REG - Alpha Real Tst Ltd - Trading Update and Dividend Announcement
01/03/2024 07:00
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RNS Number : 0501F Alpha Real Trust Limited 01 March 2024
LEI: 213800BMY95CP6CYXK69
1 March 2024
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 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 31 December 2023, excluding sundry assets/liabilities,
was as follows:
31 December 2023 30 September 2023
High return debt: 43.4% 46.4%
High return equity in property investments: 28.0% 29.7%
Other investments: 19.5% 14.3%
Cash: 9.1% 9.6%
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 213.2p as at 31 December 2023 (30
September 2023: 214.3p).
· Basic earnings for the nine months ended 31 December 2023 of 1.9p
per ordinary share (six months ended 30 September 2023: basic earnings of 1.5p
per ordinary share).
· Adjusted earnings for the nine months ended 31 December 2023 of
7.9p per ordinary share (six months ended 30 September 2023: adjusted earnings
of 4.6p per ordinary share).
· Declaration of a quarterly dividend of 1.0p per ordinary share
expected to be paid on 12 April 2024.
· Robust financial position: ART remains on a robust financial
footing and is well positioned to take advantage of new investment
opportunities.
· Investment targets: the Company is currently focussed on
selectively increasing its loan portfolio and opportunistically extending its
wider investment strategy to target investments offering inflation protection
via index linked income adjustments and investments that have potential for
capital gains.
· Diversified portfolio of secured senior and secured mezzanine
loan investments: as at 31 December 2023, the size of ART's drawn secured loan
portfolio was £54.5 million, representing 43.4% of the investment portfolio.
· The senior portfolio has an average Loan to Value ('LTV')** of
62.8% based on loan commitments (with mezzanine loans having an LTV range of
between 49.5% and 68.0% whilst the highest committed senior loan LTV is
65.9%).
· 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 £1.4 million. Post period end a new
secured mezzanine loan of £7.0 million was granted.
· H2O Madrid: during the period the bank debt loan facility has
been extended for a term of up to 5 years.
· Cash management: the Company has invested £12.2 million in short
term UK Treasury Bonds (Gilts) and £7.3 million in UK Treasury Bills to
enhance returns on its liquid holdings.
Investment summary
Portfolio overview & risk analysis as at 31 December 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 (43.4%)
Secured senior finance
Senior secured loans (excluding committed but undrawn facilities of £2.4 £35.2m (2) 10.3% (3) UK Diversified loan portfolio focussed on real estate investments and Senior secured debt 28.0%
million) developments
Secured mezzanine finance
Second charge mezzanine loans £19.3m (2) 18.6% (3) UK Diversified loan portfolio focussed on real estate investments and Secured mezzanine debt and subordinated debt 15.4%
developments
High return equity in property investments (28.0%)
H2O shopping centre
Indirect property £16.4m 6.3% (4) Spain Dominant Madrid shopping centre and separate development site 30% shareholding; moderately geared bank finance facility 13.1%
(€18.9m)
Long leased industrial facility, Hamburg
Direct property £7.5m (5) 8.1% (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
(€8.7m)
Long leased hotel, Wadebridge
Direct property £3.6m 5.3% (6) UK Long leased hotel to Travelodge, a large UK hotel group with CPI linked rent No external gearing 2.9%
Long leased hotel, Lowestoft
Direct property £2.7m 5.2% (6) UK Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent No external gearing 2.2%
Long leased hotel, Yardley
Direct property £4.8m 7.7% (6) UK Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent No external gearing 3.8%
Other investments (19.5%)
Listed and authorised fund investments
£4.2m UK & Channel Islands Commercial real estate, infrastructure and debt funds Short to medium term investment in listed and authorised funds
8.8% (4) 3.4%
Affordable housing
Residential Investment £0.6m n/a UK High-yield residential UK portfolio 100% shareholding; no external gearing 0.5%
UK Treasury Bonds £12.2m 4.8% (7) UK UK government bonds - 9.8%
3.1% (8)
UK Treasury Bills £7.3m 5.5% (7) UK UK government bonds - 5.8%
Cash and short-term investments (9.1%)
Cash (9) £5.4m 2.1% (10) UK 'On call' and current accounts - 4.3%
Morgan Stanley Sterling Liquidity Fund £6.0m 5.3% (11) UK Money market fund, daily liquidity - 4.8%
( )
* Return from underlying investment excluding Fund fees
(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 2023
(5) Property value including sundry assets/liabilities, net of associated debt
(6) Annualised monthly return
(7) Weighted average annualised yield to maturity
(8) Weighted average fixed annual coupon
(9) Group cash of £5.6m excluding cash held within the Hamburg holding
company of £0.2m
(10) Weighted average interest earned on call accounts
(11) Annualised daily return
Further to the half year results announcement on 24 November 2023, the
following are key investment updates.
ART's investment portfolio benefits from diversification across geographies,
sectors and asset types and the Company remains on a robust financial footing
and is well placed to capitalise on new investment opportunities.
The impact from higher interest rates, and speculation regarding the timing of
a reduction, continues to dominate the economic backdrop in which the Company
operates and clouds the outlook for the real estate market. The uncertain
market offers potential opportunities in the medium term for ART to grow its
diversified investment portfolio. The Company is currently focussed on risk
managing and selectively growing its loan portfolio and opportunistically
extending its wider investment strategy to target mezzanine opportunities as
companies seek to refinance and recapitalise. The Company is also seeking to
invest further in assets offering inflation protection via index linked income
adjustments and investments that have potential for capital appreciation.
