Company Announcements

LEI: 213800BMY95CP6CYXK69

25 November 2022

ALPHA REAL TRUST LIMITED ("ART" OR THE "COMPANY" OR "THE GROUP")

 

ART ANNOUNCES ITS HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022

 

·      NAV per ordinary share 219.6p as at 30 September 2022 (31 March 2022: 216.0p).

 

·      Basic earnings for the six months ended 30 September 2022 of 0.4p per ordinary share (six months ended 30 September 2021: 2.5p per ordinary share).

 

·      Adjusted earnings for the six months ended 30 September 2022 of 3.3p per ordinary share (six months ended 30 September 2021: 3.0p per ordinary share)*.

 

·      Declaration of a quarterly dividend of 1.0p per ordinary share expected to be paid on 6 January 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 in 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 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 investments: during the period the Company acquired for £4.3 million a UK hotel leased to Travelodge Hotels Limited, the United Kingdom's largest independent hotel brand, with a 20-year unexpired lease term. A similar investment was acquired by ART in June 2022 for £3.1 million. The current rents reflect a net initial yield in excess of 6% p.a. with the investments benefitting from inflation linked rent adjustments.

 

·      Diversified portfolio of secured senior and secured mezzanine loan investments: as at 30 September 2022, the size of ART's drawn secured loan portfolio was £48.1 million, representing 38.5% 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 £17.4 million

 

* The basis of the adjusted earnings per share is provided in note 7

** See below for more details

 

William Simpson, Chairman of Alpha Real Trust, commented:

"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."

The Investment Manager of Alpha Real Trust is Alpha Real Capital LLP.

 

 

For further information please contact:

 

Alpha Real Trust Limited

William Simpson, Chairman, Alpha Real Trust +44 (0) 1481 742 742

Gordon Smith, Joint Fund Manager, Alpha Real Trust +44 (0) 207 391 4700

Brad Bauman, Joint Fund Manager, Alpha Real Trust +44 (0) 207 391 4700

 

Panmure Gordon, Broker to the Company

Atholl Tweedie +44 (0) 20 7886 2500

 

Notes to editors:

 

About Alpha Real Trust

Alpha Real Trust Limited 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.

Further information on the Company can be found on the Company's website: www.alpharealtrustlimited.com.

 

About Alpha Real Capital LLP

Alpha Real Capital is a value-adding international property fund management group. Alpha Real Capital is the Investment Manager to ART. Brad Bauman and Gordon Smith of Alpha Real Capital are joint Fund Managers to ART. Both have experience in the real estate and finance industries throughout the UK, Europe and Asia. 

For more information on Alpha Real Capital please visit www.alpharealcapital.com.

 

 

Company's summary and objective

 

Strategy

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 September 2022, excluding sundry assets/liabilities, was as follows:

	30 September 2022	31 March 2022
High return debt:	38.5%	27.3%
High return equity in property investments:	27.5%	18.8%
Other investments:	4.4%	13.1%
Cash:	29.6%	40.8%

 

The Company is currently focussed on 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.

Dividends

The current intention of the Directors is to pay a dividend and offer a scrip dividend alternative quarterly to all shareholders.

Listing

The Company's shares are traded on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE"), ticker ARTL: LSE.

Management

The Company's Investment Manager is Alpha Real Capital LLP ('ARC'), whose team of investment and asset management professionals focus on the potential to enhance earnings in addition to adding value to the underlying assets, and also focus on the risk profile of each investment within the capital structure to best deliver attractive risk adjusted returns.

The Company and the Investment Manager have extended the current management agreement for a further term of five years from the expiry of the current term on 21 December 2022. The Company believes this will provide the Company's shareholders with greater certainty going forward on the continued access to the management resources, and broader group support, of the Investment Manager which will assist the Company to continue to achieve its investment objectives. The annual management fee and performance fee arrangements remain unchanged.

Control of the Company rests with the non-executive Guernsey based Board of Directors.

