REG - Alpha Real Tst Ltd - Trading Statement and Dividend Announcement
15/09/2023 07:00
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RNS Number : 5179M Alpha Real Trust Limited 15 September 2023
LEI: 213800BMY95CP6CYXK69
15 September 2023
ALPHA REAL TRUST LIMITED ("ART" OR THE "COMPANY" OR THE "GROUP")
TRADING UPDATE and dividend announcement
ART today publishes its trading update for the three month period ended 30
June 2023 and the period up until the date of this announcement. The
information contained herein has not been audited.
About the Company
ART targets investment, development, financing and other opportunities in real
estate, real estate operating companies and securities, real estate services,
infrastructure, infrastructure services, other asset-backed businesses and
related operations and services businesses that offer attractive risk-adjusted
total returns.
ART currently selectively focusses on asset-backed lending, debt investments
and high return property investments in Western Europe that are capable of
delivering strong risk adjusted returns.
The portfolio mix at 30 June 2023, excluding sundry assets/liabilities, was as
follows:
30 June 2023 31 March 2023
High return debt: 45.5% 44.5%
High return equity in property investments: 26.1% 26.5%
Other investments: 19.9% 15.2%
Cash: 8.5% 13.8%
The Company is currently focussed on selectively increasing its loan portfolio
and opportunistically extending its wider investment strategy to target high
return property investments offering inflation protection via index linked
income adjustments and investments that have potential for capital gains.
The Company's Investment Manager is Alpha Real Capital LLP ("ARC").
Highlights
· NAV per ordinary share 216.2p as at 30 June 2023 (31 March 2023:
216.8p).
· Basic earnings for the quarter ended 30 June 2023 of 2.1p per
ordinary share (Twelve months to 31 March 2023: earnings of 1.1p per ordinary
share).
· Adjusted earnings for the quarter ended 30 June 2023 of 2.0p per
ordinary share (Twelve months to 31 March 2023: earnings of 7.7p per ordinary
share).
· Declaration of a quarterly dividend of 1.0p per ordinary share
expected to be paid on 27 October 2023.
· Robust financial position: ART remains on a robust financial
footing and is well positioned to take advantage of new investment
opportunities.
· Investment targets: the Company is currently focussed on
selectively increasing its loan portfolio and opportunistically extending its
wider investment strategy to target investments offering inflation protection
via index linked income adjustments and investments that have potential for
capital gains.
· Diversified portfolio of secured senior and secured mezzanine
loan investments: as at 30 June 2023, the size of ART's drawn secured loan
portfolio was £56.7 million, representing 45.5% of the investment portfolio.
· The senior portfolio has an average Loan to Value ('LTV') of
65.8% based on loan commitments (with mezzanine loans having an LTV range of
between 55.0% and 78.6% whilst the highest approved senior loan LTV is 73.3%).
· Loan commitments: including existing loans at the balance sheet
date and loans committed post period end, ART's current total committed but
undrawn loan commitments amount to £6.0 million.
· H2O Madrid: post period end, three Inditex group brands entered
into updated lease contracts to extend the footprint of existing stores and
extend the lease terms.
· Cash management: during the quarter the Company invested a
further £6 million in short term UK Treasury Bonds (Gilts) to enhance returns
on its liquid holdings.
