Trust summary and objective

Strategy

Alpha Real Trust Limited ("the Company" or "ART") targets investment opportunities across the asset-backed spectrum, including real estate operating companies, securities, services and other related businesses that offer high risk-adjusted total returns. 

ART currently focuses on high-yielding property debt and equity investments in Western Europe that benefit from or are capable of delivering, near term, underlying strong cash flows. The current portfolio mix, excluding sundry assets / liabilities, is as follows:

Dividends

The current intention of the Directors is to pay a dividend quarterly.

Listing

The Company's shares are traded on the Specialist Fund Market ("SFM") of the London Stock Exchange ("LSE"), ticker ARTL:LSE.

Management

The Company's Investment Manager is Alpha Real Capital LLP ("ARC") whose team of investment and asset management professionals focuses on the potential to enhance earnings and add value to the underlying assets and on the risk profile of each investment within the capital structure, to best deliver high risk-adjusted returns. 

Control of the Company rests with the non-executive Guernsey based Board of Directors.

Financial highlights

* The adjusted earnings per share includes adjustments for the effect of the fair value revaluation of investment property and indirect property investments, the fair value movements on financial assets and deferred tax provisions: full analysis is provided in note 9 to the accounts.

Chairman's statement

I am pleased to present the Company's half year report for the six months ended 30 September 2015.

It has again been a very active period for ART with new investments, active asset management and capital recycling all contributing to strengthening our asset and earnings base and materially improving our net asset value.

ART's strategy of focusing on both high-yielding property debt and equity investments in Western Europe has meant that we have flexibility, supported by cash balances, to adapt to new investment opportunities where we see best risk-adjusted value.  The Company's portfolio continues to be enhanced by recycling capital from non-core assets into investments that benefit from or have scope to deliver strong cashflows.  The portfolio mix continues to be monitored to maintain a balance between defensive cashflows and assets that are capable of being repositioned or developed with active asset management to create strong returns.

ART is well positioned to secure new opportunities that meet its investment criteria but we continue to remain disciplined about asset selection.  We remain alert to opportunities that require complex investment structures.  This approach has served the Company well and provides a competitive advantage in selected markets in which investment activity and asset pricing could be perceived to be running slightly ahead of currently demonstrable occupational market fundamentals, making direct asset purchases less attractive.  Where there is scope to deliver strong underlying cashflows at an attractive risk-adjusted yield, the Company will consider diverse asset types that include infrastructure or renewable sector opportunities.  Such opportunities may either be standing investments or as part of a "develop and hold" strategy that offers scope to generate long term income streams off a lower entry cost.

Earnings are maintained at robust levels as a consequence of ART's investment policy of targeting income focused investments or investments which are capable of generating strong and growing cashflows.  ART has maintained its policy of paying quarterly dividends during the period and I am pleased to announce that the Board declares a dividend, for the quarter ended 30 September 2015, of 0.6p per share which is expected to be paid on 18 December 2015.

Private Rental Sector residential investment

In July 2015, ART announced the acquisition of Unity and Armouries, a predominantely residential development located in central Birmingham with planning consent for 90,000 net developable square feet comprising 162 residential apartments with ground floor commercial areas.  The site was acquired for £2.1 million (including associated costs).  The project has a potential gross development value in excess of £25 million. 

ART's investment strategy for this asset class targets the increasing growth opportunities identified in the private rental sector ("PRS") residential market as a result of rising occupier demand and an undersupply of accommodation.  The opportunity exists to create a portfolio delivering a high yielding return on equity in a geared portfolio of assets with resilient income.  The securing of a portfolio of critical mass will afford participation in a maturing market which is attracting greater institutional interest.

The development of PRS accommodation from the site acquisition and construction phase provides ART with an opportunity to create resilient equity income returns at an attractive yield on cost, with potential for operating leverage to further improve returns.  The investment also offers scope to secure capital growth as the sites mature or planning is enhanced and development undertaken. 

AURE investment

In August and September 2015, ART purchased 11,320,801 shares of Active UK Real Estate Fund plc ("AURE") representing 20.5% of the share capital and voting rights in the UK commercial real estate fund. The consideration paid for the shares was £3.2 million, which represented a price of circa £0.28 per share.