Financial highlights

	6 months ended 30 September 2022	12 months ended 31 March 2022	6 months ended 30 September 2021
Net asset value (£'000)	125,025	133,256	127,585
Net asset value per ordinary share	219.6	216.0	208.5p
Earnings per ordinary share (basic and diluted) (adjusted)*	3.3p	4.0p	3.0p
Earnings per ordinary share (basic and diluted)	0.4p	13.3p	2.5p
Dividend per ordinary share (paid during the period)	2.0p	4.0p	2.0p

* The adjusted earnings per share includes adjustments for the effect of the fair value revaluation of investment property and indirect property investments, capital element on Investment Manager's fees, the fair value movements on financial assets and deferred tax provisions: full analysis is provided in note 7 to the accounts.

 

 

 

Chairman's statement

I am pleased to present the Company's half year report and accounts for the six months ended 30 September 2022.

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 opportunistically 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 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 August 2022 ART acquired a hotel in Wadebridge, Cornwall (UK) for £4.3 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 a 20 year unexpired lease term.

Under the lease, the tenant is responsible for building maintenance and the passing rent of £0.3 million p.a. has inflation linked adjustments, reflecting a net initial yield in excess of 6.0% p.a.

The Wadebridge hotel is a 55-bedroom property that is held freehold and is situated on the outskirts of Wadebridge in the county of Cornwall. The hotel is in a well-connected location in close proximity to the A39. This follows from a June 2022 acquisition of a hotel in Lowestoft (UK), leased to Travelodge Hotels Limited, for £3.1 million (including acquisition costs) which also has a long term lease contract. The Lowestoft hotel is a 47-bedroom property that 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. ART has acquired both assets for cash.

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 September 2022, ART had committed £67.3 million across nineteen loans, of which £48.1 million (excluding a £3.2 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 six months to 30 September 2022, four loans for £9.0 million (including accrued interest and exit fees) were fully repaid and a further £2.4 million (including accrued interest) was received as part repayments. Post period end, one loan of £1.1 million was drawn, additional drawdowns of £1.9 million were made on existing loans and part loan repayments were received amounting to £0.6 million (including accrued interest).

As at 30 September 2022, 68.8% of the Company's loan investments were senior loans and 31.2% 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 30 September 2022 is a senior loan of £11.1 million which represents 16.5% of committed loan capital and 8.9% 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 £2.3 million; the Group have also provided for an ECL on the remainder of the loans' portfolio for an additional £0.9 million: in total, the Group have provided for an ECL of £3.2 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 September 2022 had geographic diversification with a London and Southeast focus. The South of England (including London) accounted for 49%, of which London accounted for 21%, 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 September 2022 was 90.4%. The centre trading levels remain below the pre-covid highs, however a recovery is evident. In the calendar year to 30 September 2022, visitor numbers were approximately 12% below those of the same period in 2019 (pre-Covid) and 13% 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 £6.0 million (value as at 30 September 2022: £4.8 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 a 8.1% capital return over the holding period.

Results and dividends

Results

Basic earnings for the six months ended 30 September 2022 are £0.2 million (0.4 pence per ordinary share, see note 7 of the financial statements).

Adjusted earnings, which the Board believe is a more appropriate assessment of the operational income accruing to the Group's activities, for the six months ended 30 September 2022 are £1.9 million (3.3 pence per ordinary share, see note 7 of the financial statements). This compares with adjusted earnings per ordinary share of 3.0 pence in the same period last year. Earnings have increased primarily due to increased rental income following the UK hotels' acquisitions in Lowestoft and Wadebridge.

The net asset value per ordinary share at 30 September 2022 is 219.6 pence per share (31 March 2022: 216.0 pence per ordinary share) (see note 8 of the financial statements). The positive movement over the period reflects the impact of the share buyback (following the result of the tender offer in July 2022) combined with earnings (less dividends) and supported further by positive foreign exchange movements.

Dividends

The Board announces a dividend of 1.0 pence per ordinary share which is expected to be paid on 6 January 2023 (ex-dividend date 8 December 2022 and record date 9 December 2022).

The dividends paid and declared in respect of the twelve month period ended 30 September 2022 totalled 4.0 pence per ordinary share representing an annual dividend yield of 2.6% p.a. by reference to the average closing share price over the twelve months to 30 September 2022.

