Alpha Real Trust Limited Trading Update and Dividend Announcement (4191Q)

TIDMARTL

RNS Number : 4191Q

Alpha Real Trust Limited

26 February 2021

LEI: 213800BMY95CP6CYXK69

26 February 2021

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

TRADING UPDATE and dividend announcement

ART today publishes its trading update for the period ended 31 December 2020 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 31 December 2020, excluding sundry assets/liabilities, was as follows:

 
                                   31 December   30 September 
                                          2020           2020 
 
 High return debt                        25.4%          29.4% 
 High return equity in property 
  investments                            20.3%          21.0% 
 Other investments                        0.6%           0.6% 
 Cash                                    53.7%          49.0% 
 

The Company currently plans to invest the majority of its cash into secured senior or secured mezzanine debt in due course, subject to how the Covid-19 situation unfolds.

The Company's Investment Manager is Alpha Real Capital LLP ("ARC").

Highlights

   --      NAV per ordinary share 209.3p as at 31 December 2020 (30 September 2020: 211.1p). 

-- Adjusted earnings for the period ended 31 December 2020 of 2.3p per ordinary share (30 September 2020: 1.6p per ordinary share).

-- For the period ended 31 December 2020 basic losses of 1.5p per ordinary share (30 September 2020: losses of 1.3p per ordinary share).

-- Declaration of a quarterly dividend of 1.0p per ordinary share expected to be paid on 9 April 2021.

-- Robust financial position: a cautious approach to new investment is being taken and cash conserved.

-- Diversified portfolio of secured senior and secured mezzanine loan investments; as at 31 December 2020, the size of ART's secured loan portfolio was GBP32.1 million, representing 25.4% of the investment portfolio. The senior portfolio has an average LTV of 59.9% based on loan commitments (with mezzanine loans having an LTV range of between 54.8% and 78.7% whilst the highest approved senior loan LTV is 75.7%).

Investment summary

   Portfolio overview   as at 31 December 2020 
 
Investment name 
Investment          Carrying     Income   Investment  Property type        Investment notes      % of 
 type                value        return   location    / underlying                               portfolio(1) 
                                  p.a.                 security 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
High return debt (25.4%) 
-----------------------------------------------------------------------------------------------  ------------- 
Secured senior 
 finance 
                                                                           Senior secured 
Senior secured                                                              debt 
 loans (excluding                                     Diversified           (during the 
 committed                                             loan portfolio       period the average 
 but undrawn                                           focussed on          senior facilities 
 facilities                                            real estate          commitments 
 of GBP2.9             GBP12.8m     8.4%               investments          were GBP19.2m 
 million)                   (2)      (3)      UK       and developments     )                            10.1% 
Secured mezzanine finance 
                                                                           Secured mezzanine 
                                                                           debt and 
                                                                           subordinated 
                                                                           debt 
                                                      Diversified          (during the 
                                                       loan portfolio      period the average 
                                                       focussed on         mezzanine facilities 
Second charge                                          real estate         commitments 
 mezzanine             GBP19.3m    14.9%               investments         were GBP19.1m 
 loans                      (2)      (3)      UK       and developments    )                             15.3% 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
High return equity in property investments (20.3%) 
-----------------------------------------------------------------------------------------------  ------------- 
H2O shopping centre 
                                                      Dominant Madrid      30% shareholding; 
                                                       shopping centre      medium term 
                                                       and separate         moderately geared 
Indirect               GBP16.6m     2.5%               development          bank finance 
 property            (EUR18.5m)      (4)    Spain      site                 facility                     13.1% 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
Long leased industrial facility, Hamburg 
                                                      Long leased 
                                                       industrial complex 
                                                       in major European   Long term moderately 
                        GBP7.2m     7.2%               industrial and       geared bank 
Direct property             (5)      (4)   Germany     logistics hub        finance facility              5.8% 
                      (EUR8.1m) 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
Cambourne Business Park 
                                                                           Medium term 
                                                      High-yield business  moderately 
Indirect                           10.2%               park located        geared bank finance 
 property               GBP1.7m      (4)      UK       in Cambridge        facility                       1.4% 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
 Other investments (0.6%) 
-----------------------------------------------------------------------------------------------  ------------- 
Realhousingco 
                                                      High-yield           100% shareholding; 
Residential              GBP0.6                       residential           no external 
 Investment                   m      n/a      UK      UK portfolio          gearing                       0.5% 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
Healthcare & Leisure Property Limited 
Indirect                 GBP0.1                       Leisure property     No external 
 property                     m      n/a      UK       fund                 gearing                       0.1% 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
Cash and short-term investments (53.7%) 
-----------------------------------------------------------------------------------------------  ------------- 
                        GBP67.5     0.1%              'On call' and 
Cash (6)                      m      (7)      UK       current accounts                                  53.7% 
------------------  -----------  -------  ----------  -------------------  --------------------  ------------- 
 
