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Investor discussions for Alternative Income REIT Plc (AIRE) in the week of February 8 to February 15, 2025, highlighted notable developments regarding the company's financial outlook in light of macroeconomic factors. A key insight shared on ADVFN emphasized the Bank of England's revised inflation forecasts, which now expect the Consumer Price Index (CPI) to peak at 3.7% this year and not return to the 2% target until 2028. This adjustment was perceived positively, suggesting a potential enhancement in dividend coverage forecasts for AIRE over the next couple of years, thus instilling a sense of optimism among investors regarding the sustainability of dividends.
Overall investor sentiment appeared cautiously optimistic, with discussions revolving around how the altered inflation projections could bolster financial stability for AIRE, especially in terms of their dividend payments. Comments like, “At the margin, that must help the dividend coverage forecasts for the next couple of years,” captured a hopeful tone, indicating that investors are factoring in these broader economic changes when assessing the stock’s future performance. Such dialogues signify a growing confidence in the REIT's ability to navigate the current economic landscape while maintaining attractive returns for shareholders.
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Alternative Income REIT PLC (AIRE) has announced its financial results and updates for the quarter ending December 31, 2024. The company declared an interim dividend of 1.55 pence per share, contributing to a target annual dividend of 6.2 pence per share for the fiscal year ending June 30, 2025. This represents a notable increase of 5.1% over last year’s target of 5.9 pence. The dividend cover for the quarter stands at a robust 110.3%, indicating healthy earnings relative to the dividends being paid out.
In terms of performance, AIRE reported an unaudited net asset value (NAV) total return of 2.7% for the quarter, signifying a resilient portfolio. The company's strategy of focusing on UK commercial properties with long lease agreements and index-linked rent reviews positions it well for ongoing returns and potential capital growth, thereby enhancing its appeal to investors seeking stable income amid market fluctuations.
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BOE increased inflation forecasts on Thu - CPI now expected to peak at 3.7% this year, and not return to 2% target until 2028. |
Tring adds 175k to rent roll of 7.7M (FY24) plus c1/3rd of portfolio getting a 2.5% RPI rise is c7.9m rent roll currently (I asked AIRE for an update they said it will be released in HY report!). Op costs are 1.2m and finance costs of 1.3m which leaves the 5m divi covered. A replacement loan is going to be 5.75-6% based on latest 5yr swap and 1.5% margin. They do have a bit of spare cash so lets assume they reduce loan to 40m that adds 0.8-0.9m to interest bill. So current divi will be 0.6-0.7m uncovered which will reduce over time. As I said early they have 50% of the portfolio on 5yr reviews so depending when they fall (not detailed on each asset in AR's) coverage could be far closer as even though most are on 4% annual caps that could easily add c15% to existing passing rents. Of course AIRE will have this knowledge so thats why they increased the divi despite the imminent refi. |
Indeed. The arguments regarding non-full dividend coverage have generally proven to be false. In fact, given that the rate rises since the lows of 2020-2 have been so rapid, and we are seeing dividend projections at around 0.95x coverage suggests the leverages are just about tolerable. |
The thing about AIRE is that, because their rent increases are baked into the leases, their forward income is pretty predictable. I'm sure the company has a much more detailed forward projection of net income than we have and therefore will have a good handle on how dividend coverage will pan out in the next few years. If they didn't think they could handle it, why would they increase it? The impact of raising a dividend then cutting it on the share price would be worse than just holding it. Since 2020 the dividend and coverage has been (excluding the 2023 0.345p relating a historic legal case) |
A dose of stemis-plaining doesn't alter what are straightforward sums. The finance cost is about to jump as loan interest roughly doubles at a stroke. Pretty simple, the distributable income drops by around 0.4p per quarter. The fact that it has been squeezing up in the meantime is irrelevant. |
Excellent analysis, thanks. |
Let me explain how it works. |
Because of its size it has the chance of an RTO or similar |
That loan is a burning platform here and I knew that when I bought in a few years back expecting rates to have dropped back but they haven't. Im sure they will get it refid but going to be c6% vs 3.19% today so finance costs will be doubled. Rent increases accrued over last couple of years aren't going to cover that so divi looks vulnerable here. Haven't got time now to check but they do have some properties that are on 5yr reviews which if they are due near term may help close the gap. |
I do not, they have been very careful with the wording. |
You don't think the board took account of the refinancing when it decided to increase the dividend? |
Yes. I reckon by 1.5-2.0p |
Therefore with an increased interest payment the dividend will fall ? |
The amount a REIT must pay as a PID is determined by reference to its tax exempt property profits as determined by the REIT regulations. |
But what happens when they have to refinance the loan ? |
"The Company continues to pay a fully covered dividend in line with the 2025 annual dividend target of 6.2pps†. The dividend cover for the quarter was 110.3%. The annual dividend target of 6.2pps is an increase of 5.1% over the previous year's dividend of 5.9pps. The target is subject to the continued collection of rent from the Group's portfolio as it falls due. |
Took them a long time to reinvest. I agree 6.5% is no bargain but you have to look at the sitting tenant since 1976, inflation linked (capped of course) rent reviews and the tenure. a very stable bet I would say |
6.5% NIY bit low imv but guess it will be a stable asset looking at the lessor |
Quite right nickrl this is a trap, luring punters in on a rising dividend which they know will have to be cut. My guess is the cost of borrowing, which needs to be refinanced within the next six months or AIRE becomes a questionable going concern, will double up from the current 3.2% average. AIRE are a small player under pressure and unlikely to be able to agree terms better than base + 2%. |
Good to see annualised NRI continuing to increase modestly each qtr which does support the slight rise in divi forecast. However, the elephant in the room is with less than a year to go on refi thety are going to be faced with quite a step up on finance charges from current 3.2% to 5-5.5% currently or worse after adverse reaction from gilts yesterday. I would have rather they held back on any divi increase until that refi was boxed off as cutting the divi now ill have an adverse reaction to share price As a result i will hold and not top up further here until I know whats happened on refi. |
Great to hold for the dividend and the capital gain is nice too. |
ASLI had a good finish to the week - moving up to 62.5p. Still good value. |
I'm sure many of you guys will have IHR. It would have been tempting six months ago but like CREI has also gained 10p since. Still looks good value, it might have further to go, worth watching. Care homes have more sectoral operator risk than leading supermarkets though, so for now I will focus on SUPR. |
Type | Ordinary Share |
Share ISIN | GB00BDVK7088 |
Sector | Real Estate Investment Trust |
Bid Price | 68.00 |
Offer Price | 71.00 |
Open | 70.00 |
Shares Traded | 60,445 |
Last Trade | 10:07:21 |
Low - High | 69.00 - 70.00 |
Turnover | 7.9M |
Profit | 2.36M |
EPS - Basic | 0.0293 |
PE Ratio | 23.72 |
Market Cap | 58.44M |
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