During the period, £249,783 dividends were paid in cash and £987,126 settled by scrip issue of shares.

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 September 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 20 December 2022 to benefit from the scrip dividend alternative for the next dividend.

Financing

As at 30 September 2022 the Group has one direct bank loan of €9.5 million (£8.4 million), with no financial covenant tests, to a subsidiary used to finance the acquisition of the Hamburg property. The loan is secured over the Hamburg property and has no recourse to the other assets of the Group.

Further details of individual asset financing can be found under the individual investment review sections later in this report.

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. In July 2022, 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 period, 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 made no share buybacks

As at the date of this announcement, the ordinary share capital of the Company is 65,016,962 (including 7,717,581 ordinary shares held in treasury) and the total voting rights in the Company is 57,299,381.

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:€1.128 and £1:INR89,923, as appropriate.

Russian invasion of Ukraine, Covid-19 pandemic and going concern

The Company has assessed potential impacts on the ART's portfolio arising from the Russian invasion of Ukraine. ART has no investments in Ukraine or Russia, nor exposure to any companies that have investments in, or links to, Ukraine or Russia. ART has no arrangements with any person currently on (or potentially on) any sanctions list, or links to Ukraine or Russia. The immediate economic impact of the invasion has been a sharp increase in the price of oil and other energy based commodities. ART has no direct exposure to these commodities. None of the borrowers or other counterparties in ART's loan book have links to Ukraine or Russia. It is too early to measure any impact or increased risk to the underlying values supporting ART's loan portfolio, but we do not expect any material change to these values on account of the conflict. The Board will continue to monitor the situation regularly, and will consider the wider impact on the economy (such as potential further increases in inflation and interest rates) and if there would be any potential material impact on ART's portfolio.

The Company has not been isolated from the ubiquitous impact of the Covid-19 pandemic on global economies. The Company's long term strategy remains resilient. The Company adopted a prudent short term strategy to move to cash conservation and a cautious approach to commitments to new investments during the financial periods affected. Alert to the impact of potentially reducing income returns, this approach supported a robust balance sheet position during these uncertain times. The Company continues to adopt this cautious approach to new investment and is conserving cash as a result of the uncertainty that has characterised the past few months; this ensures the Company retains a robust financial footing, making it well positioned to take advantage of new investment opportunities. As noted above, the Company held approximately 29.6% of its assets (excluding sundry net assets) in cash as at 30 September 2022 with limited current contractual capital commitments. While there is external financing in the Group's investment interests, this is limited and non-recourse to the Company; the borrowings in these special purpose vehicles are compliant with their banking covenants. While the Board's dividend policy intention is unchanged the Company continues to actively monitor its investments and the impact of these unusual economic circumstances on earnings and dividends. See the investment review section for more details on the pandemic's impact on relevant investments.

Bearing in mind the nature of the Group's business and assets, after making enquiries, with the support of revenue forecasts for the next twelve months and considering the above, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

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. 

 

William Simpson
Chairman

24 November 2022

Investment review

Portfolio overview as at 30 September 2022

Investment name

Investment type

Carrying value

Income return p.a.

Investment location

Property type / underlying security

Investment notes

% of portfolio1

Notes*

High return debt (38.5%)

Secured senior finance

Senior secured loans (excluding committed but undrawn facilities of £19.2 million)

£33.1m 2

5.8% 3

UK

Diversified loan portfolio focussed on real estate investments and developments

Senior secured debt

26.5%

13

Secured mezzanine finance

Second charge mezzanine loans

£15.0m 2

15.7% 3

UK

Diversified loan portfolio focussed on real estate investments and developments

Secured mezzanine debt and subordinated debt

12.0%

13

High return equity in property investments (27.5%)

H2O shopping centre

Indirect property

£18.5m (€20.9m)

7.0% 4

Spain

Dominant Madrid shopping centre and separate development site

30% shareholding; moderately geared bank finance facility

14.8%

12

Long leased industrial facility, Hamburg

Direct property

£8.9m 5 (€10.0m)

6.2% 4

Germany

Long leased industrial complex in major European industrial and logistics hub with RPI linked rent