ART's investment portfolio benefits from diversification across geographies,
sectors and asset types. We continue to take a cautious approach to new
investment, including new lending, as we observe ongoing pressures in the
economy. Recently the Company has again focused on recycling capital into more
conservative asset backed lending while reducing exposure to development risk.
In this time of heightened uncertainty, the Company is benefiting from that
strategy and it has placed the Company on a robust financial footing.
ART continues to adhere to its disciplined strategy and investment
underwriting principles which seek to manage risk through a combination of
operational controls, diversification and an analysis of the underlying asset
security.
Diversified secured lending investment
The Company invests in a diversified portfolio of secured senior and mezzanine
loan investments. The loans are typically secured on predominately residential
real estate investment and development assets with attractive risk adjusted
income returns. As at 31 December 2023, ART had committed £62.6 million
across eighteen loans, of which £54.5 million (excluding a £5.7 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 ended 31 December 2023, no new loans were drawn and
additional drawdowns of £2.6 million were made on existing loans, two loans
totalling £2.5 million (including accrued interest and exit fees) were fully
repaid and a further £4.7 million (including accrued interest) was received
as part repayments.
Post period end, a new secured mezzanine loan of £7.0 million was granted,
£0.4 million of drawdowns were made on existing loans, two loans totalling
£10.7 million (including accrued interest and exit fees) were fully repaid
and a further £0.5 million (including accrued interest) was received as part
repayments; as of today, the remaining committed capital for existing loans
amounts to £1.4 million.
As at 31 December 2023, 64.6% of the Company's loan investments were senior
loans and 35.4% were mezzanine loans. The portfolio has an average LTV of
62.0% based on loan commitments (with mezzanine loans having a LTV range of
between 49.5% and 68.0% whilst the highest committed senior loan LTV is
65.9%). 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 2023 is a
senior loan of £11.6 million which represents 18.5% of committed loan capital
and 9.2% of the Company's NAV.
Four loans in the portfolio have borrowers in 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 has calculated an Expected Credit Loss ('ECL') on these four loans of
approximately £4.0 million; the Group has also provided for an ECL on the
remainder of the loan portfolio for an additional £1.7 million: in total, the
Group has provided for an ECL of £5.7 million in its consolidated accounts.
Aside from the cases of receivership, discussed above, the Company's loan
portfolio has proved to be resilient despite the recent extended period of
heightened uncertainty and risk. In terms of debt servicing, allowing for some
temporary agreed extensions, interest and debt repayments have been received
in accordance with the loan agreements. Where it is considered appropriate, on
a case-by-case basis, underlying loan terms may be extended or varied with a
view to maximising ART's risk adjusted returns and collateral security
position. The Company's loan portfolio and new loan targets continue to be
closely reviewed to consider the potential impact on construction timelines,
building cost inflation and sales periods.
The underlying assets in the loan portfolio as at 31 December 2023 had
geographic diversification with a London and South East focus. London
accounted for 25.7% and the South East of England accounted for 18.9% of the
committed facilities within the loan investment portfolio.
Long leased assets
The Company's portfolio of long leased properties, comprising three hotels
leased to Travelodge in the UK and an industrial facility in Hamburg, Germany,
leased to a leading industrial group are well positioned in the current
inflationary environment. The leased assets have inflation linked rent
adjustments which offer the potential to benefit from a long term,
predictable, inflation linked income stream and the potential for associated
capital growth.
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 2023 was 93.4%. The centre's visitor
numbers remain below pre-Covid highs; however, a recovery is evident. In the
calendar year to 31 December 2023, visitor numbers were approximately 4.8%
above 2022 and 7.6% below those in 2019 (pre-Covid).
The works to deliver the new 3,000 square metre store for anchor retailer
Primark continue to advance on schedule. The store is expected to be opened
during 2024.
Other investments
Investment in listed and authorised funds
The Company has invested (value as at 31 December 2023: £4.2 million) across
three investments that offer 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.
Cash management
The Company adopts an active approach to enhance returns on its cash balances.
As at 31 December 2023, the Company had invested a total of £12.2 million in
short dated UK Treasury Bonds (Gilts) (weighted average annualised yield to
maturity of 4.8% with maturity in September 2024 and October 2025) and £7.3
million in UK Treasury Bills (annualised yield to maturity of 5.5% with
maturity in March 2024). These government backed short term investments offer
the Company enhanced returns over cash balances.
The Company also has £6.0 million invested in the Morgan Stanley GBP
Liquidity Fund, which invests in high quality short-term money market
instruments denominated in sterling, offers same day liquidity and earns an
annualised return, net of Morgan Stanley's fees, of 5.3%.
Net asset value ('NAV')
As at 31 December 2023, the unaudited NAV per ordinary share of the Company
was 213.2p (30 September 2023: NAV of 214.3p).
The decrease in NAV in the quarter is primarily due to the fair value movement
on the H2O joint venture investment.
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 12 April 2024 (ex-dividend date 14 March 2024 and
record date 15 March 2024).
The dividends paid and declared for the 12 months to 31 December 2023 total
4.0 pence per share, representing a dividend yield of 3.1% 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 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 26 March 2024 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 67,098,721 (including 7,717,581 ordinary shares held in treasury) and the
total voting rights in the Company is 59,381,140.
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:€1.151 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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