.6	2.3%
31 December 2020	47.5		36.6		29.2		113.3

	Leisure		Healthcare		Budget Hotels		Total
Valuation	£m	Change	£m	Change	£m	Change	£m	Change
31 December 2019	851.9		748.4		482.8		2,083.1
Revaluation	(65.2)	(7.6)%	20.7	2.8%	(98.0)	(20.3)%	(142.5)	(6.8)%
Exchange rate movement	6.3	0.7%	-	-	-	-	6.3	0.3%
Total revaluation movement	(58.9)	(6.9)%	20.7	2.8%	(98.0)	(20.3)%	(136.2)	(6.5%)
31 December 2020	793.0		769.1		384.8		1,946.9

	Leisure		Healthcare ^{^}		Budget Hotels		Total
Yields	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
Topped Up Net Initial Yield *	5.54%	5.07%	4.46%	4.46%	7.10%	5.50%	5.42%	4.95%
Running Yield by January 2022 †	5.76%	5.35%	4.58%	4.71%	7.21%	5.83%	5.58%	5.25%

* Topped up Net Initial Yield ignores the rent concessions, all of which are temporary

^ the healthcare valuation and yields take no account of any uplift from an outstanding May 2018 open market rent review on the Ramsay hospitals; the Ramsay rents account for 94% of the healthcare rents at 31 December 2020

† the Leisure and Budget Hotels Running Yields are calculated using the independent external valuers' estimates of RPI averaging 2.5% per annum (2019: 2.6% per annum)

The independent external valuation of the properties has fallen by 6.5% in the year. Overall, the blended Topped Up Net Initial Yield has risen in aggregate by 47 basis points since 31 December 2019 of which 10 basis points represents the movement since 30 June 2020. The 20.3% reduction in the valuation of the Budget Hotels portfolio, all of which occurred in the first half of the year, accounts for 72% of the total valuation movement in the year.

The Leisure and Budget Hotels valuations at 31 December 2020 have been reported by the independent external valuers as being subject to material valuation uncertainty in light of Covid-19, based on the provisions of the Royal Institution of Chartered Surveyors' guidelines in force at that time and consistent with the approach taken for the 30 June 2020 valuations. No material valuation uncertainty applied to the 31 December 2019 valuations. The valuation of the healthcare assets, which account for 39.5% of investment properties at independent valuation, are not subject to the material valuation uncertainty proviso. Material valuation uncertainty does not mean that the valuations cannot be relied upon, but that less certainty can be attached to them than would otherwise be the case and is further explained in note 11 to the financial information. Furthermore, this did not impact on the overall audit opinion, which is unqualified.

Basis of rent reviews

The rents on three of the portfolios have been subject to deferrals or reductions in the short term and of those, only one, the Budget Hotels, remains within the period over which rents demanded are reduced. On the basis of the concessions granted to date all rental cash flows are contracted to revert to their originally contracted terms by, at the latest, January 2022. As all rents are expected to revert to originally contracted terms within ten months of the date of this report, the income that will arise on the portfolio still benefits from fixed contractual rental uplifts which average 2.8% per annum on 41% of the income and upwards only RPI-linked rent reviews on 58%, with the remaining 1% subject to upwards only open market reviews. Two thirds of the rent is subject to annual review, giving the Group the benefit of frequent capture of any uplifts.

	31 December 2020			31 December 2019
Percentage of passing rents	Reviewed annually	Reviewed three or five yearly	Total portfolio	Total portfolio
Upwards only RPI:
Uncapped	25%	27%	52%	53%
Collared	4%	2%	6%	6%
Total upwards only RPI-linked reviews	29%	29%	58%	59%
Fixed uplifts:
Annual reviews	38%	-	38%	38%
Five-yearly reviews	-	3%	3%	3%
Total fixed uplifts	38%	3%	41%	41%
Open market reviews	-	1%	1%	-
Total portfolio	67%	33%	100%	100%

The increases in passing rent during the year from both fixed and RPI-linked uplifts take effect as follows:

	Leisure £m	Healthcare £m	Budget Hotels £m	Total £m
Paid current	(0.3)	1.0	-	0.7
Deferred to:
September 2021	0.6	-	-	0.6
January 2022	-		0.9	0.9
2020 total at constant currency	0.3	1.0	0.9	2.2
Exchange rate movement	0.4	-	-	0.4
Total uplifts in passing rent	0.7	1.0	0.9	2.6

The net uplift on Leisure passing rent includes a £0.3 million fall as a result of the expiry of the car park lease at Manchester Arena. The £0.6 million uplift on the theme parks took effect in June and July 2020 and the uplift relevant to the deferred rent receivable in June and September 2020 is therefore deferred to September 2021. The uplift in subsequent quarters is unaffected by the rent concession. The terms of the Travelodge rent concessions are such that the contractual provisions relating to the rent reviews continue throughout the concession period but with any rental increases being receivable at the end of that period, in January 2022, and discounted at the relevant CVA rate. Consequently, the capture of these rental uplifts is deferred and becomes receivable within the next nine months. Review provisions in the Healthcare portfolio are unaffected by the rent concessions.

Changes in RPI calculation methodology from 2030

In November 2020, the UK Government and UK Statistics Authority announced changes to its calculation of RPI such that it will align with the Consumer Prices Index ("CPIH") from February 2030. The exact impact on the RPI clauses in the Group's leases will depend on precisely how the UK Statistics Agency implements the change. On a downside basis, if rents were to follow CPIH which has been on average 0.8 percentage points lower than RPI over the past ten years and assuming a differential continues, the rent uplifts from 2030 onwards would be lower than they would otherwise have been. However, the Group's lease provisions may provide protection so that there would be no change in some or all cases. In the event that rental uplifts do change from 2030, any valuation impact in such circumstances would be expected to be insignificant as the market tends not to differentiate materially between RPI and CPIH lease structures, with the other property characteristics carrying greater weight in establishing pricing.

Lease lengths

The Group's leases are very long with a Weighted Average Unexpired Lease Term of 20.2 years without break from 31 December 2020.

	Leisure *		Healthcare		Budget Hotels		Total
	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019	31 Dec 2020	31 Dec 2019
Weighted Average Unexpired Lease Term (years)	22.1	22.5	16.8	17.8	21.4	22.4	20.2	21.0

* The Leisure portfolio WAULT has shortened by less than 12 months as a result of the extension of the leases on the Pubs portfolio from 19.6 years to 25.0 years in July 2020 and the new longer term arrangements for the car park at Manchester Arena which replaced a lease that expired in March 2020

The portfolio Weighted Average Unexpired Lease Term of 20.2 years is significantly longer than that of any other major UK REITs (defined as those with a market capitalisation in excess of £1 billion). 98% of contractual passing rents have an unexpired term without break of more than 16 years.

No material vacancies or landlord costs

The portfolio is fully let. All occupational leases are on full repairing and insuring ("FRI") terms, meaning that overall, the Group's property running costs are low and there is only a very modest capital expenditure requirement. There is one small income stream relating to the car park at Manchester Arena that arises from an operating agreement rather than an FRI lease, which currently accounts for a negligible percentage of the Group's income.

Portfolio total rents

The Group's principal lease counterparties, analysed by contractual passing rent before concessions as at 31 December 2020, are as follows:

Tenant or guarantor	31 December 2020 £m	31 December 2019 £m
Merlin Entertainments Limited *	35.6	34.5
Ramsay Health Care Limited	34.4	33.5
Travelodge Hotels Limited	29.2	28.3
SMG & SMG Europe Holdings Limited	4.0	4.0
The Brewery on Chiswell Street Limited	3.4	3.4
Orpea SA	2.2	2.1
Stonegate Pub Company Limited	2.2	2.0
Others (each below £1.3 million) †	2.3	2.9
	113.3	110.7

* £7.1 million (2019 £6.6 million) of the Merlin rents are Euro denominated

† including £0.5 million of estimated variable net income for the car park at Manchester Arena

Further information on the principal portfolio tenants and guarantors is given within the portfolio analyses that follow.

Leisure assets (41% of portfolio value)

Contracted rents before temporary rent concessions	31 December 2020 £m	31 December 2019 £m
UK assets	40.4	40.3
German assets (at constant Euro exchange rate)	7.1	6.9
	47.5	47.2

The Company's leisure assets are:

· four well established large scale visitor attractions with accommodation operated by Merlin Entertainments Limited;

· Manchester Arena, a city centre 20,000 capacity indoor arena;

· The Brewery, one of London's largest catered events venues on Chiswell Street in the City of London; and

· a portfolio of 18 freehold high street pubs located in England and Scotland.

The Merlin assets include two of the UK's top three resort theme parks by visitor numbers, Alton Towers and Thorpe Park, as well as Warwick Castle, and including all the on-site accommodation at the three attractions. The German assets operated by Merlin are the Heide Park resort theme park and hotel in Soltau, Saxony, which is the largest in Northern Germany. These assets are all held freehold and are let to subsidiaries of Merlin Entertainments Limited, which owns all of Merlin's operating businesses worldwide and which is the guarantor of all lease obligations for these assets. Measured by the number of visitors, Merlin is Europe's largest and the world's second largest operator of leisure attractions, second only to Disney.

Merlin is a private business owned by a consortium of substantial, established, long term investors that took the business private in 2019 at a price representing an enterprise value of some £6 billion. Merlin's owners are Kirkbi, the majority owners of the Lego business who have been invested in Merlin since 2005 and which own 50%, together with Blackstone Core Equity, a long term fund with Blackstone's latest reported assets under management over £400 billion, and Canada Pension Plan Investment Board, one of the world's largest pensions investors with latest reported assets under management of over £230 billion. During the pandemic, Merlin has been able to access capital from public bond markets as part of their liquidity management strategies. The quoted pricing for Merlin's publicly traded 5.75% bonds maturing in 2026, which have been in issue since before the onset of the pandemic, have recovered to within 3% of their pre pandemic price (taking the quoted price at 1 January 2020) and were trading above par at a yield to maturity on 9 March 2021 of 4.5%. Nick Varney, Merlin Entertainments Limited's Chief Executive, commented in March 2021 that "after a very challenging year for the group, our experience in between lockdowns and our exciting future investment proposals for the UK and German theme parks allows us to look forward to the future with confidence that we can continue with our pre Covid-19 growth trajectory."

The average term to expiry of the Merlin leases is 21.5 years without break from 31 December 2020 and the tenants have two successive rights to renew for 35 years at the end of each term. The leases are on full repairing and insuring terms. There are upwards only uncapped RPI-linked rent reviews on the UK properties every June throughout the term (based on RPI over the 12 months to April each year), which in 2020 resulted in a rental increase of 1.5%. The German properties are subject to fixed annual increases of 3.34% every July throughout the term, as a result of which the German rents increased from £6.9 million to £7.1 million on 30 July 2020 (translated at the 31 December 2020 exchange rate).

Manchester Arena is a long leasehold strategic site of eight acres which is located on top of Manchester Victoria Railway and Metrolink station. It comprises the UK's largest indoor arena by capacity, some additional 160,000 sq ft of office and leisure space, a multi-storey car park with approximately 1,000 spaces, and other income sources.

The Arena is let to SMG and SMG Europe Holdings Limited, part of ASM Global, with 24.5 years unexpired without break from 31 December 2020. The annual rent is £4.0 million (before headrent) and is reviewed annually every June in line with RPI, collared between 2% and 5%, which in 2020 resulted in a rental increase of 2.0%.

ASM Global was created by a merger of AEG Facilities and SMG in October 2019 and is the world's largest venue management company, operating over 300 venues in 21 countries and with pro forma annualised 2019 revenues of $500 million estimated at the time of the merger. The ASM management team has been in regular dialogue with us. The arena has been closed throughout the pandemic period and the Government's roadmap for easing lockdown restrictions permits it to reopen from 21 June 2021, with the expectation that it is likely to be fully operational from September 2021. All Arena rents have been paid when due. The offices and ancillary leisure space at Manchester Arena is let to tenants including Serco, Unison, JCDecaux and go-karting operator TeamSport. The leases on the Manchester site as a whole have an average term to expiry of 17.1 years from 31 December 2020 and produce net passing rent of £5.7 million per annum at that date.

The Brewery on Chiswell Street is a predominantly freehold investment let to an established specialist venue operator on a full repairing and insuring lease. It provides the largest catered event spaces in the City of London and is located within five minutes' walk of the Moorgate entrance to the new Crossrail Station at Liverpool Street. As with Manchester Arena, the Brewery has been closed throughout the pandemic period but is permitted to reopen from 21 June 2021 and is likely to be fully operational from September 2021.

The lease term to expiry is 35.5 years without break from 31 December 2020 and the lease provides for five-yearly fixed uplifts of 2.5% per annum compounded. The passing rent is £3.4 million per annum as at 31 December 2020 and the next rental uplift to £3.8 million will take effect in July 2021.

The portfolio of 18 high street pubs produces passing rent of £2.2 million per annum as at 31 December 2020 and the leases have an average term to expiry of 24.5 years without break. The pubs are currently closed but will be able to open for indoor trading from 17 May 2021.

The pubs are let on individual leases either to, or guaranteed by, Stonegate Pub Company Limited, the largest pub company in the UK, with over 4,500 pubs following its March 2020 acquisition of Ei Group for £1.27 billion. Stonegate has been able to access public debt markets during the pandemic period in support of the group's liquidity needs. Stonegate's Sterling bonds maturing 2025, issued in July 2020, were trading above par at a yield to maturity of 7.0% at close on 9 March 2021.

Rents are subject to five-yearly RPI-linked increases collared between 1% and 4% per annum compounded. The rent reviews in February 2020 resulted in an increase in passing rent of £0.2 million per annum (13.2% or 2.5% per annum compounded).

Healthcare assets (39% of portfolio value)

Passing rents	31 December 2020 £m	31 December 2019 £m
Ramsay hospitals	34.4	33.5
London psychiatric hospital	2.2	2.1
	36.6	35.6

The Group's healthcare assets, 11 freehold private acute hospitals and a central London freehold psychiatric hospital, have continued to trade throughout the year and since the year end, with no rent concessions required. The private hospitals are located throughout England and are let to a subsidiary of Ramsay Health Care Limited, the ASX50 listed Australian healthcare company. The psychiatric hospital, the only private facility of its kind in Central London, is let to Groupe Sinoué, a very substantial French company specialising in mental health care.

The Ramsay hospitals are let on full repairing and insuring leases with a term to expiry at 31 December 2020 of 16.3 years without break. The rents increase in May each year by a fixed minimum of 2.75% per annum throughout the lease term. Following the May 2020 fixed uplifts, the rents on the Ramsay portfolio increased from £33.5 million to £34.4 million per annum. In addition, there is an upwards only open market rent review within each lease as at 3 May 2018 and then in May 2022 and every five years thereafter. The May 2018 open market review remains outstanding. It is subject to a formal arbitration process which was put on hold by agreement between the parties during 2020, to allow Ramsay management to fully focus on its pandemic response and because the arbitrator would have been unable to inspect the hospitals during the lockdowns. Given the uncertainty over the time taken to resolve the arbitration and the nature of that process, there are currently no indications of the likely review outcome and this financial information takes no account of any potential increase in rental income that may arise from it.

The leases on the Ramsay hospitals are all guaranteed by Ramsay Health Care Limited, the listed parent company of one of the top five private hospital operators in the world and the largest operator of private hospitals in Australia, France and Scandinavia. Ramsay is a constituent of the ASX 50 index of Australia's largest companies, with a market capitalisation at 9 March 2021 (and using the exchange rate on that date) of £8.1 billion (£6.5 billion at 10 March 2020).

The Ramsay hospitals have continued to trade without pause throughout the pandemic and, through their contracts with the NHS, have provided guaranteed capacity to the NHS to tackle the Covid crisis at cost (including the cost of their rents) since late March 2020. Ramsay reported in February 2021 that they had treated more than 500,000 NHS patients over this period, more than any other provider in the independent sector. They also noted that private patient volumes showed some recovery between lockdowns. Ramsay UK is currently operating under a new volume-based agreement with NHS England from 1 January to 31 March 2021 under which the NHS may trigger a peak surge period on seven days' notice should Ramsay's capacity be required to enable the NHS to respond to Covid cases. Importantly, Ramsay is able to continue providing private patient services under the new agreement. They have provided similar support in the other jurisdictions in which they operate. Control of their hospital capacity worldwide is being gradually regained, allowing Ramsay both to return to their more profitable core private healthcare business and to participate in the very significant backlogs of NHS and private patient treatment in the UK and elsewhere. This is expected to include their participation in the NHS's £10 billion tender process for independent providers which is currently underway in England.

The London psychiatric hospital is let on a full repairing and insuring lease with a term to expiry at 31 December 2020 of 23.6 years without break. The rent increases in May each year by a fixed 3.0% per annum throughout the lease term and as a result increased from £2.1 million to £2.2 million on 3 May 2020. The lease is guaranteed by Orpea SA, a leading European operator of nursing homes, post-acute care and psychiatric care, listed on Euronext Paris with a market capitalisation at 9 March 2021 (and using the exchange rate on that date) of £5.7 billion (£5.8 billion at 10 March 2020).

Budget Hotel assets (20% of portfolio value)

31 December 2020

£m

31 December 2019

£m

Contracted rents before temporary rent concessions

29.2

28.3

At 31 December 2020 the Group owned 123 (2019: 123) Travelodge hotels in England, Wales and Scotland, let to Travelodge Hotels Limited which is the main operating company within the Travelodge group trading in the UK, Ireland and Spain. Travelodge is the UK's second largest budget hotel brand, with 586 hotels and over 44,500 rooms as at 31 December 2020.

As a response to liquidity issues created by the forced closure of nearly all of their more than 570 hotels, Travelodge concluded a Company Voluntary Arrangement (CVA) in June 2020. As a consequence of the CVA, £14.5 million of rent (including £0.2 million of RPI uplifts) was foregone by the Group in the 2020 financial year and rent for the 2021 financial year will be £8.9 million (including £0.3 million of RPI uplifts) lower than the originally expected rental cash flows. Rents are due to return to the levels originally contracted from January 2022. Travelodge rents are currently receivable monthly in advance and all rent demanded under the terms of the CVA has been received when due.

A feature of Travelodge's CVA was a landlord option to break leases at no cost, which applied to 119 of the Group's 123 leases and which was exercisable on the majority of those prior to 20 November 2020. Against the background of a still challenging environment, the Management Team and Board conducted extensive analyses as to whether the prospects of the Group would be better served by retaining the current lease arrangements, seeking to lease to alternative operators or selling part or all of the Budget Hotels portfolio. Ultimately the conclusion reached was that the current lease arrangements provided the best value opportunity for the Company's shareholders and the properties were retained. We note that the vast majority of landlords remained with Travelodge which, immediately after the lease break option period, operated 578 hotels compared with 588 hotels at 31 December 2019.

Travelodge is a major, established brand with very high levels of brand recognition and a strong pre-pandemic five year performance track record. In addition to the rent reductions secured by Travelodge through their CVA, the company received a £40 million equity investment from its shareholder group and completed a £65 million private debt placement in December 2020 to further support liquidity. Travelodge's publicly traded bonds that have been in issue throughout the pandemic period are trading at 8% lower than at the start of 2020, recovering from a decline of 38% in April 2020, and are trading at a yield to maturity of 7.6% at close of business on 9 March 2021.

One of the attractions of investment specifically in budget hotels rather than the wider hotel markets is their relative resilience in recessionary times. While we cannot examine the performance of the budget hotels sector following previous pandemics, we can look at periods of recessions and post recession recovery where it can be observed that budget hotels recover more quickly than the rest of the hotels sector. We understand that, consistent with the rest of the budget hotel sector, demand for bookings between lockdowns where hotels have been able to open has been relatively strong, particularly in leisure destinations. Travelodge reported on 12 February 2021 that, they have contained costs to below the lower end of their expected range in lockdown while revenues remain in line with those experienced in the November 2020 lockdown which, together with their decisive action to increase their liquidity through their private placement in December 2020, resulted in a better than expected £117 million cash balance at 3 February 2021. Travelodge management consider that their business is well positioned to benefit from any improvement in trading conditions, with its strong brand, direct distribution model, low-cost proposition and "class-leading" operating margins.

The average term to expiry of the Travelodge leases is 21.4 years from 31 December 2020 with no break clauses. The leases are on full repairing and insuring terms and Travelodge is also responsible for the cost of any headlease payments and other amounts owing to the freeholders of the 52 leasehold properties. There are upwards only uncapped RPI-linked rent reviews every five years throughout the term of each lease, with reviews falling due over a staggered pattern across the portfolio. Reviews arising during the CVA concession period, which runs to January 2022, continue to be calculated and documented but are reduced in line with the terms of the CVA and any remaining uplifts become receivable at the end of the concession period. Reviews on 39 budget hotels (22% of the portfolio by rental value) were agreed during 2020, with passing rent on those assets increasing by 13.3% from £6.3 million to £7.1 million, equivalent to an average uplift of 2.5% per annum. 24% of the passing rent will be reviewed in 2021, 39% in 2022, 11% in 2023 and 4% in 2024.

Financing

The Group's operations are financed by a combination of cash resources and non-recourse debt finance, where the equity at risk is limited to the net assets within six ring-fenced subgroups. Each subgroup is self-contained, with no cross-default provisions or cross collateralisation between the six of them. In all cases, substantial financial covenant headroom was negotiated into loan terms at their inception, together with appropriate rights to remedy certain breaches, where cash can be temporarily injected into a security group in order to maintain covenant compliance if and when that is considered the best course of action for the Company. The objective of this structure is to provide a reasonable level of ongoing protection for the Group against unexpected valuation movements or changes in income.

Where rent concessions have been agreed this has, in each case, been done with the consent of the relevant lenders. In certain cases this has also included covenant waivers during the concession period. Save for the waivers, the terms of the various loan agreements remain unchanged and we appreciate the open and constructive communications with our lenders through the pandemic period.

The Group's total gross debt decreased by £2.4 million in the year. Scheduled loan repayments of £4.4 million and £1.5 million repaid out of the net proceeds of non-core hotels sold in 2019 but completed in 2020 were offset by a £3.5 million increase from foreign currency translation movements on the Group's Euro denominated debt. Net debt has increased by £45.0 million, largely reflecting the impact of £34.6million of dividends paid in the year out of the Group's cash resources rather than from earnings and £11.8 million deployed in interest payments not covered by rent while the Merlin rents were temporarily deferred.

The Group's Net Loan To Value ratio increased from 31.9% to 36.4% over the financial year. The majority of this increase was reported in the six months to 30 June 2020 when the Net LTV was 35.3%, largely as a result of the valuation movements in the year being heavily weighted in the first half.

	Secured amounts	Unsecured amounts	Group total
	£m	£m	£m
Gross debt	928.3		928.3
Secured cash	(23.1)		(23.1)
Free cash *	(2.4)	(194.2)	(196.6)
Net debt	902.8	(194.2)	708.6

Property valuation			1,946.9

Net LTV			36.4%

* free cash within secured facilities is released to Company free cash after each quarterly interest payment date as long as all loan covenants are complied with.

Key terms of the facilities, ranked by maturity date

	Principal £m	Number of properties securing loan	Maximum annual interest rate	Interest rate protection	Annual cash amortisation	Final repayment date
Merlin leisure	380.4*	6	5.7%	Fixed	£3.8m†	Oct 2022
Budget Hotels 2	65.4	70	3.3%	80% fixed 20% capped	None	Apr 2023
Leisure: Arena, Brewery, Pubs	60.0	20	3.2%	83% fixed 17% capped	None	Jun 2023
Budget Hotels 1	59.0	53	2.7%	Fixed	None	Oct 2023
Healthcare 1	63.8	2	4.3%	Fixed	£0.3m	Set 2025
Healthcare 2	299.7	10	5.3%	Fixed	£3.2m	Oct 2025
Total	928.3	161	4.9%

* £316.0 million of senior and mezzanine Sterling loans and €71.6 million of senior and mezzanine Euro denominated loans translated at the year end exchange rate of €1:£0.90. All loan tranches within the total £380.4 million are cross-collateralised.

† amortisation in each of the years ending October 2021 and October 2022 comprises £3.2 million of the Sterling facility and €0.7 million of the Euro facility.

Interest rate risk is managed by either fixing or capping rates over the term of each loan. 97.5% of the Group's borrowings at 31 December 2020 are subject to fixed rates.

The weighted average interest cost in the year was 4.9% per annum, consistent with the prior year. Interest cover, measured for these purposes as annualised current passing rent after concessions divided by annualised interest cost, was 2.3 times at 31 December 2020. This is a modest decrease compared to the 2.4 times cover reported for the 2019 financial year, as a result of the cash flow low point of the rent concessions being historic at the point of testing. As the Budget Hotels rent reduction for 2021 amounts to less than 8% of total passing rent the impact on overall interest cover is relatively small.

There have been no defaults or potential defaults in any facility during the year or since the balance sheet date. The extent of headroom on financial covenants at the balance sheet date is analysed in the financial review on the following pages.

Financial review

EPRA measures

Together with the IFRS results reported in the financial information, we include in this report financial measures recommended by the European Public Real Estate Association ("EPRA") to facilitate comparison with other real estate investment companies. The calculation of the EPRA measures and their reconciliation to the financial information prepared under IFRS is presented in the Unaudited Supplementary Information which follows the financial information. In addition, the calculation of EPRA EPS is presented in note 10 to the financial information and EPRA Net Tangible Assets in note 23.

New EPRA guidelines became effective on 1 January 2020 and comparative figures have been provided on a consistent basis. The new EPRA guidelines set out three measures of Net Asset Value, each of which is disclosed and reconciled to the financial information in note 23 and in the Unaudited Supplementary Information. In this report we highlight EPRA Net Tangible Assets ("EPRA NTA") as the most meaningful measure of long term performance for the Company and the measure which is being adopted by the majority of UK REITs, establishing it as the industry standard benchmark. The Unaudited Supplementary Information also includes a calculation of EPRA NAV on the basis reported in prior years and a reconciliation of that measure to EPRA NTA, both for the purposes of comparison and because EPRA NAV continues to be used in the calculation of certain fees payable to the Investment Adviser, as explained in note 25b to the financial information.

Key performance indicators (KPIs)

The Board monitors the following key performance indicators and comments on performance against these KPIs in this report.

	Year to 31 December 2020	Year to 31 December 2019
Financial measures:
Total Accounting Return	- 8.0%	11.7%
Total Shareholder Return	- 27.3%	19.4%
Adjusted EPRA EPS	3.5p	15.3p
Net LTV ratio	36.4%	31.9%
Uncommitted Cash	£192.0m	£234.2m
Other measures:
Headroom on debt default covenants before any preventative cash cure or other remedial action:
Valuation headroom before tightest LTV default test would be triggered	32%	38%
Rent headroom before tightest projected interest cover default test would be triggered	29%	33%

Impact of rent concessions on KPIs and IFRS financial information

Recognising the Group's long term relationships with its tenants and the benefits to the Company of supporting their businesses through the impact of the Covid-19 pandemic and subsequent lockdowns, the Company provided support where it was needed. The forms of support provided are summarised at the start of this report, where we also highlight the altered cash flow profile of the Group's rental income during the year and the expected gradual restoration of the Group's contractual rental cash flows by January 2022.