Long term moderately geared bank finance facility

7.1%

9

Long leased hotel, Wadebridge

Direct property

£4.0m

5.4% 6

UK

Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent

No external gearing

3.2%

9

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%

9

Other investments (4.4%)

Listed and authorised fund investments

£4.8m

5.9%4

UK & Channel Islands

Commercial real estate, infrastructure and debt funds

Short to medium term investment in listed and authorised funds

3.9%

11

Affordable housing

Residential Investment

£0.6m

n/a

UK

High-yield residential UK portfolio

100% shareholding; no external gearing

0.5%

9

Cash and short-term investments (29.6%)

Cash 7

£37.0m

0.3% 8

UK

'On call' and current accounts

29.6%

 

* See notes to the financial statements

 

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 September 2022

⁵ Property value including sundry assets/liabilities, net of associated debt

⁶ Annualised monthly return

⁷ Group cash of £37.9m excluding cash held with the Hamburg holding company of £0.9m

⁸ Weighted average interest earned on call accounts

 

High return debt

Overview

ART has a portfolio of secured loan investments which contribute a diversified return to the Company's earnings position. The portfolio comprises high return senior (first charge) loans and mezzanine (second charge) loans secured on real estate investment assets and developments. ART loan underwriting is supported by the Investment Manager's asset-backed lending experience, developer and investor relationships and knowledge of the underlying assets and sectors, in addition to the Group's partnerships with specialist debt providers.

Secured Finance

Investment	Investment type	Carrying value	Income return p.a.	Property type / underlying security	Investment notes
Secured senior finance	First charge secured loans	£33.1m *	5.8%**	Diversified loan portfolio focussed on real estate investments and developments	Secured debt
Secured mezzanine finance	Second charge secured loans	£15.0m *	15.7%**	Diversified loan portfolio focussed on real estate investments and developments	Second charge secured debt and secured subordinated debt

*      Including accrued interest/coupon at the balance sheet date

**     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

 

ART's portfolio of secured senior and mezzanine loan investments have increased in scale and diversity over the past year. These loans are typically secured on real estate investment and development assets with attractive risk-adjusted income returns from either current or capitalised interest or coupons.

As at 30 September 2022, ART had invested a total amount of £48.1 million across nineteen loans. Over the past twelve months the loan portfolio has increased by 37.0%.

During the six months to 30 September 2022, four loans for £9.0 million (including accrued interest and exit fees) were fully repaid and a further £2.4 million (including accrued interest) was received as part repayments. Post period end, one loan of £1.1 million was drawn, additional drawdowns of £1.9 million were made on existing loans and part loan repayments were received amounting to £0.6 million (including accrued interest).

Each loan will typically have a term of up to two years, a maximum 75% loan to gross development value ratio and be targeted to generate attractive risk-adjusted income returns. As at 30 September 2022, 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%).

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 ECL on these two loans of approximately £2.3 million; the Group have also provided for an ECL on the remainder of the loans' portfolio for an additional £0.9 million: in total, the Group have provided for an ECL of £3.2 million in its consolidated accounts.

Current loan investment examples:

 

Location	Total commitment	Loan type	Loan term	Current LTV	Underlying security
Fleet, Hampshire	£1,704,000	Senior Development Loan	15	64.18%	Development of nine new build apartments
St. Lawrence, Jersey	£11,731,000	Senior Development Loan	24	63.00%	Development of eleven new build apartments
Temple Fortune, London	£8,600,000	Senior Development Loan	19	63.00%	Development of eight new build houses
Throughout the UK	£12,000,000	Mezzanine Investment Loan	36	61.31%	Refinance of a portfolio of six care homes

 

 

High return equity in property investments

Overview

ART continues to remain focused on investments that offer the potential to deliver attractive risk-adjusted returns by way of value enhancement through active asset management, improvement of income, selective deployment of capital expenditure and the ability to undertake strategic sales when the achievable price is accretive to returns.

