- Property portfolio valued at £115.4mn, a 2.2 per cent like-for-like quarterly increase
- Net asset value (NAV) per share rises 3.2 per cent to 93.3p driven by 4.8 per cent quarterly NAV total return
- 58 per cent of rents subject to inflation linked reviews in the next 12 months
Alternative Income Reit's (AIRE:79p) third-quarter results highlight a resilient and well managed commercial portfolio of 19 freehold and long leasehold properties that continues to increase in value with growing contracted rents.That’s because 93 per cent of rents are reviewed periodically on an upward only basis, in line with inflation (44 per cent annually).
In the latest quarter, contract rents increased by almost 5 per cent on a like-for-like basis to £7.22mn. Moreover, 58 per cent of the group’s income will be reviewed in the next 12 months, something well worth noting given that both UK RPI and CPI are set to hit double-digits in the autumn. It’s a secure income stream, too, as highlighted by a weighted average unexpired lease term of 19.6 years to expiry, and 100 per cent rent collection rates in both the June and March quarters.
Furthermore, the group’s portfolio offers a diversified spread of tenants and a decent weighting to the hot sectors of retail warehousing and industrial property. That offers scope for yield compression to drive valuations higher – the portfolio’s net initial yield remains unchanged at 5.7 per cent. However, even ignoring that possibility, the ongoing ongoing increase in the rent roll will drive valuations higher, hence the 4.8 per cent NAV total return reported in the past three months. The board is on track to deliver its target of a 5.5p a share fully covered dividend by September, so there’s an attractive 7 per cent dividend yield on offer, too.
The share price has gained 8 per cent since my last buy call (‘Bargain hunting in the market carnage’, 7 March 2022), but is still 15 per cent below NAV. This is anomalous given that further valuation uplifts are well underpinned by future index-linked rent reviews. Buy.
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