Prior to the purchase, ART held no AURE shares but did, and continues to, provide mezzanine finance to AURE.  The ART mezzanine loan balance as at 30 September 2015 was £9.8 million, inclusive of accrued interest. The acquisition of shares provides ART with an increased allocation to the high yielding UK commercial real estate sector which is attracting greater investor interest as a result of improving underlying occupier demand, potential for rental growth and a search for higher yielding returns.

Strong performance in existing portfolio

ART's direct and indirectly held equity investments in real estate continue to perform strongly.  This is evident both in the UK and in other markets across Europe.  In Spain, the H2O shopping centre investment in Madrid attracted record visitor numbers every month in the year to date and also recorded increasingly positive, in many cases double digit, like-for-like tenant sales growth. This reflects the asset management improvements implemented under the Company's ownership which include an improved commercial mix, upgraded public areas, a new lakeside leisure area and unique marketing events.

During the year, underlying asset value increases have been reported within the Company's Industrial Multi Property Trust plc ("IMPT") investment, with new leasing and lease renewals equating to 15% of ERV undertaken in the first half of the year. NAV increases were recorded in both IMPT and AURE during the period.

The Company's investment in Freehold Investment Authorised Fund ("FIAF"), continues to generate very robust risk-adjusted returns, with stable cashflows providing support to the Company's earnings and portfolio risk balance. In its latest trading update, FIAF announced a total return of 9.64% for the year ended March 2015.

Debt investments

In the previous financial year, ART's high yielding debt investments in Europip and AURE were refinanced.  Both investments continue to perform strongly.

Underlying asset values have benefited from an improvement in the wider investment market, resulting in enhanced credit quality as loan to value ratios have either improved or are more firmly supported as a result of both greater liquidity and debt availability.

Capital recycling

For the Company´s investments that sit outside the core portfolio of equity investments and preferred loan facilities, a managed exit is anticipated over a phased period in order to optimise returns and recycle capital into new investment opportunities in line with the Company's investing policy.  The backdrop of an improving economic environment has assisted the Company in achieving successful disposals:

·      Following the previously announced successful sale of the final assets in the Business Centre Properties Limited fund, proceeds of £0.4 million were released to ART in September 2015.

·      In IMPT, four office assets were sold at 48% above the most recent fund valuation, with the proceeds being applied to part amortisation of bank debt which helps improve ART´s subordinated loan´s risk position.

·      Following the successful grant of planning permission for conversion of offices to residential use, a mixed use building in AURE was sold at a price approximately 39% ahead of the valuation pre-planning approval, with the net proceeds being used to partly amortise bank debt which assists in improving ART´s mezzanine loan´s position in the capital stack.

Well placed for continued growth

The Company is actively seeking to increase the yield and underlying capital value of its portfolio by enhanced performance from existing investments, asset management initiatives and by additional investment, funded from its cash and liquid holdings, strong cashflow and capital recycling.

ART is committed to its disciplined strategy and investment principles which focus on opportunities that can deliver high risk-adjusted total returns, while seeking to manage risk through a combination of operational controls, diversification and preferred capital positions.  The Company is well placed, with the liquid reserves and ability to transact quickly, in order to secure suitable opportunities as and when they are identified.

A detailed summary of the Company's investments is contained within the investment review section.

Results and dividends

Dividends

Adjusted earnings for the period are £2.1 million and adjusted earnings per share for the half year of 3.0 pence (see note 9 of the financial statements). This compares with adjusted earnings per share of 3.0 pence for the same period in 2014.

In line with its aim to pay dividends quarterly, the Board announces a dividend of 0.6 pence per share which is expected to be paid on 18 December 2015 (Ex dividend date 3 December 2015 and record date 4 December 2015).

The dividends paid and declared for the year to 30 September 2015 total 2.3 pence per share, representing a dividend yield of 3.7% p.a. on the average share price over the period and 1.9% p.a. on current net asset value.

