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Real estate

Alternative Income Reit Seeks Relaxation of Investment Criteria for Enhanced Flexibility

Strategic Insights

— 2 min read

Alternative Income Reit, a real estate investment trust listed on the UK stock exchange, has announced plans to relax its highly restrictive investment criteria, allowing its fund manager, Martley Capital, to invest in a more diverse range of properties. The move comes as the trust seeks to generate more predictable income returns while maintaining capital values in a rapidly changing property market. The proposed changes aim to reduce the weighted average unexpired lease term, lower the requirement for inflation-linked rents, and increase the percentage of non-traditional sector investments.

Key Takeaways:

  • The trust is seeking to reduce the minimum weighted average unexpired lease term from 18 years to 10 years to enhance flexibility in investments.
  • The proposal to lower the percentage of leases required to be linked to inflation from 85% to 75% of passing rent aims to reduce the trust's reliance on traditional sectors.
  • Reducing the requirement for properties to be in non-traditional sectors from 70% to 50% will enable the trust to diversify its portfolio and invest in more sectors.
  • The trust has already implemented measures to improve its investment flexibility, including the removal of the requirement for 85% of its rents to be inflation-linked in 2018.
  • The proposed changes have been supported by the board, who believe they will provide the investment adviser with additional flexibility to invest in attractive opportunities without changing the trust's core nature and objective.
  • The trust's net asset value (NAV) per share increased by 3.9% to 80.9p in the year to 30 June, despite commercial property prices falling and yields rising.
  • The trust's earnings fell 7% to 5.99p per share, but fully covered dividends of 5.9p, providing an 8% yield.
  • The Reit has a 14%-below-NAV share price and a valuation reduction of £4.3m to £102.7m.

Statistics:

  • 85% of the trust's rents are currently linked to inflation, down from 100% in 2018.
  • 46.5% of the trust's income will be subject to rent reviews in the coming year.
  • The trust has a loan facility with Canada Life of £41m, which is due to be repaid next year.
  • The trust's diversified investment portfolio has continued to perform relatively well against its peer group, with an index-linked portfolio of high-yielding leases delivering an attractive yield.

Sources:

  • Association of Investment Companies
  • Alternative Income Reit (Source: Press Release)
  • AEW Long Lease (Source: Trust chair Simon Bennett)
  • Bank of England (Source: Interest rate reduction)
  • Canada Life (Source: Loan facility)
  • Virgin Active (Source: Purchase of gym in south London)
  • Mercure Hotel (Source: Sale for £7.5m)

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