In simple terms, the IFRS accounting standards applicable to the Group require that we calculate the rental income to be earned over the whole term of a lease (broadly the income that is contractually certain over the entire remaining term), and then recognise it in the income statement evenly over the term. Consequently, the Group's leases with fixed or fixed minimum uplifts (47% of the Group's total contracted pre-concession passing rent) require a 'smoothing' adjustment to reflect the mismatch between the rents actually receivable and those recognised in the income statement. The remaining 53% of the Group's rental income which is subject to RPI-linked or open market reviews is not subject to a smoothing adjustment. The revenue recognition accounting policy set out in note 2d to the financial information is consistent with these principles and the smoothing effect is explained in more detail in the Unaudited Supplementary Information which follows the financial information.

Applying these accounting policies and principles following the agreement of the rent concessions has affected the Group's IFRS income.

· The reduction in rent receivable from Travelodge reduces the Group's cash flows over the period from 1 April 2020 to 7 January 2022, with the original contractual rents receivable (and any accrued RPI uplifts arising in the concession period) due to be restored from January 2022. While the cash flow impact is temporary, it reduces the total rents receivable over the life of the leases, so while the cash impact is limited to the period from April 2020 to January 2022, it must be spread through the income statement over the whole remaining lease term from 1 April 2020, which on a weighted average basis was 22.2 years. The effect of spreading a total £22.9 million reduction in rents over the very long unexpired term results in rental income reported in the income statement being higher than cash rents receivable during the concession period until 7 January 2022 and lower than cash rents receivable thereafter. Travelodge rent reported in the IFRS income statement for the year ended 31 December 2020 is £13.7 million higher than the rent receivable on a cash basis and is expected to be £7.4 million higher in the year ended 31 December 2021. From the start of 2022 this mismatch will unwind, with cash rent higher than the income reported under IFRS by an expected £1.1 million per annum for approximately the following 20 years through to the end of the term of the leases.

· The six month rent free period granted to Stonegate on the pubs portfolio in consideration for extending lease terms to 25 years and strengthening the lease alienation provisions is treated in a similar way to the Travelodge rent reduction. Rent reported from Stonegate in the IFRS income statement for the year ended 31 December 2020 is £1.1 million higher than the rent receivable on a cash basis. From the start of 2021 this mismatch has begun to unwind, with cash rent higher than the income reported under IFRS by £47,000 per annum through to the end of the term of the leases.

The deferral of Merlin rent does not change the total lease income over the life of the lease, merely changing the timing of receipt, therefore there is no change to the IFRS income that would otherwise have been reported in the year. The rent deferred is held as an asset on the balance sheet, separate from and not valued as part of the investment properties by the external valuer. The carrying value of the rent receivable is evaluated at each balance sheet date and it is held at 31 December 2020 at its face value of £17.7 million as it is considered reasonable to conclude that it will be recoverable in full.

From the time of its listing six and a half years ago, the Group has had the benefit of a high proportion of income with fixed rental increases over very long lease terms therefore the requirement to spread rents over the whole of any lease has always created a mismatch between cash rents receivable and rental income reported under IFRS. That mismatch was a major contributing factor to the adoption by the company of its Adjusted EPRA earnings measure. This measure is further explained under the "Adjusted EPRA earnings per share" heading later in this report, in note 10 to the financial information and in the Unaudited Supplementary Information which follows the financial information. In order to calculate Adjusted EPRA earnings on a basis consistent with the Group's definition of the measure and prior reporting periods, the cash and income mismatches arising as a result of the rent concessions are taken into account in Adjusted EPRA earnings in order to calculate dividend cover on a basis that more closely reflects the Group's actual cash flows. The composition of Adjusted EPRA Earnings is explained later in this report but the impact of the rent concessions in isolation is as follows:

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
EPRA earnings	52.9	16.3	54.7	16.9
Rent Smoothing Adjustments:
on pre-concession rental income	(8.9)	(2.7)	(10.6)	(3.3)
from Travelodge rent reductions	(13.7)	(4.3)	-
from Stonegate rent free period	(1.1)	(0.3)	-
Merlin theme parks rent deferral	(17.7)	(5.5)	-	-
Incentive fee adjustment	-	-	5.3	1.7
Adjusted EPRA earnings	11.5	3.5	49.4	15.3

Impact of rent concessions on dividend cover and dividend policy

The effects of the pandemic on the Group's net income and cash flows and the heightened uncertainty during this period prompted a review by the Board of the prudent and appropriate dividend policy to apply in the circumstances. The materially higher than usual liquidity buffer held in Uncommitted Cash by the Company following the sale of the private hospital portfolio in 2019 affords significant flexibility, not only in supporting the Group's tenants but also in providing appropriate returns to shareholders without putting at risk the strength and flexibility of the balance sheet.

With the Company's liquidity buffer directed in part to supporting tenants and ensuring that the balance sheet remains robust during such uncertain times, the Board concluded that it would be appropriate to discontinue the element of the dividend that had been deployed since July 2019 in topping up the dividend in the amount of the foregone income on the hospitals sold in 2019. The basis of the dividend payment has therefore reverted to the 'core' dividend as guided with the 2019 annual results announcement, without the top slice of the hospitals net income top-up. This equates to a quarterly dividend of 3.65 pence per share which has been paid in each of the last two quarters of 2020 and the first quarter of 2021 and which, all things being equal, is expected to be the amount for the second quarter of 2021 to be announced in April 2021. Subject to there being no material change in circumstances the dividend rate is expected to increase to 3.95 pence per share in the third quarter of 2021.

The analysis of the core and top-up dividends paid to date is as follows:

£m paid in the period	Year to 31 Dec 2016	Year to 31 Dec 2017	Year to 31 Dec 2018	Year to 31 Dec 2019	Year to 31 Dec 2020	Quarter 1 dividend paid March 2021
Core dividend	£12.0m	£16.1m	£41.4m	£49.0m	£46.4m	£11.8m
Hospitals top-up dividend	-	-	-	£3.5m	£4.4m	-
Total dividend paid	£12.0m	£16.1m	£41.4m	£52.5m	£50.8m	£11.8m
Pence per share paid
Core dividend	5.9p	13.6p	13.9p	15.2p	14.4p	3.65p
Hospitals top-up dividend	-	-	-	1.1p	1.3p	-
Total dividend paid	5.9p	13.6p	13.9p	16.3p	15.7p	3.65p

The use of some of the Company's surplus liquidity to fund the £34.6 million of dividends in excess of the Group's Adjusted EPRA Earnings in the year was considered appropriate in recognition of the fact that the rent concessions granted to date do not have any impact on contracted rental income beyond January 2022. The dividend policy will be kept under regular review as conditions develop while the pandemic runs its course. The importance of the dividend to many investors is acknowledged and is carefully considered in any evaluation of the appropriateness of declaring a dividend in the context of the conditions prevailing at that time.

Key performance indicator - Total Accounting Return

In measuring progress towards the Board's objective to deliver attractive and sustainable shareholder returns, both Total Accounting Return (the movement in EPRA NTA per share plus dividends) and Total Shareholder Return (the share price movement plus dividends) are monitored. The principal focus for the Board is on Total Accounting Return as the Total Shareholder Return, while important, is also subject to wider market fluctuations not necessarily related to the Group itself.

The movements in net asset value reported under IFRS in the consolidated balance sheet and the calculation of Total Accounting Return on that basis are as follows:

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
NAV at the start of the year	1,384.5	428.8	1,281.6	398.5
Investment property revaluation *	(166.6)	(51.4)	75.7	23.4
Rental income * less administrative expenses, finance costs and tax	52.9	16.3	58.9	18.3
Dividends paid	(50.8)	(15.7)	(52.5)	(16.3)
Currency translation and derivative revaluation movements	1.5	0.5	(3.0)	(0.9)
Dilution from shares issued in settlement of previous year's incentive fee	-	(1.5)	-	(1.5)
Net profit on disposal of investment properties	-	-	23.8	7.3
NAV at the end of the year	1,221.5	377.0	1,384.5	428.8
Change in NAV	(163.0)	(51.8)	102.9	30.3
Dividends paid	50.8	15.7	52.5	16.3
IFRS Total Accounting Return	(112.2)	(36.1)	155.4	46.6
IFRS Total Accounting Return: percentage		(8.4)%		11.7%

* including £23.7 million or 7.3 pence (2019: £10.5 million or 3.2 pence) of Rent Smoothing Adjustments

The industry standard EPRA NTA measure takes IFRS net asset value and excludes items that are considered to have no relevance to the assessment of long term performance. Consistent with the EPRA Guidance, the Group's reported IFRS NAV is adjusted to exclude 50% of deferred tax on investment property revaluations (in this case relating to the German assets) and fair value movements on derivatives. EPRA NTA and EPRA NTA per share is reconciled to net asset value measured in accordance with IFRS in note 23 to the financial information.

The Group's EPRA NTA per share at 31 December 2020 was 379.3 pence, down 11.7% over the year. The 50.1 pence per share fall in EPRA NTA, together with dividends of 15.7 pence per share, results in a Total Accounting Return over the year of negative 8.0%.

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
EPRA NTA at the start of the year	1,391.3	429.4	1,292.9	400.5
Investment property revaluation *	(142.5)	(44.0)	86.3	26.7
Rental income * less administrative expenses, finance costs and current tax	28.8	8.9	49.3	15.4
Dividends paid	(50.8)	(15.7)	(52.5)	(16.3)
Currency translation movements	2.4	0.7	(2.6)	(0.8)
Net contribution from sold properties	-	-	23.8	7.3
Incentive fee dilution from shares to be issued	-	-	(0.3)	(1.7)
EPRA NTA at the end of the year	1,229.2	379.3	1,396.9	431.1

Movement in EPRA NTA	(162.1)	(50.1)	104.0	30.6
Dividends paid	50.8	15.7	52.5	16.3
Total Accounting Return	(111.3)	(34.4)	156.5	46.9
Total Accounting Return - percentage		(8.0)%		11.7%

* adjusted by £23.7 million or 7.3 pence (2019: £10.5 million or 3.2 pence) of Rent Smoothing Adjustments

Total Shareholder Return is calculated as:

		Year to 31 December 2020	Year to 31 December 2019
	Pence per share		Pence per share
Share price at the end of the year	300.0		434.0
Share price at the start of the year	(434.0)		(377.0)
Movement in the year	(134.0)		57.0
Dividends paid	15.7		16.3
Total Shareholder Return	(118.3)		73.3
Total Shareholder Return - percentage	(27.3)%		19.4%

Key performance indicator - Adjusted EPRA earnings per share

	Year to 31 December 2020		Year to 31 December 2019
Basic and diluted EPS (IFRS basis)	£m	Pence per share	£m	Pence per share
Rental income net of property outgoings	120.2	37.0	131.4	40.7
Investment property revaluation	(166.6)	(51.4)	75.7	23.4
Net finance costs	(49.9)	(15.4)	(54.2)	(16.7)
Administrative expenses	(17.0)	(5.2)	(16.9)	(5.2)
Tax charge	(0.3)	(0.1)	(1.1)	(0.4)
Profit on disposal of investment properties net of costs of early repayment of debt	-	-	23.8	7.3
Incentive fee (including irrecoverable VAT)	-	-	(5.3)	(1.6)
Basic earnings	(113.6)	(35.1)	153.4	47.5
Diluted earnings per share		(35.1)		47.3

The IFRS earnings measure includes unrealised property revaluations, gains or losses on property disposals and certain other factors which are considered to distort an assessment of underlying long term performance of real estate companies and which are therefore required to be excluded from EPRA earnings.

A further element of the IFRS calculations considered to have a distorting effect on the Company's Dividend Cover is the impact of the weighting of share issues where they relate to incentive fee payments. The Group's basic and diluted EPS in accordance with IFRS must be calculated on the hypothetical assumption that any shares issued in settlement of an incentive fee are treated as having been issued on the first day of the year, regardless of when they are actually issued. As a result, basic EPS for 2019, for example, was calculated on the basis that the 1.3 million shares issued in March 2019 in settlement of the 2018 incentive fee were in issue for the whole year. This assumption results in a reduction in EPS which does not reflect the actual impact of the share issue. The calculation of diluted EPS for 2019 under the IFRS rules also included the 1.2 million shares not yet issued at 31 December 2019 in settlement of the 2019 incentive fee as if they had been issued, creating a further artificial reduction.

There are also certain items within the calculated EPRA earnings which create a material disconnect between EPRA earnings and the Group's funds from operations available for the payment of dividends: principally the Rent Smoothing Adjustments, including those arising as a result of the Covid-19 related rent concessions, and incentive fees which are payable in shares. The Board considers that including these items results in both IFRS earnings and EPRA earnings being an unreliable basis for calculating the Company's Dividend Cover and long term performance. A further measure, Adjusted EPRA EPS, is therefore presented, both for comparison of the performance of the Group from year to year and with its peer group, and to avoid distortions in the per share figures which in turn would result in unreliable measures of Dividend Cover.

Adjusted EPRA EPS is derived from EPRA EPS by:

· removing the Rent Smoothing Adjustments, including those arising from the Covid related rent concessions, from rental income;

· excluding any significant non-recurring costs or income (there have been no non-recurring income or costs since 2016);

· excluding the charge for the incentive fee, on the basis that it is a non-cash payment and considered to be linked to revaluation movements, and therefore best treated consistently with revaluations which are excluded from EPRA EPS; and

· calculating the weighted average number of shares so as to reflect the actual dates on which shares were issued.

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
Rental income net of property outgoings	118.2	36.5	129.7	40.1
Net finance costs	(48.0)	(14.9)	(52.5)	(16.3)
Administrative expenses	(17.0)	(5.2)	(16.9)	(5.2)
Tax charge	(0.3)	(0.1)	(0.4)	(0.1)
Incentive fee (including irrecoverable VAT)	-	-	(5.3)	(1.6)
EPRA earnings	52.9	16.3	54.6	16.9
Rent Smoothing Adjustments:
Before any Covid related rent concessions	(8.9)	(2.7)	(10.5)	(3.2)
Impact of Covid related rent concessions - difference between IFRS and Adjusted EPRA EPS smoothing methodology	(32.5)	(10.1)	-	-
Incentive fee	-	-	5.3	1.6
Adjusted EPRA earnings	11.5	3.5	49.4	15.3

Adjusted EPRA EPS is reconciled to basic EPS in note 10 to the financial information and the component parts of the Adjusted EPRA earnings are analysed below.

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
Like for like earnings:
Rental income net of outgoings before concessions	110.8	34.2	109.4	33.9
Finance costs	(48.4)	(15.0)	(49.0)	(15.2)
Finance income	0.4	0.1	0.7	0.2
Administrative expenses	(17.0)	(5.2)	(16.9)	(5.2)
Tax charge	(0.3)	(0.1)	(0.4)	(0.1)
Like for like, before concessions and excluding sold hospitals	45.5	14.0	43.8	13.6
Rent concessions	(34.0)	(10.5)	-	-
	11.5	3.5	43.8	13.6
Impact of hospitals sale:
Rental income net of outgoings	-	-	9.8	3.0
Finance costs	-	-	(4.2)	(1.3)
Adjusted EPRA earnings	11.5	3.5	49.4	15.3

The key components of the Group's earnings are its rental income, finance costs and administrative expenses. An analysis of the Group's rental income is included in the portfolio review earlier in this report and the other components of earnings are described in the following sections.

Adjusted EPRA EPS - property outgoings

Property outgoings under the IFRS, EPRA and Adjusted EPRA earnings measures are set out below.

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
Costs of negotiating and documenting rent concessions	0.6	0.2	-	-
Headrents on leasehold properties	0.5	0.1	0.4	0.1
Irrecoverable property costs	0.3	0.1	0.1	-
Managing agents and other net property outgoings	0.2	0.1	0.2	0.1
Rent review costs	-	-	0.4	0.1
Feasibility costs of prospective capital projects	-	-	0.2	0.1
Property outgoings in the IFRS income statement and EPRA earnings	1.5	0.5	1.3	0.4
Financing element of headrent costs reclassified from finance costs	1.7	0.6	1.7	0.6
Costs of negotiating and documenting rent concessions reclassified from finance costs	0.1	-	-	-
Recovery of headrent and other costs reclassified from revenue	(1.6)	(0.6)	(1.6)	(0.6)
Property outgoings in Adjusted EPRA earnings	1.7	0.5	1.4	0.4

On an Adjusted EPRA earnings basis, various items are reclassified within the income statement to more accurately reflect the net cost of the Group's property outgoings, which is used in the calculation of the EPRA cost ratios. This includes the recovery of certain headrent and other costs from the occupational tenants.

While the costs of the rent concessions are not a recurring cost they have not been excluded from Adjusted EPRA EPS as they relate to the ongoing management of the portfolio and are in any case not material to the Group.

Adjusted EPRA EPS: administrative expenses

The Group's administrative expenses for the year and prior year are the same under the IFRS and the EPRA measure, while Adjusted EPRA EPS excludes any incentive fees which are payable in shares.

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
Advisory fees	13.7	4.2	14.7	4.6
Other administrative expenses	2.8	0.8	1.6	0.4
Corporate costs	0.5	0.2	0.6	0.2
	17.0	5.2	16.9	5.2
Incentive fee payable in shares	-	-	4.9	1.5
VAT on incentive fee, payable in cash	-	-	0.4	0.1
Total administrative expenses	17.0	5.2	22.2	6.8

Because VAT cannot be applied to the rents on the Healthcare assets, there is an element of irrecoverable VAT incurred on the Group's running costs which is included within each relevant line item in the table above. The proportion of disallowed VAT on administrative expenses averaged 30% during the year (2019: 26%) and was 39% as at 31 December 2020 (31 December 2019: 30%).

As an externally managed business, the majority of the Group's overheads are covered by the advisory fees paid to the Investment Adviser, which meets office running costs, administrative expenses and remuneration for the whole management and support team out of those fees. The advisory fee for the year amounted to £12.8 million plus irrecoverable VAT of £0.9 million (2019: £13.8 million plus irrecoverable VAT of £0.9 million). If there were no change in EPRA NAV in the 2021 financial year and assuming that surplus cash at 31 December 2020 is not deployed, the advisory fee for 2021 would be £12.0 million plus VAT (£12.9 million of cost including irrecoverable VAT).

The basis of calculating the advisory fees is explained in note 25b to the financial information. In summary, the fees are calculated on a reducing scale based on the Group's EPRA NAV (as defined under the EPRA recommendations in place at the time of inception of the management contract), at:

· 1.25% per annum on EPRA NAV up to £500 million; plus

· 1.0% on EPRA NAV from £500 million to £1 billion; plus

· 0.75% on EPRA NAV from £1 billion to £1.5 billion: plus

· 0.5% thereafter.

In this way, the Investment Adviser is directly exposed to the reduction in the Group's EPRA NAV by way of a reduction in its fee income with the annualised reduction at 31 December 2020 amounting to £0.9 million per annum.

In February 2020 the Independent Directors approved a proposal made by the Investment Adviser to exclude the surplus cash on the hospitals portfolio disposal in 2019 from the advisory fee calculation. With effect from 1 April 2020, for the purposes of calculating the advisory fee only, EPRA NAV excludes the balance of that surplus cash to the extent that those funds have not been:

· deployed in topping up dividends or otherwise returned to shareholders;

· invested in acquisitions; or

· used for liability management.

The saving for the 2020 financial year as a result of this amendment is £0.8 million. The surplus cash realised on the disposal was £164.0 million. Prior to the balance sheet date, £50.1 million (2019: £3.5 million) had been applied in dividend top ups and liability management, resulting in a balance of the surplus at 31 December 2020 of £113.9 million (2019: £160.5 million).

The management contract between the Company and the Investment Adviser has a term expiring in December 2025 and will be subject to its next review by the Remuneration Committee in December 2022. There are no renewal rights or payments at the time of expiry. Any payments on termination of the contract triggered by a change of control of the Company are limited to four times the most recent quarterly fee prior to any such change occurring, which is the maximum amount payable on any form of termination of the contract.

The other recurring administrative expenses are principally professional fees, including the costs of independent external property valuations, external trustee and administration costs, tax compliance fees and the fees of the external auditor, which are largely billed directly to subsidiary undertakings. Fees paid to the auditor are disclosed in note 7 to the financial information.

Corporate costs are those costs necessarily incurred as a result of the Company being listed and comprise:

· fees payable to the four Independent Directors amounting to £0.2 million in the year (2019: £0.2 million), with the other three Directors being shareholders in the Investment Adviser who receive no directors' fees from the Company; and

· other costs of being listed, such as the fees of the nominated adviser required under the AIM Rules, registrars' fees and AIM fees, which together totalled £0.3 million (2019: £0.4 million) in the year.

If the Total Accounting Return to investors over a financial year, as set out in the audited accounts, exceeds a compound growth rate of 10% per annum above the EPRA NAV per share the last time any incentive fee was paid, the Investment Adviser earns an incentive fee amounting to 20% of any surplus above that priority return to shareholders, subject to a cap of 5% of EPRA NAV (other than in the event of a sale of the business, where an incentive fee, if earned, would not be capped). Any such fee is payable in shares which are not permitted to be sold, save in certain limited circumstances, for a period of between 18 and 42 months following the end of the year for which they were earned. The 2019 fee payment was satisfied by the issue of 1.2 million shares in March 2020.

Having adjusted for dividends paid in the year, the benchmark EPRA NAV per share for the year ended 31 December 2020 was 459.6 pence. Shareholder returns for the year fell short of the benchmark so no fee has been earned in respect of the 2020 year (2019: £4.9 million plus VAT).

The benchmark return to be achieved before any incentive fee is earned in respect of the 2021 financial year must exceed 10% per annum from 31 December 2019 (the most recent year in respect of which a fee was earned) therefore the Group's EPRA NAV growth plus dividends paid in the year must exceed 124.4 pence per share before any fee is earned for 2021, which is estimated to be equivalent to EPRA NTA of 503.6 pence per share before dividends.

Adjusted EPRA EPS: net finance costs

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
Interest on secured debt facilities:
Outstanding throughout the year	45.9	14.2	46.2	14.3
Repaid in August 2019	-	-	4.1	1.3
	45.9	14.2	50.3	15.6
Amortisation of costs of arranging facilities (non-cash):
Routine amortisation over loan term	2.3	0.7	2.4	0.7
Accelerated amortisation on prepayment from property sales in 2019	-	-	1.4	0.5
	2.3	0.7	3.8	1.2
Interest charge on headlease liabilities	1.7	0.5	1.7	0.4
Loan agency fees and other lenders' costs	0.3	0.1	0.5	0.2
Fair value movements on derivatives	0.1	-	-	-
Interest income on cash and cash equivalents	(0.4)	(0.1)	(0.7)	(0.2)
Net finance costs for the year (IFRS basis)	49.9	15.4	55.6	17.2
Accelerated amortisation on prepayment from property sales in 2019	-	-	(1.4)	(0.5)
Net finance costs for the year (EPRA basis)	49.9	15.4	54.2	16.7
Financing element of headrent costs reclassified to property outgoings	(1.7)	(0.5)	(1.7)	(0.4)
Costs of negotiating and documenting rent concessions reclassified to property outgoings	(0.1)	-	-	-
Net finance costs for the year (Adjusted EPRA basis)	48.1	14.9	52.5	16.3

The nature and principal terms of the Group's loan facilities are explained in the Financing section earlier in this report.

Adjusted EPRA EPS: Tax

The Group is a UK Group REIT, so its rental operations, which make up the majority of the Group's earnings, are exempt from UK corporation tax, subject to the Group's continuing compliance with the UK REIT rules. The Group is otherwise subject to UK corporation tax on any net income not arising from its rental operations.

Tax is payable on the Group's German rental operations at an effective tax rate in the year of 15% (2019: 15%), resulting in a tax charge of £0.4 million (2019: £0.3 million). The balance sheet includes a deferred tax liability of £11.9 million (2019: £11.3 million) relating to unrealised German capital gains tax on the German properties, which would only be crystallised on a sale of those assets. There are no plans at present to sell these assets, so the deferred tax is not currently expected to be crystallised.

On an IFRS basis, the current tax charge and the movement in deferred tax result in a net tax charge of £0.3 million (2019: £1.1 million). Deferred tax is excluded from EPRA EPS and Adjusted EPRA EPS as shown in note 10 to the financial information.

In the EPRA NTA calculation, in accordance with the EPRA Guidance, half of the deferred tax is excluded. This is on the basis that the Company has neither (i) decided never to sell the German assets, as the Board manages its assets in an opportunistic way and would sell the assets if that presented the best option for shareholders; nor (ii) identified a consistent track record of disposal of assets and related capital gains within the strict criteria set out within the EPRA guidance.

Adjusted EPRA EPS: Currency translation

94% (2019: 95%) by value of the Group's property assets are located in the UK and the financial information is therefore presented in Sterling. 3.9% (2019: 3.1%) of the Group's EPRA NTA comprises assets and liabilities relating to properties located in Germany, valued in and generating net earnings in Euros. Exposure to currency fluctuations is partially hedged through assets, liabilities, rental income and interest costs being Euro denominated. The Group remains exposed to currency translation differences on the net results and net assets of these unhedged operations. Foreign currency movements are recognised in the statement of other comprehensive income.

The German properties are valued at €128.2 million as at 31 December 2020 (2019: €129.7 million), with the Euro denominated secured debt amounting to €71.6 million (2019: €71.8 million). The Euro strengthened against Sterling over the year by c. 6% (2019: weakened by 5%) and as a result there was a net currency translation gain of £2.1 million (2019: loss of £2.0 million) on an IFRS basis. Half of the deferred tax liability is excluded from EPRA NTA and as a result a currency translation loss of £0.3 million (2019: gain of £0.3 million) arises in the movement in EPRA NTA in relation to the German operations.

Key performance indicator - Net LTV ratio

The Board structures debt facilities with a view to maintaining a capital structure that will enhance shareholder returns while withstanding a range of market conditions.

During the year, the Group's Net LTV rose from 31.9% to 36.4% which reflects the impact of £136.2 million of decreased property values (2019: £80.7 million of property valuation uplifts) along with the deployment of £34.6 million of cash in topping up dividends which have been maintained in the year and £11.8 million of liability management by way of meeting debt service costs temporarily uncovered during a rent deferral period.

While the Net LTV ratio is one indicator of borrowing risk it does not present a complete picture of risk facing the Company. The Board always considers Net LTV in conjunction with a wider assessment of headroom on financial covenants within debt facilities and, as part of that assessment, the security of portfolio rental income in order to evaluate risks that the Company and the Group may be facing.

Key performance indicator - headroom on debt covenants

The Board's approach to managing the Group's capital structure includes assessing the risk of any breach of covenants within secured debt facilities and considering the extent to which these risks can be managed. Covenant calculations are regularly and carefully monitored on various scenarios within a realistic range of outcomes, including stress tested and reverse stress test scenarios. At the inception of new loans, facilities are structured to ring-fence the extent to which the Group's assets are at risk, ensuring that levels of headroom over financial covenants are appropriate. Subsequently, the Board considers the Group's liquidity needs regularly and aims to maintain a level of Uncommitted Cash which could be applied in avoiding or curing debt defaults in the event that it is needed.

