REG - Alpha Real Tst Ltd - Trading Update and Dividend Announcement
16/09/2022 07:01
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RNS Number : 6546Z Alpha Real Trust Limited 16 September 2022
LEI: 213800BMY95CP6CYXK69
16 September 2022
ALPHA REAL TRUST LIMITED ("ART" OR THE "COMPANY" OR THE "GROUP")
TRADING UPDATE and dividend announcement
ART today publishes its trading update for the quarter ended 30 June 2022 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 focusses on asset-backed lending, debt investments and high
return property investments in Western Europe that are capable of delivering
strong risk adjusted cash flows.
The portfolio mix at 30 June 2022, excluding sundry assets/liabilities, was as
follows:
30 June 2022 31 March 2022
High return debt: 33.4% 27.3%
High return equity in property investments: 21.8% 18.8%
Other investments: 8.4% 13.1%
Cash: 36.4% 40.8%
The Company's Investment Manager is Alpha Real Capital LLP ("ARC").
Highlights
· NAV per ordinary share 216.4p as at 30 June 2022 (31 March 2022:
216.0p).
· Basic earnings for the quarter ended 30 June 2022 of 0.7p per
ordinary share (Twelve months to 31 March 2022: earnings of 13.3p per ordinary
share).
· Adjusted earnings for the quarter ended 30 June 2022 of 1.6p per
ordinary share (Twelve months to 31 March 2022: earnings of 4.0p per ordinary
share).
· Declaration of a quarterly dividend of 1.0p per ordinary share
expected to be paid on 26 October 2022.
· Robust financial position: ART has been adopting a cautious
approach to new investment and conserved cash as a result of recent the
uncertainty that characterised the past year; this has placed the Company in a
robust financial footing making it well positioned to take advantage of new
investment opportunities.
· Investment targets: the Company is currently focussed on
continuing to grow its loan portfolio and extending its wider investment
strategy to target investments offering inflation protection via index linked
income adjustments and investments that have potential for capital gains.
· Long leased investment: in June 2022 the Company acquired a UK
hotel leased to Travelodge Hotels Limited, the United Kingdom's largest
independent hotel brand with an 18-year unexpired lease term. The lease rent
has inflation linked adjustments. Post period end a second Travelodge hotel
was acquired for £4.2m located in Wadebridge (UK). The hotel is leased for a
20-year term and generating £0.3m of rental income (with inflation linked
adjustments) p.a., initially reflecting a yield of 6.1% p.a.
· Diversified portfolio of secured senior and secured mezzanine
loan investments: as at 30 June 2022, the size of ART's drawn secured loan
portfolio was £44.7 million, representing 33.4% of the investment portfolio.
· The senior portfolio has an average Loan to Value ('LTV') of
64.1% based on loan commitments (with mezzanine loans having an LTV range of
between 48.8% and 83.6% whilst the highest approved senior loan LTV is 73.8%).
· 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 £19.8 million.
Investment summary
Portfolio overview as at 30 June 2022
Investment name
Investment type Carrying value Income return p.a. Investment location Property type / underlying security Investment notes % of portfolio(1)
High return debt (33.4%)
Secured senior finance
Senior secured loans (excluding committed but undrawn facilities of £16.6 £28.7m (2) 5.7% (3) UK Diversified loan portfolio focussed on real estate investments and Senior secured debt 21.4%
million) developments
Secured mezzanine finance
Second charge mezzanine loans £16.0m (2) 16.0% (3) UK Diversified loan portfolio focussed on real estate investments and Secured mezzanine debt and subordinated debt 12.0%
developments
High return equity in property investments (21.8%)
H2O shopping centre
Indirect property £18.0m 6.6% (4) Spain Dominant Madrid shopping centre and separate development site 30% shareholding; moderately geared bank finance facility 13.5%
(€20.9m)
Long leased industrial facility, Hamburg
Direct property £8.1m (5) 6.3% (4) Germany Long leased industrial complex in major European industrial and logistics hub Long term moderately geared bank finance facility 6.0%
with RPI linked rent
(€9.4m)
Long leased hotel, Lowestoft
Direct property £3.1m 5.4% (6) UK Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent No external gearing 2.3%
Other investments (8.4%)
Listed and authorised fund investments
£10.7m UK & Channel Islands Commercial real estate, infrastructure and debt funds Short to medium term investment in listed and authorised funds
6.3%(4) 8.0%
Affordable housing
Residential Investment £0.6m n/a UK High-yield residential UK portfolio 100% shareholding; no external gearing 0.4%
Cash and short-term investments (36.4%)
Cash (7) £48.8m 0.1% (8) UK 'On call' and current accounts 36.4%
( )
(1) Percentage share shown based on NAV excluding the company's sundry
assets/liabilities
(2) Including accrued interest/coupon at 30 June 2022
(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 2022
(5) Property value including sundry assets/liabilities and cash, net of
associated debt
(6) Annualised monthly return
(7) Group cash of £49.6m excluding cash held with the Hamburg holding company
of £0.8m
(8) Weighted average annual interest earned
Further to the annual results announcement on 10 June 2022, 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.
ART remains committed to growing its diversified investment portfolio. In
recent years the Company focused on recycling capital into cashflow driven
investments. The Company is currently focussed on continuing to grow and
diversify its loan portfolio and 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.
