Company Announcements

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:

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

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