Alpha Real Share Discussion Threads

[scburbs] 30/1/2015 08:40

My initial purchases were made based on a prudent assumption that the Indian asset was worthless and the Spanish H2O asset.

It looks like both may be provide good value. Spanish GDP and retail sales going very well.

With potential good value in these two assets ARTL looks even cheaper.

"Spain's Surging Growth Figures Make It Europe's Star Performer

Spanish GDP grew 2% in the year to Q4 2014, up 0.7% quarter on quarter."

hxxp://uk.businessinsider.com/spanish-gdp-growth-q4-20-2015-1?r=US

[skyship] 29/1/2015 10:03

An appeal costs - presumably. So hopefully they will throw in the towel and just try to negotiate terms...

[scburbs] 29/1/2015 09:02

Excellent result. Good to see some security for the award, but still to see how quickly this award can be converted into cash especially given they can still appeal.

[cwa1] 29/1/2015 08:53

Well, that was better than bad news :-) Always assuming it is collectable.....

[skyship] 29/1/2015 07:41

Galaxia: Successful arbitration - now need to get our hands on the cash...

[skyship] 13/1/2015 12:04

Scburbs - Thnx for all that; would hope to hear some confirmations soon if that is their usual habit...or might they wait a routine IMS or Interim/Final report...off to take a look at likely dates for those!

EDIT: IMSs mid-Feb & mid-Aug. Interims Dec; Finals Jun.

[scburbs] 13/1/2015 10:41

Various bits of news should be imminent (all expected in December).

1. Completion of AURE refinancing (and AURE 30 September results).

"Post period end, ART has agreed to refinance its loans to AURE, which mature in November 2014. New loan documentation is currently being prepared. As part of a larger refinancing of AURE's loan facilities, in which £2.3 million will be repaid to ART, ART will provide a new mezzanine loan facility of £10.3 million for a two year term expiring November 2016. The loan will have a coupon of 9% per annum plus an upfront fee of 1% and an exit fee of 1%; additionally, a 2% fee will apply should the facility not be repaid within the first year."

2. Stratford disposal releasing c.£2.7m from Business Centre Properties Ltd.

"The Stratford property is under offer, with completion expected in December 2014."

3. Indian arbitration, value unknown, in books at £4.5m.

"On 2 February 2011, ART recommenced arbitration proceedings against its development partner Logix Group in order to protect its Galaxia investment.

Both sides presented further summary closing submissions during the reporting period and the arbitration panel is expected to announce a verdict by the end of December 2014.

Notwithstanding the above, the Company is continuing to explore avenues for a sale of the development site."

4. Completion of Europip refinance

"Post period end, ART has agreed to extend its current loan facility to Europip, amounting to £4.3 million (following a repayment made in October 2014), for a period of two years, expiring in November 2016. Documentation is currently being prepared. The new loan will be on substantially the same terms as the current facility and will have a coupon of 9% per annum plus an upfront fee of 1% and an exit fee of 1%; additionally, a 2% fee will apply should the facility not be repaid within 12 months."

[skyship] 06/12/2014 15:22

Belatedly bought a few at 53.33p avge. I went on as someone was scooping the available stock - 37.5k @ 52.74p; and thereafter had to play catch-up in 5k lots!

Under-allocated, but the price got away from me...

Incidentally, these went XD on Thursday:

"In line with its aim to pay dividends quarterly, the Board announces a dividend of 0.525 pence per share which is expected to be paid on 19 December 2014 (Ex dividend date 4 December 2014 and record date 5 December 2014)."

[cwa1] 21/11/2014 14:59

Thanks for the input scburbs, appreciated.

[scburbs] 21/11/2014 14:53

Stready progress (not what you normally associated with a company trading at over 50% discount to NAV). Continues to look heavily undervalued.

AURE set to repay £2.3m and refinance £10.3m for 2 years at 9% plus 1% p.a. of fees. Intention appears to be to repay loan in 1 year as there is an extra 2% fee if not repaid in 1 year, so looks like the equivalent of 11% p.a.