The net asset value per share at 30 September 2015 is 123.5 pence (31 March 2015: 113.2 pence per share) (see note 10 of the financial statements).

Financing

Some of ART's underlying investments are part funded through non-recourse loan facilities with external debt providers.

For the H2O shopping centre, bank borrowings now stand at €71.7 million (£53.2 million), which, following amortisation, represents a reduction of €3.3 million from the initial €75.0 million advance. The bank facilities do not have a loan to value covenant and there remains headroom in relation to the interest cover ratio covenant; rental income continues to provide a substantial surplus in excess of finance charges.

Further details of individual asset financing can be found under the individual investment review sections later in this report.

Foreign currency

The Board monitors foreign exchange exposures and considers hedging where appropriate.  All foreign currency balances have been translated at the period-end rates of £1:€1.349, £1:NOK12.890 and £1:INR100.284.

Share buyback

Further to shareholder resolutions passed at the Annual General Meeting on 5 September 2014 the Company has the ability to acquire up to 24.99% of the Voting Share Capital during the period expiring on the earlier of (i) the conclusion of the Annual General Meeting of the Company in 2016, and (ii) 4 March 2016.

Summary

The improving economic backdrop and increased investment market activity and pricing has allowed ART to continue to improve its portfolio mix.

The Company's portfolio provides a balance of stable high yielding investments and investments that offer scope to deliver strong cashflows and high risk adjusted returns. The acquisition of ordinary shares in AURE and of the Unity and Armouries private rental sector residential development in Birmingham demonstrate our innovative approach to secure assets that meet our selective investment criteria. 

ART's capital recycling is anticipated to continue. During the period, limited strategic sales of assets were completed from the IMPT and AURE portfolios where the prices achieved were accretive to returns.  Similarly the remaining underlying assets in the non-core investment in the central and eastern European Mosaic fund are in the process of being exited.

ART benefits from the depth of experience, strength and size of the Investment Manager's business with various funds under management and debt structuring, investment and asset management professionals based throughout Europe.  ART's active management approach has helped deliver improvements in underlying asset values, in both directly and indirectly held investments, across our investment markets.

ART continues to actively source new investment opportunities and has the agility and financial reserves to capitalise on those that meet its investment criteria.

David Jeffreys
Chairman

19 November 2015

Investment review

Portfolio Summary

¹ Percentage share shown based on NAV excluding the Company's sundry assets/liabilities

² Including accrued coupon at the balance sheet date

³ Including rolled up and accrued coupon at the balance sheet date

⁴ Annual coupon

⁵ Yield on cost over 12 months to 30 September 2015

⁶ 12 months income return; post tax

⁷ Return on the average investment during the ownership period

High yielding debt

Market overview

The availability of debt finance continues to increase as a result of liquidity provided by new market entrants and an increased willingness to lend by traditional banks.  Although still more conservative than in previous cycles, loan to value ratios have increased from those available a year ago.  Interest rate margins have reduced as a result of increased competition from lenders but also due to an increasing perception that risks have normalised.  

Predicting the timing of an upward move in base rates continues to elude many forecasters.  There was a consensus view that the interest rate cycle was close to changing, however recent mixed macroeconomic indicators have divided opinion.  Some investment classes are experiencing greater volatility as investors begin to price-in changes or re-allocate capital as a result of possible interest rate rises.  It is worth noting that the initial increase in rates is likely to be greater in symbolism than in quantum.  Even a moderate increase in base rates will still leave interest rates at comparative historic lows.  This outlook, combined with recent reductions in lending margins, is helping to support a positive outlook for real assets generally and real estate in particular.

The combination of comparatively low interest rates and greater liquidity is positive for ART´s equity investments where values and liquidity are further enhanced.  It also provides increasingly protected exit positions upon refinancing for the Company's debt investments.

The lending market is less crowded for smaller transactions in non-prime sectors where a demonstrably strong knowledge of the underlying assets is required.  Opportunities for lenders with real estate debt expertise continue to remain attractive.  Although this remains a competitive environment, ART continues to explore, and is well positioned to take advantage of such opportunities.