Investment in long leased assets
In June 2022 ART acquired a hotel in Lowestoft (UK) for £3.1 million
(including acquisition costs). The property is leased to Travelodge Hotels
Limited, the UK's largest independent hotel brand with more than 590 hotels.
The hotel has an 18 year unexpired lease term.
Under the lease, the tenant is responsible for building maintenance and the
passing rent of £0.2m p.a. has inflation linked adjustments, reflecting a
yield of 6.2% p.a. ART has acquired the asset for cash. The 47-bedroom
property is held freehold and occupies a site of 1.08 acres in Lowestoft, a
well established and well connected area located in close proximity to the A47
which runs to Norwich.
Post period end, on 29 July 2022, ART completed a second Travelodge Hotel
acquisition for £4.2m (including acquisition costs): this freehold property
located in Wadebridge (UK) is leased to Travelodge Hotels Ltd for a 20 year
term and will be generating £0.3m of rental income (with inflation linked
adjustments) p.a., initially reflecting a yield of 6.1% p.a.
These acquisitions offer the Company the potential to benefit from a long
term, predictable, inflation linked income stream whilst contributing
additional diversification to ART's portfolio. In addition, the investments
offer the potential for associated capital growth.
Diversified secured lending investment
The Company has 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 2022, ART had committed £61.3 million across twenty
loans, of which £44.7 million (excluding a £2.9 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 for £3.3 million (including accrued interest and
exit fees) was fully repaid and a further £4.0 million (including accrued
interest) was received as part repayments. Post quarter end, one loan of £4.3
million was drawn and additional drawdowns of £1.6 million were made on
existing loans, three loans were fully repaid for £3.4 million and part
payments for other loans were received amounting to £0.7 million (including
accrued interest).
As at 30 June 2022, 64.3% of the Company's loan investments were senior loans
and 35.7% were mezzanine loans. The portfolio has an average LTV of 64.1%
based on loan commitments (with mezzanine loans having an LTV range of between
48.8% and 83.6% whilst the highest approved senior loan LTV is 73.8%).
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 2022 is a senior
loan of £11.5 million which represents 18.8% of committed loan capital and
8.6% of the Company's NAV.
Two 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 two loans of approximately
£2.2 million; the Group have also provided for an ECL on the remainder of the
loans' portfolio for an additional £0.7 million: in total, the Group have
provided for an ECL of £2.9 million in its consolidated accounts.
Aside from the two cases of receivership, illustrated above, the Company's
loan portfolio has proved to be resilient despite the recent extended period
of heightened macroeconomic 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 2022 had geographic
diversification with a London and Southeast focus. The South of England
(including London) accounted for 44%, of which London accounted for 27%, 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 2022 was 90.7%. The centre trading
levels remain below the pre-covid highs, however a recovery is evident. In the
calendar year to 30 June 2022, visitor numbers were approximately 14% below
those of the same period in 2019 (pre-Covid) and 17% above the same period in
2021.
The residual impact of Covid-19 on tenant activities continues to affect the
earnings of H2O compared to pre-Covid levels.
Other investments
Investment in listed and authorised funds
The Company invested a total of £11.0 million (value as at 30 June 2022:
£10.7 million) across four investments that offer potential to generate
attractive risk adjusted returns. The returns offer 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.
Post period end the Company has divested £1.7 million from one of the
investments, delivering a 6.1% capital return over the holding period on the
amount divested.
Net asset value ('NAV')
As at 30 June 2022, the unaudited NAV per ordinary share of the Company was
216.4p (31 March 2022: NAV of 216.0p).
The increase in NAV is due to positive adjusted earnings and foreign exchange
movements in the quarter less dividends.
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 26 October 2022 (ex-dividend date 29 September 2022 and
record date 30 September 2022).
The dividends paid and declared for the 12 months to 30 June 2022 total 4.0
pence per share, representing a dividend yield of 2.4% 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 2022. Shareholders who returned
the Scrip Mandate Form and elected to receive the scrip dividend alternative
will receive shares in lieu of the next dividend. Shareholders who have not
previously elected to receive scrip may complete a Scrip Mandate Form (this
can be obtained from the registrar: contact Computershare (details below)),
which must be returned by 11 October 2022 to benefit from the scrip dividend
alternative for the next dividend.
Share buybacks
Under the general authority, approved by Shareholders on 6 August 2021, the
Company announced a tender offer on 29 June 2022 for up to 6,428,353 ordinary
shares at a price (before expenses) of 175.0 pence per share. Post period end
a total of 5,419,016 ordinary shares were validly tendered under the tender
offer. All purchased ordinary shares are held in treasury.
During the quarter, the Company purchased 46,500 shares in the market at an
average price of £1.51 per share: these shares are held in treasury.
Post period end, the Company have not purchased any shares in the market.
As at the date of this announcement, the ordinary share capital of the Company
is 64,654,705 (including 7,717,581 ordinary shares held in treasury) and the
total voting rights in the Company is 56,937,124.
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:€1.163 and £1:INR96.06, as appropriate.
Strategy and outlook
ART's investment portfolio benefits from diversification across geographies,
sectors and asset types. As inflationary pressures increasingly dominate the
economic backdrop in which the Company operates, ART remains on a robust
financial footing and is well placed to capitalise on new investment
opportunities.
ART remains committed to growing its diversified investment portfolio. In
recent years the Company focused on reducing exposure to direct development
risk and recycling capital into cashflow driven investments. The Company is
currently focussed on continuing to grow and diversify 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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