REG - Alpha Real Tst Ltd - Trading Update and Dividend Announcement
13/09/2024 07:00
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RNS Number : 0329E Alpha Real Trust Limited 13 September 2024
LEI: 213800BMY95CP6CYXK69
13 September 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 quarter ended 30 June 2024 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 2024, excluding sundry assets/liabilities, was as
follows:
30 June 2024 31 March 2024
High return debt: 35.6% 39.2%
High return equity in property investments: 14.6% 26.1%
Other investments: 32.9% 20.6%
Cash: 16.9% 14.1%
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 ("AlphaReal").
Highlights
· NAV per ordinary share: 208.3p as at 30 June 2024 (31 March
2024: 207.3p).
· Basic earnings for the quarter ended 30 June 2024 of 2.7p per
ordinary share (Twelve months to 31 March 2024: losses of (1.6)p per ordinary
share).
· Adjusted earnings for the quarter ended 30 June 2024 of 2.4p
per ordinary share (Twelve months to 31 March 2024: 10.3p per ordinary share)
· Declaration of a quarterly dividend of 1.0p per ordinary share
expected to be paid on 25 October 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 30 June 2024, the size of ART's drawn secured loan
portfolio was £43.9 million, representing 35.6% of the investment portfolio.
· The senior portfolio has an average Loan to Value ('LTV') of
62.6% based on loan commitments (with mezzanine loans having an LTV range of
between 49.2% and 74.5% whilst the highest approved senior loan LTV is 64.2%).
· 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 £1.0 million.
· Cash management: at the balance sheet date, the Company has
invested £29.6 million in short term UK Treasury Bonds (Gilts), £6.6 million
in short term UK Treasury bills and £10.0 million in the Morgan Stanley
Sterling Liquidity Fund to enhance returns on its liquid holdings.
Investment summary
Portfolio overview & risk analysis as at 30 June 2024
Investment name
Investment type Carrying value Income return p.a. * Investment location Property type / underlying security Investment notes % of portfolio(1)
High return debt (35.6%)
Secured senior finance
Senior secured loans (excluding committed but undrawn facilities of £1.0 £24.3m (2) 9.5% (3) UK Diversified loan portfolio focussed on real estate investments and Senior secured debt 19.7%
million) developments
Secured mezzanine finance
Second charge mezzanine loans £19.6m (2) 16.6% (3) UK Diversified loan portfolio focussed on real estate investments and Secured mezzanine debt and subordinated debt 15.9%
developments
High return equity in property investments (14.6%)
Long leased industrial facility, Hamburg
Direct property £7.2m (5) 9.1% (4) Germany Long leased industrial complex in major European industrial and logistics hub Medium term moderately geared bank finance facility 5.8%
with RPI linked rent
(€8.5m)
Long leased hotel, Wadebridge
Direct property £3.3m 6.7% (4) UK Long leased hotel to Travelodge, a large UK hotel group with CPI linked rent No external gearing 2.7%
Long leased hotel, Lowestoft
Direct property £2.7m 6.2% (4) 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 8.0% (4) UK Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent No external gearing 3.9%
Other investments (32.9%)
Listed and authorised fund investments
£3.9m UK & Channel Islands Commercial real estate, infrastructure and debt funds Short to medium term investment in listed and authorised funds
8.6% (4) 3.1%
Affordable housing
Residential Investment £0.6m n/a UK High-yield residential UK portfolio 100% shareholding; no external gearing 0.5%
UK Treasury Bonds £29.6m 4.3%-4.9% (6) UK UK government bonds - 23.9%
2.8%-5.0% (7)
UK Treasury Bill £6.6m 5.2% (6) UK UK government bonds - 5.4%
Cash and short-term investments (16.9%)
Cash (8) £10.9m 3.5% (9) UK 'On call' and current accounts - 8.8%
Morgan Stanley Sterling Liquidity Fund £10.0m 5.2% (10) UK Money market fund, daily liquidity - 8.1%
( )
* 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 30 June 2024
(5) Property value including sundry assets/liabilities, net of associated debt
(6) Range of annualised yields to maturity
(7) Range of fixed annual coupons
(8) Group cash of £11.3m excluding cash held with the Hamburg holding company
of £0.4m
(9) Weighted average interest earned on call accounts
(10) Annualised daily return
Further to the annual results announcement on 21 June 2024, 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 scale and pace of interest rate reductions continues to dominate the
economic backdrop in which the Company operates and shape 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 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 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.