Active UK Real Estate Fund plc

² Including accrued coupon at the balance sheet date

⁴ Annual coupon

In addition to the recent equity investment (described below) ART provides a mezzanine loan to AURE of £9.6 million, which matures in November 2016. The loan earns a coupon of 9% per annum plus upfront and exit fees, in addition to a 2% extension fee if the loan is not repaid within the first twelve months (expiring 24 November 2015)

Based upon the value of the underlying AURE portfolio of £46.4 million (valuation as at 30 June 2015) and the balance of the bank finance of £19.6 million as at 30 June 2015, this reflects a loan to value ratio of 42.2%. ART's mezzanine finance position sits between 42.2% and 62.9% loan to value.

Industrial Multi Property Trust plc

³ Including rolled up and accrued coupon at the balance sheet date

⁴ Annual coupon

Further to its equity investment (described below) ART provides a subordinated loan to IMPT of £11.5 million (£12.3 million including rolled up and accrued coupon). The loan has a five-year term, expiring in December 2018, and earns a coupon of 15% per annum.

Based on the underlying value of the IMPT portfolio of £80.5 million (valuation as at 30 June 2015), and the balance of the external bank and mezzanine finance of £52.0 million as at 30 June 2015, this reflects a loan to value ratio of 64.6%. ART's subordinated loan sits between 64.6% and 78.9% loan to value.

European Property Investment Portfolio plc

² Including accrued coupon at the balance sheet date

⁴ Annual coupon

Further to the equity investment (described below) ART provides mezzanine finance to Europip. The mezzanine loan of £0.6 million, which was amortised from £4.3 million, matures on 27 November 2016. The loan earns a coupon of 9% per annum plus upfront and exit fees, in addition to a 2% extension fee if the loan is not repaid within the first twelve months (expiring 27 November 2015).

ART has a charge over Europip´s portfolio of commercial assets (ranking after the senior lender's charge over the Norway portfolio) and Europip´s Mosaic investment.  In addition, ART has the right to take a charge over a single unencumbered property within the Norway portfolio, which is outside the senior lender's security pool of assets.

Based on the Europip portfolio 30 June 2015 valuation of £11.7 million (NOK 150.7 million) and the balance of the bank finance of £5.6 million (NOK 69.9million) as at 30 September 2015, this reflects a loan to value ratio of 46.4%. Including the property which is outside the senior lender's security pool of assets, ART's loan position sits between 46.4% and 53.0% loan to value.

High yielding equity in property investments

Property market overview

The UK and European markets in which ART operates continue to stabilise and grow, albeit at varying rates. The low interest rate environment and the greater availability of debt funding continues to create high investor demand for real estate. Investor sentiment remains optimistic and increased levels of transaction volumes and pricing are evident across geographies and real estate sectors.

The increasing acceptance of a stabilisation of asset values in most markets has led to investors broadening their investment criteria to seek higher yielding assets in tandem with a higher acceptance of risk with the confidence that total returns in these markets are likely to outstrip returns from low yielding prime assets, particularly on a risk-adjusted basis.

There are signs that occupier demand is improving across the Company´s portfolio with an improving volume of new leases signed in the AURE and IMPT portfolios in the UK and at H2O in Spain.  In general, growth in rents has lagged the increased pricing recorded in the investment market to date.  However, consistent with increased leasing activity and a reduction in letting incentives, there are early signs that rental growth is now being captured in ART's portfolio.

ART continues to remain focused on investments that offer the potential to deliver high risk-adjusted returns by way of value enhancement through active asset management, improvement of net rental income, selective deployment of capital expenditure and the ability to undertake strategic sales when the achievable price is accretive to returns.

Active UK Real Estate Fund plc

* Acquired for £3.2 million during August and September 2015 

AURE is a fund that invests in a diversified portfolio of high yielding UK commercial property and aims to deliver a high and stable income yield, together with the potential for capital appreciation.  AURE's shares are listed on the Channel Islands Securities Exchange (www.cisx.com).

