Dividend, NAV, Trading and Business Update

24 April 2020

Alternative Income REIT PLC

(the "Company" or "Group")

DIVIDEND, NAV, TRADING AND BUSINESS UPDATE

The Board of Directors of Alternative Income REIT PLC (ticker: AIRE), the owner of a diversified portfolio of 19 UK commercial property assets let on long leases, today provides a trading and business update.

 

The COVID-19 pandemic continues to create global uncertainty, but the Board believes that the Company is relatively well positioned given its resilient balance sheet, diversified portfolio of long let, index-linked assets that remain fully let, relatively strong rent collection and low recurring annual overhead.

 

The Company's primary focus remains the health, safety and wellbeing of its stakeholders, whilst supporting its tenants and service providers, to ensure that the Company's financial position remains healthy over the medium term and the value of the business is protected.

 

As announced on 25 February 2020, the Company has made changes to its service providers in order to reduce the Company's recurring annual overhead to approximately half of its historic level, the effect of which will start to be realised in the current quarter.  The changes are also expected to enhance service levels. This disciplined and timely approach by the Board leaves the Company better placed to navigate the effects of the COVID-19 pandemic.

 

There has been good progress in reorganising the Group's advisors and service providers, supporting the Board's ambition to deliver a fully cash covered dividend, but it remains mindful that shareholders expect to see strategic progress, notably the delivery of scale while maintaining investment discipline.  Accordingly, the Board continues to consider strategic options to expand the Company, including the potential appointment of a Manager who would introduce new assets to the Group's portfolio, and to deliver further shareholder value.  The Board will update shareholders in due course.

 

Dividend

Given the current uncertainty over the economic impact and duration of the COVID-19 pandemic, the Board draws comfort from the Company's high quality portfolio, strong financial position, the recent rent collection levels and diverse tenant base, and it expects the Company to continue paying an attractive quarterly dividend even if a prolonged economic downturn results in some potential impairment from the Company's previously announced aggregate dividend target of 5.5 pence/share for the year ending 30 June 2020¹.

 

The Board will continue to monitor the dividend position and keep shareholders and wider stakeholders updated as the situation evolves.

 

EPRA Earnings per Share, Valuation and Net Asset Value

Unaudited EPRA earnings per share ("EPRA EPS") for the quarter ended 31 March 2020 decreased by 16.7% to 1.268 pence per share, which represents dividend cover for the quarter of 92.2% (quarter to 31 December 2019: 1.523 pence per share, 110.8% cover).

 

The EPRA EPS includes an accrual to reflect the minimum contracted uplifts under the Group's leases and an adjustment for the non-cash amortisation of loan arrangement fees. Excluding these adjustments from EPRA EPS, the unaudited cash earnings were 0.946 pence per share, reflecting 68.8% cash dividend cover for the quarter (quarter ended 31 December 2019: 1.201 pence per share, 87.3% cash dividend cover).

 

As at 31 March 2020, the independent fair valuation undertaken by Knight Frank of the Company's property portfolio was £108.78 million (31 December 2019: £112.99 million), reflecting a 3.73% reduction, and the yield on the portfolio was 5.27% (31 December 2019: 5.04%).

 

The Company's unaudited net asset value ("NAV") was £70.86 million, 88.024 pence per share as at 31 March 2020, which takes account of the above valuation (31 December 2019: £76.17 million, 94.627 pence per share). See table below for NAV movement during the quarter.

 

Rent collection

As at the date of this announcement, the Group confirms that it had received 82% of the rents which were due on the March 2020 rent quarter day in respect of forthcoming quarter, which represents 64% of the Group total rent roll. The remainder of the rents remain due as the collection dates fall outside of the usual English quarter days. The rents due to the Company do not include the rents from Meridian Steel Limited, whose rent free period ends from the June 2020 rent quarter day.

 

Despite having fundamentally sound business models, some of the Group's tenants are experiencing unprecedented short term disruption to their operations, which is impacting their near term cash flows. Where realistic, the Group is providing proportional assistance to those tenants whose operations are being materially impacted, whilst protecting its own position and its responsibility to shareholders.

 

The Company is in discussion with tenants (who represent 39% of the rent roll) which include conversions to monthly or payments in arrears or deferral and stage repayments over defined periods. The Company will treat each case on its individual merit.