When evaluating the appropriateness of the level of secured debt, the Board has regard to the unusual nature of the Group's income streams, specifically that all of the occupational leases are significantly longer than conventional UK real estate leases and that the Group's rental income can be expected to increase annually as a result of the annual minimum fixed rental uplifts on 38% of portfolio income, with a further 3% subject to three or five yearly uplifts and the additional prospect of increases from the upwards only RPI-linked reviews on the rest of the portfolio. Overall, two thirds of the portfolio rents before any Covid related rent concessions are subject to annual review with the remainder subject to three or five yearly reviews. This structure gives rise to predictable improvements in interest cover across the Group in aggregate on the basis of contractual income flows and a naturally deleveraging debt profile on the assumption of constant valuation yields. The Board also has regard to other factors including specific tenant credit risks.

The Board reviews the headroom on all financial covenants at least quarterly, including stress tested and reverse stress test scenarios. The headroom on key financial covenants at the first test date following 31 December 2020 (which in all cases fell before the end of January 2021) is summarised below, including the fall in valuation (and related Net Initial Yield) or the fall in rent that would trigger a breach of the relevant covenant at the first test date after the balance sheet date, before any preventative or remedial actions are taken. Defensive actions could include utilising any of the Group's significant Uncommitted Cash of £192.0 million as at 31 December 2020 and which is further explained under the heading 'Key performance indicator - Uncommitted Cash'.

			Scenarios before any remedial action
	At 31 Dec 2020	Covenant	Net Initial Yield triggering LTV test	Valuation fall before LTV test triggered	Rent fall before interest cover test triggered
Merlin facility
Property security at independent valuation (£m)	616.2
Gross loan outstanding (£m)	(380.4)
Other subgroup net assets (£m)	10.2
Ring fenced equity (£m)	246.0
Ring fenced equity (pence per share)	75.9p

LTV default test	n/a	none	n/a	n/a
Cash trap LTV test: 1% per annum loan amortisation	62%	<80%	7.0%	23%
Cash trap LTV test: full cash sweep	62%	<85%	7.4%	27%
Rental fall before interest covered 1:1					29%

While the valuation fall to trigger the LTV cash sweeps has tightened since 31 December 2019 (from 28% for 1% amortisation and 32% for the full cash sweep) as a result of the fall in valuation in the year, the yield required to trigger a cash sweep has increased slightly as a result of both the 1.5% RPI increases in rental income on the UK properties and 3.3% fixed increases on the German properties, and the reduction in finance costs by way of £1.0 million of scheduled loan amortisation. The net initial yield required to trigger a 1% per annum additional amortisation has increased from 6.9% to 7.0% and the full cash sweep trigger point has increased from 7.3% to 7.4%. During the year, the lenders consented to the rent deferral but the credit agreements are otherwise unchanged.

			Scenarios before any remedial action
	At 31 Dec 2020	Covenant	Net Initial Yield triggering LTV test	Valuation fall before LTV test triggered	Rent fall before interest cover test triggered
Healthcare facility 1
Property security at independent valuation (£m)	623.0
Gross loan outstanding (£m)	(299.7)
Other subgroup net assets (£m)	0.1
Ring fenced equity (£m)	323.4
Ring fenced equity (pence per share)	99.8p

Cash trap LTV test: full cash sweep	48%	<74%	6.8%	35%
LTV test	48%	<80%	7.3%	39%
Cash trap projected interest cover: full cash sweep	192%	>140%			27%
Projected interest cover test	192%	>120%			38%

Headroom on the LTV tests has increased over the 31 December 2019 levels which were a 33% fall in valuation to a 6.6% valuation yield for the LTV cash sweep trigger and a 38% fall to a 7.1% valuation yield for the LTV default test. Headroom on the interest cover test has improved from 35% to 38% as a result of a combination of the fixed 2.77% weighted average rental increase in the year and the reduction in finance costs because of £3.2 million of scheduled loan amortisation.

			Scenarios before any remedial action
	At 31 Dec 2020	Covenant	Net Initial Yield triggering LTV test	Valuation fall before LTV test triggered	Rent fall before interest cover test triggered
Healthcare facility 2
Property security at independent valuation (£m)	146.1
Gross loan outstanding (£m)	(63.8)
Other subgroup net assets (£m)	0.3
Ring fenced equity (£m)	82.6
Ring fenced equity (pence per share)	25.5p

LTV test	44%	<80%	8.2%	45%
Cash trap projected debt service cover test (full cash sweep if triggered)	225%	>150%			33%
Projected debt service cover test	225%	>125%			44%

Headroom on the LTV test has increased over the 31 December 2019 levels which was a 44% fall in valuation to an 8.0% valuation yield. Headroom on the interest cover test has improved from 31% to 33% for the cash sweep test and from 42% to 44% on the default test as a result of a combination of the fixed 2.75% rental increase in the year and the reduction in finance costs because of £0.3 million of scheduled loan amortisation.

			Scenarios before any remedial action
	At 31 Dec 2020	Covenant	Net Initial Yield triggering LTV test	Valuation fall before LTV test triggered	Rent fall before interest cover test triggered
Budget Hotels facility 2
Property security at independent valuation (£m)	195.9
Gross loan outstanding (£m)	(65.4)
Other subgroup net assets (£m)	0.5
Ring fenced equity (£m)	131.0
Ring fenced equity (pence per share)	40.6p

Partial cash trap LTV test (50% of surplus cash swept to lender if triggered)	33%	<40%	8.5%	16%
Cash trap LTV test (full cash sweep if triggered)	33%	<45%	9.6%	26%
LTV test	33%	<50%	10.6%	33%
Cash trap projected interest cover test (full cash sweep if triggered)	610%	>300%			51%
Projected interest cover test	610%	>250%			59%

Budget Hotels facility 1
Property security at independent valuation (£m)	188.9
Gross loan outstanding (£m)	(59.0)
Other subgroup net assets (£m)	2.3
Ring fenced equity (£m)	132.2
Ring fenced equity (pence per share)	40.8p

Partial cash trap LTV test (50% of surplus cash swept to lender if triggered)	31%	<40%	9.1%	22%
Cash trap LTV test (full cash sweep if triggered)	31%	<45%	10.2%	31%
LTV test	31%	<50%	11.4%	38%
Cash trap projected interest cover test (full cash sweep if triggered)	792%	>300%			62%
Projected interest cover test	792%	>250%			68%

The two hotels facilities are ring fenced from one another as while they have the same arranger, they each have a different lender group. However, the comments below relate to both facilities as they are structured in much the same way and the factors affecting the covenants in the year were the same for each facility.

Income and LTV covenants have both tightened as a consequence of the Travelodge CVA measures implemented in June 2020. The Budget Hotels facilities were both negotiated at low levels of LTV and with very significant income cover, designed to reflect the Board's assessment of risk in the tenant. This high income cover and relatively lower leverage has acted, as designed, as a 'shock absorber' and to a significant extent dealt with the impact of the CVA. As the maximum rent reductions are historic as at the January 2021 covenant test date, income covenant headroom is already approaching pre pandemic levels. Assuming that the rents continue to be paid on the terms agreed in the CVA, the headroom on interest cover and LTV tests should continue to improve. Lenders consented in the year to the lease amendments arising from the tenant CVA and amended certain income covenants to accommodate the revised rental profile over the concession period. The credit agreements are otherwise unchanged.

			Scenarios before any remedial action
	At 31 Dec 2020	Covenant	Topped Up Net Initial Yield triggering LTV test	Valuation fall before LTV test triggered	Rent fall before interest cover test triggered
Leisure facility: Arena, Brewery, Pubs
Property security at independent valuation (£m)	176.8
Gross loan outstanding (£m)	(60.0)
Other subgroup net assets (£m)	2.9
Ring fenced equity (£m)	119.7
Ring fenced equity (pence per share)	36.9p

Partial cash trap LTV cash (50% cash sweep)	34%	<40%	7.1%	15%
Cash trap LTV test (full cash sweep if triggered)	34%	<45%	7.9%	25%
LTV test	34%	<50%	8.8%	32%
Projected interest cover test	350%	>150%			57%

The LTV on this facility has increased in the year from 30% to 34% resulting in lower headroom over the financial covenants. However, the yield movement required to trigger the LTV tests has tightened by only 0.2 percentage points given the relatively low leverage on the facility. The headroom on the income test has tightened from 71% to 57% as we have excluded from the income forecast at the test date any rents in arrears on that date. Those rents were collected very shortly after the test date and cover was therefore further restored. The low leverage and ample day one headroom on covenants has accommodated the valuation movements, rent concessions and a delay in collecting one of the amounts due in this portfolio meaning that headroom levels, while reduced, remain reasonably comfortable. The lender has consented to the rent concessions granted in the year. The credit agreement is otherwise unchanged.

Key performance indicator - Uncommitted Cash

The ability to prevent or mitigate debt covenant breaches is an important part of the Board's leverage strategy. Headroom considered appropriate to the business has been negotiated on all financial covenants together with certain contractual cure rights, including the ability to inject cash (subject to some limitations as to the frequency and duration of cash cures) into ring-fenced financing structures in the event of actual or prospective breaches of financial covenants. The Board regularly monitors the Group's levels of Uncommitted Cash, which are the cash balances outside ring-fenced structures secured to lenders, net of any creditors or other cash commitments at the balance sheet date.

The Group's Uncommitted Cash was £192.0 million as at 31 December 2020, which represents free cash of £196.6 million net of £4.6 million of current liabilities. Uncommitted Cash is down from £234.2 million as at 31 December 2019 largely as a result of the £34.6 million of cash directed to supporting the dividend and the £11.8 million used for loan repayments during the period of temporary rent concessions. The balance of Uncommitted Cash held at 31 December 2020 exceeds the principal outstanding of each of four of the Group's six credit facilities.

As demonstrated in the table of covenant headroom, there remains a substantial 'cushion' over covenant levels in each facility but the option to manage future stresses on covenants remains an important part of the Company's leverage management strategy while general risk in the economy and for the certain of the Group's tenants remains at an elevated level.

Cash flow

The business is structured to provide an efficient flow through of net income to the payment of dividends. Rents in the ordinary course are predictable, financing costs are in the main fixed and the majority of operating costs are represented by the advisory fees which are transparently calculated relative to the Group's net assets.

The rent concessions granted in the period have reduced the cash flow from operating activities by £34.0 million in rent reductions and related costs. £17.7 million in deferral of rents due from Merlin are expected to be received in September 2021 and the temporary variation for some tenants to pay monthly in advance rather than quarterly has reduced operating cash inflows by a further £0.8 million. Both of these effects are expected to reverse in the 2021 financial year. Assuming that no further material tenant concessions are required, the effect of the pandemic concessions in 2021 is expected to be a positive £8.8 million in additional rents plus the reversal of the Merlin deferral and temporary changes in payment terms, so £27.3 million of additional cash inflow in the year compared with 2020. Rent collections have been very strong in the year with only £0.3 million in rent arrears at the year end, all of which has been since collected.

The structure of the Company's external manager's fees is such that the advisory fee, which covers the majority of Group overheads, has reduced by £1.0 million year on year and the reduction in debt from assets sales in 2019 together with scheduled loan amortisation means that net interest costs are £5.5 million lower in 2020 than in 2019. The continuation of dividend payments in the year through the period of temporary concessions is the main contributor to the £47.5 million cash outflow in the year.

	Year to 31 December 2020		Year to 31 December 2019
	£m	Pence per share	£m	Pence per share
Cash from operating activities	54.7	16.9	100.7	31.2
Net interest and finance costs paid	(47.4)	(14.5)	(52.9)	(16.4)
Tax paid	(0.4)	(0.1)	(0.2)	(0.1)
	6.9	2.3	47.6	14.7
Dividends paid	(50.8)	(15.7)	(52.5)	(16.3)
	(43.9)	(13.4)	(4.9)	(1.6)
Scheduled repayment of secured debt	(4.4)	(1.4)	(4.0)	(1.2)
Property disposals net of debt repayment	1.1	0.3	174.7	54.1
Acquisition of tangible fixed assets	(0.3)	(0.1)	-	-
Acquisition of investment properties	-	-	(0.3)	(0.1)
Cash flow in the year	(47.5)	(14.6)	165.5	51.2
Cash at the start of the year	267.1	82.7	101.7	31.6
Currency translation movements	0.1	-	(0.1)	-
Dilution from incentive fee share issues	-	(0.3)	-	(0.1)
Cash at the end of the year	219.7	67.8	267.1	82.7

The Group's investment properties are let on full repairing and insuring terms, with each tenant obliged to keep their premises in good and substantial repair and condition, including rebuilding, reinstating, renewing or replacing premises where necessary. Consequently, no material unrecovered capital expenditure, property maintenance or insurance costs have been incurred in the year and it is not currently expected that material costs of that nature will be incurred on the portfolio as it stands at 31 December 2020. Risks to future cash flows are summarised in the Principal Risks and Uncertainties section of the Strategic Review.

Management Team and Investment Advisory Agreement

As explained at the start of this report, the Company is externally managed by an experienced team, appointed under the terms of a contract known as the Investment Advisory Agreement. The terms of that agreement have not changed since the amendment proposed by the Management Team and approved by the Board in March 2020 to reduce the advisory fee to reflect the larger than usual cash balance held by the Group, details of which appear in note 25b to the financial information.

The team providing services to the Company has remained unchanged during the year and since the balance sheet date. In December 2020, a director and shareholder in the Investment Adviser retired. He had not been involved in the day to day delivery of services to the Company. The other members of the Management Team acquired his interests in the Investment Adviser and related entities and as a result increased their personal investment in the Company by some 10% each, investing a further £5.3 million in cash between them in their interests in the Company's shares through their increased shareholdings in those management entities, in addition to a further £0.5 million invested by the team in the purchase of the Company's shares on the market during 2020.

As a team, we are the second largest shareholder in the Company with 12.4% of the shares, worth over £152 million at 31 December 2020 EPRA NTA. Every member of the Management Team has a personally significant investment in Secure Income REIT Plc. That interest, together with the fee arrangements which are directly related to the value of the business and to growth in shareholder returns, provides exceptionally strong alignment of our interests with those of all shareholders.

Our team at Prestbury has continued to perform in their usual diligent way despite the many challenges and personal stresses of the pandemic and we are grateful to them for their commitment. This has been, without question, a challenging year but the team remains highly energised and motivated to deliver the very best for the Company and all of its stakeholders.

Nick Leslau

Chairman, Prestbury Investment Partners Limited

10 March 2021

Strategic Review

Strategy and investment policy

Strategy

One of the key reasons for creating the Company as a specialist long lease REIT in 2014 was that investors had a requirement for a tax efficient investment in well secured, long term, inflation protected income from industries with sustainable prospects against a background of a marked reduction in the average term to the first tenant break or lease expiry in the UK property market. The 'lower for longer' interest rate environment which has persisted for some time now creates conditions where we believe that demand for these types of assets should continue to remain strong. The prospect of inflationary conditions fuelled by Government responses to the pandemic only reinforces this thesis.

The Board's intention is for the Group to continue to hold a diversified portfolio of long term, secure income streams from real estate investments across a range of property sectors, enhancing prospects for attractive total returns both from the existing portfolio and, when appropriate, through earnings accretive acquisitions. In this way, the Board believes that the Company is well placed to continue to offer attractive geared returns from high quality real estate, with tenants operating with well established brands in industry sectors with strong defensive characteristics. An important characteristic of the portfolio is that assets acquired are Key Operating Assets, meaning they are business critical from the tenant's perspective. In that way, rental security is more certain as the assets in question forms an essential part of the value of the tenants' own businesses, therefore the tenants are strongly motivated to continue to invest in the assets and to retain their leases.

Through the implementation of the investment policy, set out below, the Board believes that it will be able to deliver returns-enhancing deals in the interests of all shareholders and, when investment and equity market conditions are right, the Board aims to add to the Group's existing portfolio of Key Operating Assets to further build a substantial diversified portfolio providing secure, growing income and capital returns for shareholders. This could include further acquisition opportunities from a range of sources including operating businesses, non-REITs with latent capital gains fettering sale prospects and opportunities where the Company's shares may be used as currency to unlock value. Acquisitions should be accretive to shareholder returns and will be financed with modest leverage and non-dilutive equity issues.

The Company is managed by a team with an exceptionally large 12.4% interest in the Company, worth over £152 million at the 31 December 2020 EPRA NTA, making them as a team the second largest shareholder in the Company. The Management Team has continued to invest in their holdings in the Company during the year, with on market purchases amounting to £0.5 million and a further buyout of a retiring non-executive Management Team member amounting to a £5.3 million cash investment in December 2020. Consequently, the motivation for the Management Team to deliver on strategy is very strong, with their interests closely aligned with those of all shareholders.

Investment policy

The Company invests in long term, secure income streams from real estate investments. A long term income stream is considered to be one with (or a portfolio with) a Weighted Average Unexpired Lease Term in excess of 15 years at the time of acquisition. Security of income is assessed with reference to the extent of rent cover from underlying earnings, the credit strength of tenants and (where relevant) guarantors, and the reversionary potential of the assets.

The portfolio is considered by the Board to offer attractive geared returns from high quality real estate, with tenants which have well established brands in industry sectors with strong defensive characteristics. The Board proposes to build on this strong foundation by seeking to:

· diversify sources of income and enhance prospects for attractive shareholder returns through acquisitions; and

· manage the Company's capital structure in order to enhance income returns for investors whilst maintaining discipline over net debt levels and terms.

The Group's business model is explained in the Investment Adviser's Report.

Potential future changes to strategy and the business model

The Board aims to keep future risks to the business under review with the objective of amending the Company's strategy or business model on a timely basis if necessary. No-one has perfect foresight, but currently the principal areas being considered in this context are climate risk and the risks of an extended Covid pandemic or of a new pandemic.

The way that climate change is manifesting itself is prompting a range of responses from governments and businesses around the world. These responses in turn feed back into climate change itself and will have an impact on businesses, individuals and economies. Predicting the way that climate change and the responses to it will interact and impact on this business and that of our tenants remains difficult to assess accurately. However, we know that our principal tenants are very much alive to the risks and to their responsibilities and we report on their approaches and progress later in this report. Furthermore, we consider that climate change may well present opportunities as well as challenges. Widespread decarbonisation to meet global emissions goals may well increase costs for our tenants in the short term, albeit potentially for medium to longer term benefits in both social and economic terms. We will remain close to our tenants to understand their considerable efforts to reduce emissions and meet their climate commitments, and work with them where we can to our mutual benefit. We will continue to report on those efforts in the Corporate Responsibility section of our annual reports and on our website.

The scale and suddenness of the onset of the Covid-19 pandemic prompted an early and considered reaction from the Board and management of the Company, both in terms of support provided for the Group's tenants and the change in our working practices. The business and our tenants' businesses have to date weathered the storm due to the robustness of their business operations and brand strength. The Board considers that the Company is well positioned to provide further support to tenants if that is needed and to benefit from any recovery as and when it ultimately comes. This has not prompted any changes to the Company's strategy or business model at this stage save as to the consideration of further diversification of income when appropriate, but not at any cost. While sustainability in its widest sense and the longevity of the businesses operating the assets that the Company owns have always been key considerations, it is fair to say that the pandemic has heightened our awareness of previously unanticipated external threats to those businesses, reminding us of the importance of this particular plank of the Company's strategy.

Key performance indicators

In order to oversee the successful delivery of the investment strategy, the Board regularly monitors the following key performance indicators, which are reported on in the Investment Adviser's quarterly reports to the Board and more frequently when appropriate:

· Total Accounting Return and Total Shareholder Return

· Adjusted EPRA EPS

· Net LTV Ratio

· Headroom on debt covenants

· Uncommitted cash

Each of these is reported on in the Investment Adviser's Report.

Corporate responsibility and ESG

The Board is mindful of its responsibilities to all of its stakeholders, including the wider community, when it makes decisions in setting and implementing the Company's strategy. Alongside its fiduciary, regulatory and legal responsibilities, these responsibilities include those which can be broadly classified under the headings environmental responsibility, social responsibility and governance, widely referred to as "ESG".

While we do not run any trading operations on site at any of the assets owned by the Group, we take into account the impact of our assets on people and the environment so we monitor our tenants' compliance with the terms of their leases and with good estate management practice, including in the areas of health and safety and sustainability, recognising that the assets that the Group owns are places where buildings connect with peoples' lives.

During the current financial year, we have commissioned a review of our ESG policies from independent experts. We therefore expect to further develop our reporting on this area with effect from the 2021 financial reports.

We comment below on the Company's own ESG policies and follow this with a brief summary of the key ESG policies and strategies of our major tenants' businesses in the specific areas of ESG where they intersect most closely with our portfolio.

Environmental responsibility

In considering environmental responsibility, the Board has regard to climate, nature and sustainability. In our reporting, the Board makes reference to the Real Estate Sustainability Accounting Standard, published in October 2019 by the Sustainability Accounting Standards Board ("SASB"). That standard sets out certain metrics that are considered relevant for REITs, and has categorised certain 'activity metrics' against which the Group reports as follows:

	Leisure	Hospitals	Budget Hotels	Total
Number of assets	26	12	123	161
Lettable floor area	The nature of the great majority of the Group's assets is such that lettable area measured in square feet is not a relevant measure. As the assets are operational assets, lettable floor area is not monitored by the Board and so is not provided.
Percentage by ERV of indirectly managed assets (where tenants have operational control)	98.9%	100%	100%	99.5%
Average occupancy rate by ERV	99.9%	100%	100%	100%

For the overwhelming majority of the Group's assets, operational control of the asset rests with the tenant. Consequently, the energy management and water management data outlined in the standard is not provided in this report, nor is it currently monitored by the Board as in most cases the information is not at this stage able to be obtained from the tenants under the terms of the leases. We comment further on the policies of our major tenants and our engagement with them under the heading "ESG policies and strategies of our major tenants". We are, however, working closely with our tenants to obtain relevant information to better support their and our own objectives.

The SASB standard suggests disclosure of the approach to "management of tenant sustainability impacts", described as the manner in which agreements, contracts and relationships with tenants are structured to be instrumental in effectively managing the sustainability impacts of those tenants. This can include aligning sustainability outcomes, creating systems for measuring and communicating resource consumption information, and/or mandating minimum sustainability performance criteria. All investment property assets owned during the year with the exception of the small income stream from the Manchester car park operating agreement entered into during 2020 had their leases already in place at the time of acquisition and the Group has no ability to unilaterally change their terms, including insofar as sustainability is concerned. Aside from the requirement for tenants to abide by all laws and regulations, including environmental law, none of the Group's leases have provisions which are relevant to management of tenant sustainability in a specific way. This is in large part because the majority were granted at least five years ago and in most cases over 13 years ago, when it was very uncommon for sustainability criteria or reporting to be included in leases. The Group has only negligible amounts of vacant space and therefore has extremely limited opportunity to make a meaningful difference by introducing tenant sustainability management measures on new lettings. Where space becomes available for letting or lease renewal, compliance with environmental standards and promotion of good environmental practices form part of the assessment of appropriate lease terms. A recent example is the requirement for Citipark, the new operator of the 1,000 space car park at Manchester Arena, to offer a discounted tariff to all Euro 6 compliant vehicles, which was negotiated when the operating agreement was entered into during the year. However, 98% of the Group's leases by rental value have terms to expiry (with no breaks) of greater than 16 years therefore it is not anticipated that the pace of change in lease terms will accelerate materially in the near term.

Finally, the SASB standard suggests reporting on "climate change adaptation" which is an assessment of the approach to managing climate change risk. The Board considers that the structures of the Group's leases, where the risks of continuing to operate each asset rest with the tenants and guarantors (where relevant), together with the insurance of assets in accordance with the principles of good estate management, mean that this risk is managed to the extent that is proportionate for a company with the vast majority of its assets being subject to very long leases on full repairing and insuring terms where the tenants bear the majority of these risks.

The Board has also considered the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD") and, while not yet in a position to fully comply, has specifically aimed to address all four 'pillars' of TCFD's recommendations:

· Governance, where the Board retains responsibility for assessing environmental risks, opportunities and responsibilities, as set out in the Board Leadership and Company Purpose section of the Corporate Governance Report in the annual report;

· Risk management, where climate risk is included in the report of Principal Risks and Uncertainties;

· Strategy, where the impacts of climate change and environmental issues are addressed in the summary of the business model, strategy and future strategy; and

· Metrics and targets, where we explain in this section of the report our approach to working closely with our tenants and the continuing development of our own policies in this area.

Social responsibility

Social responsibility encompasses a wide range of issues, including in particular:

· Equality, diversity and inclusion

The Board is committed to fairness and to encouraging diversity on the Board and in its operations, including prevention of any forms of discrimination including under the terms of the Equality Act 2010. The terms of reference of the Nominations Committee include a requirement for it to regularly review the structure, size and composition of the Board including the skills, knowledge, experience and diversity of the Directors. The Committee's report includes commentary on its work in this respect. The Corporate Governance Report in the annual report includes details of the composition of the Board, including a description of the balance of skills, experience and gender on the Board. The gender balance of the Board is two female and five male directors.

As an externally managed business, no Group company has any employees, therefore the Group is not required to report in this annual report on gender balance or the gender pay gap, nor on recruitment policies or procedures for employees. The Board has, however, satisfied itself with the appropriateness of the Investment Adviser's approach to fairness and equality in its operations. The Investment Adviser has confirmed that it complies with all relevant laws and regulations in that respect. The gender split of the wider external management team and staff is 50/50 with eight males and eight females.

· Human rights and supply chain integrity

Both the Company and the Investment Adviser have complied with their responsibilities under the Modern Slavery Act 2015 and the relevant confirmations are regularly updated and included on their respective websites.

· Data protection and protection of privacy

The Company and the Investment Adviser seek to comply at all times with relevant data protection legislation and to protect the privacy of counterparties where appropriate. There have been no breaches of policy or regulation in this regard in the reporting period.

· Health, safety and wellbeing

While the Company does not have any employees, the health, safety and wellbeing of the Board, the Investment Adviser's employees and those of its affiliated service provider, and the Group's suppliers and other counterparties is taken into account in the Board's decision making. This has been particularly relevant since the onset of the Covid-19 pandemic, where remote working practices were implemented at an early stage, ahead of the UK's national lockdown in March 2020. The Board and the board of the Investment Adviser have sought to support the physical and mental health of the workforce, including remaining in regular contact with all team members wherever they are based. The members of the Prestbury workforce have access to private health cover and also an externally run confidential helpline to support their physical and mental wellbeing.

Governance

Aspects of governance cover a broad range of matters including:

· the overall purpose and strategy of the Company;

· the structure and constitution of the Board and management of the business;

· engagement with the Company's stakeholders;

· the management of risks and opportunities;

· the creation of appropriate incentive and remuneration arrangements; and

· regulatory aspects such as the prevention of money laundering and corporate crime, anti-bribery and corruption policies and the establishment and monitoring of an appropriate, transparent tax policy for the Company.