During August and September 2015, ART purchased 11,320,801 shares of AURE, representing 20.5% of the share capital and voting rights. The consideration paid for the shares was £3.2 million, representing a price of circa £0.28 per share.  The Company held no AURE shares prior to this purchase.

The following highlights were included in AURE's quarterly update for the period ended 30 June 2015 (published August 2015):

·      Valuation uplift: following a number of successful value-add initiatives, the portfolio valuation, on a like for like basis excluding sales, has increased by £1.0 million (+2.3%) over the quarter to June 2015.

·      Strategic sale: following the successful grant of planning permission for conversion of offices to residential use, a mixed use building was sold at a price approximately 39% ahead of the valuation pre-planning approval.

·      Benchmark Ranking: AURE outperformed the IPD benchmark on an annual basis to June 2015 with a total return of 17.8% compared to the Benchmark total return of 15.7%.

·      Increased NAV: over the 12 months to June 2015 the net asset value per share increased by 30.6%, equating to an increase of £4.3 million in underlying net assets.

ARC is the promoter, investment manager and distributor of AURE.  ARC is pursuing value enhancement opportunities in the AURE portfolio assets to increase net income and improve the profile of this income through lease extensions, renewals and reducing unrecoverable void costs.

Industrial Multi Property Trust plc

ART has 19% of IMPT's ordinary share capital, representing £1.8 million in equity value based on IMPT's share price, as at 30 September 2015.

IMPT, listed on the SFM, is a UK property fund with a regionally diversified UK portfolio of over 50 multi-let light industrial and office properties valued at £80.5 million (at 30 June 2015).

The following highlights were included in IMPT's half year report to 30 June 2015 (published August 2015):

·      Adjusted net asset value per ordinary share: 237 pence as at 30 June 2015 (220 pence at 31 December 2014). 

·      New lettings: 37 new lettings and 30 lease renewals achieved during the six months to 30 June 2015, (represents 15.1% of the ERV of the total portfolio based on the final achievable annual rent including stepped rent). 

·      Occupancy improved: the occupancy level by estimated rental value stood at 88.4% as at 30 June 2015 compared with 86.5% as at 31 December 2014. 

·      Sales: four office buildings were sold above valuation for £1.55 million before sales costs; 48% above the most recent valuation. 

·      Portfolio valuation increase: the portfolio was valued at £80.5 million as at 30 June 2015 (£79.9 million as at 31 December 2014), an increase of £0.6 million (0.9%) during the six month period (+2.2% on a like for like basis).  

ARC is the investment manager of IMPT. ARC is pursuing value enhancement opportunities in the IMPT portfolio assets to increase net income and improve the profile of this income through lease extensions, renewals and reducing unrecoverable void costs.

Cambourne Business Park, Phase 1000, Cambridge

⁵ Over 12 months to 30 September 2015

The Company has invested £1.2 million in a joint venture that owns Phase 1000 of Cambourne Business Park. The property consists of three Grade A specification modern office buildings constructed in 1999 and located in the town of Cambourne, approximately 8 miles west of Cambridge city centre. The property comprises 9,600 square metres of lettable area on a self-contained site with 475 car parking spaces. Phase 1000 is situated at the front of the business park with good access and visibility.

Phase 1000 is a high quality asset, fully let to Netcracker Technology EMEA Ltd, Citrix Systems and Regus. The property has open B1 Business user planning permission and has potential value-add opportunities.

Phase 1000 was purchased in a joint venture partnership with a major overseas investor for £23.0 million including acquisition costs. Bank finance of £10.8 million was obtained. ART´s equity contribution of £1.2 million, which represents 10% of the total equity commitment, was invested into a newly formed joint venture entity, a subsidiary of which holds the property. The property was acquired for an 8.5% net initial yield and is currently delivering an annualised income return of 11.9% as at 30 September 2015.

The non-recourse bank debt facility secured on the Cambourne asset expired in October 2015 and a temporary extension was granted while a refinancing is completed.  Competitive offers have been received from a number of lenders, including from the incumbent bank.  Completion of the refinance is targeted to occur before the end of December 2015.

ARC is the investment manager to the joint venture owning the Cambourne property and continues to pursue opportunities to add value to the investment.