Investment summary
Portfolio overview as at 30 June 2023
Investment name
Investment type Carrying value Income return p.a. Investment location Property type / underlying security Investment notes % of portfolio(1)
High return debt (45.5%)
Secured senior finance
Senior secured loans (excluding committed but undrawn facilities of £8.8 £39.7m (2) 8.3% (3) UK Diversified loan portfolio focussed on real estate investments and Senior secured debt 31.8%
million) developments
Secured mezzanine finance
Second charge mezzanine loans £17.0m (2) 16.5% (3) UK Diversified loan portfolio focussed on real estate investments and Secured mezzanine debt and subordinated debt 13.7%
developments
High return equity in property investments (26.1%)
H2O shopping centre
Indirect property £17.5m 5.3% (4) Spain Dominant Madrid shopping centre and separate development site 30% shareholding; moderately geared bank finance facility 14.1%
(€20.4m)
Long leased industrial facility, Hamburg
Direct property £8.3m (5) 6.3% (4) Germany Long leased industrial complex in major European industrial and logistics hub Long term moderately geared bank finance facility 6.7%
with RPI linked rent
(€9.7m)
Long leased hotel, Wadebridge
Direct property £3.8m 5.3% (6) UK Long leased hotel to Travelodge, a large UK hotel group with CPI linked rent No external gearing 3.1%
Long leased hotel, Lowestoft
Direct property £2.8m 5.2% (6) UK Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent No external gearing 2.2%
Other investments (19.9%)
Listed and authorised fund investments £4.1m
6.2% (4) UK & Channel Islands Commercial real estate, infrastructure and debt funds Short to medium term investment in listed and authorised funds 3.3%
Affordable housing
Residential Investment £0.6m n/a UK High-yield residential UK portfolio 100% shareholding; no external gearing 0.5%
UK Treasury Bonds £13.1m 4.0 - 4.8%(7) (2.25 - 2.75)(8) UK UK government bonds - 10.5%
UK Treasury Bills £7.0m 4.2% (7) UK UK government bonds - 5.6%
Cash and short-term investments (8.5%)
Cash (9) £10.6m 1.3% (10) UK 'On call' and current accounts - 8.5%
( )
(1) Percentage share shown based on NAV excluding the company's sundry
assets/liabilities
(2) Including accrued interest/coupon at the balance sheet date
(3) The income returns for high return debt are the annualised actual finance
income return over the period shown as a percentage of the average committed
capital over the period
(4) Yield on equity over 12 months to 30 June 2023
(5) Property value including sundry assets/liabilities, net of associated debt
(6) Annualised monthly return
(7) Annualised yield to maturity
(8) Fixed annual coupon
(9) Group cash of £11.6m excluding cash held with the Hamburg holding company
of £1.0m
(10) Weighted average interest earned on call accounts
Further to the annual results announcement on 23 June 2023, the following are
key investment updates.
ART's investment portfolio benefits from diversification across geographies,
sectors and asset types. As inflationary pressures increasingly dominate the
economic backdrop in which the Company operates, ART remains on a robust
financial footing and is well placed to capitalise on new investment
opportunities.
Inflationary pressures and rising central bank interest rates continue to
dominate the economic agenda. The impact of these events on real asset
prices is yet to be fully determined. The uncertain market will offer
opportunities in the medium term for ART to grow its diversified investment
portfolio. In recent years the Company focused on recycling capital into
cashflow driven investments. The Company is currently focussed on selectively
increasing its loan portfolio and opportunistically extending its wider
investment strategy to target investments offering inflation protection via
index linked income adjustments and investments that have potential for
capital gains.
ART continues to adhere to its disciplined strategy and investment
underwriting principles which seek to manage risk through a combination of
operational controls, diversification and an analysis of the underlying asset
security.
Long leased assets
The Company's portfolio of long leased properties, comprising two hotels
leased to Travelodge in the UK and an industrial facility in Hamburg, Germany,
leased to a leading industrial group are well positioned in the current
inflationary environment. The leased assets have inflation linked rent
adjustments which offer the potential to benefit from a long term,
predictable, inflation linked income stream and the potential for associated
capital growth.
Post period end ART acquired a hotel and public house in Yardley, Birmingham,
United Kingdom for £5.1 million including acquisition costs, leased to
Travelodge Hotels Limited reflecting an initial yield of 8.3% p.a. ART has
acquired the asset for cash.
The property is let until November 2060 with a tenant only break option in
2035, providing 12 years term certain to the break clause and the rent has
inflation linked adjustments.
The 64-bedroom hotel and public house is held freehold and is situated to the
east of Birmingham City Centre off the A45. The hotel is in a well-connected
location equidistant between Birmingham City Centre to the west and Birmingham
Airport to the east.
Diversified secured lending investment
The Company invests in a diversified portfolio of secured senior and mezzanine
loan investments. The loans are typically secured on predominately residential
real estate investment and development assets with attractive risk adjusted
income returns. As at 30 June 2023, ART had committed £69.5 million across
nineteen loans, of which £56.7 million (excluding a £4.0 million provision
for Expected Credit Loss discussed below) was drawn.
