Alternative Income REIT (AIRE) has posted a 3.9% drop in net asset value (NAV) to 80.9p in annual results to 30 June 2024. The fall was primarily due to an outward yield movement in its property portfolio that resulted in a 4.0% reduction in the portfolio value to £102.7m.

NAV total return was 3.5%, while share price total return was 11.6%, resulting in a narrowing of the share price discount to NAV over the year from 23.1% to 18.4%.

Dividends in the year totalled 5.9p, which was in line with the board’s 2024 target annual dividend, but 2.4% below the level in 2023 (6.045p). Adjusted earnings was 6.8% down on the previous year to 5.99p per share (from 6.43p). The company is targeting a dividend this year of 5.9p.

Loan to value increased slightly (due to the fall in portfolio value) to 37.7% (from 36.8%). There is significant headroom on the lender’s loan to value covenant of 60%, while interest cover ratio of 611.3% gives is also well above the covenant of 250%. The £41m loan matures on 20 October 2025 and is fixed at a weighted average interest cost of 3.19%.

Proposed changes to investment policy

The company is proposing some changes to its investment policy comprising of: a reduction in the minimum WAULT of the portfolio from 18 to 10 years; a reduction in the percentage of leases required to be linked to inflation from 85% to 75% of gross passing rent; and a reduction in the requirement for properties to be in non-traditional sectors (and thus in alternative and specialist sectors) from 70% to at least 50%.

The board said that the proposed changes should provide the investment adviser with additional flexibility to invest in attractive opportunities, without changing the company’s core nature and objective.

The changes will be put to shareholders at the company’s upcoming annual general meeting (AGM) on 12 November.

Simon Bennett, non-executive chairman, comments:

“The period under review was characterised by high inflation, low rental growth and rising interest rates. This has proved to be somewhat of a mixed blessing for the Group. From an income standpoint the economic environment has seen our portfolio continuing to perform well, benefitting from long dated and high yielding leases with index-linked rental increases. 96.0% of the portfolio’s income stream is reviewed periodically. In the coming financial year, approximately 46.5% of the Group’s income will be subject to rent reviews, 36.0% as annual index-linked rent reviews and the remaining 10.4% being periodic 5 yearly index-linked rent reviews. During the past financial year, a total of 11 rent reviews took place, which resulted in a combined rental uplift of £0.3 million, which represents a 4.3% increase on contracted rent across the portfolio on a like for like basis.

“On the other hand, the portfolio suffered a relatively modest reduction of £4.3 million, when compared with the Group’s peers (2023: £10.9 million reductions in value) and at 30 June 2024 was valued at £102.7 million (30 June 2023: £107.0 million). 

“I am pleased to report the sale of the Group’s hotel in Glasgow was achieved at a 7.9% premium to its book value as at 30 June 2023 and the acquisition of Virgin Active, Streatham in December 2023 for £5.1 million.

“During this financial year, the Company declared four interim dividends totalling 5.9pps (2023: 6.045pps, which included 0.345pps of non-rental income) which was in line with the previously announced dividend target of 5.9pps (2023: 5.7pps), representing a 3.5% increase on the previous year target. I am pleased to report that these dividends were covered by cash earnings.

“The recent announcement by the Bank of England to reduce interest rates together with the recent fall in inflation, might mark the bottom of the property market. Accordingly, the Board remains confident that the Company is well-positioned for the future, with a resilient portfolio well-placed to continue to provide secure, index-linked income with the potential for capital growth.”