H2O Shopping Centre, Madrid

Investment	Investment type	Carrying value	Income return p.a.	Property type / underlying security	Investment notes
H2O	Indirect property	£18.5m (€20.9m)	7.0%*	High-yield, dominant Madrid shopping centre and separate development site	30% shareholding; 6-year term bank finance facility

*      Yield on equity over twelve months to 30 September 2022

ART has a 30% stake in joint venture with CBRE Investment Management in the H2O shopping centre in Madrid. H2O was opened in 2007 and built to a high standard providing shopping, restaurants and leisure around a central theme of landscaped gardens and an artificial lake. H2O has a gross lettable area of approximately 52,425 square metres comprising 123 retail units. In addition to a multiplex cinema, supermarket (let to leading Spanish supermarket operator Mercadona) and restaurants, it has a large fashion retailer base, including some of the strongest international fashion brands, such as Nike, Zara, Mango, JD Sports, Cortefiel, H&M and C&A.

It continues to be a challenging period for shopping centre assets. Whilst legislative restrictions on retailer trading hours and store capacities and indoor mask requirements have largely been relaxed to allow for normalised trading operations, the lingering social and economic impacts of Covid-19 continue to impact performance. This has resulted in supressed visitor numbers and tenant sales performance being recorded for most shopping centre assets in Spain and H2O is no exception.  

H2O occupancy, by area, as at 30 September 2022 was 90.4%. The centre trading levels remain below the pre-covid highs, however a recovery is evident. In the calendar year to 30 September 2022, visitor numbers were approximately 12% below those of the same period in 2019 (pre-Covid) and 13% above the same period in 2021. 

The lingering economic effect of Covid-19 on the retail sector is expected to continue to impact on the earnings of H2O for the financial year.

The asset management highlights are as follows:

·     Valuation: 30 September 2022: €121.8 million (£108.0 million) (31 March 2022: €121.0 million (£102.1 million)). 

·     Centre occupancy: 90.4% by area as at 30 September 2022.

·     Weighted average lease length to next break of 2.4 years and 7.4 years to expiry as at 30 September 2022.

 

Long leased industrial facility, Hamburg

Investment	Investment type	Carrying value	Income return p.a.	Property type / underlying security	Investment notes
Industrial facility, Werner-Siemens-Straße Hamburg, Germany	Direct property	£8.9m* (€10.0m)	6.2%**	High return industrial facility in Hamburg Germany	Long leased investment with moderately geared, long term, bank finance facility

*      Property value including sundry assets/liabilities and cash, net of associated debt

**     Yield on equity over twelve months to 30 September 2022

ART has an investment of €10.0 million (£8.9 million) in an industrial facility leased to a leading international group.

The property is held freehold and occupies a site of 11.8 acres in Billbrook, a well-established and well-connected industrial area located approximately 8 kilometres south-east of Hamburg centre. Hamburg is one of the main industrial and logistics markets in Germany.

The property is leased to Veolia Umweltservice Nord GmbH, part of the Veolia group, an international industrial specialist in water, waste and energy management, with a 23-year unexpired lease term. Under the operating lease, the tenant is responsible for building maintenance and the rent has periodic inflation linked adjustments.

The Hamburg asset is funded by way of a €9.5 million (£8.4 million) non-recourse, fixed rate, bank debt facility which matures in 31 July 2028. The facility carries no financial covenant tests.

This investment offers the potential to benefit from a long term secure and predictable inflation-linked income stream which is forecast to generate stable high single digit income returns. In addition, the investment offers the potential for associated capital growth from an industrial location in a major German logistics and infrastructure hub.

 

Long leased hotel, Wadebridge, Cornwall

Investment	Investment type	Carrying value	Income return p.a.	Property type / underlying security	Investment notes
Hotel, Wadebridge Cornwall, UK	Direct property	£4.0m	5.4%*	Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent	No external gearing

*      Annualised monthly return

ART has an investment of £4.0 million (property valuation as at 30 September 2022) in a 55-bedroom property, which is held freehold and is situated on the outskirts of Wadebridge in the county of Cornwall. The hotel is in a well-connected location in close proximity to the A39. 

The property is leased to Travelodge Hotels Limited on a 20 year unexpired lease term. Under the lease, the tenant is responsible for building maintenance

The passing rent of £0.3 million p.a. has inflation linked adjustments.