The Company's debt portfolio comprises predominately floating rate loans.
Borrowing rates are typically set at a margin over Bank of England ('BoE')
Base Rate and benefit from rising interest rates as outstanding loans deliver
increasing returns as loan rates track increases in the BoE Base Rate.
During the quarter, one loan totalling £1.5 million (including accrued
interest and exit fees) was fully repaid and a further £2.4 million
(including accrued interest) was received as part repayments.
Post period end, one new loan was drawn for £0.7 million and additional
drawdowns of £3.7 million were made on existing loans, one loan was fully
repaid for £0.5 million (including accrued interest and exit fees) and part
payments for other loans were received amounting to £1.0 million (including
accrued interest).
As at 30 June 2023, 70.0% of the Company's loan investments were senior loans
and 30.0% were mezzanine loans. The portfolio has an average LTV of 65.8%
based on loan commitments (with mezzanine loans having an LTV range of between
55.0% and 78.6% whilst the highest approved senior loan LTV is 73.3%).
Portfolio loans are underwritten against value for investment loans or gross
development value for development loans as relevant and collectively referred
to as LTV in this report.
The largest individual loan in the portfolio as at 30 June 2023 is a senior
loan of £9.9 million which represents 14.2% of committed loan capital and
7.9% of the Company's NAV.
Three loans in the portfolio have entered receivership: ART is closely working
with stakeholders to maximise capital recovery. The Company has considered the
security on these loans (which are a combination of a first charge and a
second charge over the respective assets and personal guarantees) and have
calculated an Expected Credit Loss ('ECL') on these three loans of
approximately £3.2 million; the Group have also provided for an ECL on the
remainder of the loans' portfolio for an additional £0.8 million: in total,
the Group have provided for an ECL of £4.0 million in its consolidated
accounts.
Aside from the isolated cases of receivership, illustrated above, the
Company's loan portfolio has proved to be resilient despite the recent
extended period of heightened uncertainty and risk. In terms of debt
servicing, allowing for some temporary agreed extensions, interest and debt
repayments have been received in accordance with the loan agreements. Where it
is considered appropriate, on a case-by-case basis, underlying loan terms may
be extended or varied with a view to maximising ART's risk adjusted returns
and collateral security position. The Company's loan portfolio and new loan
targets continue to be closely reviewed to consider the potential impact on
construction timelines, building cost inflation and sales periods.
The underlying assets in the loan portfolio as at 30 June 2023 had geographic
diversification with a London and Southeast focus. The South East of England
(including London) accounted for 61%, of which London accounted for 44%, of
the committed capital within the loan investment portfolio.
H2O, Madrid
ART has a 30% stake in a joint venture with CBRE Investment Management in the
H2O shopping centre in Madrid.
H2O occupancy, by area, as at 30 June 2023 was 91.5%. The centre's visitor
numbers remain below pre-Covid highs; however, a recovery is evident. In the
calendar year to 30 June 2023, visitor numbers were approximately 7.1% below
those in 2019 (pre-Covid) and 8.5% above 2022.
Post period end, a notable asset management action was secured when three
Inditex group brands entered into updated lease contracts to extend the
footprint of existing stores and extend the lease terms. The works to deliver
the new 3,000 square metre store for anchor retailer Primark was signed for a
new continue to advance on schedule. The store is expected to be delivered
during 2024.
Other investments
Investment in listed and authorised funds
The Company invested a total of £6.0 million (value as at 30 June 2023: £4.1
million) across three investments that offered potential to generate
attractive risk adjusted returns. Current market volatility and rises in
interest rates have impacted the capital value of these investments. The
investment yield offers a potentially accretive return to holding cash while
the Company deploys capital in opportunities in line with its investment
strategy. These funds invest in ungeared long-dated leased real estate, debt
and infrastructure.
Investment in UK Treasury Bonds and Treasury Bills
In June 2023, the Company invested a further £6.0 million in short dated UK
Treasury Bonds earning a 2.75% annual coupon with maturity 7 September 2024
and an annualised yield to maturity of 4.8%.