European Property Investment Portfolio plc ("Europip")

⁵ Over 12 months to 30 September 2015

ART acquired a 47% stake in Europip (shares are non-voting), an Isle of Man domiciled open ended investment company. Europip invests in a directly owned commercial property portfolio in Norway and holds a minority interest in Mosaic Property CEE Limited ("Mosaic"), a Central European focused commercial property fund.

A managed sale process of Mosaic Property CEE Limited is being undertaken following the sale of the principal asset in July 2015. A final distribution to investors is anticipated in November 2015.

The Norwegian portfolio of directly owned commercial properties is concentrated around Oslo. The value of the four asset portfolio as at 30 September 2015 was NOK 150.7 million (£11.7 million) based on the 30 June 2015 valuation with a passing rental level of NOK 16.0 million (£1.2 million).

In addition to the ART loan described earlier, Europip has medium term bank finance that matures in January 2020. The bank loan margin of 1.95% reduces pro-rata in the event of property sales. The full amount of the loan has been fixed for five years at a NIBOR rate of 2.49% p.a. As at 30 September 2015, the debt balance was £5.6 million (NOK 69.9 million); reflecting a loan to value ratio of 46.4%.

A subsidiary of ARC, Alpha Real Property Investment Advisers LLP ("ARPIA") is the investment manager for the Norway portfolio and Malling & Co. is responsible for the day to day property management.

H2O Shopping Centre, Madrid

⁵ Yield on cost over 12 months to 30 September 2015

H2O was opened in June 2007 and built to a high standard providing shopping, restaurants and leisure around a central theme of landscaped gardens and an artificial lake. H2O has a gross lettable area of 51,825 square metres comprising 118 retail units. In addition to a multiplex cinema, supermarket (let to leading Spanish supermarket operator Mercadona) and restaurants it has a large fashion retailer base, including some of the strongest international fashion brands, such as Nike, Zara, Mango, Cortefiel, H&M, C&A and Massimo Dutti.

The H2O shopping centre was acquired in April 2010 and to date ART has invested €5.6 million in capital improvements.

The asset management highlights are as follows:

·      Valuation: 7.7% valuation increase during the period.

·      Centre occupancy: 89.5% by rental value (81.9% by area) as at 30 September 2015.

·      Footfall: the visitor numbers at H2O reached record levels each month in the year to date in 2015, with year to date footfall growing by 8.5% assisted by the upgraded physical space, presence of new brands and an improved commercial mix.

·      Sales growth: tenant sales performance is improving with like for like year to date sales increases of 8.0% recorded, with some key brands recording double digit growth; this reflects the greater visitor numbers at the centre and the improving economic environment in Spain.

·      Lease length: weighted average lease length of 1.6 years to next break and 10.4 years to expiry (as at 30 September 2015).

·      Leasing: in the year to date 2015, 8 leases have been signed with new retail and restaurant brands, with positive momentum continuing.

·      Cost control and environmental efficiencies: an active cost management exercise continues to be implemented to reduce the centre´s operating costs and improve the quality and efficiency of services; the installation of LED lights throughout the centre and its external gardens is underway.

·      Marketing: innovative events continue to be carried out to attract new visitors and increase dwell time with a H2O phone app recently launched to build customer loyalty.

Private Rental Sector investment

ART's investment targets the increasing growth opportunities identified in the private rented sector ("PRS") residential market as a result of rising occupier demand and an undersupply of accommodation.  The opportunity exists to create a portfolio delivering a high yielding return on equity in a geared portfolio of assets with resilient income.  The securing of a portfolio of critical mass will afford participation in a developing market which is attracting greater institutional investment.

The development of PRS accommodation provides an opportunity to create resilient equity income returns at an attractive yield on cost, with potential for operating leverage to further improve returns.  The investment also offers scope to secure capital growth as the sites mature or planning is enhanced. 

Unity and Armouries, Birmingham

In July 2015, ART announced the acquisition of Unity and Armouries, a development located in central Birmingham with planning consent for 90,000 net developable square feet comprising 162 residential apartments and ground floor commercial areas. 

