REG - Alpha Real Tst Ltd - Trading Update and Dividend Announcement
24/02/2023 07:00
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RNS Number : 9068Q Alpha Real Trust Limited 24 February 2023
LEI: 213800BMY95CP6CYXK69
24 February 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 nine month period ended 31
December 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 31 December 2022, excluding sundry assets/liabilities,
was as follows:
31 December 2022 30 September 2022
High return debt: 42.8% 38.5%
High return equity in property investments: 27.7% 27.5%
Other investments: 4.4% 4.4%
Cash: 25.1% 29.6%
The Company's Investment Manager is Alpha Real Capital LLP ("ARC").
Highlights
· NAV per ordinary share 220.1p as at 31 December 2022 (30 September
2022: 219.6p).
· Basic earnings for the nine months ended 31 December 2022 of 2.5p per
ordinary share (six months ended 30 September 2022: 0.4p per ordinary share).
· Adjusted earnings for the nine months ended 31 December 2022 of 5.3p
per ordinary share (six months ended 30 September 2022: 3.3p per ordinary
share).
· Declaration of a quarterly dividend of 1.0p per ordinary share
expected to be paid on 6 April 2023.
· Robust financial position: ART continues to adopt a cautious approach
to new investment and has conserved cash as a result of the uncertainty that
characterised the past year; this has placed the Company on a robust financial
footing making it well positioned to take advantage of new investment
opportunities.
· Investment targets: the Company is currently focussed on its loan
portfolio and opportunistically extending its wider investment strategy to
target investments offering inflation protection via index linked income
adjustments and investments that have potential for capital gains.
· H2O Madrid: signing of a lease with anchor retailer Primark for a
new 3,000 square metre store as part of a mall reconfiguration.
· Diversified portfolio of secured senior and secured mezzanine loan
investments: as at 31 December 2022, the size of ART's drawn secured loan
portfolio was £53.8 million, representing 42.8% of the investment portfolio.
· The senior portfolio has an average Loan to Value ('LTV')* of 64.4%
based on loan commitments (with mezzanine loans having an LTV range of between
48.8% and 78.6% whilst the highest approved senior loan LTV is 72.9%).
· 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 £14.5 million.
Investment summary
Portfolio overview as at 31 December 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 (42.8%)
Secured senior finance
Senior secured loans (excluding committed but undrawn facilities of £16.1 £38.4m (2) 6.7% (3) UK Diversified loan portfolio focussed on real estate investments and Senior secured debt 30.5%
million) developments
Secured mezzanine finance
Second charge mezzanine loans £15.4m (2) 15.1% (3) UK Diversified loan portfolio focussed on real estate investments and Secured mezzanine debt and subordinated debt 12.3%
developments
High return equity in property investments (27.7%)
H2O shopping centre
Indirect property £18.9m 6.1% (4) Spain Dominant Madrid shopping centre and separate development site 30% shareholding; moderately geared bank finance facility 15.0%
(€21.4m)
Long leased industrial facility, Hamburg
Direct property £8.9m (5) 6.2% (4) Germany Long leased industrial complex in major European industrial and logistics hub Long term moderately geared bank finance facility 7.1%
with RPI linked rent
(€10.1m)
Long leased hotel, Wadebridge
Direct property £4.0m 5.3% (6) UK Long leased hotel to Travelodge, a large UK hotel group with CPI linked rent No external gearing 3.2%
Long leased hotel, Lowestoft
Direct property £3.0m 5.3% (6) UK Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent No external gearing 2.4%
Other investments (4.4%)
Listed and authorised fund investments
£5.0m UK & Channel Islands Commercial real estate, infrastructure and debt funds Short to medium term investment in listed and authorised funds
5.9%(4) 4.0%
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 (25.1%)
Cash (7) £31.6m 0.5% (8) UK 'On call' and current accounts 25.1%
(1) Percentage share shown based on NAV excluding the company's sundry
assets/liabilities
(2) Including accrued interest/coupon at the balance sheet date
(3) The income returns for high return debt are the annualised actual finance
income return over the period shown as a percentage of the average committed
capital over the period
(4) Yield on equity over 12 months to 31 December 2022
(5) Property value including sundry assets/liabilities, net of associated debt
(6) Annualised monthly return
(7) Group cash of £32.7m excluding cash held with the Hamburg holding company
of £1.1m
(8) Weighted average interest earned on call accounts
Further to the half year annual results announcement on 25 November 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.