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 2024, ART had committed £50.9 million across
twelve loans, of which £43.9 million (excluding a £6.0 million provision for
impairments and Expected Credit Loss discussed below) was drawn.
During the quarter, £1.0 million of drawdowns were made on existing loans,
one loan of £4.1m (including accrued interest and exit fees) was fully repaid
and a further £0.7 million (including accrued interest) was received as part
repayments. Post period end, additional drawdowns of £1.5 million were made
on existing loans and part loan repayments were received amounting to £1.0
million (including accrued interest).
As at 30 June 2024, 55.4% of the Company's loan investments were senior loans
and 44.6% were mezzanine loans. The senior portfolio has an average LTV of
62.6% based on loan commitments (with mezzanine loans having an LTV range of
between 49.2% and 74.5% whilst the highest approved senior loan LTV is 64.2%).
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 2024 is a senior
loan of £12.4 million, which represents 24.4% of committed loan capital and
10.0% of the Company's NAV.
Four loans in the portfolio have entered receivership and ART is working
closely 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 impaired one loan, which is accounted for at fair value, by £0.3
million; the Group also calculated an Expected Credit Loss ('ECL') on the
other three loans of approximately £4.2 million; the Group have also provided
for an ECL on the remainder of the loans' portfolio for an additional £1.5
million. In total, the Group have provided for an ECL of £5.7 million (31
March 2024: £5.7 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 2024 had
diversification throughout the UK and channel islands with assets held located
in London accounting for 27.5% of the total loan investment portfolio.
Other investments
Investment in listed and authorised funds
The Company has invested across three investments that offer potential to
generate attractive risk adjusted returns. During the quarter, ART received
£0.5 million as a partial redemption from GCP Asset Backed Income Fund
Limited. The remaining value of these investments as at 30 June 2024 was £3.9
million.
The prevailing higher interest rate environment continues to have an impact on
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 30 June 2024, the Company had invested a total of £29.6 million in four
UK Treasury Bonds (Gilts) and £6.6 million in one UK Treasury Bill with
annualised yields to maturity ranging from 4.3% to 4.9% with maturities
ranging between September 2024 and June 2026. These government backed short
term investments offer the Company enhanced returns over cash balances. Post
period end, on 7 September 2024, ART received £6.4 million at maturity of a
Gilt investment.
The Company also has invested £10.0 million 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 5.2%.
Post period end, the Company invested £10.0 million in the BlackRock ICS
Sterling Government Liquidity Fund, which invests in government debt, offers
same day liquidity and earns an annualised return, net of BlackRock's fees, of
4.8%.
Net asset value ('NAV')
As at 30 June 2024, the unaudited NAV per ordinary share of the Company was
208.3p (31 March 2024: NAV of 207.3p).
The increase in NAV in the quarter is primarily due to 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 25 October 2024 (ex-dividend date 26 September 2024 and
record date 27 September 2024).
The dividends paid and declared for the 12 months to 30 June 2024 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 30 June 2024. 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 10 October 2024 to benefit from the scrip dividend
alternative for the next dividend.
Share buybacks
Following the Annual General Meeting held on 5 September 2024 the Company has
the authority to buy back a total of 8,966,800 shares. No shares have yet been
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 67,993,321 (including 7,717,581 ordinary shares held in treasury) and the
total voting rights in the Company is 60,275,740.
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:€1.180 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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