 

(1) Percentage share shown based on NAV excluding the company's sundry assets/liabilities

(2) Including accrued interest/coupon at the balance sheet date

(3) The income returns for high return debt are the annualised actual finance income return over the period shown as a percentage of the average committed

capital over the period

(4) Yield on equity over 12 months to 31 December 2020

(5) Property value including sundry assets/liabilities and cash, net of associated debt

(6) Group cash of GBP68.1m excluding cash held with the Hamburg holding company of GBP0.6m

(7) Weighted average interest earned on call accounts

Further to the half year results announcement on 18 December 2020, the following are key investment updates.

The economic and social impact of Covid-19 continues to severely affect the economic backdrop in which the Company operates. ART's investment portfolio benefits from diversification across geographies, sectors and asset types. We continue to take a cautious approach to new investment, including new lending, as we see how Covid-19 unfolds.

In the period prior to the emergence of Covid-19, the Company had focused on recycling capital into asset backed lending while reducing exposure to development risk. In this time of heightened uncertainty, the Company is benefiting from that strategy and it has placed the Company on a robust financial footing.

Diversified secured lending investment

The Company has a diversified portfolio of secured senior and mezzanine loan investments. The loans are typically secured on real estate investment and development assets with attractive risk adjusted income returns. As at 31 December 2020, ART had committed GBP35.0 million across twenty five loans, of which GBP32.1 million was drawn.

During the quarter to 31 December 2020, nine loans totalling GBP8.3 million (including accrued interest and exit fees) were fully repaid and a further GBP0.3 million (including accrued interest) was received as part repayments. Post period end, two loans were fully repaid for GBP0.9 million (including accrued interest and applicable fees) and a further GBP0.5 million (including accrued interest) was received as part repayments.

As at 31 December 2020, 39.9% of the Company's loan investments were senior loans and 60.1% were mezzanine loans. The portfolio has an average LTV of 59.9% based on loan commitments (with mezzanine loans having an LTV range of between 54.8% and 78.7% whilst the highest approved senior loan LTV is 75.7%). Portfolio loans are underwritten against value for investment loans or gross development value for development loans as relevant and collectively referred to as LTV in this report. The largest individual loan in the portfolio as at 31 December 2020 is a senior loan of GBP3.5 million which represents 10.0% of committed capital and 2.8% of the Company's NAV.

The underlying assets in the loan portfolio as at 31 December 2020 had geographic diversification with a London and South East focus. The South of England (including London) accounted for 68%, of which London accounted for 39%, of the committed capital within the loan investment portfolio.

To date, the Company has experienced no defaults, but the underlying loan portfolio continues to be closely monitored especially considering the Covid-19 pandemic and its potential impact on construction timelines and sales periods. Where it is considered appropriate, on a case by case basis, underlying loan terms may be extended.

H2O, Madrid

ART has a 30% stake in joint venture with CBRE Global Investors in the H2O shopping centre in Madrid. Following the closure of the shopping centre, apart from shops deemed essential services, during March to June 2020 in accordance with a national directive from government of Spain, the centre has since remained open and trading with some restrictions in opening hours applying to leisure related tenants' opening hours

In the period since reopening to 31 December 2020, visitor numbers have reduced by approximately 28%. With the ongoing impact of the Covid-19 pandemic curtailing retailing and leisure activities, a practical approach is being taken with tenants to manage any rent arrears whilst seeking to protect the long-term value of the centre.

