Active UK Real Estate deal pays off for Alpha Real

Alpha Real Trust’s results for the year ended 31 March 2016 show its NAV climbing from 113.2p to 137.9p (up 21.8%), a small fall in adjusted earnings per share from 7.5p to 7.0p and an increase in the dividend from 2.1p to 2.4p.

In September 2015 Alpha Real Trust acquired 20.5% of the share capital and voting rights in the Active UK Real Estate Fund (“AURE”). This provides Alpha Real Trust with an increased allocation to the high yielding UK commercial real estate sector which is attracting greater investor interest as a result of improving underlying occupier demand, potential for rental growth and a search for higher yielding returns. The consideration paid for the shares was GBP3.2 million and, based upon the most recent published NAV of AURE (as at 31 March 2016), the company’s investment in AURE is valued at GBP4.0 million (a 24.0% uplift since acquisition).  Prior to the purchase, Alpha Real Trust held no AURE shares but did, and continues to, provide mezzanine finance to the fund. The Alpha Real Trust mezzanine loan balance as at 31 March 2016 was GBP9.8 million, inclusive of accrued interest.

During the year, Alpha Real Trust acquired residential sites located in central Leeds and central Birmingham which will be developed for the private rented sector. The acquisitions in Birmingham and Leeds offer scope to create resilient equity income returns at an attractive yield on cost and assist in building a portfolio of critical mass to afford participation in a maturing market which is attracting greater institutional participation. The investments provide the company with flexibility to add value by either construction funded with debt or contractor finance and subsequently holding the completed asset as an investment or an ability to forward sell all or some of the developed units. Separate design and development teams are being selected for each site based on experience in the private rented sector and in each local market.

In February 2016, Alpha Real Trust announced that it had entered a purchase agreement to acquire the long leasehold interest in a central Scotland site with full planning consent and grid connection for the installation of a wood fired Combined Heat and Power (“CHP”) biomass energy plant at Acharn, Killin, Perthshire. Drawing on the experience of the Investment Manager’s capabilities, the acquisition targets the increasing growth opportunities identified in the renewable energy sector which benefit from long term secure and predictable inflation-linked income streams substantially supported by government backed Renewable Heat Incentive and Renewable Obligation support mechanisms.

The company’s GBP2.5 million purchase (including costs) of the interest in the Acharn site of 6 hectares (15 acres) will be funded from existing cash reserves. To date GBP1.5 million has been invested. The 6MWe CHP project has a potential gross development value in the region of GBP30.0 million, and on completion the ability to deliver strong cashflows.

Alpha Real Trust is in advanced discussions with capital partners on co-financing options for the construction cost of the CHP plant. In parallel, the main construction and maintenance contracts with attached performance guarantees are being advanced.

In Spain, the H2O shopping centre investment in Madrid attracted record visitor numbers in 2015 and the first quarter of 2016 has surpassed the comparable period in 2015. Like-for-like tenant sales growth has also improved strongly. It is pleasing to note that Alpha Real Trust’s strategy of orientating H2O as a family friendly centre with a diverse leisure offer is resonating with customers. Since the start of 2016, nine new brands have been signed including fashion, services and restaurant operators and an encouraging leasing pipeline is identified.

Underlying asset value increases have been reported within the company’s Industrial Multi Property Trust plc (“IMPT”) investment, with new leasing and lease renewals equating to 15.0% of ERV undertaken in the first half of the year. Net asset value increases were recorded in both the IMPT and AURE portfolios during the period.

Their investment in Freehold Investment Authorised Fund (“FIAF”), that holds a diversified ground rent portfolio, continues to generate high risk-adjusted returns and stable cashflows which assist the Company’s earnings position whilst offering monthly liquidity. In its latest trading update, FIAF announced a total return of 9.8% for the year ended March 2016, including an income return of 5.5%.

ARTL : Active UK Real Estate deal pays off for Alpha Real