During the quarter there has been elevated volatility in the UK gilt market,
with yields spiking in response to UK political events and subsequently
normalising with support from Bank of England intervention. UK fiscal
discipline remains under increased scrutiny from international financial
markets. Combined with higher inflation and supply constraints evident across
the UK and in Europe and substantial increases in borrowing costs, the impact
of these events on real asset prices is yet to be 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 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 position in the current
inflationary environment. The leased assets have inflation linked rent
adjustments which offer the potential to benefit from a long term,
predictable, inflation linked income stream and the potential for associated
capital growth.
Diversified secured lending investment
The Company 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 31 December 2022, ART had committed £69.9 million across
twenty loans, of which £53.8 million (excluding a £3.5 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 nine months to 31 December 2022, five loans for £10.5 million
(including accrued interest and exit fees) were fully repaid and a further
£2.1 million (including accrued interest) was received as part repayments.
Post period end, additional drawdowns of £1.7 million were made on existing
loans and part loan repayments were received amounting to £2.2 million
(including accrued interest).
As at 31 December 2022, 71.4% of the Company's loan investments were senior
loans and 28.6% were mezzanine loans. The senior portfolio has an average LTV
of 64.4% based on loan commitments (with mezzanine loans having an LTV range
of between 48.8% and 78.6% whilst the highest approved senior loan LTV is
72.9%). Portfolio loans are underwritten against value for investment loans or
gross development value for development loans as relevant and collectively
referred to as LTV in this report.
The largest individual loan in the portfolio as at 31 December 2022 is a
senior loan of £10.7 million which represents 15.3% of committed loan capital
and 8.5% 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
£2.5 million; the Group have also provided for an ECL on the remainder of the
loans' portfolio for an additional £1.0 million: in total, the Group have
provided for an ECL of £3.5 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 31 December 2022 had
geographic diversification with a London and Southeast focus. The South of
England (including London) accounted for 47%, of which London accounted for
23%, 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 31 December 2022 was 96%. The centre's visitor
numbers remain below the pre-covid highs, however a recovery is evident. In
the calendar year to 31 December 2022, visitor numbers were approximately
10.9% below those in 2019 (pre-Covid) and 11.2% above 2021.
During the period, a lease with anchor retailer Primark was signed for a new
3,000 square metre store. The new store will involve a reconfiguration of a
mall area which is under commercialised with the unit combining a number of
existing vacant units and along with space currently used as communal mall
area. 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 31 December 2022:
£5.0 million) across three investments that offered potential to generate
attractive risk adjusted returns. Current market volatility and rise in
interest rates has impacted the capital value of these investments. The
investment yield offers a potentially accretive return to holding cash while
the Company deploys capital in opportunities in line with its investment
strategy. These funds invest in ungeared long-dated leased real estate, debt
and infrastructure.
During the period, the Company fully divested £5.3 million from a further
investment, delivering an 8.1% capital return over the holding period.
Investment in UK treasury bills and treasury bonds
Post period end, the Company invested £7.1 million in UK treasury bills with
maturity 7 August 2023 and £7.0 million in UK treasury bonds earning a 2.25%
annual coupon with maturity 7 September 2023.
Net asset value ('NAV')
As at 31 December 2022, the unaudited NAV per ordinary share of the Company
was 220.1p (30 September 2022: NAV of 219.6p).
The increase in NAV in the quarter is due to positive adjusted earnings 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 6 April 2023 (ex-dividend date 9 March 2023 and record
date 10 March 2023).
The dividends paid and declared for the 12 months to 31 December 2022 total
4.0 pence per share, representing a dividend yield of 2.7% 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 31 December 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 22 March 2023 to benefit from the scrip
dividend alternative for the next dividend.
Share buybacks
No shares were bought back by the Company during the quarter.
As at the date of this announcement, the ordinary share capital of the Company
is 65,418,630 (including 7,717,581 ordinary shares held in treasury) and the
total voting rights in the Company is 57,701,049.
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:€1.129 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 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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