It's time to admit defeat on Franco-Spanish property fund Alpha Pyrenees. Last year's performance was decent enough, but the financial risks facing the over-leveraged investment trust look increasingly intractable.
The good news is that some key lease renewals in the portfolio's core Paris region drove a 2.8 per cent revaluation gain in the second half. That and rental growth (Alpha's leases are all inflation-indexed) offset a rise in the vacancy rate from 10 per cent to 13 per cent and helped buoy the share price almost 10 per cent post-results.
The problem is with Alpha's debt levels: the loan-to-value ratio, net of cash, is 75 per cent. True, the financing packages don't expire until February 2015, the company is trading within its covenants, and the rates are fixed at an affordable 5.26 per cent. But the sovereign debt crisis is making finance scarce and expensive, and high leverage ratios are no longer possible. Alpha will have to tap shareholders or sell assets.
The company's hedging arrangements add to the uncertainty. The net asset value (NAV) is highly volatile because of the euro-pound exchange rate – a 5¢ strengthening in the euro reduces NAV by 17 per cent.
Broker Peel Hunt expects adjusted NAV to hold steady at 37p by the December year-end.
ALPHA PYRENEES TRUST (ALPH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 28p | MARKET VALUE: | £32m | |
| TOUCH: | 27.5-28p | 12-MONTH HIGH / LOW | 36p | 24p |
| DIVIDEND YIELD: | 12.9% | TRADING PROP: | nil | |
| PREMIUM TO NAV: | 51% | |||
| INVESTMENT PROP: | £255m | NET DEBT: | £191m | |
| Year to 31 Dec | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 97.1 | 11.7 | 4.7 | 6.0 |
| 2008 | 55.5 | -64.1 | -54.4 | 6.6 |
| 2009 | 16.5 | -31.6 | -26.9 | 7.0 |
| 2010 | 17.1 | 5.8 | 4.9 | 3.6 |
| 2011 | 18.5 | 6.3 | 5.3 | 3.6 |
| % change | +8 | +8 | +8 | |
Ex-div: 28 Mar Payment: 23 Apr | ||||