"Post period end, ART has agreed to refinance its loans to AURE, which mature in November 2014. New loan documentation is currently being prepared. As part of a larger refinancing of AURE's loan facilities, in which £2.3 million will be repaid to ART, ART will provide a new mezzanine loan facility of £10.3 million for a two year term expiring November 2016. The loan will have a coupon of 9% per annum plus an upfront fee of 1% and an exit fee of 1%; additionally, a 2% fee will apply should the facility not be repaid within the first year."

Europip loan extended on same terms as AURE. This is very attractive pricing as only goes up to 72.4% LTV.

"Post period end, ART has agreed to extend its current loan facility to Europip, amounting to £4.3 million (following a repayment made in October 2014), for a period of two years, expiring in November 2016. Documentation is currently being prepared. The new loan will be on substantially the same terms as the current facility and will have a coupon of 9% per annum plus an upfront fee of 1% and an exit fee of 1%; additionally, a 2% fee will apply should the facility not be repaid within 12 months."

Business Centre Properties value of £2.7m hopefully to be realised in December 2014.

"The Stratford property is under offer, with completion expected in December 2014."

Galaxia value of £4.5m hopefully to be decided in arbitration by end of the year.

"Both sides presented further summary closing submissions during the reporting period and the arbitration panel is expected to announce a verdict by the end of December 2014."

Positive signs starting to emerge for H2O shopping centre, although still very highly geared.

"Demand from occupiers across the Company´s investment markets is showing signs of improvement. This is evident in ART´s UK investments such as IMPT and AURE and at the H2O shopping centre in Spain. Whilst occupier demand and leasing activity has increased, rental growth remains subdued outside prime sectors. However, value increases witnessed over a broader range of assets, suggest that investors are of the opinion that rental growth prospects are improving.

The change in investor sentiment towards the Spanish real estate market has continued but the market continues to remain polarised. Investment activity in the prime asset category has increased and pricing has rebounded as such assets are being more closely benchmarked against prime assets in other markets where a recovery is more advanced. In a number of markets this has progressed to edge-of-prime assets also. Activity in the distressed asset segment of the market has also increased as investors seek to purchase at deep discounts, often wholly through equity. This increase in investor liquidity is now expected to spread to core assets in the centre ground, which is expected to benefit the Company´s H2O investment."

[scburbs] 10/11/2014 13:36

Solid update from IMPT, slight increase in property values reducing LTV of the ARTL 15% loan and improving occupancy reducing interest paid out of cash rather than earnings.

"the Group's property portfolio was valued at £79.3 million as at 30 September 2014 (£78.1 million as at 30 June 2014), an increase of £1.2 million (+1.5%).

...

the occupancy level by estimated rental value stood at 87.6% as at 30 September 2014, compared with 86.2% as at 30 June 2014, an increase of 1.4%."

[cwa1] 24/9/2014 12:44

Stake increase:-

[bisiboy] 20/9/2014 18:59

a very good summary scburbs.
it is almost exactly how i looked at it before taking position.
there is a seller around though but not sure or why.

[scburbs] 04/9/2014 15:37

AUMP Q2 results out with property valuations up from £40.7m at 31 March to £43.7m 30 June, giving a 7.3% increase in just 3 months.

This is materially derisking the ARTL £12.7m investment. With the bank LTV down to 41.16%, the ARTL investment is now from here to around 70% LTV. A loan of 9-10% which only goes to 70% LTV in an improving borrower is probably worth par.

hxxp://www.alphaukrealestatefund.com/uploads/docs/factsheets/2014-Q2%20AURE%20Fact%20Sheet.pdf

[cwa1] 03/9/2014 16:47

Afternoon All

Many thanks for the posts on Alpha scburbs and HE, an intriguing proposition. Looks to be a decent balance between risk and reward IMVHO, so I've just taken a punt on a few at 53.25p. Got filled with all I wanted very easily, so that probably suggests there is a weak holder/plenty of stock out there! Anyway, one for the bottom drawer for now and to dust down from time to time to see how it is faring on any news. Cheers

[scburbs] 03/9/2014 08:05

HE,

I was aiming for a prudent assessment of the company so the valuations I applied would probably be on the low side.