Limited new leasing activity was recorded during the period including a new store leased to leading electronics retailer Xiaomi.

Covid-19 will have a significant impact on the earnings of H2O for the current year. The centre's valuation reduced by 2.1% over the reporting period.

Other investments

Galaxia, India

As announced in February 2020, the Supreme Court of India ruled in favour of ART's dispute regarding its Galaxia investment, a 50:50 joint venture with Logix Group ("Logix") that owns an 11.2 acre development site located in NOIDA, the National Capital Region, India.

In upholding the arbitration award in favour of ART and dismissing Logix's appeal, the Supreme Court ordered Logix to pay ART a total of INR 860 million (GBP8.6 million at the period end exchange rate). ART successfully recovered in excess of the full amount of its capital originally invested into the Galaxia joint venture.

The court permitted Logix to sell the Galaxia site, which was previously charged in favour of ART, to raise capital. A purchaser for the site has been identified who, during November 2020, deposited INR 568 million with the Supreme Court towards the INR 990 million sale price.

The potential purchaser is seeking an amendment of development consents and payment obligations in relation to the land. The release of the funds deposited with the Supreme court to ART is dependent on how the sale process advances. Failure to recover the proceeds from a sale would mean that Logix would be required to pay the remainder of the liability due to ART under the court award of INR 568 million (GBP5.7 million) plus a higher interest rate applicable under the arbitration award.

ART continues to actively pursue its claim to collect the balance of the arbitration award. Given the uncertainty about the quantum and timing of any future recovery, the Company carried the joint venture in arbitration in its accounts as at 31 December 2020 at nil value.

Net asset value ('NAV')

As at 31 December 2020, the unaudited NAV per ordinary share of the Company was 209.3p (30 September 2020: NAV of 211.1p).

This reduction is primarily due to the impact of the reduced valuation of the H2O shopping centre joint venture in Madrid.

Dividends

The current intention of the Company is to pay a dividend each quarter.

A dividend of 1.0p per share, for the quarter ended 30 September 2020, was paid on 8 January 2021.

A further dividend of 1.0p per share, for the quarter ended 31 December 2020, is proposed to be paid on 9 April 2021.

The dividends paid and declared for the 12 months to 31 December 2020 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 31 December 2020. 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 19 March 2021 to benefit from the scrip dividend alternative for the next dividend.

Share buybacks

At the Annual General Meeting on 7 August 2020, Shareholders approved a resolution giving the Company a general authority to buy back Ordinary Shares. No shares have been purchased under this authority.

As at the date of this announcement, the ordinary share capital of the Company is 62,746,007 (including 1,940,797 ordinary shares held in treasury) and the total voting rights in the Company are 60,805,210.

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 GBP1:EUR1.114 or GBP1:INR99.662, as appropriate.

Strategy and outlook

Covid-19 and the unprecedented and continuing actions of Governments to lock-down their citizens and shut-down their economies has severely affected the economic backdrop in which the Company operates. ART's investment portfolio benefits from diversification across geographies, sectors and asset types.

Prior to the emergence of Covid-19, the Company had been focussing on recycling capital into asset backed lending while reducing exposure to development risk. In this time of heightened uncertainty, the Company is benefiting from that strategy and it has placed the Company on a robust financial footing.

ART is committed to its disciplined strategy and investment principles which focus on opportunities that can deliver high risk adjusted returns, while seeking to manage risk through a combination of operational controls, diversification and defensive return structures. We are taking a cautious approach to new investment, including new lending, as we see how Covid-19 unfolds. This cautious approach, while conserving cash, is likely to significantly reduce earnings in the current year.

Contact :

Alpha Real Trust Limited

David Jeffreys, Chairman, ART [phone]

Brad Bauman, Joint Fund Manager, ART [phone]

Gordon Smith, Joint Fund Manager, ART [phone]

Panmure Gordon, Broker to the Company

Atholl Tweedie / Joanna Langley [phone]

Computershare, Registrar to the Company

Telephone number [phone]

Email: [e-mail]

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February 26, 2021 02:00 ET (07:00 GMT)