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Secure Income REIT buying £436m portfolio

09
2018
March

Secure Income REIT buying £436m portfolio – Secure Income REIT has exchanged contracts to acquire two substantial off-market portfolios at a total cost of GBP436 million.

The first portfolio of leisure assets across the UK has a gross cost of GBP224 million representing a net initial yield of 5.9% and with a weighted average unexpired lease term of 18.0 years, this comprises:

  • Manchester Arena: A strategic 8-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.

The second is a portfolio of 59 hotels across the UK let to Travelodge at a gross cost of GBP212 million representing a net initial yield of 6.1% and with a weighted average unexpired lease term of 23.5 years.

Benefits

The Board believes that the principal benefits of the proposed Acquisitions, Placing and associated new debt financing are expected to be:

  • Increase in dividends per Ordinary Share with the post-acquisition dividend expected to yield 4.3% on the Placing Price
  • Net LTV to reduce to 45.8%, from 49.6% at 31 December 2017
  • Weighted average unexpired lease term remains very long at 21.7 years with no breaks
  • Leases provide long term inflation protection:
  • the proportion of the Group’s rents subject to upwards only RPI reviews increased to 51% from 42%
  • 48% of rents subject to fixed uplifts with the remaining 1% subject to upwards only open market reviews
  • 70% of the Group’s rents will be subject to annual rent reviews (as opposed to five yearly)
  • Further diversification by income and asset base across defensive sectors: number of properties will increase to 177 from 81
  • The Acquisitions offer a number of value enhancing asset management opportunities
  • EPRA NAV to increase to GBP1.2 billion on a pro forma basis
  • On the basis of the Company’s Base Case Assumptions, the illustrative five year compounded dividend growth rate of the Enlarged Group is expected to be 5.6% per annum

£315m placing

To part finance the Acquisitions, the Company is proposing a Placing to institutional investors of up to 86.4 million new Ordinary Shares in the Company targeting gross proceeds of up to GBP315.5 million.  The Placing Price will be 365 pence per Placing Share, equal to the 31 December 2017 EPRA NAV per share adjusted for the completion of the Transaction. The balance of the consideration for the Acquisitions will be funded by two new non-recourse debt facilities expected to total GBP128.7 million (approximately 30% Loan to Cost) for which the Group has obtained credit approved terms.

Results

The company has separately announced today its annual results for the year ended 31 December 2017 in which the company’s:

EPRA NAV per Ordinary Share at 31 December 2017 is 370.4 pence per Ordinary Share, up 14.5% since 31 December 2016; and adjusted EPRA EPS is 13.6 pence, up 20.4% year on year.

SIR : Secure Income REIT buying £436m portfolio

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