There are no outstanding Section 106/Community Infrastructure Levy requirements and the affordable unit designation is for nine flats. The current proposal provides for 2,892 square feet of commercial space and 98 car parking spaces.

Acquired for £2.1 million (including associated costs), the project has a potential gross development value in excess of £25 million.

The existing detailed planning consent for Unity and Armouries is being reviewed for possible enhancements to meet "best in class" PRS requirements and possible further investment in sites for PRS development is being considered. 

Freehold ground rent investments

The Company holds an investment in a fund which holds a diversified portfolio of UK residential property freehold ground rents with a view to achieving steady and predictable returns, a consistent income stream and prospects for growth.

A ground rent is the payment made by the lessee of a property to the freeholder of that property. It represents the underlying freehold interest in a property which is subject to a lease for a period of time usually between 99 and 999 years.

Freehold Income Authorised Fund ("FIAF")

⁶ 12 months income return; post tax

The Company has invested £16.2 million as at 30 September 2015 in FIAF, an open-ended fund that invests in UK freehold ground rents with a net asset value of £230.8 million as at 30 September 2015.

The following highlights were reported in the FIAF fact sheet as at 30 September 2015 (published in October 2015):

·      FIAF continues its unbroken 22 year track record of positive inflation beating returns, generating a total return for the year ended 31 March 2015 of 9.64% (based on Gross A Accumulation share class)* of which 2.20% was distributed as income at the end of November 2014, with 2.72% distributed at the end of May 2015 i.e. an income distribution for the year of 4.92%.

·      81% of its freeholds have a form of inflation protection through periodic uplifts linked to Retail Price Index, property values or fixed uplifts.

·      No debt had been drawn and cash reserves are £29.5 million as at 30 September 2015.

·      As of 13 October 2014 a 5% dilution levy applies to all new subscriptions into FIAF.

* Note: ART holds a different class of shares. ART total return on its investment is 8.5% (annualised) for the period.

Cash balances

As at 30 September 2015, the Company had cash balances of £9.6 million.

Other investments

Healthcare & Leisure Property Limited ("HLP")

⁷ Return over the average investment during the ownership period

HLP has invested in companies operating in the hotel, care home, house building and leisure sectors throughout the UK. HLP's investments are predominantly un-geared.

HLP is managed by Albion Ventures LLP, a specialist UK venture capital manager. No new investments are being made by HLP.

As at 30 September 2015, ART had £1.6 million invested in HLP. HLP subsequently holds minority stakes in the underlying investments.

ART continues to receive income from its investment while HLP's underlying assets are sold. HLP has delivered a return of 10.0% over the average investment during ART's ownership period, and ART will continue to benefit from its share of net proceeds from the sales of the underlying assets as they are progressed.

Galaxia, National Capital Region, NOIDA

ART invested INR 450 million (£4.5 million) in the Galaxia project, a development site extending to 11.2 acres with the potential to develop 1.2 million square feet. Galaxia is located in NOIDA, an established, well planned suburb of Delhi that continues to benefit from new infrastructure projects and is one of the principal office micro-markets in India. The Company has a 50% shareholding in the SPV which controls the Galaxia site. There are no bank borrowings on the asset.

On 2 February 2011, ART recommenced arbitration proceedings against its development partner Logix Group in order to protect its Galaxia investment.

During January 2015, the Arbitral Tribunal, by a majority, decreed that Logix and its principals had breached the terms of the shareholders agreement and has awarded the Company the following:

·      Return of its entire capital invested of INR 450 Million (equivalent to £4.5 million using an exchange rate of INR100.284 as at 30 September 2015) along with interest at 18% per annum from 31 January 2011 to 20 January 2015.

·      All costs incurred towards the arbitration.

·      A further 15% interest per annum on all sums was awarded to the Company from 20 January 2015 until the actual date of payment by Logix of the award.

Logix have appealed the Arbitral Tribunal decision in the Delhi High Court and the case is due to be heard in late 2015. The Arbitral Tribunal has also ruled that the Company has no obligation or liability to fund the outstanding NOIDA lease rents under the Shareholders Agreement.

