Secure Income REIT splashes £436m on two UK portfolios

By Paul Norman - Friday, March 09, 2018 8:09

Secure Income REIT has bought two separate portfolios of UK property including Manchester Arena and 76 Travelodge hotels at a total cost of £436m, a blended net initial yield of 6%.

The portfolios have an average unexpired lease term of over 20 years with 86% of the income offering RPI protection plus a further 13% with fixed uplifts.

The REIT this morning also announced a proposed placing of ordinary shares targeting gross proceeds of up to £315.5m conditional on shareholder approval at a general meeting, and an associated new £128.7m debt financing at circa 30% loan to cost.

The acquisitions meet the Board’s "strict investment criteria and will be significantly dividend accretive, materially deleveraging the Group’s balance sheet and reducing its weighted average cost of debt, while also maintaining its very long weighted average unexpired lease term. The acquisitions have the secure long term inflation protected income that is at the core of the Group’s business and also present a number of value enhancing opportunities through asset management".

The assets include Manchester Arena, the UK’s largest indoor entertainment arena, 76 Travelodge hotels and the largest catered event space in the City of London at the Chiswell St Brewery.

The Travelodge portfolio was bought from the Golden Tree, Avenue Capital and Goldman Sachs private equity consortium that Secure Income REIT has structured similar acquisitions with.

 Goldman Sachs and its partners acquired Travelodge Hotels Ltd. in a debt restructuring in 2012 and subsequently agreed to buy 144 UK hotels leased to Travelodge in London and South East in 2014 for circa £500m from Lloyds Banking Group, Prestbury Investment Holdings – a circa 15% investor in Secure Income REIT and its investment adviser - West Coast Capital and Aldersgate Investments.

The Manchester Arena portfolio has been bought from Mansford.

The Board and management team are "excited by the opportunities presented by the new transactions and intend to invest a further £5.25m cash in new shares to support this £315.5m placing".

In its preliminary results for the year ended December 2017 it today reported a NAV per share growth of 14.5% for the year and a total shareholder return of 19%.

Secure Income REIT said it has been a beneficiary of being an early mover in to this market with its NAV per share more than doubling since float in 2014, but it said it believes this has further to run.

"The weight of cash seeking, well-let, index-linked property is in our judgement far in excess of the stock currently available on the market, which continues to put upward pressure on asset prices" it said.

The two portfolios have a gross purchase cost of £436m and comprise:

• a portfolio of leisure assets across the UK with a gross cost of £224m representing a net initial yield of 5.9% and with a weighted average unexpired lease term of 18 years, comprising:

 

  • Manchester Arena: A strategic eight-acre site on top of Manchester Victoria station, close to prime retail, restaurants, other leisure venues and the NOMA regeneration scheme. The site includes the UK’s largest indoor arena by capacity, at 21,000 seats, which is let for 27 years to SMG (the world’s largest venue management company) as well as 160,000 sq ft of office and additional leisure space, a 1,000 space multi-storey car park and advertising hoardings;
  • The Brewery at Chiswell Street, London EC1: the largest catered events space in the City of London;
  • a portfolio of 17 hotels let to Travelodge Hotels Limited, the UK’s largest independent value branded hotels group; and
  • a portfolio of 18 freehold high street pubs let to or guaranteed by Stonegate Pub Company Limited. Stonegate is one of the UK’s largest privately managed pub operators.
  • a portfolio of 59 hotels across the UK let to Travelodge at a gross cost of £212m representing a net initial yield of 6.1% and with a weighted average unexpired lease term of 23.5 years.

Martin Moore, Non-Executive Chairman of the Company, said: “We are pleased to announce NAV per share growth of 14.5% for the year and a total shareholder return of 19%.  Our portfolio of key operating assets in defensive sectors let to strong covenants on long leases provides income security whilst our upwards only RPI reviews and fixed rental uplifts generate both predictable and attractive levels of income growth.

"Secure Income REIT has been a beneficiary of being an early mover into this market with its NAV per share more than doubling since float in 2014 but we believe that this has further to run.  The weight of cash seeking well-let index-linked property is in our judgment far in excess of the stock currently available on the market, which continues to put upward pressure on prices.

"In this context we are also pleased to announce the proposed purchase of two separate portfolios at a total cost of £436m, offering an attractive net initial yield of 6% and an average unexpired lease term of over 20 years with 86% of the income offering RPI protection plus a further 13% with fixed uplifts. 

"The assets include Manchester Arena, the UK’s largest indoor entertainment arena, 76 Travelodge hotels and the largest catered event space in the City of London at the Chiswell St Brewery.  The Board and management team are excited by the opportunities presented by the new transactions and intend to invest a further £5.2m cash in new shares to support this £315.5m placing.”

in its preliminary results, EPRA NAV per share was up 14.5% to 370.4p over the year to 31 December 2017. Adjusted EPRA EPS was up 20.4% to 13.6p for the year and total EPRA NAV per share growth plus dividends returned 19% for the year, mirrored by Total Shareholder Return of 19%.

The portfolio valuation was up 7.8% over the year to £1.77bon and the portfolio valued at a blended net initial yield of 5.1%.

The net Loan To Value ratio further reduced to 49.6%, down from 53.5% at 31 December 2016.

It has 81 Key Operating Assets in defensive sectors producing £95.7m pa of passing rent at 31 December 2017, up from £92.6m pa over the year

It said portfolio rents have inbuilt growth: 58% have fixed annual uplifts (min 2.8% per annum); 27% are subject to annual uncapped upwards only RPI; 15% with five yearly uncapped upwards only RPI

The weighted average unexpired lease term is 22.2 years with no breaks. The management team is significantly aligned, with a 16.4% stake worth circa £140m at 31 December 2017 EPRA NAV.

pnorman@btinternet.com

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