 

Covenant headroom and liquidity

The Group's £41 million fixed interest loan facility with Canada Life Investments has been fully drawn since January 2019 and at 31 March 2020 the Group's gearing measured by its loan to Gross Asset Value ratio ("LTV") was 37.7%. The Group has headroom both on its LTV and interest cover tests; the rental income and asset valuations of the 17 properties secured to Canada Life would need to fall by 32% and 31% respectively before testing the loan covenants.

 

The weighted average interest cost of the Group's facility is 3.19% and the facility is repayable on 20 October 2025. The Company's medium term target for its LTV is 30%.

 

As at 31 March 2020, the Group had £4.35 million of cash (31 December 2019: £4.75 million).

 

Diversified portfolio, fully let predominantly on long, index-linked, leases

The Group owns a diversified portfolio of 19 UK commercial property assets that are fully let, with a weighted average unexpired lease term ("WAULT") of 19.75 years (31 December 2019: 20.0 years) to the earlier of break and expiry and 21.85 years to expiry.

 

90% of the portfolio's income stream is reviewed periodically, on an upward only basis, in line with inflation; with 69% and 21% of the portfolio indexed (subject to floors and caps) to RPI and CPI respectively and none of the rents are pegged to the tenant's turnover or trading volumes.

 

The sector weightings, by value, of the Company's property portfolio as at 31 March 2020 were: Industrials 20.1%; Hotels 19.7%; Residential care homes 16.8%; Car showrooms 13.1%; Student accommodation 11.2%; Leisure 8.4%; Power station 4.7%; Petrol station 4.1%; and Nursery 1.9%.

 

Analysis of Movement in NAV

As at 31 March 2020, the Group owned 19 investment properties with a fair value of £108.78 million.

 

Movement during the quarter	Pence per share	£ million
NAV at 31 December 2019	94.627	76.17
Valuation change in property portfolio*	(6.496)	(5.23)
Income earned for the period	2.163	1.74
Expenses for the period	(0.456)	(0.36)
Net finance costs for the period	(0.439)	(0.35)
Interim dividend paid in respect of the quarter ended 31 December 2019	(1.375)	(1.11)
NAV at 31 March 2020	80.024	70.86

 

*    The quarter's reduction in the independent fair valuation of £4.21 million was increased by a provision for capital expenditure of £0.73 million and the quarter's increase of £0.29 million to reflect the minimum contracted rental uplifts and the rent free period on the Meridian Steel Limited leases.

The NAV attributable to the ordinary shares has been calculated under International Financial Reporting Standards as adopted by the European Union and incorporates both the Group's property portfolio individually valued on a 'Red Book' valuation basis as at 31 March 2020 and net income for the quarter, but does not include a provision for an interim dividend for the quarter ended 31 March 2020.

 

The income earned for the period includes an accrual for the minimum contractual uplifts defined within the index linked leases. In the event that inflation is greater than these minimum contractual uplifts, the actual income will be greater than that currently accrued.

 

ENQUIRIES

Alternative Income REIT PLC
Steve Smith - Chairman	via Maitland/AMO below
Maitland/AMO (Communications Adviser)
James Benjamin	[email protected] +44(0) 20 7379 5151
Cenkos
Will Rogers	[email protected] +44(0) 20 7397 1920
Rob Naylor	[email protected] +44(0) 20 7397 1922

 

The Company's LEI is 213800MPBIJS12Q88F71.

 

Further information on Alternative Income REIT plc is available at www.alternativeincomereit.com²

 

About the Group

Alternative Income REIT PLC aims to generate a sustainable, secure and attractive income return for shareholders from a diversified portfolio of UK property investments, predominately in alternative and specialist sectors. The majority of the assets in the Group's portfolio are let on long leases which contain inflation linked rent review provisions, which help to underpin income distributions to shareholders with the potential for income and capital growth.

 

Notes

1      Investors should note that any dividend targets are for illustrative purposes only, based on current market conditions and is not intended to be, and should not be taken as, a profit forecast or estimate. Actual returns cannot be predicted and may differ materially from this illustrative figure. There can be no assurance that the target will be met or that any dividend or total return will be achieved.

2    Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website or any other website, is incorporated into, or forms part of, this announcement nor, unless previously published on a Regulatory Information Service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.