The Company is actively seeking recovery of the sums awarded and a charge over the private residence of the principals of Logix, Shakti Nath, Meena Nath and Vikram Nath, by the courts of India.

Following the determination of the arbitration noted above, the award to the Company represents a potential realisation of approximately £8.6 million.  ART continues to hold the indirect investment at INR 450 million (£4.5 million) in the accounts due to uncertainty over timing and final value.

Summary

The real estate investment markets in which the Company operates continue to stabilise with improved investor demand, pricing and greater debt availability evident. Investment activity has continued to widen beyond prime assets and markets to broader geographic markets and asset types which bodes well for the value of the Company's portfolio.

Increased leasing activity is evident across the Company's portfolio, with positive results recorded in the AURE and IMPT investments in the UK and H2O in Madrid. Improving occupier demand is generally a precursor to rental growth although this is not yet prevalent, there are early signs that a recovery in rents is being captured.

ART's core portfolio is well balanced with investments that generate or are capable of generating stable income streams through asset management and development. Weightings within the overall investment portfolio mix is monitored to provide a balance of stability and potential added value upside.

We remain opportunistic in terms of new investments and continually evaluate possible investment targets. Where a creative solution is required to unlock value, we remain innovative and are able to access new opportunities not only via direct assets that require asset management but also via the restructuring or recapitalisation of property investment vehicles, as evidenced by the recent purchase of shares in AURE.

The recent investment in Unity and Armouries targets the increasing growth opportunities identified in the PRS residential market as a result of rising occupier demand and an undersupply of accommodation. The investment offers ART the opportunity to generate an attractive ongoing income yield from a low entry cost.

ART remains well placed to find value for its investors and to capitalise on new investment opportunities across asset backed investment and debt markets in the UK and Europe.

Brad Bauman and Gordon Smith

For and on behalf of the Investment Manager

19 November 2015

Principal risks and uncertainties

The principal risks and uncertainties facing the ART Group (the "Group") can be outlined as follows:

·      Rental income, fair value of investment properties (directly or indirectly held) and fair value of the Group's equity investments are affected, together with other factors, by general economic conditions and/or by the political and economic climate of the jurisdictions in which the Group's investment properties are located.

·      The Group's loan investments are exposed to credit risk which arise by the potential failure of the Group's counter parties to discharge their obligations when falling due; this could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date; the Group receives regular updates from the relevant investment manager as to the performance of the underlying investments and assesses their credit risk as a result.

The Board believes that the above principal risks and uncertainties, which are discussed more extensively in the annual report for the year ended 31 March 2015, would be equally applicable to the remaining six month period of the current financial year.

Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge:

·      the half year report has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union; and

·      the half year report includes a fair review of the information required by DTR 4.2.7R, being an indication of the important events that have occurred during the first six months of the financial year, and their impact on the half year report, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      the half year report includes a fair review of the information required by DTR 4.2.8R, being the related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the group during that period; and any changes in the related parties transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

The Directors of Alpha Real Trust Limited are listed below and have been Directors throughout the period.

By order of the Board

David Jeffreys
Chairman

19 November 2015

Independent review report

To Alpha Real Trust Limited

Introduction

We have been engaged by the Company to review the consolidated condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2015 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the half-yearly report based on our review. 

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months to 30 September 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

BDO Limited

Chartered Accountants

Place du Pré

Rue du Pré

St Peter Port

Guernsey

19 November 2015

Condensed consolidated statement of comprehensive income

The total column of this statement represents the Group's income statement, prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All items in the above statement derive from continuing operations. The accompanying notes form an integral part of these financial statements.

Condensed consolidated balance sheet

The financial statements were approved by the Board of Directors and authorised for issue on 19 November 2015. They were signed on its behalf by David Jeffreys.

David Jeffreys                                                                                                  

Director                                                                                                              

The accompanying notes form an integral part of these financial statements.

Condensed consolidated cash flow statement

The accompanying notes form an integral part of these financial statements.

Condensed consolidated statement of changes in equity

The accompanying notes form an integral part of these financial statements.