Good point on H20 income return. I am a bit wary of the percentages quoted for the equity investments as some of them indicate earnings yield (mainly Europip) which means the income is undistributed (i.e. still at risk of going to the lending bank). However, the H20 does not indicate that it is an earnings yield. Clearly this asset has massive upside compared to my valuation!

I saw Indian arbitration and immediately added on a 100% discount. I have not yet had time to look at the background here. As I understand it a decision is imminent.

[horndean eagle] 02/9/2014 20:36

Good summary. A few things worth pointing out:-

h2o - The interest rate on the borrowings are very low. It generates substantial free cash flow. No covenants. ARTL are collecting 9% income on their equity. Over next 3 years they will therefore collect at least circa 30% of their investment back in interest. The asset is high quality and modern. Designed by team that designed Bluewater.

Indian arbitration shouldn't be in at nil. Arbitration has been through Singapore and will be binding. Other party is very good for this amount if they get the verdict. IIRC the amount they are claiming is as a result of a put option. Land still exists but its just not worth what the put option entitled ARTL to.

AURE is performing very well and there is a strong chance that they refinance elsewhere and ARTL get their cash back.

IMPT shouldn't need discounting. Plenty of padding with LTV to ensure the loan is good. Equity might be a different story unless they make a few more disposals.

They have been looking to deploy cash into higher yielding investments. So far without joy. Once they do recurring income will be much higher. If they return 6-8% a year off nav then effectively getting earnings yield of 12-16% with bonus of huge discount to NAV. Investment manager has large holding here. Aligned with holders.

[scburbs] 01/9/2014 22:00

ARTL is at 54.5p vs NAV of 107.2p for a 49% discount to NAV. It is up a mere 13% from its recent low point in 2013 despite the recent strength of UK commercial property.

The mix (debt and equity) is 58.3% UK property, 16.7% Spanish property, 12.7% Norwegian property, 5.7% Indian property and 6.6% cash.

Freehold Income Authorised Fund is £13.1m of strongly performing inflation proofed open ended ungeared ground rent fund. Must be worth £13.1m.

H20 shopping centre in Madrid suburb is at 85% LTV so whilst in the books at £12.8m probably prudent to value at nil.

Alpha UK Real Estate Fund loans total £12.7m and yield around 9-10% with maturity due November 2014. This represents around 73% LTV and whilst the fund has struggled with income performance is now improving. Void rate has fallen from 31.8% at 30 September 2013 to 21.8% at June 2014, valuations also now rising. Results due any day for 30 June quarter, but with the upwards trend this looks close to worth par value, let say 90% or £11.4m. I expect the loans will be extended come November 2014, although may be part repaid.

hxxp://www.alphaukrealestatefund.com/

Industrial Multi UK Property Trust (EPIC: IMPT) loans are £11.8m at 15%. The high interest rate reflects that they go from 69% to 83% LTV. There is also another slice of mezz debt (at 11%) before the ARTL slice. Valuations has stabilised and income is set to rise, but still the total interest is not covered (about 10% of the 15% is covered by cashflow). With the high LTV a discount is appropriate, but the higher risk is recognised with the 15% interest rate, so lets say 20% discount, giving £9.5m.

hxxp://www.industrialmultipropertytrust.com/

Europip is a Norwegian property fund where ARTL has loans of £5m at 9% and equity of £4.4m. Loan is well covered (LTV up to 73%) so should be valued at least at par whereas equity (9% yield) should be discount by perhaps 20% giving a combined £8.5m.

Cash is £5.1m.

Other investments include an Indian investment worth £4.4m which is in arbitration and I would value at nil and an equity investment in IMPT which I would also value at nil (albeit it is listed and trades above nil).

There is £4.8m of investment in UK property in disposal process where assets with value are ungeared. I would value this at £4.4m for a discount just under 10%. There is also Cambourne Business Park at 50% LTV and providing a 12.9% IRR for the minority equity stake. This should be worth its NAV of £1.2m

Total valuation £53.2m or 74p. This is a 35% premium to the share price based on some fairly prudent valuations. The share also has a dividend yield of just under 4% (2.1p) to provide some value whilst I await the rerating.