These and other aspects of governance are set out in the report on Corporate Governance in the annual report.

ESG policies and strategies of our major tenants

One of the important features of the leases underpinning the value of the Group's real estate assets is that they are granted on Full Repairing and Insuring ("FRI") terms, where the tenant is responsible for the upkeep of the properties and compliance with laws and regulations relevant to them. In terms both of the enduring value of the Group's assets and of the Company's responsibilities to stakeholders in a wide sense, understanding how our tenants fulfil these responsibilities is important to us.

While we do not in every case have reporting from our tenants on an asset by asset basis, we have engaged with their own Heads of Sustainability or other senior individuals responsible for ESG and we have summarised below key points from their publicly available corporate statements. We note that these are current as at the date of this report.

	Contractual rent per annum £m
Merlin Entertainments Limited	35.6	Merlin Entertainments Limited has a "Responsible Business" section on its website, www.MerlinEntertainments.Biz. That includes reports on a range of ESG issues covering health, safety & security, people & communities, animal care & conservation, the environment and corporate governance. The most directly relevant of these to the Company's business is the Environmental Policy which includes among other things a commitment to comply with and, where appropriate and practicable, to exceed all relevant environmental legislation, and a commitment to measure, monitor and make public their annual carbon emissions with a carbon reduction target of at least 2% year on year.
Ramsay Health Care Limited	34.4	Ramsay Health Care Limited has published a Corporate Governance Statement on the "Investors" section of its website, www.RamsayHealth.com. This covers in some detail their various governance policies and includes, on page 14 of that statement, their sustainability policy. That report includes details of their Global Sustainability Committee and refers to the appointment during the financial year ended 30 June 2020 of a Group Sustainability Officer, responsible, among other things, for driving their sustainability programme. Ramsay has been included in the FTSE4Good Global Index every year since 2011. That index identifies companies demonstrating strong ESG practices, measured against globally recognised standards. Every year since 2017, Ramsay received an MSCI* ESG rating of AA. Ramsay also publishes a Sustainability Impact Report, available on its website, covering the various aspects of ESG including, in their 2020 report, specific commentary on their actions during the Covid-19 pandemic.
Travelodge Hotels Limited	28.3	Travelodge Hotels Limited's latest public statements on ESG matters are made in its annual report for the year ended 31 December 2019, which is available on the Investors section of its website www.Travelodge.co.uk/investors. This includes, on pages 23 to 27, their sustainability reporting and social impact statement. It also discloses that their gross greenhouse gas emissions in 2019 represented a 7.9% reduction on those in 2018 and a 12.2% reduction was achieved in that period for the measure of emissions intensity relative to turnover. Travelodge reports that its 'Energy Governance Group' is continuing to drive positive change in this area.
ASM Global (parent entity of SMG)	4.0	ASM Group's Corporate Responsibility Statement is available on the "Our Story" section of its website, www.ASMGlobal.com. This includes an overview of their environmental policy, stating their intention to be industry leaders in this area and confirming that they undertake the measurement of greenhouse gas emissions, water consumption and waste reduction.
The Brewery on Chiswell Street Limited	3.4	The Brewery's Corporate Social Responsibility statement is available within a dedicated section of its website www.TheBrewery.co.uk. The tenant and venue have achieved ISO20121 certification for sustainability in event management, incorporating socially and environmentally responsible decision making.
Major tenants	105.7	93% of Group contractual rent

* the reference to MSCI ESG Research LLC or its affiliates ("MSCI"), and the use of MSCI logos, trademarks, service marks or index names herein, does not constitute a sponsorship, endorsement, recommendation or promotion by MSCI. MSCI services and data are the property of MSCI or its information providers, and provided "as is" and without warranty. MSCI names and logos are trademarks or service marks of MSCI.

Statement on stakeholder relationships made under Section 172(1) of the Companies Act

The Directors consider that, in conducting the business of the Company over the course of the year ended 31 December 2020, they have complied with Section 172(1) of the Companies Act 2006 ("the Act").

The business is externally managed and the Group has no employees. The Board is of the opinion that its conduct and that of its external Management Team culminated from decisions made in good faith to promote the success of the Company for the benefit of all of its members, having regard to the impact of decisions on the following matters specified in Section 172 of the Act:

· the interests of the workforce, for whom the Chairman of the Remuneration Committee has special responsibility and who are also represented on the Board by the three Prestbury directors;

· business relationships with suppliers, customers and other counterparties, where engagement is managed in the main by the Investment Adviser;

· the community and the environment, where the Board takes overall responsibility;

· the reputation of the Company for high standards of business conduct, monitored by the Board with input from advisers including the Company's broker;

· fair treatment as between all members of the Company where the Investment Adviser engages routinely and where the Chairman of the Company and other Independent Directors make themselves available for meetings as appropriate; and

· the likely long term consequences of decisions made by the Board.

The strategy of the Company was initially laid out in the AIM Admission document issued in May 2014 and was approved by the Board at that time. In running the business, any deviation from or amendment of that strategy is subject to Board and, if necessary, shareholder approval.

At least annually, the Board considers a business plan and budget for the delivery of its strategic objectives. Through regular engagement with its stakeholder groups, the Board aims to gain a rounded and balanced understanding of the impact of its decisions. In the main, that information is gathered in the first instance by the Investment Adviser and communicated to the Board in its regular quarterly meetings and otherwise as required.

The key strategic decisions for the Board are those relating to asset acquisitions, lease variations, financing, disposals and distributions, and where these types of transaction, or any other material transaction or decision, is considered, the Board has regard to its wider obligations under Section 172 of the Act.

Specifically, during the 2020 financial year the principal non-routine decisions made by the Board related to the support extended to certain of the Group's tenants as a result of the pressures on them from the Covid-19 pandemic. These were in the vast majority of cases constructive, collaborative bilateral discussions between the Company and those tenants, where the various outcomes were considered to represent a good result both for the tenant businesses, including their employees and other stakeholders, and the Company and its stakeholders, including specifically its shareholders and lenders. In the case of the Budget Hotels portfolio where the tenant implemented a Company Voluntary Arrangement ("CVA"), the process was more combative largely as a consequence of the way CVAs generally work, including the limits on information that can be provided and the lack of flexibility that is possible in accommodating suggestions or requirements from landlords either individually or in groups. However, despite these challenges the decisions taken by the Board as to how to approach the assessment of the CVA proposals and the consequences of it were taken with the best interests of the Company and its stakeholders in the foreground, but also in weighing up the best outcome for the tenant and its stakeholders including its customers, its many employees and its suppliers. The Board's commitment to taking into account the long term consequences of its decisions underlies its focus on risk, including risks to the long term viability and success of the business. These assessments led the Board to conclude that the actions taken in granting rent concessions would benefit the Company as well as its tenants.

While the Group has no employees, the Board has regard to the interests of the individuals who are responsible for delivery of the management and advisory services to the Company. Three of the seven Directors are representatives of the Investment Adviser and, in their capacity as directors and majority owners of the Investment Adviser, have direct responsibility for the employees of the companies providing services to the business. In addition, the Chairman of the Remuneration Committee has responsibility for workforce engagement so that there is a direct line of communication from the workforce to the Independent Directors. There have been no strategic initiatives or transactions in the year that were considered to have a direct bearing on the employees of the external management business.

The Board has been kept informed of relevant developments in the workforce. The Investment Adviser has confirmed that none of the workforce has been furloughed or made redundant, that all members of the workforce have continued to be paid their salaries in full, and that the Investment Adviser and its associated companies have not drawn on the Government's Job Retention Scheme or any other Covid related support. Steps have been taken to protect the physical and mental wellbeing of the workforce, as far as possible. This includes access to a confidential helpline for physical and mental health issues which is provided by the Investment Adviser's private medical insurer. The whole team has been required to work from home during the Government mandated lockdowns and at times during the various other 'tiered' restrictions. Where office based work has been possible, teams were split and worked in rotation in and out of the office, to minimise the number of people in the office at any one time, to keep the workforce safe. The workforce below director level also participated in a special Covid related charitable giving scheme funded by the Investment Adviser, additional to the charitable donations made in the ordinary course of its business, where each employee selected a number of charities which resulted in donations totalling £27,000 made to 32 good causes.

In the Board's annual review of the internal control environment operating in the business, the appropriateness of staffing levels and staff qualifications are kept under review, but it is noted that the Board does not have direct responsibility for any employees.

In the main, the Company's suppliers, customers and counterparties are professional firms such as lenders, property agents, accounting and law firms, tenants with which we have longstanding relationships, and transaction counterparties which are generally large and sophisticated businesses or institutions. Where material counterparties are new to the business, checks, including anti money laundering checks, are conducted prior to transacting any business to ensure that no reputational or legal issues would arise from engaging with that counterparty. The Company also reviews the compliance of all material counterparties with relevant laws and regulations such as the Modern Slavery Act 2015. All Group entities have a policy of paying suppliers in accordance with agreed terms as reported in the Supplier Payment Policies below and our approach to our suppliers and to payments has been unchanged throughout the pandemic.

The interaction of Group entities with the wider community and their impact on the environment is relatively limited as a result of the Group's business operations being entirely related to investment in properties let on very long leases, where the operation of the properties, their upkeep and environmental impact is the responsibility of the occupational tenants. The Board and the Investment Adviser have committed to limiting the Company's own impact of the business on the environment where possible, including engagement with our tenants in understanding and where possible supporting their climate related targets.

The Board is mindful that the ability of the Company to continue to conduct its investment business and to finance its activities depends in part on the reputation of the Board and Management Team. The risk of falling short of the high standards expected and thereby risking the reputation of the Company is included in the Board's review of the Company's risk register, which is conducted at least annually.

The investor relations programme is designed to promote formal engagement with major investors, generally defined as those holding more than approximately 1% of the shares in the Company. Major investors are offered meetings after each results announcement and the Management Team is also available to other investors who may request meetings. The Board and Management Team also engage with investors and potential investors who request meetings on an ad hoc basis throughout the year. The impact of the pandemic on markets generally and specifically on the Company's share price meant that ad hoc engagement with shareholders has been significantly more frequent than usual in 2020.

Recognising the great importance of engaging with the Company's shareholders, the Board oversees the Management Team's investor relations programme which is supported by the Company's brokers and financial PR advisers. The Board and Management Team aim to be open with shareholders and available to them, subject at all times to compliance with relevant securities laws.

Feedback from our shareholders is an important part of the Board's decision making process. We receive such feedback both directly and through intermediaries such as brokers and analysts. The feedback received is a natural part of the open dialogue we aim to have with our investors and, when appropriate and within the rules on sharing company information, the opinions of shareholders are sought in advance of decisions being made. During the financial year these discussions have included our response to the pandemic and also our approach to the discount between the share price and the Group's net asset value, where in the main shareholders confirmed their support for the Board's decisions.

All Company announcements and formal shareholder presentations are made available on the Company's website.

Until 2020, the whole Board has always attended the Company's Annual General Meeting. However, the restrictions imposed on people gathering together that were in force at the time of the 2020 AGM meant that only one director was able to attend the meeting, with one other shareholder present at an appropriate distance and with all Covid-19 related precautions having been taken. The Board's intention is to return to attendance in person at the AGM in future but, where that is not possible, will continue to keep lines of communication with shareholders open including the facility for shareholders to submit questions by email or post ahead of the AGM.

The Company has a single class of shares in issue with all members of the Company having equal rights therefore balancing the interests of shareholders among themselves is not an issue for the Company.

The investment strategy of the Group is focussed on medium to long term returns and as such the long term is firmly within the sights of the Board when all material decisions are made.

Supplier payment policies

Neither the Company nor any of its subsidiary undertakings exceeds the thresholds for reporting payment practices and performance. The following voluntary disclosures relate to the Group:

· the Group does not have standard or maximum payment terms, but seeks to settle supplier invoices in accordance with pre-agreed terms;

· invoices may be submitted electronically but as the volume of payments is relatively low, the Group does not operate electronic tracking for suppliers;

· the Group does not offer supply chain finance;

· there are no arrangements for participation on supplier lists and no charges for being on such a list;

· the Group is not a member of a payment code of conduct; and

· the average number of days taken to make payments in the year was 30 days (2019: 23 days). The lengthening of the average in 2020 is due in large part to both of our accounts assistants unfortunately suffering from Covid-19 at the same time, but payment terms are reverting to normal levels since their recovery.

Principal Risks and Uncertainties

The Board's responsibilities for risk management include assessing the principal risks faced by the Group and how they may be mitigated, including considering matters that may threaten the performance of the Group, its business model or its viability.

Material changes to the Group risk register

The Audit Committee and the Board review the Group's risk register at least annually and more often as necessary. Given the elevated risks following the onset of the Covid-19 pandemic, the risk register, which was most recently reviewed in connection with the publication of the interim report in September 2020, has been reviewed again in conjunction with the approval of this annual report.

Pandemic disruption was added to the overarching risks (which comprised Brexit risk and Climate risk) at the first review after the pandemic was declared, and the risk rating of each of the principal risks was increased at that time because all are impacted by the consequences of the pandemic and the response of governments and public health bodies to it. This remains the case in the current schedule of risks.

The rollout of vaccines in the UK and elsewhere is a positive development which has eased the Covid-19 pandemic risk, although this has been to some extent offset by the spread of more contagious strains of the virus leaving the risk, overall, unchanged albeit with a brighter medium term outlook.

Towards the end of 2020 a trade deal was agreed with the EU, just prior to the end of the Brexit transition period, reducing the Brexit risk by way of the removal of the risk of a disorderly exit on World Trade Organisation terms. As a result, Brexit risk has now been removed from the overarching risk list. However, as the change in trading conditions is recent and as terms of trade in various areas continue to evolve, the Board will continue to monitor Brexit risk to ensure that assessment remains appropriate, particularly as it may impact on our tenants despite its having been assessed as lower risk.

The risk assessments are otherwise unchanged since those presented in the 2020 Interim Report.

Overarching risks

There are overarching risks which the Board considers to be relevant to most of the individual risk areas identified. These are not classified as separate risks in their own right, but as general risks affecting many of the specific risk factors faced by the Group and which are also kept under review and are:

· the risks of extensive economic and social disruption, including from a pandemic; and

· climate risk, including the risks and costs of decarbonisation.

Global economic and social disruption including pandemic risk

The Board and Management Team of the Company and those of the Group's major tenants have operated through a number of cycles of economic boom and bust, through varying degrees of political stability, and have dealt with deep recessions and periods of great disruption. However, the global reach, sudden onset and extensive impact of the spread of Covid-19 is in a class of its own in its scale and unpredictability. While the full force of the lockdowns and other pandemic related restrictions has been felt by our tenants in the Leisure and Budget Hotels sectors, this has been mitigated, from the Company's perspective, through its significant weighting in healthcare assets which account for 32% of the Group's passing rents before Covid-related concessions. The Company's Uncommitted Cash balance remains available to deal with further threats arising. While the path of the virus, of consumer behaviour in the face of it and of any resulting recession cannot be known, the experience of the Board and Management Team members is being brought to bear on every aspect of the risks faced by the Company as a result of the pandemic.

Climate risk

As the Company has very limited direct impact on the environment, this risk is not one where the Company can take steps to make a material impact on its own behalf. The Company is externally managed and has no offices and so has no directly produced emissions to report. However, in assessing the strength of the credit quality of our tenants and of potential tenants, we take climate risk into account. Climate risk assessments also form an integral part of the way that we consider how any assets being considered for acquisition meet the criteria set out in the Company's business model. We report on our own policies and those of our major tenants in the ESG section of the Strategic Review.

The Board considers that the principal risks and uncertainties facing the Group over the medium to long term are as follows:

Risk and change in assessment since prior year

Impact on the Group

Mitigation

Tenant risk

During the year and prior year, the Group derived its income from ten tenant groups, two of which have the benefit of guarantees from or joint tenancies with substantial listed parent companies. The three largest tenant groups account for 88% of passing rent before concessions as at the balance sheet date (31 December 2019: 87%).

Although the Board considers the tenant and guarantor groups to be financially strong in ordinary circumstances, certain tenants experienced liquidity stresses during the pandemic and there can be no guarantee that they will remain able to comply with their obligations throughout the term of the relevant leases.

The severe impact of Covid-19 on the Group's Leisure and Budget Hotels tenants, which suffered an abrupt and almost complete closure of their operations as a result of the pandemic, creates heightened tenant risk. The reopening of their businesses in the UK over the summer of 2020 brought some easing of risk but subsequent local restrictions and later national lockdowns continue to create pressures for them, although we note that many of the leisure and hotels operations are now in their quieter seasons and some are generally closed for the winter in any case.

A default of lease obligations by a material tenant and its guarantor (if any) would have an impact on the Group's revenue, earnings and cash flows and could have an impact on debt covenant compliance. The specialised use of the properties may mean that, in the event of an unexpected vacancy, re-letting takes time.

Investment property valuations reflect an independent external valuer's assessment of the future security of income. A loss of income would therefore impact net asset value as well as earnings. It could also lead to a breach of interest cover or debt service cover covenants, resulting in increased interest rate margins payable to lenders, restricted cash flows out of secured debt groups or ultimately default under secured debt agreements. The availability of distributable reserves could also be restricted.

32% (31 December 2019: 32%) of passing rent before concessions at the balance sheet date is contractually backed by large listed companies and a further 35% (31 December 2019: 31%) by global businesses with multi billion pound valuations, all with capital structures considered by the Board to have been strong and with impressive long term earnings growth and (where relevant) share price track records up until the start of the pandemic. The balance of the income is payable by substantial businesses also considered by the Board to be sufficiently financially strong in the context of their lease obligations.

The properties are Key Operating Assets, which should have the effect of enhancing rental income security.

The Board reviews the financial position of the tenants and guarantors at least every quarter and more often when relevant, based on publicly available financial information and any other trading information which may be obtained either under the terms of the leases or informally. The Group's key performance indicators include the levels of covenant headroom and of Uncommitted Cash, both of which are relevant to monitoring and if necessary mitigating this risk.

The Board reserves unsecured and Uncommitted Cash outside ring-fenced debt structures which would be available to be used to cure certain covenant defaults to the extent of the cash available.

Risk and change in assessment since prior year

Impact on the Group

Mitigation

Property valuation movements

The Group invests in commercial property which is held on the balance sheet at its fair value at each balance sheet date. The Company is therefore exposed to movements in property valuations, which are subjective and may vary as a result of a number of factors, many of which are outside the control of the Board.

As a result of the pandemic, this risk has increased since the start of 2020 because of the relative lack of liquidity in the Leisure and Budget Hotel sectors (61% of property assets by value), which is reflected in a 'material valuation uncertainty' in the independent external valuations. The risk relating to the healthcare assets is not considered to be similarly affected by the pandemic and no such 'material valuation uncertainty' applies to those valuations.

Investment properties make up the majority of the Group's assets, so material changes in their value will have a significant impact on measures of net asset value including EPRA NTA, with any effect of the valuation changes on net assets magnified by the impact of borrowings.

Falls in the value of investment properties could lead to a breach of financial covenants in secured debt facilities, resulting in increased interest margins payable to lenders, restricted cash flows out of secured debt groups, restrictions of distributable reserves available for dividend payments or default under secured debt agreements.

The Group uses experienced independent external valuers whose work is reviewed by suitably qualified members of the Management Team and, separately, the Audit Committee before being considered by the Board in the context of the financial information as a whole.

The Board seeks to structure the Group's capital such that the level of borrowing and the protections available to cure a covenant default are appropriate having regard to market conditions and financial covenant levels.

The Group's key performance indicators include the levels of covenant headroom and Uncommitted Cash, both of which are relevant to monitoring and if necessary mitigating this risk.

The Board reserves Uncommitted Cash outside ring-fenced debt structures which would be available to cure certain covenant breaches.

Risk and change in assessment since prior year

Impact on the Group

Mitigation

Borrowing

Certain Group companies have granted security to lenders in the form of mortgages over each of the Group's investment properties and fixed and floating charges over other assets.

Following the sale of eight hospitals in August 2019, the Group holds an Uncommitted Cash balance that is substantially higher than the level of c. £60 million it has held historically. For such time as significant surplus cash is retained, the borrowing risk can be considered to be lower than prior to 2019 as the ability to cure breaches of financial covenants, should they occur, is significantly greater.

While to date the Group has had the support of its lenders in agreeing any consents or waivers required to accommodate the support provided to its tenants throughout the pandemic, for as long as tenant risk is elevated, borrowing risk is also considered to be elevated.

In the event of a breach of a debt covenant, the Group may be required to pay higher interest costs or increase debt amortisation, affecting Group earnings and cash flows. If a financial covenant breach is the result of the financial weakness of a tenant or a guarantor, the property valuations and therefore net asset value may also be adversely affected. In certain circumstances the Company's ability to make cash distributions to shareholders may be reduced.

Where a loan repayment cannot be made the Group may be forced to sell assets to repay part or all of the Group's debt. It may be necessary to sell assets at below book value, which would adversely impact net assets and future earnings. Early debt repayments would in most cases crystallise repayment penalties, which would also adversely impact cash balances and net assets and reduce distributable reserves.

The Group's borrowing arrangements comprise six ring-fenced subgroups with no cross-guarantees between them and no recourse to other assets outside each secured subgroup. A financial covenant issue in one portfolio should therefore be limited to that portfolio, save for tenant related events (such as a tenant insolvency) where the two healthcare subgroups would both be affected by any issue relating to Ramsay and the two budget hotel facilities would be affected by any issue relating to Travelodge.

Five of the facilities have LTV default covenants (the Merlin Leisure facility has no LTV default covenant) and all facilities have interest cover or debt service cover covenants. The Board reviews compliance with all financial covenants at least every quarter, including forward-looking tests for at least twelve months, and considers whether there is sufficient headroom on relevant loan covenants to withstand stress test and reverse stress test scenarios.

The Board seeks to structure the Group's capital such that gearing is appropriate having regard to market conditions and financial covenant levels, with appropriate cure rights within debt facilities.

The Group's key performance indicators include the levels of Net Loan to Value, covenant headroom and of Uncommitted Cash, all of which are relevant to monitoring and if necessary mitigating this risk.

The Board reserves Uncommitted Cash outside ring-fenced debt structures which would be available to cure certain covenant breaches.

Risk and change in assessment since prior year

Impact on the Group

Mitigation

Tax risk

As a UK REIT, a failure to comply with certain UK REIT conditions resulting in the loss of this status could result in property income being subject to UK corporation tax.

This risk has increased as a result of the pandemic. The pressures on the UK Treasury of providing financial support throughout the pandemic is considered to have increased the risk of changes in the tax regime.

If subject to UK corporation tax, the Group's current tax charge would increase, impacting cash flows, net asset value and earnings, and reducing cash and reserves available for distributions. Further, any asset sales would also be subject to corporation tax, reducing the net amounts receivable on sale and requiring deferred tax to be provided on inherent capital gains.

The REIT conditions which, if breached, could result in automatic expulsion from the REIT regime are those relating to the Company's share (and any loan capital should the Company have any in future), and are therefore (with the exception of a successful hostile takeover of the Company by a non-REIT) within the control of the Group.

The Board reviews compliance with the UK REIT rules at least every quarter.

Liquidity risk

Working capital must be managed to ensure that both the Group as a whole and all individual entities are able to meet their liabilities as they fall due, though with highly predictable income and costs there is limited scope for unexpected liquidity pressures outside those risks described under Tenant risk.

The Group holds a material Uncommitted Cash balance providing the benefit of a very substantial liquidity buffer. For as long as the risks of further economic disruption arising from the pandemic remain elevated, the potential for the liquidity buffer to be called on to provide support to tenants and/or to deploy in debt management is also elevated.

A breach of a lending covenant, or the insolvency of either the Group as a whole or an individual entity within a secured subgroup could result in a loss of net assets, impacting net asset value and earnings, and reducing cash and reserves available for distributions.

As a result, there could be insufficient cash and/or distributable reserves to meet the Property Income Distribution ("PID") requirement under the UK REIT rules, which could result in UK corporation tax becoming payable on the Group's property rental business. This would in turn reduce free cash flows.

Unless there is a tenant default (the risk of which is explained under Tenant risk) the Group's cash flows are generally highly predictable. The cash position is reported to the Board at least quarterly, projections at least two years ahead are included in the Group budget and are updated for review when the interim and annual reports are approved, and projections for a five year period are reviewed for the viability statement in the annual report.

The Group's key performance indicators include the levels of Uncommitted Cash available to the Group.

The Group has Uncommitted Cash reserves out of which any tax liabilities or increases in required PIDs above the cash flow generated from operations could be met in the short to medium term. A scrip dividend alternative could be offered to meet the PID requirement.

Going concern and viability

The Board regularly monitors the Company's and the Group's ability to continue as a going concern and its longer term viability. This is supported by the Audit Committee's work in this area. Summaries of the Company's and the Group's liquidity position, compliance with loan covenants and the financial strength of its tenants and their guarantors are considered at the scheduled quarterly Board meetings and more often as required. This includes updating of the stress tests and reverse stress tests described in the mitigation sections of the tenant and borrowing risks within the Principal Risks and Uncertainties section. These include expanded and stress tested assessments consistent in approach with, but more detailed than, those presented in the Investment Adviser's summary of the 'headroom on debt covenants' key performance indicator. The modelling includes (but is not limited to):

· the identification of uncertainties facing the Group, including the risks of tenant defaults and investment property valuation movements (as outlined in the principal risks and uncertainties section), the resulting impact on Group debt covenants and the remedial action that may be taken, including the extent of the resources available to the Company to cure covenant breaches; and

· stress tests, presented both on the basis of estimated reasonable ranges of outcomes (such as variations in investment property valuation yields, rental cash flows and exposure to any unexpected cash outflows) and reverse stress tests, where scenarios are presented to demonstrate the key inputs (principally rental cash flows and property valuation yields) that would be required to exhaust the Company's liquidity buffer in curing financial covenant breaches.

The detailed scenarios are calculated by the Investment Adviser and presented to the Audit Committee for its review, subject to challenge and debate. The projections and scenarios considered throughout 2020 and in connection with the approval of this financial information had particular regard to issues arising from the Covid-19 pandemic, specifically the impact on the Group's tenants. The ability of each tenant to navigate its way through the challenges of the pandemic to date, the Group's significant liquidity levels to deal with any further issues arising and the brighter medium term outlook as a result of the vaccine rollouts, are considered relevant in the context of the going concern and viability assessments for the Group.

The Board has weighed up the risks to going concern set out above together with the ability of the Company to take mitigating action in response to those risks. The Board considers that the combination of their assessments as to the tenants' prospects, the headroom available on debt covenants and the liquidity available to the Group to deal with reasonable stressed scenarios on income and valuation outlook leads to a conclusion that the Company and the Group are each able to continue in business for the foreseeable future. They therefore consider it appropriate to adopt the going concern basis in the preparation of this financial information.