Long leased hotel, Lowestoft

Investment	Investment type	Carrying value	Income return p.a.	Property type / underlying security	Investment notes
Hotel, Lowestoft, UK	Direct property	£3.0m	5.3%*	Long leased hotel to Travelodge, a large UK hotel group with RPI linked rent	No external gearing

*      Annualised monthly return

ART has an investment of £3.0 million (property valuation as at 30 September 2022) in a 47-bedroom property, which 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.

The property is leased to Travelodge Hotels Limited on an 18 year unexpired lease term. Under the lease, the tenant is responsible for building maintenance

The passing rent of £0.2 million p.a. has inflation linked adjustments.

 

Other Investments

Listed and authorised fund investments

Investment	Investment type	Carrying value	Income return p.a. *	Property type / underlying security	Investment notes
Sequoia Economic Infrastructure Income Fund Limited	Listed equity	£2.3m	5.5%	Listed investment fund	FTSE 250 infrastructure debt fund
GCP Infrastructure Investments Limited	Listed equity	£1.3m	6.7%	Listed investment fund	FTSE 250 infrastructure fund
GCP Asset Backed Income Fund Limited	Listed equity	£1.2m	6.1%	Listed investment fund	Diversified asset back debt fund
Total		£4.8m	5.9%

*Yield on equity based on 12 months to 30 September 2022

 

The Company invested a total of £6.0 million (value as at 30 September 2022: £4.8 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 the investment in the Commercial Long Income PAIF, delivering a 8.1% capital return over the holding period.

Affordable Housing

The Company's wholly owned investment, RealHousingCo Limited ("RHC") has obtained successful registration with the Regulator of Social Housing as a For Profit Registered Provider of affordable homes. This status provides RHC with a platform to undertake future investment in the affordable housing sector which offers scope to generate long term, inflation-linked returns while addressing the chronic undersupply of affordable homes in the UK.

RHC owns a residential property located in Liverpool (UK), which is comprised of seven units, all of which are occupied by private individuals, each with a six month term contract. The fair value of the Liverpool property as at 30 September 2022 was £0.6 million.

Cash balances

Investment	Investment type	Carrying value	Income return p.a.	Property type / underlying security	Investment notes
Cash balance *	Cash	£37.0m	0.3% **	'On call' and current accounts	n/a

*      Group cash of £37.9m excluding cash held with the Hamburg holding company of £0.9m

**     weighted average interest earned on call accounts

As at 30 September 2022, the Group had cash balances of £37.0 million, excluding cash held with the Hamburg holding company of £0.9 million.

The Group's cash is held with established banks with strong credit ratings.

 

Summary

ART has a diversified portfolio focussed on asset-backed lending and property investments in Western Europe.  The Company is currently focussed on 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

Brad Bauman and Gordon Smith

For and on behalf of the Investment Manager

24 November 2022

 

Principal risks and uncertainties

The principal risks and uncertainties facing the Group can be outlined as follows:

·      Rental income, fair value of investment properties (directly or indirectly held) and fair value of the Group's equity investments are affected, together with other factors, by general economic conditions and/or by the political and economic climate of the jurisdictions in which the Group's investments and investment properties are located.

·      The Group's loan investments are exposed to credit risk which arise by the potential failure of the Group's counter parties to discharge their obligations when falling due; this could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date; the Group receives regular updates from the relevant investment manager as to the performance of the underlying investments and assesses their credit risk as a result.

·      The Russian invasion of Ukraine is also considered to be a significant risk and uncertainty for the Group: this is discussed on the first paragraph of the above going concern section.

The Board believes that the above principal risks and uncertainties, which are discussed more extensively in the annual report for the year ended 31 March 2022, would be equally applicable to the remaining six month period of the current financial year.

 

Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge:

·      the condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union; and

·      the half year report includes a fair review of the information required by DTR 4.2.7R, being an indication of the important events that have occurred during the first six months of the financial year, and their impact on the half year report, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      the half year report includes a fair review of the information required by DTR 4.2.8R, being the related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period; and any changes in the related parties transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

The Directors of ART are listed below.

 

By order of the Board

 

William Simpson
Chairman

24 November 2022

 

Independent review report

To Alpha Real Trust Limited

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 September 2022 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2022 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity and related notes.