In addition to the above, as at 30 June 2023, the Company held £7.0 million
in UK Treasury Bonds earning a 2.25% annual coupon and an annualised yield to
maturity of 4.0% (value as at 30 June 2023: £7.0 million): this investment
matured on 7 September 2023 generating sales proceeds of £7.1 million: these
proceeds have been reinvested in further UK Treasury Bills maturing on 4 March
2024 with an annualised yield to maturity of 5.5%.
These government backed short term investments offer the Company enhanced
returns over cash balances.
Post period end, on 7 August 2023, the initial investment in UK Treasury Bills
(value as at 30 June 2023: £7.1 million) came to maturity generating sales
proceeds of £7.1 million (annualised yield to maturity of 4.2%).
Post period end, on 23 August 2023 the company also invested £6.0 million in
the Morgan Stanley GBP Liquidity Fund to enhance returns on the Company's cash
balances.
Net asset value ('NAV')
As at 30 June 2023, the unaudited NAV per ordinary share of the Company was
216.2p (31 March 2023: NAV of 216.8p).
The decrease in NAV in the quarter is mainly due to adverse foreign currency
movements.
Dividends
The current intention of the Company is to pay a dividend each quarter.
The Board announces a dividend of 1.0 pence per ordinary share which is
expected to be paid on 27 October 2023 (ex-dividend date 28 September 2023 and
record date 29 September 2023).
The dividends paid and declared for the 12 months to 30 June 2023 total 4.0
pence per share, representing a dividend yield of 3.0% on the average share
price over the period.
Scrip dividend alternative
Shareholders of the Company have the option to receive shares in the Company
in lieu of a cash dividend, at the absolute discretion of the Directors, from
time to time.
The number of ordinary shares that an Ordinary Shareholder will receive under
the Scrip Dividend Alternative will be calculated using the average of the
closing middle market quotations of an ordinary share for five consecutive
dealing days after the day on which the ordinary shares are first quoted "ex"
the relevant dividend.
The Board has elected to offer the scrip dividend alternative to Shareholders
for the dividend for the quarter ended 30 June 2023. Shareholders who returned
the Scrip Mandate Form and elected to receive the scrip dividend alternative
will receive shares in lieu of the next dividend. Shareholders who have not
previously elected to receive scrip may complete a Scrip Mandate Form (this
can be obtained from the registrar: contact Computershare (details below)),
which must be returned by 12 October 2023 to benefit from the scrip dividend
alternative for the next dividend.
Share buybacks
Following the Annual General Meeting held on 7 September 2023 the Company has
the authority to buy back 14.99% of its share capital (assessed on 29 June
2023) for a total of 8,709,579 shares. No shares have been yet bought back
under this authority.
During the quarter and post quarter end, the Company did not purchase any
shares in the market.
As at the date of this announcement, the ordinary share capital of the Company
is 66,210,179 (including 7,717,581 ordinary shares held in treasury) and the
total voting rights in the Company is 58,492,598.
Foreign currency
The Company monitors foreign exchange exposures and considers hedging where
appropriate. Foreign currency balances have been translated at the period end
rates of £1:€1.164 as appropriate.
Strategy and outlook
ART's investment portfolio benefits from diversification across geographies,
sectors, and asset types. As inflationary pressures and interest rate policy
continue to shape the economic backdrop in which the Company operates, ART
remains on a robust financial footing and is well placed to capitalise on new
investment opportunities.
ART remains committed to growing its diversified investment portfolio. In
recent years the Company focused on reducing exposure to direct development
risk and recycling capital into cashflow driven investments. The Company is
currently focussed on its loan portfolio and also on its wider investment
strategy which targets investments offering inflation protection via index
linked income adjustments and investments that have potential for capital
gains.
Contact:
Alpha Real Trust Limited
William Simpson, Chairman, ART +44 (0)1481 742 742
Brad Bauman, Joint Fund Manager, ART +44 (0)20 7391 4700
Gordon Smith, Joint Fund Manager, ART +44 (0)20 7391 4700
Panmure Gordon, Broker to the Company
Atholl Tweedie +44 (0)20 7886 2500
Computershare, Registrar to the Company
Telephone number +44 (0)370 707 4040
Email: info@computershare.co.je
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