Viability statement

The Board has assessed the prospects of the Group over the five years from the balance sheet date to 31 December 2025, which is the period covered by the Group's longer term financial projections. The Board considers the resilience of projected liquidity, as well as compliance with debt covenants and UK REIT rules, under a range of RPI and property valuation assumptions. These scenarios include stress tests and reverse stress tests consistent with those described in the paragraph preceding the going concern statement and include a consideration of mitigating actions that may be taken to avert or mitigate potential threats to viability.

The principal risks and the key assumptions that were relevant to this assessment are as follows:

Risk	Assumptions
Tenant risk	· Tenants and their guarantors (where relevant) continue to comply with their rental obligations and do not suffer any insolvency events or otherwise cease rental payments over the term of the review.
Borrowing risk	· The Group continues to comply with all loan covenants. · The Group is able to negotiate acceptable terms to refinance £374.7 million of debt in the Merlin Leisure facility falling due in October 2022 and £184.4 million in two hotel facilities and one leisure facility falling due between April and October 2023.
Liquidity risk	· The Group continues to generate sufficient cash to cover its costs while retaining the ability to make distributions, which includes the Group's continuing compliance with loan covenants.

Based on the work performed, the Board has a reasonable expectation that the Group will be able to continue in business over the five year period of its assessment.

The Strategic Report, which comprises the Chairman's Statement, Investment Adviser's Report and Strategic Review, was signed on behalf of the Board on 10 March 2021.

Martin Moore Sandy Gumm

Chairman Director

Group Income Statement

	Notes	Year to 31 December 2020 £000	Year to 31 December 2019 £000
Revenue	3, 4	121,664	132,677
Property outgoings	5	(1,525)	(1,327)
Gross profit		120,139	131,350
Administrative expenses	6	(17,001)	(22,128)
Profit on disposal of investment properties		32	53,074
Investment property revaluation	11	(166,622)	75,708
Operating (loss) / profit	7	(63,452)	238,004
Finance income	8	374	730
Finance costs	8	(50,264)	(84,234)
(Loss) / profit before tax		(113,342)	154,500
Tax charge	9	(299)	(1,141)
(Loss) / profit for the year		(113,641)	153,359

Earnings per share		Pence per share	Pence per share
Basic	10	(35.1)	47.5
Diluted	10	(35.1)	47.3

All amounts relate to continuing activities.

The notes form part of this financial information.

Group Statement of Other Comprehensive Income

	Notes	Year to 31 December 2020 £000	Year to 31 December 2019 £000
(Loss) / profit for the year		(113,641)	153,359
Items that may subsequently be reclassified to profit or loss:
Currency translation differences	21	2,101	(2,000)
Fair value movements in derivatives	13, 21	(637)	(851)
Other comprehensive income / (loss)		1,464	(2,851)
Total comprehensive (loss) / income for the year		(112,177)	150,508

The notes form part of this financial information.

Group Statement of Changes in Equity

Year to 31 December 2020	Share capital £000	Share premium reserve £000	Other reserves £000	Retained earnings £000	Total £000

At 1 January 2020	32,285	518,415	7,164	826,678	1,384,542
Loss for the year	-	-	-	(113,641)	(113,641)
Other comprehensive income	-	-	1,464	-	1,464
Total comprehensive income / (loss)	-	-	1,464	(113,641)	(112,177)
Issue of shares	119	4,791	(4,910)	-	-
Interim dividends of 15.7 pence per share	-	-	-	(50,824)	(50,824)
At 31 December 2020	32,404	523,206	3,718	662,213	1,221,541

Year to 31 December 2019	Share capital £000	Share premium reserve £000	Other reserves £000	Retained earnings £000	Total £000

At 1 January 2019	32,156	513,675	9,977	725,780	1,281,588
Profit for the year	-	-	-	153,359	153,359
Other comprehensive loss	-	-	(2,851)	-	(2,851)
Total comprehensive income	-	-	(2,851)	153,359	150,508
Issue of shares	129	4,740	(4,869)	-	-
Shares to be issued	-	-	4,907	-	4,907
Interim dividends of 16.3 pence per share	-	-	-	(52,461)	(52,461)
At 31 December 2019	32,285	518,415	7,164	826,678	1,384,542

The notes form part of this financial information.

Group Balance Sheet

	Notes	31 December 2020 £000	31 December 2019 £000
Non-current assets
Investment properties	3, 11	1,975,600	2,111,297
Headlease rent deposits		2,740	2,742
Tangible fixed assets		228	-
Interest rate derivatives	13	7	43
		1,978,575	2,114,082
Current assets
Cash and cash equivalents	14	219,730	267,119
Trade and other receivables	15	20,009	3,798
		239,739	270,917
Total assets		2,218,314	2,384,999

Current liabilities
Trade and other payables	16	(32,889)	(38,290)
Secured debt	17	(4,984)	(1,170)
Interest rate derivatives	13	(557)	(246)
Current tax liability		(56)	(129)
		(38,486)	(39,835)
Non-current liabilities
Secured debt	17	(916,596)	(920,408)
Head rent obligations under finance leases	18	(28,662)	(28,190)
Deferred tax liability	19	(11,899)	(11,267)
Interest rate derivatives	13	(1,130)	(757)
		(958,287)	(960,622)
Total liabilities		(996,773)	(1,000,457)

Net assets		1,221,541	1,384,542

Equity
Share capital	20	32,404	32,285
Share premium reserve	21	523,206	518,415
Other reserves	21	3,718	7,164
Retained earnings	21	662,213	826,678
Total equity		1,221,541	1,384,542

		Pence per share	Pence per share
Basic NAV per share	23	377.0	428.8
Diluted NAV per share	23	377.0	427.3
EPRA NTA per share	23	379.3	429.4

The notes form part of this financial information.

Group Cash Flow Statement

	Notes	Year to 31 December 2020 £000	Year to 31 December 2019 £000
Operating activities
(Loss) / profit before tax		(113,342)	154,500
Adjustments for non-cash items:
Investment property revaluation	11	142,516	(86,727)
Depreciation		18	-
Administrative expenses payable in shares	25	-	4,907
Profit on disposal of investment properties		(32)	(53,074)
Finance income	8	(374)	(730)
Finance costs	8	50,264	84,234
Cash flows from operating activities before changes in working capital		79,050	103,110
Changes in working capital:
Trade and other receivables		(18,811)	(265)
Trade and other payables		(5,504)	(2,144)
Headlease rent deposits		2	24
Cash generated from operations		54,737	100,725
Tax paid		(401)	(233)
Cash flows from operating activities		54,336	100,492

Investing activities
Net proceeds on disposal of investment properties		2,597	357,744
Interest received		409	695
Acquisition of tangible fixed assets		(246)	-
Acquisition of investment properties		-	(307)
Cash flows from investing activities		2,760	358,132

Financing activities
Dividends paid		(50,824)	(52,461)
Interest and finance costs paid	24	(47,844)	(53,638)
Scheduled repayment of secured debt	24	(4,434)	(3,988)
Repayment of secured debt from proceeds of property disposals	24	(1,494)	(154,519)
Fees on accelerated prepayment of secured debt	8, 24	-	(27,868)
Loan arrangement costs paid	24	-	(670)
Cash flows from financing activities		(104,596)	(293,144)

(Decrease) / increase in cash and cash equivalents		(47,500)	165,480
Cash and cash equivalents at the beginning of the year		267,119	101,745
Currency translation movements		111	(106)
Cash and cash equivalents at the end of the year	14	219,730	267,119

The notes form part of this financial information.

Notes to the Group Financial Information

1. General information about the Group

The financial information set out in this report covers the year to 31 December 2020 with comparative figures relating to the year to 31 December 2019. It includes the results and net assets of the Company and its subsidiaries, together referred to as the Group.

The Company is incorporated in England and Wales. The address of the registered office and principal place of business is Cavendish House, 18 Cavendish Square, London W1G 0PJ. The nature and scope of the Group's operations and principal activities are described in the Strategic Report. The Company is listed on the AIM market of the London Stock Exchange.

Further information about the Group can be found on its website, www.SecureIncomeREIT.co.uk.

2. Basis of preparation and accounting policies

a) Statement of compliance

The consolidated financial information has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2020. Whilst the financial information included in this announcement has been computed in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, this announcement does not itself contain sufficient information to comply with those standards. The financial information does not constitute the Group's financial statements for the years ended 31 December 2020 or 31 December 2019, but is derived from those financial statements. Those financial statements give a true and fair view of the assets, liabilities, financial position and results of the Group. Financial statements for the year ended 31 December 2019 have been delivered to the Registrar of Companies and those for the year ended 31 December 2020 will be delivered following the Company's AGM. The auditors' reports on both the 31 December 2020 and 31 December 2019 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

b) Basis of preparation

The Group financial information is presented in Sterling as this is the currency of the primary economic environment in which the Group operates. Amounts are rounded to the nearest thousand pounds unless otherwise stated.

Euro denominated results for the German operations have been converted to Sterling at the average exchange rate for the year of €1:£0.89 (2019: €1:£0.88), which is not considered to produce materially different results from using the actual rates at the date of the transactions. Year end balances have been converted to Sterling at the 31 December 2020 exchange rate of €1:£0.90 (2019: €1:£0.85).

The financial information has been prepared on the historical cost basis, except for investment properties and derivatives which are stated at fair value. The accounting policies have been applied consistently in all material respects.

Going concern

The Directors have, at the time of approving the financial information, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the financial information. Further details are given in the Strategic Review.

Judgements in applying accounting policies and key sources of estimation uncertainty

The preparation of financial information requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and reported amounts of assets and liabilities as at each balance sheet date and the reported amounts of revenue and expenses during any financial year. Any estimates and assumptions are based on experience and any other factors that are believed to be relevant under the circumstances and which the Board considers reasonable. Actual outcomes may differ from these estimates.

The principal area of estimation uncertainty is the investment property valuation where, as described in note 11, the opinion of independent external valuers has been obtained at each reporting date using recognised valuation techniques and the principles of IFRS 13 "Fair Value Measurement".

2. Basis of preparation and accounting policies (continued)

b) Basis of preparation (continued)

The principal areas of judgement relate to revenue recognition. Consistent with the prior year, one area of judgement is the recognition of any additional revenue in the year as a result of an outstanding May 2018 open market rent review on the Ramsay hospitals. The review is under arbitration and the nature of the assets mean that there is little comparative information on which to base an assessment. The Directors consider that it is not possible at present to make a reasonably certain estimate of any uplift that might result, and the financial information therefore does not reflect any additional revenue arising as a result of this rent review. This position has not changed from that disclosed in the 2019 financial statements. A further consideration in the year is the treatment of the Covid-19 rent concessions, where the extent of any lease modifications and the methodology for spreading income over lease terms has been assessed in the context of accounting standards and the Company's accounting policies.

The Group's accounting policies for property valuation and revenue recognition are set out in paragraph 2d. Other policies material to the Group are set out in paragraphs 2c and 2e to 2k.

Adoption of new and revised standards

During the year, the Group adopted the amendments to IFRS 16 that were introduced as a result of the Covid-19 pandemic. As these largely apply to lessees rather than lessors, there was no material change to the Group's accounting policies and disclosures.

During year, the Group also adopted the "Interest Rate Benchmark Reform" amendments to IFRS 9, IAS 39 and IFRS 7. As well as certain additional disclosures, the amendments provide relief in applying the requirements of IFRS 9 to certain hedges, including allowing the Group to assume that LIBOR will not be altered as a result of interest rate benchmark reform. Consequently, hedging relationships that may otherwise have been impacted by interest rate benchmark reform have remained in place and no additional ineffective portion of the hedges has been recognised. LIBOR linked exposures amount to only 8% of Group borrowings and 4% of the Group's interest charge on secured debt for the year ended 31 December 2020, therefore any effects are not considered to be material.

None of the other new or amended standards or interpretations issued by the International Accounting Standards Board ("IASB") or the IFRS Interpretations Committee ("IFRIC") have led to any material changes in the Group's accounting policies or disclosures during the year.

Standards and interpretations in issue not yet adopted

The IASB and IFRIC have issued or revised IFRS 1, IFRS 3, IFRS 4, IFRS 7, IFRS 9, IFRS 17, IAS 1, IAS 8, IAS 16, IAS 28, IAS 37, IAS 39 and IAS 41 but these are not expected to have a material effect on the operations of the Group.

c) Basis of consolidation

Subsidiaries are those entities controlled directly or indirectly by the Company. The Company has control within the meaning of this policy when it has power over an entity, is exposed to or has rights to variable returns from its involvement with the entity and has the ability to use its power over the entity to affect those returns.

The consolidated financial information includes the financial information of the Company's subsidiaries prepared to 31 December under the same accounting policies as the Group as a whole, using the acquisition method. All intra-group balances and transactions are eliminated on consolidation.

All Group entities were wholly owned throughout the current year and the prior year.

d) Property portfolio

Investment properties

Investment properties are properties ultimately owned by the Company, directly or indirectly, which are held for capital appreciation, rental income or both. They are initially recorded at cost and subsequently valued at each balance sheet date at fair value as determined by professionally qualified independent external valuers.

Valuations are calculated, in accordance with "RICS Valuation - Global Standards 2020" by applying market capitalisation rates to future rental cash flows with reference to data from comparable market transactions, together with an assessment of the security of income. Gains or losses arising from changes in the fair value of investment properties are recognised in the income statement in the period in which they arise. Depreciation is not charged in respect of investment properties.

Acquisitions of investment properties are recognised on unconditional exchange of contracts where it is reasonable to assume at the balance sheet date that completion of the acquisition will occur. Disposals of investment properties are recognised when the buyer obtains control of the property, taking into account the points at which the Group has a right to payment and the buyer has obtained legal title or possession of the property, or has taken on the significant risks and rewards of ownership.

2. Basis of preparation and accounting policies (continued)

d) Property portfolio (continued)

Gains or losses on disposal are determined as the difference between the net disposal proceeds and the carrying value of the asset in the previous balance sheet, adjusted for any subsequent capital expenditure or capital receipts.

Occupational leases

The Directors exercise judgement in considering the potential transfer of the risks and rewards of ownership in accordance with IFRS 16 "Leases" for all occupational leases and headleases to determine whether or not such leases are operating leases. A lease is classified as a finance lease if substantially all of the risks and rewards of ownership transfer to the lessee. In the case of properties where the Group has a leasehold interest, this assessment is made by reference to the Group's right of use asset arising under the headlease rather than by reference to the underlying asset. If the Group substantially retains those risks, a lease is classified as an operating lease. All occupational leases reflected in this financial ionformation are classified as operating leases.

Headleases

Where an investment property is held under a leasehold interest, the headlease is initially recognised as an asset at cost plus the present value of minimum ground rent payments. The corresponding rental liability to the head leaseholder is included in the balance sheet as a finance lease obligation. Cash flows arising under headleases are classified under operating activities before changes in working capital in the cash flow statement. Cash deposits held by head leaseholders as guarantees of headlease obligations are held on the balance sheet as non-current assets and any movements in deposits are disclosed as changes in working capital within cash generated from operations in the cash flow statement.

Rental income

Revenue comprises rental income exclusive of VAT, recognised in the income statement on an accruals basis. Future anticipated rental income is spread over the term of a lease on a straight line basis, giving rise to a Rent Smoothing Adjustment in cases where future rental variations can be determined with sufficient certainty. Where income has been cumulatively recognised in advance of the contractual right to receive that income, such as from leases with fixed rent uplifts, an adjustment is made to ensure that the carrying value of the relevant investment property including accrued rent does not exceed the fair value of the property as assessed by the independent external valuers. Income arising from contractual rights that are subject to external factors, such as RPI-linked or open market rent reviews, is recognised in the income statement in the period in which it is determinable and reasonably certain.

Where there has been a change in the scope of a lease or the consideration for a lease that was not part of the original terms and conditions of that lease, this is accounted for as a lease modification. This treatment applies to cases where rent reductions have been agreed, as has been the case in the Covid-19 related rent concessions described in the Strategic Report. Such modifications are accounted for as new leases from the effective date of the modification, which is the date at which both parties agree to the terms of the modification. Any prepaid or accrued lease payments relating to the original lease at the date of modification are treated as part of the lease payments for the new lease. Future anticipated rental income is spread over the term of the lease on a straight line basis, giving rise to a Rent Smoothing Adjustment in the event that rent is reduced for a period.

Rent Smoothing Adjustments are not considered to be financial assets as the amounts are not yet contractually due. As such, the requirements of IFRS 9 (including the expected credit loss model) are not applied to those balances, although credit risk is considered in the determination of the fair value of the related property.

Cash flows from rental income are included in the cash flow statement within cash flows from operating activities.

e) Financial assets and liabilities

Financial assets and liabilities are initially recognised at their fair value when a Group entity becomes a party to the unconditional contractual terms of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the Directors to be reasonable estimates of their fair values.

Trade and other receivables

Trade and other receivables are measured at amortised cost using the effective interest method, less any impairment. Impairment is calculated using an expected credit loss model.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and deposits with maturities of three months or less held with banks or financial institutions. Returns on cash and cash equivalents are included in the cash flow statement under investing activities.

Trade and other payables

Trade and other payables are measured at amortised cost using the effective interest method.

2. Basis of preparation and accounting policies (continued)

e) Financial assets and liabilities (continued)

Borrowings and finance costs

Secured debt is initially recognised at its fair value, net of any arrangement fees and other transaction costs directly attributable to its issue. Subsequently, secured debt is carried at amortised cost. Transaction costs are amortised over the life of the loan and charged to the income statement as part of the Group's finance costs. Cash flows relating to borrowings and finance costs are included in the cash flow statement within financing activities.

Derecognition of financial liabilities

The Group derecognises financial liabilities when its obligations are discharged, cancelled or expire. The difference between the carrying amount of those financial liabilities and the consideration paid, including any non-cash assets transferred and any new liabilities assumed, is recognised in profit or loss on derecognition.

Interest rate derivatives

The Group has used interest rate derivatives to hedge its exposure to cash flow interest rate risk. Derivatives are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently measured at fair value.

Derivatives are classified either as derivatives in effective hedges or derivatives held for trading. It is anticipated that any hedging arrangements will generally be "highly effective" within the meaning of IFRS 9 "Financial Instruments" and that the criteria necessary for applying hedge accounting will therefore be met.

Hedges are assessed upon inception and on an ongoing basis to identify whether they continue to be effective. The gain or loss on the revaluation of the portion of an instrument that qualifies as an effective hedge of cash flow interest rate risk is recognised directly in other comprehensive income. Amounts accumulated in equity will be reclassified to the income statement in the period when the hedged items affect the income statement. The gain or loss on the revaluation of any derivative that is not an effective hedge is recognised directly in the income statement.

The Group ceases to use hedge accounting if a forecast transaction being hedged against is no longer expected to occur. In such circumstances, the cumulative amounts in other comprehensive income are then reclassified from equity to profit or loss.

f) Tax

Tax is included in the income statement except to the extent that it relates to income or expense items recognised through reserves, in which case the related tax is recognised either in other comprehensive income or directly in reserves.

Current tax is the expected tax payable on taxable income for a reporting period at the blended tax rate for the period, using tax rates enacted or substantively enacted at the balance sheet date, together with any adjustment in respect of previous periods. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Tax paid is classified under cash flows from operating activities in the cash flow statement.

g) Foreign currency translation

The results of Group undertakings with a functional currency other than Sterling are translated into Sterling at the actual exchange rates prevailing at the time of the transaction, unless the average rate for the reporting period is not materially different from the actual rate, in which case that average rate is used.

The gains or losses arising on the end of year translation of the net assets of such Group undertakings at closing rates and the difference between translating the results at average rates compared to the closing rates are taken to other reserves. Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at the balance sheet date with any gains or losses arising on translation recognised in the income statement.

2. Basis of preparation and accounting policies (continued)

h) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of directly attributable issue costs. Costs not directly attributable to the issue are included within administrative expenses in the income statement and financing activities within the cash flow statement. Dividends paid are also classified under financing activities in the cash flow statement.

i) Share based payments

The fair value of payments to non-employees that are to be settled by the issue of shares is determined on the basis of an estimate of the value of the services provided over the relevant accounting period. The estimated number of shares to be issued in satisfaction of the services provided is calculated using the average daily closing share price of the Company for that period.

j) Fair value measurements

Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market. It is based on the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. A fair value measurement of a non-financial asset takes into account the best and highest value use for that asset.

k) Tangible fixed assets

Tangible fixed assets, which comprise car park equipment at Manchester Arena, are depreciated to their residual values, assessed for these purposes as zero, on a straight line basis over their estimated useful life of ten years.

3. Operating segments

IFRS 8 "Operating Segments" requires operating segments to be identified on a basis consistent with internal reports about components of the Group that are reviewed by the chief operating decision maker to make decisions about resources to be allocated between segments and assess their performance. The Company's chief operating decision maker is its Board.

The Group owned 161 properties at 31 December 2020 and 31 December 2019, originally acquired in five separate portfolios. Although certain information about these portfolios is described on a portfolio basis within the Investment Adviser's Report or grouped by property type (Healthcare, Leisure and Budget Hotels), when considering resource allocation and performance the Board reviews quarterly management accounts prepared on a basis which aggregates the performance of the portfolios and focuses on the Group's Total Accounting Return. The Board has therefore concluded that the Group has operated in, and was managed as, one reportable segment of property investment in both the current and prior year.

The geographical split of revenue and applicable non-current assets was:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Revenue
UK	113,218	124,348
Germany	8,446	8,329
	121,664	132,677

Investment properties
UK	1,860,300	2,001,047
Germany	115,300	110,250
	1,975,600	2,111,297

3. Operating segments (continued)

Revenue by tenant comprises:

	Year to	Year to
	31 December	31 December
	2020	2019
Revenue including Rent Smoothing Adjustments	£000	£000
Ramsay Healthcare UK Operations Limited, guaranteed by Ramsay Health Care Limited:
Properties owned throughout the period	37,180	37,165
Properties sold in August 2019	-	10,907
Travelodge Hotels Limited	29,373	30,400
Merlin Attractions Operations Limited, guaranteed by Merlin Entertainments Limited	28,286	27,654
Other tenants (each less than 10% of revenue)	26,825	26,551
Reported revenue	121,664	132,677

	Year to	Year to
	31 December	31 December
	2020	2019
Revenue excluding Rent Smoothing Adjustments	£000	£000
Ramsay Healthcare UK Operations Limited, guaranteed by Ramsay Health Care Limited
Properties owned throughout the period	34,121	33,195
Properties sold in August 2019	-	9,752
Travelodge Hotels Limited	14,072	28,820
Merlin Attractions Operations Limited, guaranteed by Merlin Entertainments Limited	14,043	27,654
Other tenants (each less than 10% of revenue)	16,044	20,742
Revenue on Adjusted EPRA Earnings basis	78,280	120,163

4. Revenue

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Rent receivable	96,360	120,533
Rent Smoothing Adjustments:
Smoothing of original contractual uplifts	8,901	10,564
Smoothing of Covid-19 rent concessions	14,760	-
Recovery of head rent and service charge costs from occupational tenants (note 5)	1,643	1,580
	121,664	132,677

The Rent Smoothing Adjustments arise from the Group's accounting policy in respect of leases, which requires the recognition of rental income on a straight line basis over the lease term, including rent uplifts throughout the term in certain circumstances. Uplifts that must be smoothed over the lease term are those for the 41% of passing rent as at 31 December 2020 (2019: 38%) that increases by a fixed percentage at each review date and the 6% of passing rent at 31 December 2020 (2019: 6%) that is subject to minimum RPI-linked uplifts.

A new feature of this calculation in the 2020 financial year is the impact of the temporary rent reductions agreed to assist tenants as a result of the Covid-19 pandemic, which in the short term result in rental income being recognised in the income statement ahead of cash flows but which, after the end of each relevant concession period, reverse so that rental income recognised in the income statement will be lower than cash rents received on those leases. These are further described in the Strategic Report, in note 11 and in the Unaudited Supplementary Information following this financial information. In addition, £17.7 million (2019: £nil) of rent on the Leisure portfolio, receipt of which has been deferred from 2020 to 2021, has also been excluded from revenue on an Adjusted EPRA earnings in the current year because although it has been recognised in the income statement it has not yet been received in cash.

4. Revenue (continued)

Revenue on an Adjusted EPRA earnings basis also excludes the back rent received during a prior year from a May 2017 rent review on the healthcare portfolio, which is being recognised in revenue over the remaining lease term despite the cash having been received in 2017, and the amounts recovered from occupational tenants for head rent and service charge costs, which are reclassified against the equivalent costs in property outgoings. As a result of these adjustments, revenue reconciles between the IFRS basis and Adjusted EPRA Earnings basis as follows:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
IFRS revenue	121,664	132,677
Rent Smoothing Adjustments:
relating to original contractual uplifts	(8,901)	(10,564)
relating to Covid-19 rent concessions	(14,760)	-
Leisure rent deferral	(17,727)	-
Recovery of head rent and service charge costs reclassified to property outgoings	(1,643)	(1,580)
Adjustment for back rent	(353)	(370)
Adjusted EPRA Earnings revenue	78,280	120,163

The Group's accounting policy for revenue recognition is disclosed in note 2d.

5. Property outgoings

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Property outgoings in the income statement	1,525	1,327
Finance element of head rent included in finance costs (note 8)	1,680	1,702
Movement in headlease liabilities included in property revaluations (note 11)	106	100
Property outgoings	3,311	3,129
Recovery of head rents and service charge costs from occupational tenants, included in revenue (note 4)	(1,643)	(1,580)
Net property outgoings	1,668	1,549

	Year to	Year to
	31 December	31 December
	2020	2019
Property outgoings in the income statement	£000	£000
Cost of negotiating and documenting Covid-19 rent concessions	568	-
Head rents	461	441
Irrecoverable property costs	293	121
Managing agent costs and other net property outgoings	190	134
Rent review costs	13	416
Costs of prospective capital projects	-	215
	1,525	1,327

Amounts shown above include any irrecoverable VAT. The costs of prospective capital projects in the prior year related largely to feasibility studies and may be capitalised in future if those projects proceed.

The Group's accounting policy for headleases is disclosed in note 2d.

6. Administrative expenses

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Advisory fees (note 25b)	13,661	14,732
Other administrative expenses	2,794	1,546
Corporate costs	546	594
Incentive fee (note 25d)	-	5,256
	17,001	22,128

Amounts shown above include any irrecoverable VAT. The incentive fee in the prior year comprised £4.9 million satisfied by way of the issue of shares and £0.4 million of VAT payable in cash.

The Group's accounting policy for share based payments is disclosed in note 2i.

7. Operating profit

Audit fees, which are included within administrative expenses, relate to:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Audit of the Company's consolidated and individual financial statements	48	47
Audit of subsidiaries, pursuant to legislation	236	182
Total audit services	284	229
Audit related services: review of interim report	35	33
Audit related services: regulatory reporting	-	3
Total audit and audit related services	319	265
Other non-audit services	-	3
Total fees	319	268

Amounts shown above include any irrecoverable VAT. The fees as received by the auditor, excluding VAT, in the year were £286,000 (2019: £259,000), of which £35,000 (2019: £39,000) related to non-audit work.

