Alternative Income REIT has recently shared its interim results, which, though largely anticipated due to a previous second-quarter update, still offer some noteworthy insights for both current and prospective investors. The company, trading under the ticker AIRE and with a share price of 64.4p, has reported a slight dip in its net asset value (NAV) to £65.7 million, equating to 81.6p per share. Despite this, it boasts an attractive prospective dividend yield of 9.2%, sitting at a 21% discount to its NAV.

The Impact of Market Trends on Portfolio Valuation

The backdrop of these figures is a wider market trend of rising yields in the UK real estate sector, which has seen Alternative Income Reit’s portfolio valuation decrease by £1.9 million. This portfolio, diverse in nature and comprising 19 commercial long-leasehold and freehold properties—including care homes, hotels, student housing, and petrol stations—has experienced a yield increase from 6.58% to 6.94%, leading to a 1.9% like-for-like drop in valuation to £103.3 million.

However, it’s not all gloomy. The company has managed to maintain a resilient performance thanks to a robust, index-linked income stream that accounts for 95.8% of its portfolio. This stream has not only bolstered contracted rents by 2.9% over six months but also positions the company well for future rent reviews—especially given the current inflation rate, which sits significantly above the Bank of England’s 2% target.

Strategic Sales and Investment Upsides

Adding to the optimism, Alternative Income Reit recently sold a hotel property in Glasgow for 7.9% above its book value, indicating that actual transaction values can indeed surpass conservative estimates. Moreover, insights from property consultancy CBRE suggest a positive shift for the real estate sector. With expectations of a reduced gap between property yields and government bond yields, alongside a focus on rental income maximisation, the outlook for Alternative Income Reit’s portfolio appears promising.

Dividend Performance and Financial Stability

One of the most appealing aspects for investors is the company’s dividend policy. With interim dividends declared at 2.85p—up 3.6% year-on-year—and an anticipated annual dividend of 5.9p, the shares offer a lucrative 9.2% prospective yield. This is supported by a solid income from annual rent reviews, a significant interest cover ratio, and a modest debt level facilitated through a £41 million loan facility with Canada Life.

The Investment Case for Alternative Income Reit

Since highlighting the undervaluation of Alternative Income Reit’s shares last October, the company has delivered an impressive 18.8% total return. With the sector gearing towards income-producing assets and an expected narrowing of the yield gap, the investment case for both the portfolio and share price of Alternative Income Reit looks increasingly favourable. Investors Chronicle is recommending it as a Buy.