Main risk is the fact that Alpha Real Capital manage all the underlying investments. This is somewhat balanced by the fact that the c.31% holding they have in ARTL makes it their most valuable asset so they will keenly protect value. There is a high 2% NAV fee, although there is reference to fee rebates to avoid double charging, but the size of the rebates is unclear.

Looks like it is worth a moderate investment having been left behind whilst other property investments have rerated.

[scburbs] 01/9/2014 18:28

First asset to look at is H20. This is the largest risky asset at 16.7% of NAV.

A shopping centre in a Madrid suburb completed in June 2007 and bought by Alpha in April 2010 for €83.3m + €5m capital expenditure obligation with €75m funded by a 7 year bank loan.

In 2012 occupancy was 90%. In 2013 it fell to 88.8%, but added a big Nike store and there were law changes permitting Sunday opening. In 2014 it fell to 86.5%.

The bank debt runs to October 2017 so 3 years left which gives a bit of time for Spanish recovery to take hold. However, with the LTV at around 85% the asset is not refinanceable. If they were to try and sell it could they achieve the current valuation? A discount of 15% on current valuation would see the ARTL equity wiped out.

As part of assessing whether ARTL is good value the only sensible adjustment is to value this investment at nil due to the high leverage/risk whilst noting there could be some very good upside if Spanish economy is starting a prolonged period of growth.

[scburbs] 01/9/2014 11:40

I like the look of these, given the huge discount and the fact they do provide quarterly dividends (c.4% p.a.).

Freehold Income Authorised Fund is a solid inflation proofed low risk ground rent investment with no gearing. This gives them 23.7% of the fund which shouldn't really trade at a discount.

With them trading at around 50% of NAV, this leaves the other 72.7% of the investments valued at around a 64% discount.

I agree with previous comments that discount looks too high. Particularly with valuations having stablised and started to improve (with vacancy levels reducing) in the two UK funds they are invested in or mezz lender to.

I will post a more detailed analysis later.

One key issue seems to be fees. A fee of 2% of NAV seems high for a mezz/preferred equity provider as well as high for parking surplus liquidity in a ground rent fund. There is reference to rebate being obtained due to the underlying funds being managed by Alpha Real Capital LLP group which could make this less of an issue. However, at £1.7m the investment managers fee being reported is just over 2% of NAV. Does anyone know where these rebates are shown?

[russman] 22/6/2014 14:30

KPI's were not wildly exciting. It is a high risk portfolio but the discount appears to be too large.

[russman] 04/5/2014 16:49

Why is there no dividend yield showing? I am getting a divi.

[sladdjo] 03/1/2014 09:53

I think that this looks good value. Bit confusing with mgmt. taking fees and investing ARTL in other funds where the same mgmt. takes fees, but invested funds rebate fees to ARTL so only paying one set of fees and Alpha Real Estate owns a large part of ARTL, so unlikely to hurt their own investment.

As Spain continues to improve, its likely that the Spanish shopping centre will increase its occupancy rates and rents, which should all flow through to the bottom line for ARTL.

Finally, ARTL has a bit less than 40% in cash/FIAF, which they are looking to reinvest in higher yielding assets. If they are able to reinvest the assets at 8 to 10% return, then the dividend will also likely be significantly increased and the market could rerate the shares accordingly. All IMHO and DYOR.

[colonel a] 03/10/2013 08:45

Yes, I'm tempted to go further with ERET as the discount has not narrowed as much as I would have expected.
I looked at LSR {possibly missed the boat} but was bothered by the high LTV and the swaps.
I do not agree with the view that negative value in swaps can be discounted.
Look at SREI - a great success story but the swap value had to be crystallized to achieve it.

But do recognize that the high gearing could do very well for LSR if there is a respectable pick up in commercial property.

[profitaker] 03/10/2013 08:13

Colonel

Well done with ERET ! I'm sure there'e another good 50p to come in the not too distant future, more in the long term.

Have you had a look at LSR ? UK prop company liquidating itself with a good discount to NAV.