The Group had no employees in either the current or prior year. The key management personnel of the Company are the Directors, who are appointed under letters of appointment for services. Directors' remuneration, all of which represents fees for services provided and is included within administrative expenses, was as follows:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Martin Moore (Chairman)	75	75
Leslie Ferrar (Chairman of Audit Committee)	45	45
Jonathan Lane	40	40
Ian Marcus	40	40
	200	200

Mike Brown, Sandy Gumm and Nick Leslau received no Directors' remuneration from the Group in either the current or prior year.

8. Finance income and costs

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Finance income
Interest on cash deposits	374	730
Finance costs
Cash costs:
Interest on secured debt	(45,561)	(49,920)
Interest charge on headlease liabilities (note 5)	(1,680)	(1,702)
Loan agency fees and other lender costs	(300)	(546)
Fees on accelerated prepayment of secured debt following property disposals	-	(27,868)
Non-cash movements:
Amortisation of loan arrangement costs	(2,280)	(2,382)
Amortisation of interest rate derivatives, transferred from other reserves	(339)	(269)
Fair value adjustment of interest rate derivatives (note 13)	(83)	(104)
Amortisation of loan arrangement costs on accelerated debt prepayment	(21)	(1,443)
Total finance costs	(50,264)	(84,234)
Net finance costs recognised in the income statement	(49,890)	(83,504)

Fair value adjustment of interest rate derivatives	(976)	(1,120)
Amortisation of interest rate derivatives, transferred to the income statement	339	269
Net finance costs recognised in other comprehensive income / (loss) (note 13)	(637)	(851)

Net finance costs analysed by the categories of financial asset and liability shown in note 17b are as follows:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Financial assets at amortised cost	374	730
Financial liabilities at amortised cost	(50,181)	(84,130)
Derivatives in effective hedges	(83)	(104)
Net finance costs recognised in the income statement	(49,890)	(83,504)

The Group's sensitivity to changes in interest rates, on the basis of a ten basis point change in LIBOR, was as follows:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Effect on (loss) / profit for the year	198	242
Effect on other comprehensive income / (loss) and equity	124	181

The Group receives interest on its cash and cash equivalents so an increase in interest rates would increase finance income. An increase in LIBOR up to the maximum capped rate of 1.65% would also increase finance costs relating to the £23.3 million (2019: £24.8 million) of the secured debt that is hedged by interest rate caps. A further £50.0 million (2019: £50.0 million) of the secured debt is hedged with interest rate swaps, and movements in LIBOR would only have an impact on the fair value of those interest rate swaps, which would be reflected in other comprehensive income. There would be no effect from a change of LIBOR on the remaining £855.0 million (2019: £855.9 million) of the secured debt which is at fixed rates. The Group's sensitivity to interest rates has not changed significantly in the year.

The Group's accounting policy for finance costs is disclosed in note 2e.

9. Tax

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Current tax - Germany
Corporation tax charge	360	341
Adjustments in respect of prior years	(39)	41
Deferred tax - Germany
Deferred tax (credit) / charge (note 19)	(22)	759
	299	1,141

The tax assessed for the year varies from the standard rate of corporation tax in the UK applied to the (loss) / profit before tax. The differences are explained below:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
(Loss) / profit before tax	(113,342)	154,500

Tax (credit) / charge at the standard rate of corporation tax in the UK for the financial year of 19% (2019: 19%)	(21,535)	29,355
Effects of:
Investment property revaluation not allowable / (taxable)	29,924	(15,652)
Qualifying property rental business not taxable under UK REIT rules	(8,935)	(4,001)
Unutilised tax losses carried forward	273	721
Finance costs disallowed under corporate interest restriction rules	257	420
German current tax charge for the year	360	341
Adjustments in respect of prior years	(39)	41
Profit on disposal of investment properties not taxable under UK REIT rules	(6)	(10,084)
Tax charge for the year	299	1,141

The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's UK and German property rental business from UK corporation tax. Capital gains on the Group's UK and German properties are also generally exempt from UK corporation tax, provided they are not held for trading or in certain circumstances sold in the three years after completion of a development. None of the Group's properties were developed in the last three years.

To remain a UK REIT, a number of conditions must be met in respect of the Company, the Group's qualifying activity and the Group's balance of business. Since entering the UK REIT regime the Group has met all applicable conditions.

The Group is subject to German corporation tax on its German property rental business at an effective rate of 15% (2019: 15%), resulting in a tax charge of £0.3 million (2019: £0.3 million). A deferred tax liability of £11.9 million (2019: £11.3 million) is recognised for the German capital gains tax that would potentially be payable on the sale of the relevant investment properties.

Certain non-resident unit trust Group entities entered into transparency elections during the year, such that any future disposals of UK investment properties by those entities will be deemed to arise in their parent companies and can therefore benefit from the REIT exemption.

The Group's accounting policy for tax is disclosed in note 2f.

10. Earnings per share

Basic EPS

Earnings per share ("EPS") is calculated as the profit attributable to ordinary shareholders of the Company for each year divided by the weighted average number of ordinary shares in issue throughout the relevant year. In calculating the weighted average number of shares in issue for basic EPS:

· where shares have been issued during the year in settlement of an incentive fee relating to the results of the prior year, they are treated as having been issued on the first day of the year rather than their actual date of issue, which is typically in March; and

· shares still to be issued at the balance sheet date in settlement of an incentive fee relating to the results of that year are not taken into account.

Diluted EPS

The weighted average number of shares used in the calculation of diluted EPS is required to include any shares to be issued in respect of an incentive fee, as if those shares had been in issue throughout the whole of the year over which the fee was earned, although in fact they will not be issued until the following year.

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
(Loss) / profit for the year	(113,641)	153,359

Weighted average number of shares in issue	Number	Number
Basic EPS calculation	324,035,146	322,850,595
Shares to be issued in satisfaction of incentive fee (note 25d)	-	1,184,551
Diluted EPS calculation	324,035,146	324,035,146

Pence per

Basic EPS

(35.1)

47.5

Diluted EPS

(35.1)

47.3

EPRA EPS

The European Public Real Estate Association ("EPRA") publishes guidelines for calculating adjusted earnings designed to represent core operational activities. EPRA EPS is calculated in accordance with the EPRA Guidance currently in force.

An Adjusted EPRA earnings calculation has also been presented. This adjusted measure was designed to reflect the fact that, as a Group with unusually long leases and a high proportion of fixed or minimum rental increases to spread over the lease terms, the Company's Dividend Cover would be artificially high if calculated on the basis of EPRA EPS. Adjusted EPRA EPS removes the effect of the Rent Smoothing Adjustments, including in the current year the impact of Covid-19 rent concessions. It also excludes any non-recurring costs or income which do not relate to the Group's routine operations, such as costs incurred for share placings. The adjusted measure also excludes any incentive fees which are paid in shares, as they are considered to be linked to revaluation movements and are therefore best treated consistently with revaluations which are excluded from EPRA EPS.

In calculating Adjusted EPRA EPS, the weighted average number of shares is calculated using the actual date on which any shares are issued during the year so as not to create a mismatch between the basis of calculation of Adjusted EPRA EPS and the dividends per share paid in the year. In this way the Group's measure of dividend cover is considered to be more precisely calculated.

The weighted average number of shares applied in calculating Adjusted EPRA EPS has been calculated as follows:

	Year to	Year to
	31 December	31 December
	2020	2019
	Number	Number
Shares in issue throughout the period	322,850,595	321,563,353
Adjustment for:
Shares issued in March 2020 in settlement of 2019 incentive fee	925,633	-
Shares issued in March 2019 in settlement of 2018 incentive fee	-	976,893
	323,776,228	322,540,246

EPRA and Adjusted EPRA earnings are calculated as:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
(Loss) / profit for the year	(113,641)	153,359
EPRA adjustments:
Investment property revaluation (note 11)	166,516	(75,708)
Profit on disposal of investment properties	(32)	(53,074)
Deferred tax on German investment property revaluations (note 9)	(22)	759
Amortisation of loan arrangement costs on accelerated debt prepayment (note 8)	21	1,443
Fair value adjustment of interest rate derivatives	13	36
Fees on accelerated debt repayments on property disposals (note 8)	-	27,868
EPRA earnings	52,855	54,683
Other adjustments:
Rent Smoothing Adjustments (note 4)	(23,661)	(10,564)
Rent deferral	(17,727)	_
Incentive fee (note 6)	-	5,256
Adjusted EPRA earnings	11,467	49,375

As a result of those adjustments, the EPRA EPS and Adjusted EPRA EPS figures are as follows:

Pence per share

Pence per

EPRA EPS

16.3

16.9

Adjusted EPRA EPS

3.5

15.3

11. Investment properties

	Year to	Year to
	31 December	31 December
	2020	2019
Freehold investment properties	£000	£000
At the start of the year	1,802,390	2,018,115
Revaluation movement	(102,938)	88,901
Currency translation movement	6,341	(5,986)
Disposals	-	(301,535)
Reclassification on acquisition of freehold interest in leasehold property	-	2,595
Acquisition of freehold interest in leasehold property	-	262
Additions	-	38
At the end of the year	1,705,793	1,802,390

	Year to	Year to
	31 December	31 December
	2020	2019
Leasehold investment properties	£000	£000
At the start of the year	308,907	317,105
Revaluation movement	(39,578)	(2,174)
Increase / (decrease) in headlease liabilities	578	(221)
Revaluation movement in headlease liabilities	(106)	(100)
Additions	6	7
Disposals	-	(3,115)
Reclassification on acquisition of freehold interest in leasehold property	-	(2,595)
At the end of the year	269,807	308,907

	Year to	Year to
	31 December	31 December
	2020	2019
Total investment properties	£000	£000
At the start of the year	2,111,297	2,335,220
Revaluation movement	(142,516)	86,727
Currency translation movement	6,341	(5,986)
Increase / (decrease) in headlease liabilities	578	(221)
Revaluation movement in headlease liabilities	(106)	(100)
Additions	6	45
Net cost of acquisition of freehold interest in leasehold property	-	262
Disposals	-	(304,650)
At the end of the year	1,975,600	2,111,297

As at 31 December 2020 the properties were valued at £1,946.9 million (2019: £2,083.1 million) by CBRE Limited or Christie & Co in their capacity as independent external valuers. Of the total fair value, £115.3 million (2019: £110.3 million) relates to the Group's German investment properties, the valuations of which are translated into Sterling at the year end exchange rate.

The valuations were prepared on a fixed fee basis, independent of the portfolio value, and were undertaken in accordance with RICS Valuation - Global Standards 2020 on the basis of fair value, supported by reference to market evidence of transaction prices for similar properties where available.

The Royal Institution of Chartered Surveyors mandated that valuations in certain sectors should be subject to "material valuation uncertainty" as at 31 December 2020. Healthcare asset valuations did not carry such a proviso as at 31 December 2020 or any prior period, and none of the 31 December 2019 valuations in any sector were subject to material valuation uncertainty.

The valuation report on Healthcare assets, which comprise 39.5% of the Group's investment property valuations as at 31 December 2020, included this wording:

"In the healthcare sector, as at the Valuation Date, transaction volumes provided enough up-to-date comparable market evidence upon which to base opinions of value for the Hospital assets and therefore there is no material uncertainty associated with these properties. We do however recommend that you keep the Valuations of all the assets contained in this report under frequent review."

The reports from each valuer included the following statement about material valuation uncertainty in respect of the Leisure and Budget Hotel properties, which together comprise 60.5% of the Group's investment property valuations as at 31 December 2020:

"The outbreak of the Novel Coronavirus (Covid-19), declared by the World Health Organisation as a 'Global Pandemic' on 11 March 2020, continues to impact many aspects of daily life and the global economy - with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel, movement and operational restrictions have been implemented by many countries. In some cases, 'lockdowns' have been applied - in varying degrees - to reflect further 'waves' of Covid-19. While these may imply a new stage of the crisis, they are not unprecedented in the same way as the initial impact.

The pandemic and the measures taken to tackle Covid-19 continue to affect economies and real estate markets globally. In the case of the properties set out within this report, as at the valuation date, we continue to be faced with an unprecedented set of circumstances caused by Covid-19 and a reduction in market evidence on which to base our judgements. Our valuation is therefore reported as being subject to 'material valuation uncertainty', as set out in VPS 3 and VPGA 10 of the RICS Valuation - Global Standards. Consequently, in respect of these valuations less certainty - and a higher degree of caution - should be attached to our valuation than would normally be the case.

For the avoidance of doubt, this explanatory note - including the 'material valuation uncertainty' declaration - does not mean that the valuation cannot be relied upon. Rather, it has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of Covid-19, we highlight the importance of the valuation date."

Under the Group's accounting policy, in line with IFRS, the carrying value of leasehold properties is grossed up by the present value of minimum headlease payments. The corresponding liability to the head leaseholder is included in the balance sheet as a finance lease obligation. The reconciliation between the carrying value of the investment properties and their independent external valuation is as follows:

	31 December	31 December
	2020	2019
	£000	£000
Carrying value	1,975,600	2,111,297
Gross-up of headlease liabilities (note 18)	(28,662)	(28,190)
Independent external valuation	1,946,938	2,083,107

Included within the carrying value of investment properties at 31 December 2020 is £181.4 million (2019: £155.7 million) in respect of Rent Smoothing Adjustments (described in note 4 and in the unaudited supplementary information following this financial information), representing the amount of the net mismatch between rent included in the income statement and cash rents actually receivable. This net receivable increases over broadly the first half of each lease term, in the case of fixed or minimum uplifts, or the period of the temporary rent reductions agreed with tenants in light of Covid-19. The balance then unwinds, reducing to zero by the end of the lease term. The difference between rents on a straight line basis and rents actually receivable is included within, but does not increase over fair value, the carrying value of investment properties.

Also included in the revaluation movement for the year is the impact of back rent received during a prior year from a May 2017 rent review on the healthcare portfolio, which is being recognised in revenue over the remaining lease term despite the cash having been received in 2017, together with movements on the headlease liabilities.

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Investment property revaluation	(142,516)	86,727
Rent Smoothing Adjustments (note 4)	(23,661)	(10,564)
Adjustment for back rent received	(339)	(355)
Movement in headlease liabilities (note 5)	(106)	(100)
Revaluation movement in the income statement	(166,622)	75,708

The historic cost of the Group's investment properties, translated at historic foreign exchange rates, as at 31 December 2020 was £1,479.6 million (2019: £1,479.6 million).

All of the investment properties are held within six (2019: six) ring-fenced security pools as security under fixed charges in respect of separate secured debt facilities.

All of the Group's revenue reflected in the income statement is derived either from rental income or the recovery of head rent and other leasehold costs on investment properties. As shown in note 5, property outgoings arising on investment properties, all of which generated rental income in each year, were £3.3 million (2019: £3.1 million) of which £1.7 million (2019: £1.5 million) was not recoverable from occupational tenants.

Other than the future minimum headlease payments disclosed in note 18, the majority of which are recoverable from tenants, the Group did not have any contractual investment property obligations at either balance sheet date. All responsibility for property liabilities including repairs and maintenance resides directly with the tenants, except at Manchester Arena where such costs relating to the structure and common areas are liabilities of the Group in the first instance. However, since the majority of these costs are currently recoverable from tenants the net cost to the Group in the year was £0.3 million (2019: £0.1 million). In addition, the car park at Manchester Arena is run under an operating agreement which means the Group is responsible for the costs of running the car park to the extent that they are not covered by the revenue it generates. During the year, this resulted in a net cost to the Group of £0.1 million (2019: £nil), as the car park has been largely closed as a result of Covid related restrictions.

The Board determines the Group's valuation policies and procedures and is responsible for overseeing the valuations. Valuations performed by the Group's independent external valuers are based on information extracted from the Group's financial and property reporting systems, such as current rents and the terms and conditions of lease agreements, together with assumptions used by the valuers (based on market observation and their professional judgement) in their valuation models.

At each reporting date, certain directors of the Investment Adviser, who have recognised professional qualifications and are experienced in valuing the types of property owned by the Group, initially analyse the independent external valuers' assessments of movements in the property valuations from the prior reporting date or, if later, the date of acquisition. Positive or negative fair value changes over a certain materiality threshold are considered and are also compared to external sources, such as the MSCI indices and other relevant benchmarks, for reasonableness. Once the Investment Adviser has considered the valuations, the results are discussed with the independent external valuers, focusing on properties with unexpected fair value changes or any with unusual characteristics. The Audit Committee considers the valuation process, including meetings with the independent external valuers and assessing their expertise and independence, and reports on its assessment of the procedures to the Board.

The fair value of the investment property portfolio has been determined using an income capitalisation technique whereby contracted and market rental values are capitalised with a market capitalisation rate. This technique is consistent with the principles in IFRS 13 and uses significant unobservable inputs, such that the fair value measurement of each property within the portfolio has been classified as level 3 in the fair value hierarchy as defined in IFRS 13. There have been no transfers to or from other levels of the fair value hierarchy during the year.

The key inputs for the level 3 valuations were as follows:

	Fair value		Inputs
Portfolio	£000	Key unobservable input	Range	Blended yield
At 31 December 2020:
Healthcare	769,095	Net Initial Yield	3.9% - 4.5%	4.5%
		Running Yield by January 2022	4.0% - 4.6%	4.6%
Leisure - UK	687,721	Net Initial Yield	4.8% - 7.3%	5.5%
		Running Yield by January 2022	4.8% - 7.4%	5.7%
		RPI assumption per annum	2.5%
Budget Hotels	403,484	Topped Up Net Initial Yield	5.3% - 13.9%	7.1%
		Running Yield by January 2022	5.8% - 15.5%	7.2%
		RPI assumption per annum	2.5%
Leisure - Germany	115,300	Net Initial Yield	5.8%	5.8%
		Running Yield by January 2022	5.9%	5.9%
	1,975,600
At 31 December 2019:
Healthcare	748,385	Net Initial Yield	3.9% - 4.5%	4.5%
		Running Yield by December 2020	4.0% - 4.6%	4.6%
Leisure - UK	751,008	Net Initial Yield	3.7% - 6.2%	5.0%
		Running Yield by December 2020	4.2% - 6.9%	5.1%
		RPI assumption per annum	2.5% - 3.1%
Budget Hotels	501,654	Net Initial Yield	4.3% - 10.5%	5.5%
		Running Yield by December 2020	4.5% - 10.5%	5.7%
		RPI assumption per annum	2.5%
Leisure - Germany	110,250	Net Initial Yield	5.5%	5.5%
		Running Yield by December 2020	5.7%	5.7%
	2,111,297

The principal sensitivity of measurement to variations in the significant unobservable outputs is that decreases in Net Initial Yield, decreases in Running Yield and increases in RPI will increase the fair value (and vice versa).

The Group's accounting policy for investment properties is disclosed in note 2d.

12. Subsidiaries

The companies listed below are the subsidiary undertakings of the Company at 31 December 2020, all of which are wholly owned. Save where indicated all subsidiary undertakings are incorporated in England with their registered office at Cavendish House, 18 Cavendish Square, London W1G 0PJ.

	Nature of business
SIR Theme Park Subholdco Limited *	Intermediate parent company and borrower under mezzanine secured debt facility
Charcoal Midco 2 Limited	Intermediate parent company
SIR Theme Parks Limited	Intermediate parent company and borrower under senior secured debt facility
SIR ATH Limited	Property investment - leisure
SIR ATP Limited	Property investment - leisure
SIR HP Limited	Property investment - leisure and borrower under senior secured debt facility (incorporated in England, operating in Germany)
SIR TP Limited	Property investment - leisure
SIR WC Limited	Property investment - leisure
SIR Hospital Holdings Limited *	Intermediate parent company
SIR Umbrella Limited	Intermediate parent company
SIR Hospitals Propco Limited	Intermediate parent company and borrower under secured debt facility
SIR Duchy Limited	Property investment - healthcare
SIR Springfield Limited	Property investment - healthcare
SIR Healthcare 1 Limited	Intermediate parent company
SIR Healthcare 2 Limited	Intermediate parent company and borrower under secured debt facility
SIR Fitzwilliam Limited	Property investment - healthcare
SIR Fulwood Limited	Property investment - healthcare
SIR Lisson Limited	Property investment - healthcare
SIR Midlands Limited	Property investment - healthcare
SIR Oaklands Limited	Property investment - healthcare
SIR Oaks Limited	Property investment - healthcare
SIR Pinehill Limited	Property investment - healthcare
SIR Rivers Limited	Property investment - healthcare
SIR Woodland Limited	Property investment - healthcare
SIR Yorkshire Limited	Property investment - healthcare
Thomas Rivers Limited	Property investment - healthcare
SIR Hotels 1 Limited *	Intermediate parent company
SIR Hotels Jersey Limited †	Intermediate parent company
SIR Unitholder 1 Limited †	Intermediate parent company
SIR Unitholder 2 Limited †	Intermediate parent company
Grove Property Unit Trust 6 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 7 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 9 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 11 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 12 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 16 †	Property investment - budget hotels and borrower under secured debt facility
SIR Hotels 2 Limited *	Intermediate parent company
SIR Hotels Jersey 2 Limited †	Intermediate parent company
SIR Unitholder 3 Limited †	Intermediate parent company
SIR Unitholder 4 Limited †	Intermediate parent company
Grove Property Unit Trust 2 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 5 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 13 †	Property investment - budget hotels and borrower under secured debt facility

* directly owned by the Company; all other entities are indirectly owned

† incorporated in Jersey with their registered office at 26 New Street, St Helier, Jersey JE2 3RA

	Nature of business
Grove Property Unit Trust 14 †	Property investment - budget hotels and borrower under secured debt facility
Grove Property Unit Trust 15 †	Property investment - budget hotels and borrower under secured debt facility
SIR Maple 4 Limited	Property investment - budget hotels and borrower under secured debt facility
SIR Maple Holdco Limited *	Intermediate parent company
SIR Maple 1 Limited †	Intermediate parent company
SIR Unitholder 5 Limited †	Intermediate parent company
MIF I Unit Trust ^x	Property investment - leisure and borrower under secured debt facility
SIR Maple 2 Limited	Property investment - leisure and borrower under secured debt facility
SIR Maple 3 Limited	Property investment - leisure and borrower under secured debt facility
SIR New Hall Limited *	Dormant
SIR MTL Limited *	Dormant
Charcoal Bidco Limited *	Dormant
SIR Hotels 2 Holdco Limited †	Dormant
SIR Hotels 2 GP Limited †	Dormant
SIR Hotels 2 Nominee Limited †	Dormant
SIR Hotels 2 LP †	Dormant
SIR Newco Limited *	Dormant
SIR Newco 2 Limited *	Dormant

* directly owned by the Company; all other entities are indirectly owned

† incorporated in Jersey with the registered office at 26 New Street, St Helier, Jersey JE2 3RA

^X incorporated in Jersey with the registered office at 44 Esplanade, St Helier, Jersey JE4 9WG

The terms of the secured debt facilities may, in the event of a covenant breach, restrict the ability of certain subsidiaries to transfer distributable reserves or assets including cash to the Company, which is itself outside all security groups.

13. Interest rate derivatives

The notional amounts of the Group's interest rate derivatives comprise:

	31 December	31 December
	2020	2019
	£000	£000
Interest rate swaps (weighted average rate 1.3%)	50,000	50,000
Interest rate caps (weighted average rate 1.5%)
In effective hedges	23,272	24,766
Classified as held for trading	3,256	1,762
	76,528	76,528

The fair value of those interest rate derivatives and the movement in fair value during the year was as follows:

	31 December	31 December
	2020	2019
	£000	£000
Interest rate swaps:
Falling due within one year	(557)	(246)
Falling due in more than one year	(1,130)	(757)
	(1,687)	(1,003)
Interest rate caps:
Falling due in more than one year	7	43
	(1,680)	(960)

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
At the start of the year	(960)	(5)
Charge to the income statement (note 8)	(83)	(104)
Charge to other comprehensive income (note 8)	(637)	(851)
At the end of the year	(1,680)	(960)

The Group utilises interest rate derivatives in risk management as cash flow hedges to protect against movements in future interest costs on secured loans which bear interest at variable rates. The derivatives have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on the last working day prior to each balance sheet date by Chatham Financial Europe Limited. The fair values are calculated using present values of future cash flows based on market forecasts of interest rates and adjusted for the credit risk of the counterparties. The amounts and timing of future cash flows are projected on the basis of the contractual terms of the derivatives. All interest rate derivatives are classified as level 2 in the fair value hierarchy as defined in IFRS 13 and there were no transfers to or from other levels of the fair value hierarchy during the year.

The entire £50.0 million notional amount of the interest rate swaps and £10.0 million of the notional amount of the interest rate caps are used to hedge cash flow interest rate risk on £60.0 million of the floating rate loans shown in note 17a. The notional amounts of the interest rate derivatives equal the loan principal balance, and their maturity dates also match. £3.3 million of the notional amount of the interest rate caps was not designated for hedge accounting to allow for any future loan prepayments and as a result, although the entire cash flow interest rate is hedged, the hedges as measured for the purposes of IFRS 9 were expected on inception to be 94.5% effective throughout their lives.

The remaining £16.5 million notional amount of the interest rate caps is used to hedge cash flow interest rate risk on the remaining £13.3 million (2019: £14.8 million) of the floating rate loans shown in note 17a. Following a rebalancing of the hedging arrangements on £3.2 million (2019: £1.7 million) of the notional amount of the interest rate caps, matching the loan principal that has been repaid from the proceeds of investment property sales, the notional amounts of the interest rate caps designated for hedge accounting equal the loan principal balance and their maturity dates also match. As a result, the interest rate cap hedges, which have a fair value of £6,000 (2019: £40,000), are expected to be 100% effective throughout their terms. The remaining interest rate caps, which have a fair value of £1,000 (2019: £3,000), have been classified as held for trading.

The floating rate loans and interest rate derivatives are contractually linked to LIBOR, a market rate which is expected to become unavailable from the end of 2021. The Investment Adviser is working with the Group's lenders and derivative counterparties to transition to an alternative benchmark rate, currently expected to be Sterling Overnight Index Average ("SONIA"). The transition is not expected to have a material impact on the results or financial position of the Group.

The Group's accounting policy for interest rate derivatives is disclosed in note 2e.

14. Cash and cash equivalents

	31 December	31 December
	2020	2019
	£000	£000
Free cash and cash equivalents	196,628	240,254
Secured cash	23,102	26,261
Regulatory capital	-	604
	219,730	267,119

Secured cash is held in accounts over which the providers of secured debt have fixed and floating security. The Group is unable to access this cash unless and until it is released to free cash each quarter, which takes place after quarterly interest and any loan repayments have been made for each facility, as long as the terms of those facilities are complied with.

In the prior year and until March 2020 the Company was classified as an Alternative Investment Fund and was required by the Financial Conduct Authority to hold a balance of regulatory capital in liquid funds, which was maintained in cash. This classification ceased to apply to the Company during the year so the Company is no longer required to hold regulatory capital.

The Group's accounting policy for cash and cash equivalents is disclosed in note 2e.

15. Trade and other receivables

	31 December	31 December
	2020	2019
	£000	£000
Trade receivables	605	359
Accrued income	18,425	35
Prepayments	614	599
Other receivables	365	240
Investment property disposal proceeds receivable	-	2,565
	20,009	3,798

Having been reviewed for expected credit losses, no impairment was considered necessary for trade receivables and accrued income.