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the 'Basis for conclusion' section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410, however future events or conditions may cause the group to cease to continue as a going concern.

Responsibilities of directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, including our 'Conclusions relating to going concern', are based on procedures that are less extensive than audit procedures, as described in the 'Basis for conclusion' paragraph of this report.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO Limited

Chartered Accountants

Place du Pré

Rue du Pré

St Peter Port

Guernsey

 

24 November 2022

Condensed consolidated statement of comprehensive income

		For the six months ended 30 September 2022 (unaudited)			For the six months ended 30 September 2021 (unaudited)
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Income
Revenue	3	2,977	-	2,977	2,829	-	2,829
Change in the revaluation of investment properties	9	-	143	143	-	343	343
Gains/(losses) on financial assets and liabilities held at fair value through profit or loss	4	272	(1,406)	(1,134)	207	(361)	(154)
Total income/(expense)		3,249	(1,263)	1,986	3,036	(18)	3,018
Expenses
Expected credit losses		-	(608)	(608)	-	-	-
Property operating expenses		(41)	-	(41)	(36)	-	(36)
Investment Manager's fee	20	(1,189)	-	(1,189)	(1,151)	-	(1,151)
Other administration costs		(476)	-	(476)	(427)	-	(427)
Total operating expenses		(1,706)	(608)	(2,314)	(1,614)	-	(1,614)
Operating profit/(loss)		1,543	(1,871)	(328)	1,422	(18)	1,404
Share of profit/(loss) of joint ventures and associates	12	525	324	849	497	(140)	357
Finance income		44	-	44	1	1	2
Finance costs		(100)	(66)	(166)	(101)	-	(101)
Profit/(loss) before taxation		2,012	(1,613)	399	1,819	(157)	1,662
Taxation	5	(66)	(112)	(178)	(7)	(116)	(123)
Profit/(loss) after taxation		1,946	(1,725)	221	1,812	(273)	1,539
Other comprehensive income/(expense) for the period
Items that may be reclassified to profit or loss in subsequent periods:
Exchange differences arising on translation of foreign operations		-	1,478	1,478	-	361	361
Other comprehensive income for the period		-	1,478	1,478	-	361	361
Total comprehensive income/(expense) for the period		1,946	(247)	1,699	1,812	88	1,900
Earnings per ordinary share (basic & diluted)	7			0.4p			2.5p
Adjusted earnings per ordinary share (basic & diluted)	7			3.3p			3.0p

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All items in the above statement derive from continuing operations. The accompanying notes form an integral part of these financial statements.

Condensed consolidated balance sheet

	Notes	30 September 2022 (unaudited) £'000	31 March 2022 (audited) £'000
Non-current assets
Investment property	9	24,330	15,984
Investment in joint ventures and associates	12	18,517	17,193
Loans advanced	13	30,369	13,093
		73,216	46,270
Current assets
Joint venture in arbitration	10	-	5,868
Investments held at fair value	11	4,756	10,990
Derivatives held at fair value through profit or loss		-	88
Loans advanced	13	17,772	23,341
Collateral deposit	14	1,284	936
Trade and other receivables	15	150	13,711
Cash and cash equivalents		37,934	41,250
		61,896	96,184
Total assets		135,112	142,454
Current liabilities
Derivatives held at fair value through profit or loss		(375)	-
Trade and other payables	16	(927)	(971)
Corporation tax		(31)	(12)
Bank borrowings	17	(32)	(29)
Total current liabilities		(1,365)	(1,012)
Total assets less current liabilities		133,747	141,442
Non-current liabilities
Bank borrowings	17	(8,329)	(7,921)
Deferred tax		(393)	(265)
		(8,722)	(8,186)
Total liabilities		(10,087)	(9,198)
Net assets		125,025	133,256
Equity
Share capital	18	-	-
Special reserve		59,550	68,243
Translation reserve		677	(801)
Capital reserve		42,292	44,017
Revenue reserve		22,506	21,797
Total equity		125,025	133,256
Net asset value per ordinary share	8	219.6p	216.0p

 

The financial statements were approved by the Board of Directors and authorised for issue on 24 November 2022. They were signed on its behalf by William Simpson.

