Alaris Equity Partners Income Trust AD.UN) (TSE: AD.UN reported second-quarter results marked by higher partner revenue, distributable cash flow growth and a record net book value, as investments made over the past 18 months began contributing more fully to results.
Chief Financial Officer Amanda Frazer said total partner revenue was C$50.6 million, exceeding guidance by 5.6%. The total included C$49.9 million of partner distributions and C$700,000 of third-party fees. Total revenue and operating income rose 25% from the prior-year quarter, while partner distribution revenue increased nearly 20%.
For the first half of 2026, total revenue and operating income increased 13% and partner distribution revenue rose 15% from the same period a year earlier. Preferred distributions increased 24% in the quarter, reflecting investments completed during 2025, the quarter’s Kubik investment and annual contractual distribution resets. The annualized yield on preferred capital increased to 12.8% from 12.2% a year earlier.
Cash Flow and Portfolio Value Rise
Net distributable cash flow increased 42% year over year in the second quarter, driven by higher preferred partner distributions and lower taxes paid by acquisition entities, Frazer said. First-half net distributable cash flow rose 21%, despite higher interest costs associated with the company’s 2025 convertible debenture financing.
The payout ratio for the first six months was 58%, compared with 65% in the prior-year period. Frazer said the pro forma payout ratio was about 59% after a recent distribution increase, below Alaris’ long-term target range of 65% to 70%.
Net book value per unit increased C$0.52 during the quarter to a record C$25.83, bringing the year-to-date gain to C$1.04 per unit. The quarterly increase reflected C$0.92 per unit of earnings and comprehensive income, including about C$0.46 per unit of unrealized foreign-exchange gains, offset by the C$0.38 quarterly distribution.
Alaris recorded C$10.8 million in net unrealized fair-value gains during the quarter. Fleet contributed an C$8.1 million fair-value increase, bringing its year-to-date fair-value gain to more than C$18 million. Kubik also added a fair-value gain following operating performance and backlog conversion in the first half, while McCoy had a modest decline in value tied to a quieter storm season.
New Investments Expand Partner Base
During the quarter, Alaris completed a C$75 million investment in Kubik. Subsequent to quarter-end, it completed a US$35 million investment in Tesco, an electrical-metering company operating across the United States. Total capital deployed in 2026 reached C$126 million, expanding the portfolio to a record 25 partners.
President and CEO Steve King said Kubik represented the type of transaction Alaris seeks: a long-established company requiring capital for a founder-related ownership transition while allowing management and existing owners to preserve control and participate in future upside. He said the company entered the investment at an attractive valuation and had already recorded an unrealized gain on its common-equity portion.
King said Tesco attracted dozens of bidders, but Alaris’ preferred-equity structure can appeal to owners who want liquidity while retaining control and avoiding a full sale of their businesses. Tesco is also expected to generate common distributions, though Alaris does not include those discretionary payments in its run-rate revenue calculation.
The company’s weighted-average earnings coverage ratio remained about 1.5 times, with 84% of contractual preferred distributions coming from partners with coverage above 1.2 times. Sixteen of the 25 partners had senior debt at or below one times EBITDA, according to Frazer.
Outlook, Fleet Distribution and Capital Capacity
Alaris expects third-quarter partner revenue of about C$69 million, reflecting the seasonal concentration of common distributions in the third quarter. Its estimated run-rate revenue for the next 12 months rose to approximately C$208 million, from C$203 million at the end of the first quarter and C$200 million at the end of 2025.
The company received US$14.8 million of common distributions after quarter-end, including a US$13.8 million distribution from Fleet. King said Fleet has expanded its customer base and added contracts, and he views the recent distribution level as sustainable, while noting that common dividends remain discretionary. Fleet has paid more than C$50 million of common dividends on Alaris’ C$8 million investment, he said.
Alaris ended the quarter with C$127 million of undrawn capacity on its credit facility. Management said additional deployment beyond available capacity could be funded through redemption proceeds, equity issuance or expanded debt capacity. King said the company expects the remaining five months of 2026 to be active for new investments and potentially exits that could crystallize gains.
On portfolio conditions, King said Alaris continues to see broad strength across the U.S. economy, though certain regions and industries have varied. He cited softer construction-related activity in the Boston area, while describing the overall portfolio as diversified. He also said GWM resumed payments in July but could experience intermittent payment disruptions through the remainder of 2026, while FMP is making agreed payments as it rebuilds following the impact of the DOGE process.
About Alaris Equity Partners Income Trust (AD.UN) (TSE:AD.UN)
Alaris Equity Partners Income Trust is an open-ended trust. The Trust, through its subsidiaries, indirectly provides alternative financing to private companies (Partners) in exchange for distributions with the principal objective of generating stable and predictable cash flows for payment of distributions to unitholders of the Trust. Distributions from the Partners are adjusted each year based on the percentage change of a top-line financial performance measure such as gross margin and same-store sales and rank in priority to the owner's common equity position.
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