The Group's accounting policy for trade and other receivables is disclosed in note 2e.

16. Trade and other payables

	31 December	31 December
	2020	2019
	£000	£000
Trade payables	968	1,172
Rent received in advance and other deferred income	19,566	24,402
Interest payable	7,979	8,019
Tax and social security	2,305	3,192
Accruals and other payables	2,071	1,505
	32,889	38,290

The Group's accounting policy for trade and other payables is disclosed in note 2e.

17. Financial assets and liabilities

a) Borrowings

	31 December	31 December
	2020	2019
	£000	£000
Amounts falling due within one year
Fixed rate secured debt	7,284	3,480
Unamortised finance costs	(2,300)	(2,310)
	4,984	1,170

Amounts falling due in more than one year
Fixed rate secured debt	847,719	852,411
Floating rate secured debt	73,272	74,766
Unamortised finance costs	(4,395)	(6,769)
	916,596	920,408

The Group had no undrawn, committed borrowing facilities at either balance sheet date.

The debt is secured by charges, within six ring-fenced security groups, over the Group's investment properties and by fixed and floating charges over the other assets of certain Group companies, not including the Company itself save for a limited share charge over the parent company of one of the ring-fenced subgroups.

During the year, certain financial covenants were amended or waived to accommodate the temporary Covid-19 rent concessions on the Leisure and Budget Hotels portfolios described in the Strategic Report. There were no defaults or breaches of any loan covenants during the current or any prior year.

The analysis of borrowings by currency is as follows:

	31 December	31 December
	2020	2019
	£000	£000
Sterling denominated
Secured debt	863,877	869,645
Unamortised finance costs	(6,421)	(8,677)
	857,456	860,968
Euro denominated
Secured debt	64,398	61,012
Unamortised finance costs	(274)	(402)
	64,124	60,610

The Group's accounting policy for borrowings is disclosed in note 2e.

b) Categories of financial instruments

	31 December	31 December
	2020	2019
	£000	£000
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents (note 14)	219,730	267,119
Accrued income (note 15)	18,425	35
Headlease deposits	2,740	2,742
Trade receivables (note 15)	605	359
Other receivables	155	19
Amounts receivable from investment property disposals	-	2,565
Derivatives in effective hedges:
Interest rate caps (note 13)	6	40
Derivatives classified as held for trading:
Interest rate caps (note 13)	1	3
	241,662	272,882
Financial liabilities
Financial liabilities at amortised cost:
Secured debt	(921,580)	(921,578)
Headlease liabilities (note 18)	(28,662)	(28,190)
Interest payable (note 16)	(7,979)	(8,019)
Accruals and other payables (note 16)	(2,071)	(1,505)
Trade payables (note 16)	(968)	(1,172)
Derivatives in effective hedges:
Interest rate swaps (note 13)	(1,687)	(1,003)
	(962,947)	(961,467)

At each balance sheet date, all financial assets and liabilities other than derivatives in effective hedges and derivatives classified as held for trading were measured at amortised cost.

As at 31 December 2020 the fair value of the Group's secured debt was £969.2 million (2019: £961.0 million) and the fair value of the other financial liabilities was equal to their book value. Fair value is not the same as a liquidation valuation, the amount required to prepay the loans at the balance sheet date, and therefore does not represent an estimate of the cost to the Group of prepaying the debt before the scheduled maturity date, which would be materially higher.

The secured debt was valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on the balance sheet date by Chatham Financial Europe Limited. All secured debt was classified as level 2 in the fair value hierarchy as defined in IFRS 13 and its fair value was calculated using the present values of future cash flows, based on market benchmark rates (interest rate swaps) and the estimated credit risk of the Group for similar financings. There were no transfers to or from other levels of the fair value hierarchy during the current or prior year.

The Group's accounting policy for financial assets and liabilities is disclosed in note 2e.

c) Financial risk management

Through the Group's operations and use of debt financing it is exposed to certain risks. The Group's financial risk management objective is to manage the effect of these risks, for example by using fixed rate debt and interest rate derivatives to manage exposure to fluctuations in interest rates.

The exposure to each financial risk considered potentially material to the Group, how it would arise and the policy for managing it is summarised below.

Market risk

Market risk in financial assets and liabilities is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group's market risk arises from open positions in interest bearing assets, liabilities and foreign currencies, to the extent that these are exposed to general and specific market movements.

(a) Market risk - interest rate risk

The Group's interest bearing assets comprise only cash and cash equivalents. Changes in market interest rates therefore affect the Group's finance income. The Group's interest bearing liabilities comprise only secured debt. Changes in market interest rates therefore affect the Group's finance costs.

The Group's policy is to mitigate interest rate risk on its financial liabilities by entering into interest rate derivatives, which at the balance sheet date included interest rate swaps on £50.0 million (2019: £50.0 million) of floating rate debt and interest rate caps on the remaining £23.3 million (2019: £24.8 million) of floating rate debt. Under the interest rate swaps, the Group agrees to exchange with an institutional counterparty, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed schedule of notional principal amounts. The Group's fixed rate debt and debt where the interest rate risk is hedged by way of interest rate swaps, together totalling £905.0 million (2019: £905.9 million), are therefore not subject to interest rate risk. Under the interest rate caps, the Group agrees a similar exchange if the variable interest rate exceeds the contractual strike rate of the derivative. The Group is therefore exposed to limited cash flow interest rate risk on the £23.3 million (2019: £24.8 million) of floating rate debt where this risk is hedged by way of interest rate caps. Interest on those loans is payable at variable rates up to the maximum established by the cap strike rate, which averaged 1.5% (2019: 1.5%) in the year.

The Group's sensitivity to changes in interest rates is disclosed in note 8.

Trade and other payables are interest free as long as they are paid in accordance with their terms, and have payment terms of less than one year, so there is considered to be no material interest rate risk associated with these financial liabilities.

(b) Market risk - foreign currency exchange risk

The Group prepares its financial information in Sterling. On an IFRS basis, 3.5% (2019: 2.7%) by value of the Group's net assets are Euro denominated and as a result the Group is subject to foreign currency exchange risk. On an EPRA NTA basis, the Euro exposure is 3.9% (2019: 3.1%). This risk is partially hedged because within the Group's German operations, rental income, interest costs and the majority of both assets and liabilities are Euro denominated. An unhedged currency risk remains on the value of the Group's net investment in, and net returns from, its German operations.

The Group's sensitivity to changes in foreign currency exchange rates, calculated on the basis of a 10% increase in average and closing Sterling rates against the Euro, was as follows, with a 10% decrease having the opposite effect:

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Investment property revaluation net of deferred tax	(131)	290
Other income statement movements	257	227
Effect on (loss) / profit for the year	126	517

Effect on other comprehensive income and equity	4,108	3,805

Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations as a result of financial stress. The principal counterparties are the Group's tenants (in respect of trade receivables and accrued income arising under operating leases), banks and financial institutions (as holders of the Group's cash deposits and hedging counterparties) and the counterparties to the Group's investment property disposals.

The credit risk of trade receivables is considered low because the counterparties to the operating leases are believed by the Board to be capable of discharging their lease obligations and any lease guarantors are also of appropriate financial strength. On the 71% of the portfolio (at 31 December 2020 valuations) that has been owned by Group entities since 2007, over the last 13 years the rent has always been paid by the due date. Rent collection statistics are benchmarked in internal reports to identify any problems at any early stage, and if necessary and where possible (in the absence, for example, of a Government imposed moratorium on the enforcement of rent collection) rigorous credit control procedures are applied to facilitate the recovery of trade receivables.

As at 31 December 2020, the Group held financial assets with a carrying value of £0.4 million (2019: £nil) which were past due, all of which were trade receivables and all but £40,000 of which (a cost recovery from a tenant, not rent) have been received since the balance sheet date. The Group did not hold any financial assets that were impaired at either balance sheet date.

The credit risk on cash deposits is considered to be limited because the counterparties are banks and financial institutions with credit ratings which are acceptable to the Board and which are kept under review at least each quarter and more often if required.

Inflation risk

Inflation risk arises from the impact of inflation on the Group's income and expenditure. 58% (2019: 59%) of the Group's contractual passing rent before concessions at 31 December 2020 is subject to RPI-linked rent reviews, though those rents are subject to nil or upwards review, never downwards. 41% (2019: 41%) of contractual passing rent before concessions is subject to fixed rental uplifts and is not exposed to fluctuations in the inflation rate, with 1% (2019: nil) subject to upwards only open market rent reviews. As a result, the Group is not exposed to any fall in rent in deflationary conditions.

In November 2020, the UK Government and UK Statistics Authority announced changes to RPI such that it will align with the Consumer Prices Index ("CPIH") from February 2030. The exact impact on the RPI clauses in the Group's leases will depend on precisely how the UK Statistics Agency implements the change. On a downside basis, if rents were to follow CPIH which has been on average 0.8 percentage points lower than RPI over the past ten years and assuming a differential continues, the rent uplifts from 2030 onwards would be lower than they would otherwise have been. However, the Group's lease provisions may provide protection so that there would be no change in some or all cases. In the event that rental uplifts do change from 2030, any valuation impact in such circumstances would be expected to be insignificant as the market tends not to differentiate materially between RPI and CPIH lease structures, with the other property characteristics carrying greater weight in establishing pricing.

The Group is exposed to inflation risk on its running costs, which (with the exception of any advisory and incentive fees, the calculation of which is based on EPRA NAV as described in note 25b) could increase in inflationary conditions. These costs totalled £3.3 million (2019: £2.4 million) in the current year (20% (2019: 11%) of total administrative expenses) and therefore the impact of any significant percentage increase in inflation on the financial results or position of the Group would be relatively limited.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and its ability to meet the finance costs and principal repayments on its secured debt. It is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Board seeks to manage liquidity risk by ensuring that sufficient cash is available to meet the Group's foreseeable needs. The Group's more material financial obligations are the payment of financing costs and any scheduled amortisation or repayments of its secured debt. Financing costs and scheduled amortisation have been met, with only limited exceptions during a rent concession period for one tenant, out of rental income which, in all cases, provides headroom over the relevant amounts payable. Before entering into any financing arrangements, the Board assesses the resources that are expected to be available to the Group to meet its liabilities when they fall due including repayments at loan maturity. These assessments are made on the basis of both base case and stress tested scenarios.

Other liquidity needs are relatively modest and are managed principally through the deduction of much of the direct operating costs from rental receipts before any surplus is applied in payment of interest and loan amortisation as required by the facility agreements relating to the Group's secured debt.

Budgets and working capital forecasts are reviewed by the Board at least quarterly to assess liquidity requirements and compliance with loan covenants. The Board also keeps under review the maturity profile of the Group's cash deposits in order to have reasonable assurance that cash will be available for the settlement of liabilities or to deploy in investment opportunities when they fall due.

The following maturity analysis has been drawn up based on the undiscounted cash flows of financial liabilities, including future interest payments, with reference to the earliest date on which the Group can be required to pay. During the year, 73% (2019: 69%) of the Group's headlease liabilities were recoverable from tenants and are not included in this analysis to the extent that they are recoverable.

	Effective interest rate	Less than one year	One to two years	Two to five years	More than five years	Total
31 December 2020		£000	£000	£000	£000	£000
Financial assets
Cash and cash equivalents	0.2%	219,730	-	-	-	219,730
Accrued income		18,425	-	-	-	18,425
Headlease deposits		-	-	-	2,740	2,740
Trade and other receivables		730	30	-	-	760
Interest rate derivatives		-	2	5	-	7
		238,885	32	5	2,740	241,662
Financial liabilities
Fixed rate secured debt	5.1%	(50,775)	(425,351)	(524,259)	-	(1,000,385)
Floating rate secured debt	2.4%	(1,757)	(1,675)	(74,505)	-	(77,937)
Headlease liabilities		(533)	(533)	(1,600)	(7,295)	(9,961)
Accrued interest		(7,979)	-	-	-	(7,979)
Trade payables and accruals and other payables		(3,039)	-	-	-	(3,039)
Interest rate derivatives	1.3%	(558)	(686)	(443)	-	(1,687)
		(64,641)	(428,245)	(600,807)	(7,295)	(1,100,988)

	Effective interest rate	Less than one year	One to two years	Two to five years	More than five years	Total
31 December 2019		£000	£000	£000	£000	£000
Financial assets
Cash and cash equivalents	0.6%	267,119	-	-	-	267,119
Trade and other receivables		2,924	-	-	-	2,924
Headlease deposits		-	-	-	2,742	2,742
Interest rate derivatives		-	3	40	-	43
Accrued income		35				35
		270,078	3	40	2,742	272,863
Financial liabilities
Fixed rate secured debt	5.1%	(47,968)	(50,442)	(576,096)	(363,559)	(1,038,065)
Floating rate secured debt	2.9%	(2,134)	(2,083)	(77,922)	-	(82,139)
Headlease liabilities		(502)	(502)	(1,507)	(6,871)	(9,382)
Accrued interest		(8,019)	-	-	-	(8,019)
Trade payables and accruals and other payables		(2,677)	-	-	-	(2,677)
Interest rate derivatives	1.3%	(246)	(316)	(441)	-	(1,003)
		(61,546)	(53,343)	(655,966)	(370,430)	(1,141,285)

d) Capital risk management in respect of the financial year

The Board's primary risk management objective when monitoring capital is to preserve the Group's ability to continue as a going concern, while ensuring it remains within its secured debt covenants to safeguard shareholders' equity and avoid financial penalties. Borrowings are secured on each of six (2019: six) property portfolios by way of fixed charges over property assets, over the shares in the parent company of each ring-fenced borrower subgroup, and also by floating charges on the assets of the relevant subsidiary companies within each distinct subgroup. The suitability of the extent of asset cover in the secured facilities forms a key part of debt negotiations and ongoing monitoring.

At 31 December 2020 and 31 December 2019, the capital structure of the Group consisted of debt (note 17a), cash and cash equivalents (note 14), and equity attributable to the shareholders of the Company (comprising share capital, retained earnings and the other reserves described in notes 20 and 21).

In managing the Group's capital structure, the Board considers the Group's cost of capital. In order to maintain or adjust the capital structure, the Board keeps under review the amount of any dividends or other returns to shareholders and monitors the extent to which the issue of new shares, repurchases of share capital or the realisation of assets may be advisable or required.

Details of significant accounting policies are disclosed in the accounting policies in note 2. This includes the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument.

Until March 2020, the Group was subject to externally imposed capital requirements under AIFMD as disclosed in note 14. Those capital requirements were complied with at all relevant times during the current and prior year.

18. Headlease liabilities

Headlease obligations in respect of amounts payable on leasehold properties are as follows:

	31 December	31 December
	2020	2019
Minimum headlease payments	£000	£000
Within one year	1,817	1,786
Between one and five years	7,297	7,166
More than five years	157,922	154,489
	167,036	163,441
Less future finance charges	(138,374)	(135,251)
	28,662	28,190

The earliest expiry date of all the headlease obligations is in more than five years. All but £0.5 million (2019: £0.5 million) of the minimum headlease payments due within one year are recoverable from the occupational tenants.

The Group's accounting policy for headleases is disclosed in note 2d.

19. Deferred tax liability

The deferred tax liability relates to unrealised gains on the Group's German investment properties.

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
At the start of the year	11,267	11,110
(Credit) / charge to the income statement (note 9)	(22)	759
Charge / (credit) to other comprehensive income	654	(602)
At the end of the year	11,899	11,267

The Group's accounting policy for deferred tax is disclosed in note 2f.

20. Share capital

Share capital represents the aggregate nominal value of shares issued. The movement in the number of fully paid ordinary shares of 10 pence each in issue was as follows:

	Year to	Year to
	31 December	31 December
	2020	2019
	Number	Number
At the start of the year	322,850,595	321,563,353
Issue of ordinary shares:
in settlement of 2019 incentive fee	1,184,551	-
in settlement of 2018 incentive fee	-	1,287,242
At the end of the year	324,035,146	322,850,595

21. Reserves

The share premium reserve represents the surplus of the gross proceeds of share issues over the nominal value of the shares, net of the direct costs of those equity issues.

Retained earnings represent the cumulative profits and losses recognised in the income statement, together with any amounts transferred or reclassified from the Group's share premium reserve and other reserves, less dividends paid.

Other reserves represent:

· the cumulative exchange gains and losses on foreign currency translation;

· the cumulative gains or losses, net of tax, on effective cash flow hedging instruments; and

· the impact on equity of any shares to be issued after the balance sheet date, as described in note 25d, under the terms of the incentive fee arrangements.

Movements in other reserves comprise:

	Currency		Cash flow
	translation	Shares to be	hedging
	differences	issued	instruments	Total
Year to 31 December 2020	£000	£000	£000	£000
At the start of the year	3,305	4,910	(1,051)	7,164
Currency translation movements	2,101	-	-	2,101
Fair value of derivatives (note 13)	-	-	(637)	(637)
Other comprehensive income / (loss)	2,101	-	(637)	1,464
Shares issued in the year	-	(4,910)	-	(4,910)
At the end of the year	5,406	-	(1,688)	3,718

Year to 31 December 2019
At the start of the year	5,305	4,872	(200)	9,977
Currency translation movements	(2,000)	-	-	(2,000)
Fair value of derivatives (note 13)	-	-	(851)	(851)
Other comprehensive loss	(2,000)	-	(851)	(2,851)
Shares issued in the year	-	(4,869)	-	(4,869)
Shares to be issued	-	4,907	-	4,907
At the end of the year	3,305	4,910	(1,051)	7,164

22. Operating leases

The majority of the Group's assets are investment properties leased to third parties under non-cancellable operating leases. The weighted average remaining lease term at 31 December 2020 is 20.2 years (2019: 21.0 years) and there are no tenant break options. The leases contain either fixed uplifts or upwards only RPI-linked uplifts, alongside periodic upwards only open market reviews on 1% (2019: nil) of the Group's contractual passing rent before concessions.

RPI-linked uplifts on 37% (2019: 41%) of the Group's passing rent as at 31 December 2020 resulted in the settlement of £0.9 million (2019: £0.9 million) of contingent rental income that was recognised in the income statement in the year.

Future minimum rents receivable are as follows:

	31 December	31 December
	2020	2019
	£000	£000
Within one year	104,903	110,697
Between one and two years	115,515	111,932
Between two and three years	116,875	113,534
Between three and four years	118,456	114,944
Between four and five years	118,504	116,373
More than five years	2,045,222	2,129,296
	2,619,475	2,696,776

The Group's accounting policy for operating leases is disclosed in note 2d.

23. Net asset value per share

Net asset value ("NAV") per share is calculated as the net assets of the Group attributable to shareholders divided by the number of shares in issue at the end of each year, which as at 31 December 2020 was 324,035,146 shares (2019: 322,850,595 shares).

Diluted NAV per share includes within the denominator any shares that will be issued in future, such as those in settlement of any incentive fee that may become payable as explained in note 25d, which at 31 December 2020 resulted in a total of 324,035,146 shares (2019: 321,035,146 shares).

The European Public Real Estate Association ("EPRA") publishes guidelines for the calculation of three measures of NAV to enable consistent comparisons between property companies, which were updated in the prior year and took effect from 1 January 2020. The Group uses EPRA Net Tangible Assets ("EPRA NTA") as the most meaningful measure of long term performance and the measure which is being adopted by the majority of UK REITs, establishing it as the industry standard benchmark. It excludes items that are considered to have no impact in the long term, such as the fair value of derivatives and a portion of the deferred tax on investment properties held for long term benefit, and uses as its denominator the same number of shares in issue for calculating diluted NAV per share, which reflects any shares to be issued in settlement of an incentive fee as described in note 25d.

The Group's basic NAV, diluted NAV and EPRA NTA are as follows:

	31 December 2020		31 December 2019
	£000	Pence per share	£000	Pence per share
Basic NAV	1,221,541	377.0	1,384,542	428.8
EPRA adjustments:
Dilution from shares to be issued for 2019 incentive fee	-	-	-	(1.5)
Diluted NAV	1,221,541	377.0	1,384,542	427.3
50% of deferred tax on German investment property revaluations	5,950	1.8	5,634	1.8
Fair value of interest rate derivatives	1,734	0.5	1,084	0.3
EPRA NTA	1,229,225	379.3	1,391,260	429.4

24. Reconciliation of changes in financial liabilities arising from financing activities

Year to	Secured debt due within one year (note 17a)	Secured debt due in more than one year (note 17a)	Headlease liabilities (note 18)	Interest payable (note 16)	Derivatives (note 13)	Total
31 December 2020	£000	£000	£000	£000	£000	£000
At the start of the year	2,124	919,454	28,190	8,019	960	958,747
Cash flows:
Interest and finance costs paid	-	-	(1,680)	(45,768)	(396)	(47,844)
Scheduled repayment of secured debt	(4,434)	-	-	-	-	(4,434)
Repayment of secured debt from property sales	-	(1,494)	-	-	-	(1,494)
Non-cash movements:
Finance costs in the income statement	2,310	97	1,680	45,716	461	50,264
Finance costs in other comprehensive income	-	-	-	-	637	637
Increase in headlease liabilities	-	-	578	-	-	578
Revaluation movement in headlease liabilities	-	-	(106)	-	-	(106)
Currency translation movements	(15)	3,538	-	30	-	3,553
Reclassifications	4,999	(4,999)	-	(18)	18	-
At the end of the year	4,984	916,596	28,662	7,979	1,680	959,901

Year to
31 December 2019
At the start of the year	1,771	1,078,495	28,511	9,248	5	1,118,030
Cash flows:
Repayment of secured debt from property sales	-	(154,519)	-	-	-	(154,519)
Interest and finance costs paid	-	-	(1,702)	(51,833)	(103)	(53,638)
Loan break costs	-	(27,868)	-	-	-	(27,868)
Scheduled repayment of secured debt	(3,988)	-	-	-	-	(3,988)
Loan arrangement costs paid	-	(670)	-	-	-	(670)
Non-cash movements:
Finance costs in the income statement	2,385	29,308	1,702	50,586	253	84,234
Finance costs in other comprehensive loss	-	-	-	-	851	851
Decrease in headlease liabilities	-	-	(221)	-	-	(221)
Revaluation movement in headlease liabilities	-	-	(100)	-	-	(100)
Currency translation movements	8	(3,344)	-	(28)	-	(3,364)
Reclassifications	1,948	(1,948)	-	46	(46)	-
At the end of the year	2,124	919,454	28,190	8,019	960	958,747

25. Related party transactions and balances

a) Relationship between Company and Investment Adviser

The Investment Advisory Agreement sets out the terms of the relationship between the Company and the Investment Adviser, including services to be provided and the calculation of the advisory fee and any incentive fee. The agreement has a termination date in December 2025 and neither party to the agreement has any contractual renewal right. The agreement may be terminated in certain circumstances which are summarised on page 59 of the March 2016 Secondary Placing Disclosure Document which is available in the Investor Centre of the Company's website. It includes a right for the Company to terminate the agreement without compensation in the event of an unremedied breach by the Investment Adviser and a right for the Investment Adviser to terminate the agreement in the event of a change of control of the Company. The maximum termination fee is four times the previous quarter's advisory fee, with any such termination payment designed to cover the cost of redundancies and wind down costs that may be required following the Investment Adviser's loss of the management of the Group.

During the year, the Investment Adviser was Prestbury Investment Partners Limited ("PIP"). Nick Leslau, Mike Brown and Sandy Gumm, who are Directors of the Company, are also directors and shareholders in PIP together with Tim Evans and Ben Walford. Until 10 December 2019, the Investment Adviser was Prestbury Investments LLP ("PILLP"), at which date the Investment Advisory Agreement was novated from PILLP to PIP with the terms of the agreement remaining unchanged. The ownership of PILLP and PIP was identical at the date of transfer and PIP had the same resources available to it to perform the services required as PILLP had available to it. Nick Leslau, Mike Brown and Sandy Gumm hold partnership interests in PILLP.

b) Basis of calculation of fees

EPRA introduced new methods of calculation of EPRA net asset value which apply with effect from 1 January 2020. In considering that change, the Remuneration Committee concluded that, in order for the calculation of the advisory and incentive fees to remain consistent with the way that those fees had been calculated since the Company's listing and as set out in the Investment Advisory Agreement, the fees would continue to be calculated on the basis of the EPRA NAV methodology in place at the time of the agreement. That basis is set out in the EPRA Guidance previously issued in 2016, referred to in this financial information as "2016 basis EPRA NAV".

In addition, following a proposal made by the Investment Adviser, with effect from 1 April 2020 the advisory fee is reduced to the extent that the net assets include surplus cash realised on the disposal of a portfolio of hospitals in August 2019 to the extent that surplus cash remains available for deployment. The balance of the surplus cash at 1 April 2020 was £158.3 million and as at 31 December 2020 was £113.9 million. The 2016 basis EPRA NAV used for the fee calculations reconciles to EPRA NTA as follows:

	31 December 2020		31 December 2019
	£000	Pence per share	£000	Pence per share
EPRA NTA	1,229,225	379.3	1,391,260	429.4
Add back 50% of deferred tax on German investment property revaluations	5,950	1.9	5,633	1.7
2016 basis EPRA NAV for purposes of incentive fee calculation	1,235,175	381.2	1,396,893	431.1
Adjustment for surplus cash	(113,945)	(35.2)	-	-
NAV for purposes of advisory fee calculations	1,121,230	346.0	1,396,893	431.1

c) Advisory fees payable

Advisory fees payable to the Investment Adviser are calculated on a reducing scale based on the Group's 2016 basis EPRA NAV adjusted for surplus cash:

· 1.25% per annum on 2016 basis EPRA NAV up to £500 million, plus

· 1.0% per annum on 2016 basis EPRA NAV between £500 million and £1 billion, plus

· 0.75% per annum on 2016 basis EPRA NAV between £1 billion and £1.5 billion, plus

· 0.5% per annum on 2016 basis EPRA NAV over £1.5 billion.

During the year, advisory fees of £12.8 million (2019: £0.8 million) plus VAT were payable to PIP, of which £10,000 was receivable (as a routine adjustment to the calculation of the fee for the fourth quarter) as at the balance sheet date and included in trade and other receivables (note 15) (2019: £0.8 million payable and included in trade and other payables (note 16)). During the year, advisory fees of £nil (2019: £12.9 million) plus VAT were payable in cash to PILLP, of which £nil (2019: £nil) was outstanding as at the balance sheet date. The impact of adopting 2016 basis EPRA NAV is that fees payable in the current year were c. £44,000 higher than they would have been under EPRA NTA.

d) Incentive fee

The Investment Adviser may become entitled to an incentive fee intended to reward growth in Total Accounting Return ("TAR") above an agreed benchmark and to maintain strong alignment of the Investment Adviser's interests with those of shareholders. TAR is measured as growth in 2016 basis EPRA NAV per share plus dividends paid in the year.