William Simpson                                                                                  

Director

                                                                                                               

The accompanying notes form an integral part of these financial statements.

Condensed consolidated cash flow statement

	For the six months ended 30 September 2022 (unaudited) £'000	For the six months ended 30 September 2021 (unaudited) £'000
Operating activities
Profit for the period after taxation	221	1,539
Adjustments for:
Change in revaluation of investment property	(143)	(343)
Net losses on financial assets and liabilities held at fair value through profit or loss	1,134	154
Taxation	178	123
Share of profit of joint ventures and associates	(849)	(357)
Interest receivable on loans to third parties	(2,394)	(2,336)
Expected credit losses	608	-
Finance income	(44)	(2)
Finance cost	166	101
Operating cash flows before movements in working capital	(1,123)	(1,121)
Movements in working capital:
Movement in trade and other receivables	(123)	(20)
Movement in trade and other payables	(43)	54
Cash flows used in operations	(1,289)	(1,087)
Loan interest received	1,091	979
Loans granted to third parties	(9,581)	(11,229)
Loans repaid by third parties	10,359	10,309
Cash returned from escrow for loans granted post year end	1,928	-
Interest received	44	1
Interest paid	(91)	(92)
Tax paid	(29)	(22)
Cash flows generated from/(used in) operating activities	2,432	(1,141)
Investing activities
Acquisition of investments	-	(10,998)
Acquisition of investment property	(7,403)	-
Investment in joint ventures	-	(84)
Redemption on investments	5,348	-
Capital return from joint venture in arbitration	5,868	-
Dividend income from joint ventures and associates	411	-
Dividend income from investments	178	89
Collateral deposit increase	(348)	-
Cash flows generated from/(used in) investing activities	4,054	(10,993)
Financing activities
Share issue costs	(78)	(21)
Share buyback	(9,553)	(150)
Share buyback costs	(49)	(1)
Ordinary dividends paid	(250)	(219)
Cash flows used in financing activities	(9,930)	(391)
Net decrease in cash and cash equivalents	(3,444)	(12,525)
Cash and cash equivalents at beginning of period	41,250	68,213
Exchange translation movement	128	12
Cash and cash equivalents at end of period	37,934	55,700

 

The accompanying notes form an integral part of these financial statements.

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2022 (unaudited)	Notes	Special reserve £'000	Translation reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total equity £'000
At 1 April 2022		68,243	(801)	44,017	21,797	133,256
Total comprehensive income/(expense) for the period
Loss/(profit) for the period		-	-	(1,725)	1,946	221
Other comprehensive income for the period		-	1,478	-	-	1,478
Total comprehensive income/(expense) for the period		-	1,478	(1,725)	1,946	1,699
Transactions with owners
Cash dividends	6	-	-	-	(250)	(250)
Scrip dividends	6	987	-	-	(987)	-
Share issue costs		(78)	-	-	-	(78)
Share buyback	20	(9,553)	-	-	-	(9,553)
Share buyback costs		(49)	-	-	-	(49)
Total transactions with owners		(8,693)	-	-	(1,237)	(9,930)
At 30 September 2022		59,550	677	42,292	22,506	125,025

 

For the six months ended 30 September 2021 (unaudited)	Notes	Special reserve £'000	Translation reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total equity £'000
At 1 April 2021		66,655	(677)	38,295	21,803	126,076
Total comprehensive income/(expense) for the period
Profit/(loss) for the period		-	-	(273)	1,812	1,539
Other comprehensive income for the period		-	361	-	-	361
Total comprehensive income/(expense) for the period		-	361	(273)	1,812	1,900
Transactions with owners
Cash dividends	6	-	-	-	(219)	(219)
Scrip dividends	6	998	-	-	(998)	-
Share issue costs		(21)	-	-	-	(21)
Share buyback	20	(150)	-	-	-	(150)
Share buyback costs		(1)	-	-	-	(1)
Total transactions with owners		826	-	-	(1,217)	(391)
At 30 September 2021		67,481	(316)	38,022	22,398	127,585

 

The accompanying notes form an integral part of these financial statements.