The fee entitlement is calculated annually on the basis of the Group's audited financial statements, with any fee payable settled in shares in the Company (subject to certain limited exceptions none of which have yet applied). Sales of these shares are restricted (save for certain limited exceptions), with the restriction lifted on a phased basis over a period from 18 to 42 months from the date of issue. Shares may be released from the sale restriction in the event that shares need to be sold to settle the tax liability on the receipt of those shares, but this exemption has never been requested.

The incentive fee is calculated by reference to growth in TAR: if that growth exceeds a hurdle rate of 10% over a given financial year, an incentive fee equal to 20% of this excess is payable in shares to the Investment Adviser. In the event of an incentive fee being payable, a high water mark is established, represented by the 2016 basis EPRA NAV per share at the end of the relevant financial year, after the impact of the incentive fee, which is then the starting point for the cumulative hurdle calculations for future periods. The hurdle is set at the higher of the 2016 basis EPRA NAV at the start of the year plus 10% or the high water mark 2016 basis EPRA NAV plus 10% per annum. In this way, the incentive fee is never rebased as a result of a year of low or negative growth, maintaining strong alignment of management and shareholder interests. Dividends or other distributions paid in any period are treated as payments on account against achievement of the hurdle rate of return. The incentive fee payable in any year is subject to a cap of 5% of 2016 basis EPRA NAV, save for a fee payable in the event of a change of control of the Company which is uncapped.

A high water mark EPRA NAV per share of 431.1 pence per share was established at 31 December 2019 when a fee was last earned, therefore TAR had to exceed 43.1 pence per share for the year to 31 December 2020 for a fee to be earned. Since dividends of 15.7 pence per share were paid in the year, this equated to a 2016 basis EPRA NAV per share of 459.6 pence per share at 31 December 2020. Since 2016 basis EPRA NAV is below this level, no incentive fee arises for the current year.

Assuming no changes in the Company's capital structure, 2016 basis EPRA NAV per share growth together with dividends paid will have to exceed 124.4 pence per share for the year ending 31 December 2021 before an incentive fee is earned for that year.

In the prior year, an incentive fee of £5.3 million was payable: £4.9 million that was satisfied by way of the issue of 1,184,551 shares to PIP in March 2020, plus £0.4 million of irrecoverable VAT which arises on any element of the Group's costs, including incentive fees, that relate to the healthcare portfolio.

e) Dividends paid to related parties and key management personnel

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Prestbury Incentives Limited †	3,007	3,049
Nick Leslau *	2,880	3,668
Mike Brown	186	193
Prestbury Investment Partners Limited †	136	-
Sandy Gumm	30	31
Martin Moore	19	19
Ian Marcus	14	14
Jonathan Lane	9	9
Leslie Ferrar	4	4
	6,285	6,987

† Nick Leslau, Mike Brown and Sandy Gumm are shareholders and directors of both Prestbury Investment Partners Limited and the parent undertaking of Prestbury Incentives Limited, together with other key management personnel, Tim Evans and Ben Walford. Other senior members of the Prestbury team also have equity interests in those companies.

* comprising dividends from 16,850,300 ordinary shares held by an entity in which Nick Leslau has a 95% indirect interest and 1,491,709 shares held by a company which he wholly owns.

26. Events after the balance sheet date

On 5 March 2021, the Company paid an interim dividend of 3.65 pence per share amounting to £11.7 million.

Unaudited Supplementary Information

Shareholder returns

Total Shareholder Return

Shareholder return is one of the Group's key performance indicators. Total Shareholder Return ("TSR") is measured as the movement in the Company's share price over a period, plus dividends paid in the period. Total Accounting Return ("TAR") is a shareholder return measure calculated as the movement in EPRA NTA per share plus dividends per share paid over the period. Comparative figures below have been restated to be consistent with the new measure of EPRA NTA that was introduced by EPRA with effect from 1 January 2020.

TAR - EPRA NTA performance

	Year to 31 December 2020	Year to 31 December 2019
	Pence per share	Pence per share
EPRA NTA per share:
at the start of the year	429.4	398.8
at the end of the year	379.3	429.4
Movement in EPRA NTA per share	(50.1)	30.6
Dividends per share	15.7	16.3
Movement in EPRA NTA per share plus dividends per share	(34.4)	46.9
TAR	(8.0)%	11.8%

TSR - share price performance

	Year to 31 December 2020	Year to 31 December 2019
	Pence per share	Pence per share
Mid market closing share price:
at the start of the year	434.0	377.0
at the end of the year	300.0	434.0
Movement in share price	(134.0)	57.0
Dividends per share	15.7	16.3
Movement in share price plus dividends per share	(118.3)	73.3
TSR	(27.3)%	19.4%

Unaudited Supplementary Information

EPRA measures

	31 December	31 December
	2020	2019
EPRA Net Tangible Assets (EPRA NTA) per share	379.3p	429.4p
EPRA Net Reinstatement Value per share	421.7p	474.6p
EPRA Net Disposal Value per share	364.3p	417.9p
EPRA Net Initial Yield	4.44%	4.94%
EPRA Topped Up Net Initial Yield	5.40%	4.94%
EPRA Vacancy Rate	0%	0%

	Year to	Year to
	31 December	31 December
	2020	2019
EPRA EPS	16.3p	16.9p
Adjusted EPRA EPS *	3.5p	15.3p
EPRA Capital Expenditure	£0.5m	£0.3m
EPRA Cost Ratio excluding direct vacancy costs	14.8%	17.5%
EPRA Cost Ratio including direct vacancy costs	15.1%	17.6%
Adjusted EPRA Cost Ratio excluding direct vacancy costs †	18.4%	14.9%
Adjusted EPRA Cost Ratio including direct vacancy costs †	18.7%	15.0%

* not an EPRA measure: calculation explained in note 10 to the financial information

† not an EPRA measure

EPRA Net Tangible Assets

	31 December 2020		31 December 2019
	£000	Pence per share	£000	Pence per share
Basic NAV (note 23)	1,221,541	377.0	1,384,542	428.8
EPRA adjustments:
Dilution from shares to be issued for 2019 incentive fee	-	-	-	(1.5)
Diluted NAV	1,221,541	377.0	1,384,542	427.3
Deferred tax on German investment property revaluations *	5,950	1.8	5,634	1.8
Fair value of derivatives	1,734	0.5	1,084	0.3
EPRA NTA	1,229,225	379.3	1,391,260	429.4

* in accordance with the EPRA Guidance, half of the deferred tax is adjusted for in the EPRA NTA calculation

The number of shares in issue at each balance sheet date for the EPRA net assets calculations is as follows:

	31 December 2020 Number	31 December 2019 Number
Basic NAV	324,035,146	322,850,595
Shares to be issued in satisfaction of incentive fee (note 25d)	-	1,184,551
Diluted NAV and EPRA measures	324,035,146	324,035,146

EPRA Net Reinstatement Value

The EPRA Net Reinstatement Value assumes that the Group never sells assets and is intended to represent the value that would be required to rebuild the portfolio, calculated as follows:

	31 December 2020		31 December 2019
	£000	Pence per share	£000	Pence per share
Basic NAV	1,221,541	377.0	1,384,542	428.8
EPRA adjustments:
Dilution from shares to be issued for 2019 incentive fee	-	-	-	(1.5)
Diluted NAV	1,221,541	377.0	1,384,542	427.3
Adjustment for real estate transfer taxes	131,418	40.5	140,826	43.5
Deferred tax on investment property revaluations	11,899	3.7	11,267	3.5
Fair value of interest rate derivatives	1,734	0.5	1,084	0.3
EPRA Net Reinstatement Value	1,336,592	421.7	1,537,719	474.6

EPRA Net Disposal Value

The EPRA Net Disposal Value Represents the Group's value under a disposal scenario, with deferred tax and financial instruments (including fixed rate debt) shown to the full extent of their liability, calculated as follows:

	31 December 2020		31 December 2019
	£000	Pence per share	£000	Pence per share
Basic NAV	1,221,541	377.0	1,384,542	428.8
EPRA adjustments:
Dilution from shares to be issued for 2019 incentive fee	-	-	-	(1.5)
Diluted NAV	1,221,541	377.0	1,384,542	427.3
Fair value of fixed rate debt	(40,966)	(12.7)	(30,343)	(9.4)
EPRA Net Disposal Value	1,180,575	364.3	1,354,199	417.9

The fair value of the fixed rate debt is defined by EPRA as a mark to market adjustment measured in accordance with
IFRS 9 in respect of all debt not held at fair value in the balance sheet, as disclosed in note 17b to the financial information. The fair value of debt is not the same as a liquidation valuation, so the fair value adjustment above does not reflect the liability that would crystallise if the debt was prepaid on the balance sheet date, which would be materially higher.

EPRA Net Initial Yield and EPRA Topped Up Net Initial Yield

	31 December	31 December
	2020	2019
	£000	£000
Investment property, all of which is completed and wholly owned, at independent external valuation (note 11)	1,946,938	2,083,107
Allowance for estimated purchasers' costs	131,418	140,826
Grossed up completed property portfolio valuation	2,078,356	2,223,933

Annualised cash passing rental income	98,297	110,726
Annualised non-recoverable property outgoings	(1,020)	(866)
Annualised net rents	97,277	109,860
Notional rent increase on expiry of rent free periods and other lease incentives	15,032	48
	112,309	109,908

EPRA Net Initial Yield	4.68%	4.94%
EPRA Topped Up Net Initial Yield	5.40%	4.94%

The EPRA Net Initial Yield at 31 December 2020 reflects the temporary rent concessions on the budget hotels arising as a result of the Covid-19 pandemic.

EPRA Vacancy Rate

	31 December	31 December
	2020	2019
	£000	£000
ERV of vacant space	40	40
ERV of portfolio	111,536	110,766

EPRA Vacancy Rate	0.04%	0.04%

EPRA EPS

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
(Loss) / profit for the year	(113,641)	153,359
EPRA adjustments:
Investment property revaluation (note 11)	166,516	(75,708)
Profit on disposal of investment properties	(32)	(53,074)
Deferred tax on German investment property revaluations (note 9)	(22)	759
Other early debt repayment costs (note 8)	21	1,443
Fair value adjustment of interest rate derivatives	13	36
Cost of early repayment of debt on disposal of investment properties (note 8)	-	27,868
EPRA earnings	52,855	54,683
Other adjustments:
Rent Smoothing Adjustments (note 4)	(23,661)	(10,564)
Rent deferral	(17,727)	-
Incentive fee (note 6)	-	5,256
Adjusted EPRA earnings	11,467	49,375

Weighted average number of shares in issue	Number	Number
Adjusted EPRA EPS	323,776,228	322,540,246
Adjustment for weighting of shares issued in the year *	258,918	310,349
EPRA EPS	324,035,146	322,850,595
Shares to be issued in satisfaction of incentive fee (note 25d)	-	1,184,551
Diluted EPRA EPS	324,035,146	324,035,146

* Adjusted EPRA EPS is calculated using the weighted average number of shares reflecting the actual date on which shares are issued in settlement of any incentive fee. EPRA EPS and diluted EPRA EPS are calculated on the assumption that those shares were in issue throughout the year.

	Pence per	Pence per
	share	share
EPRA EPS	16.3	16.9
Diluted EPRA EPS	16.3	16.8
Adjusted EPRA EPS	3.5	15.3

EPRA Capital Expenditure

	Year to	Year to
	31 December	31 December
	2020	2019
Wholly owned property	£000	£000
Acquisitions	-	307
Development	-	-
Expenditure on completed investment property held throughout the year:
Creation of additional lettable area	-	-
Enhancing existing space	-	-
Other	456	-
EPRA Capital Expenditure	456	307

The Group does not have any joint ventures or other partial interests in investment property so any EPRA capital expenditure relates to wholly owned properties. The Group does not capitalise any overheads or interest into its property portfolio and it does not develop properties.

The EPRA Capital Expenditure in the current period relates to Manchester Arena: £0.3 million for the acquisition of car park equipment and £0.2 million for capital works within the service charge that is not recoverable from the tenants. The expenditure on acquisitions in the prior year represents the purchase of the freehold of an existing leasehold property.

The Group's properties are let on full repairing and insuring leases, so the Group incurs no routine ongoing capital expenditure on its property portfolio except at Manchester Arena, where such costs relating to the structure and common areas are liabilities of the Group in the first instance. However, since the majority of these costs are currently recoverable from tenants, the net cost to the Group in the year was £0.3 million (2019: £0.1 million).

EPRA Cost Ratio

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
Revenue (note 4)	121,664	132,677
Tenant contributions to property outgoings (note 4)	(1,643)	(1,580)
EPRA gross rental income	120,021	131,097

Non-recoverable property operating expenses (note 5) *	1,668	1,549
Less headlease costs included in non-recoverable property operating expenses	(604)	(662)
Administrative expenses (note 6)	17,001	22,128
EPRA costs including direct vacancy costs	18,065	23,015
Direct vacancy costs	(293)	(95)
EPRA costs excluding direct vacancy costs	17,772	22,920

EPRA Cost Ratio including direct vacancy costs	15.1%	17.6%
EPRA Cost Ratio excluding direct vacancy costs	14.8%	17.5%

* included within the £3.3 million (2019: £3.1 million) of property costs payable by the Group are £1.7 million (2019: £1.5 million) of headlease and other costs that are recoverable from the tenants.

The Group capitalises the initial direct costs incurred in obtaining a lease, which are then charged to the income statement over the term of the relevant lease. During the year, costs of £54,000 (2019: £10,000) were capitalised, and £4,000 (2019: £19,000) was released from capitalised costs and charged to the income statement. Costs of £568,000 (2019: £nil) for negotiating and documenting Covid-19 rent concessions, and rent review and other letting costs of £35,000 (2019: £416,000) are included in non-recoverable property operating expenses. A further £106,000 (2019: £nil) relating to the amendment of loan facilities as a result the Covid-19 rent concessions is included in finance costs.

The Group has no capitalised overheads or other operating expenses and does not capitalise interest.

Adjusted EPRA Cost Ratio excluding non-cash items

The Group also calculates an Adjusted EPRA Cost Ratio excluding the following non-cash items to present what the Board considers to be a measure of cost efficiency more directly relevant to its business model:

· revenue recognised ahead of cash receipt as a result of Rent Smoothing Adjustments (note 4); and

· any incentive fee, included in administrative expenses, which is settled in shares (note 25d).

	Year to	Year to
	31 December	31 December
	2020	2019
	£000	£000
EPRA gross rental income	120,021	131,097
Rent Smoothing Adjustments (note 4)	(23,661)	(10,564)
Adjusted EPRA gross rental income excluding non-cash items	96,360	120,533

EPRA costs	18,065	23,015
Incentive fee settled in shares (note 25d)	-	(4,907)
Adjusted EPRA costs including direct vacancy costs	18,065	18,108
Direct vacancy costs	(293)	(95)
Adjusted EPRA costs excluding direct vacancy costs	17,772	18,013

Adjusted EPRA Cost Ratio including direct vacancy costs	18.7%	15.0%
Adjusted EPRA Cost Ratio excluding direct vacancy costs	18.4%	14.9%

Like for like rental growth by portfolio

Passing rent	Leisure portfolio £000	Healthcare portfolio £000	Budget Hotel portfolio £000	Total portfolio £000
At 1 January 2020	46,785	35,607	28,334	110,726
Movement in Euro exchange rate	377	-	-	377
Like for like passing rent	47,162	35,607	28,334	111,103
Rental uplifts	360	984	834	2,178
At 31 December 2020	47,522	36,591	29,168	113,281
Increase in like for like passing rent	0.8%	2.8%	2.9%	2.0%
Portfolio valuation at 31 December 2020	793,060	769,095	384,783	1,946,938

Passing rent	Leisure portfolio £000	Healthcare portfolio £000	Budget Hotel portfolio £000	Total portfolio £000
At 1 January 2019	45,723	50,217	29,049	124,989
Disposals	-	(15,569)	(874)	(16,443)
Movement in Euro exchange rate	(346)	-	-	(346)
Like for like passing rent	45,377	34,648	28,175	108,200
Rental uplifts	1,408	959	159	2,526
At 31 December 2019	46,785	35,607	28,334	110,726
Increase in like for like passing rent	3.1%	2.8%	0.6%	2.3%
Portfolio valuation at 31 December 2019	851,875	748,385	482,847	2,083,107

Like for like figures exclude foreign currency translation movements and any properties not held throughout the period.

Like for like rental growth by country

Passing rent	UK £000	Germany £000	Total portfolio £000
At 1 January 2020	104,239	6,487	110,726
Movement in Euro exchange rate	-	377	377
Like for like passing rent	104,239	6,864	111,103
Rental uplifts	1,949	229	2,178
At 31 December 2020	106,188	7,093	113,281
Increase in like for like passing rent	1.9%	3.3%	2.0%
Portfolio valuation at 31 December 2020	1,831,638	115,300	1,946,938

Passing rent	UK £000	Germany £000	Total portfolio £000
At 1 January 2019	118,365	6,624	124,989
Disposals	(16,443)	-	(16,443)
Movement in Euro exchange rate	-	(346)	(346)
Like for like passing rent	101,922	6,278	108,200
Rental uplifts	2,317	209	2,526
At 31 December 2019	104,239	6,487	110,726
Increase in like for like passing rent	2.3%	3.3%	2.3%
Portfolio valuation at 31 December 2019	1,972,857	110,250	2,083,107

Unaudited Supplementary Information

Rent Smoothing Adjustments

The Group's revenue recognition accounting policy set out in note 2d, in line with IFRS, requires the impact of any fixed or minimum rental uplifts to be spread evenly over the term of a lease and as a result there is a material mismatch between the rental cash flows and rental revenues shown in the income statement. The adjustments historically related to the 41% of portfolio rents (before rent concessions) that are subject to fixed uplifts and the 6% of portfolio rents with minimum uplifts on RPI-linked reviews. From the current year onwards, the Rent Smoothing Adjustments also include the effect of the temporary Covid-19 rent concessions agreed with the tenants of the Budget Hotels and Pubs portfolios. The reductions represent lease modifications under IFRS 16, so their effect is spread over the remaining lease term from the effective date of the modification, which is the date at which both parties agreed to the modification.

A receivable is included in the book value of investment property for the amount of rent included in the income statement ahead of actual cash receipts. A receivable relating to fixed and minimum uplifts increases over broadly the first half of the later of the lease commencement or the date of acquisition, then unwinds to zero over the remainder of each lease term. If a lease is extended, the receivable at the date of modification is not adjusted but the smoothing is recalculated over the new term from that date. A receivable relating to rent concessions increases over the period during which the rent is reduced, then unwinds to zero over the remainder of each lease term.

So as not to overstate the portfolio value, any movement in the receivable is offset against property revaluation movements. Since this adjustment initially increases rental income and reduces property revaluation gains (and vice versa in the second half of each lease term or once the rent concession has expired) it does not change the Group's retained earnings or net assets. Income recognised in this way in excess of cash flow is also taken out of Adjusted EPRA EPS so as not to artificially flatter the Group's dividend cover.

The impact of the Rent Smoothing Adjustments on the Group's balance sheet as at 31 December 2020 is as follows:

	Receivable at
	31 December	Maximum	Date of maximum
	2020	receivable	receivable
	£m	£m
Fixed/minimum uplifts recognised ahead of cash receipt:
Healthcare - Ramsay hospitals	109.1	111.8	March 2023
Leisure - German theme parks *	37.8	42.2	June 2026
Healthcare - Lisson Grove hospital	12.3	20.6	March 2035
The Brewery	3.9	23.5	June 2041
Manchester Arena	2.9	8.9	June 2032
Pubs	0.6	2.0	March 2030
	166.6	209.0
Covid-19 related rent concessions:
Budget Hotels	13.7	21.1	Dec 2021
Pubs	1.1	1.1	Sept 2020
	181.4	231.2

* at the year end exchange rate of €1:£0.90.

The future impact of this adjustment would change if there were acquisitions, disposals, lease variations of properties with fixed or minimum RPI-linked rental uplifts or further rent concessions. Assuming no change in the portfolio, the change in rental income that was recognised on the portfolio during the current year and is expected for each of the next three financial years (with the German adjustment translated at the 2020 average Euro conversion rate of €1:£0.89) is as follows:

	Fixed/minimum	Covid-19 rent
	uplifts	concessions	Total
	£m	£m	£m
2020	8.9	14.8	23.7
2021	7.3	7.3	14.6
2022	5.7	(1.2)	4.5
2023	4.3	(1.2)	3.1

Unaudited Supplementary Information

Glossary

Adjusted EPRA EPS	EPRA EPS adjusted to exclude non-cash and non-recurring costs, calculated on the basis of the time-weighted number of shares in issue

AGM	Annual General Meeting

CVA	Company Voluntary Arrangement, a process under UK insolvency law which allows a company to reschedule its debts with the consent of a specified majority of its creditors

Dividend Cover	Adjusted EPRA EPS divided by dividends per share

EPRA	European Public Real Estate Association

EPRA EPS	A measure of EPS designed by EPRA to present underlying earnings from core operating activities

EPRA Guidance	The EPRA Best Practices Recommendations Guidelines October 2019

EPRA NTA	A measure of NAV designed by EPRA to present the fair value of a company on a long term basis. For these purposes, the Group uses EPRA Net Tangible Assets as defined in the EPRA Guidance

EPS	Earnings per share, calculated as the profit or loss for the period after tax attributable to shareholders of the Company divided by the weighted average number of shares in issue in the period

ERV	Estimated Rental Value: the independent valuers' opinion of the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of a property

IFRS	International Financial Reporting Standards

Investment Adviser	Prestbury Investment Partners Limited or, as the context requires, its predecessor Prestbury Investments LLP

Investment Advisory Agreement	The agreement between the Company (and its subsidiaries) and the Investment Adviser, key terms of which are set out on pages 204 to 221 of the Secondary Placing Disclosure Document as modified by the amendments to the basis of fee calculation set out in note 25b to the financial information

Key Operating Asset	An asset where the operations conducted from the property are integral to the tenant's business

LTV	Loan to value: the outstanding amount of a loan as a percentage of property value

Management Team	Nick Leslau, Mike Brown, Tim Evans, Sandy Gumm and Ben Walford, who are directors of the Investment Adviser

NAV	Net asset value

Net Initial Yield	Annualised net rents on an investment property as a percentage of the investment property valuation, less purchaser's costs

Net Loan To Value or Net LTV	LTV calculated on the gross loan amount less cash balances

REIT	Real Estate Investment Trust

Rent Smoothing Adjustments	The adjustments required to recognise any mismatch between rent received in the income statement and cash rent received

Running Yield	The anticipated Net Initial Yield at a future date, taking account of any rent reviews or other changes in rent in the intervening period

Secondary Placing Disclosure Document	The Secondary Placing Disclosure Document dated 14 March 2016 which is available in the Investor Centre of the Company's website under "Circulars to Shareholders/2016"

Total Accounting Return	The movement in EPRA NTA over a period plus dividends paid in the period, expressed as a percentage of the EPRA NTA at the start of the period

Total Shareholder Return	The movement in share price over a period plus dividends paid in the period, expressed as a percentage of the share price at the start of the period

Uncommitted Cash	Cash balances not subject to fixed charges in favour of lenders, net of any creditors or other cash commitments at the balance sheet date

Weighted Average Unexpired Lease Term	The term to the first tenant break or expiry of the leases in the portfolio, weighted by rental value before rent concessions, also referred to as WAULT

Registered office	Cavendish House, 18 Cavendish Square, London W1G 0PJ

Directors	Martin Moore, Non-Executive Chairman
	Mike Brown
	Leslie Ferrar, Chairman of the Audit Committee
	Sandy Gumm
	Jonathan Lane, Chairman of the Nominations Committee
	Nick Leslau
	Ian Marcus, Senior Independent Director and Chairman of the Remuneration Committee

Company Secretary	Sandy Gumm

Investment Adviser	Prestbury Investment Partners Limited Cavendish House, 18 Cavendish Square, London W1G 0PJ

Nominated Adviser and Broker	Stifel Nicolaus Europe Limited 150 Cheapside, London EC2V 6ET

Auditor	BDO LLP 55 Baker Street, London W1U 7EU

Property valuers	CBRE Limited St Martin's Court, 10 Paternoster Row, London EC4M 7HP
	Christie & Co Whitefriars House, 6 Carmelite Street, London EC4Y 0BS

Derivative valuers	Chatham Financial Europe Limited 12 St James's Square, London SW1Y 4LB

Financial PR advisers	FTI Consulting LLP 200 Aldersgate, Aldersgate Street, London EC1A 4HD Email: SecureIncomeREIT@FTIconsulting.com

Registrar	Link Group 10^th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL Registrar's helpline: 0371 664 0300 Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open 9.00am - 5.30pm, Monday to Friday excluding public holidays in England and Wales Registrar's email: ShareholderEnquiries@LinkGroup.co.uk

Website	www.SecureIncomeREIT.co.uk

Email	Enquiries@SecureIncomeREIT.co.uk

Final Results

Highlights

Chairman's Statement

Results and financial position

Outlook

Martin Moore

Investment Adviser's Report

The business model

The portfolio

Covid-19 tenant support provided

Concessions agreed prior to 30 June 2020 and disclosed in the June 2020 interim results

Concessions agreed subsequent to the 30 June 2020 interim results announcement

Earnings and cash flow impact of concessions

No Group or Investment Adviser Covid-19 support received

Rent collections

The portfolio

Portfolio rents and valuation

Basis of rent reviews

Lease lengths

No material vacancies or landlord costs

Portfolio total rents

Leisure assets (41% of portfolio value)

Healthcare assets (39% of portfolio value)

Budget Hotel assets (20% of portfolio value)

Financing

Financial review

Key performance indicator - Total Accounting Return

Key performance indicator - Adjusted EPRA earnings per share

Adjusted EPRA EPS: administrative expenses

Adjusted EPRA EPS: net finance costs

Adjusted EPRA EPS: Tax

Adjusted EPRA EPS: Currency translation

Key performance indicator - Net LTV ratio

Key performance indicator - headroom on debt covenants

Key performance indicator - Uncommitted Cash

Cash flow

Strategic Review

Strategy and investment policy

Potential future changes to strategy and the business model

Key performance indicators

Corporate responsibility and ESG

Environmental responsibility

Social responsibility

Governance

ESG policies and strategies of our major tenants

Statement on stakeholder relationships made under Section 172(1) of the Companies Act

Supplier payment policies

Principal Risks and Uncertainties

Global economic and social disruption including pandemic risk

Climate risk

Going concern and viability

Viability statement

Group Income Statement

Group Statement of Other Comprehensive Income

Group Statement of Changes in Equity

Group Balance Sheet

Group Cash Flow Statement

Notes to the Group Financial Information

2. Basis of preparation and accounting policies (continued)

2. Basis of preparation and accounting policies (continued)

2. Basis of preparation and accounting policies (continued)

2. Basis of preparation and accounting policies (continued)

3. Operating segments (continued)

Unaudited Supplementary Information

Shareholder returns

Total Shareholder Return

Unaudited Supplementary Information

EPRA measures

Unaudited Supplementary Information

Rent Smoothing Adjustments

Unaudited Supplementary Information

Glossary

Unaudited Supplementary Information

Company Information

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