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Covid weighs heavy on Secure Income REIT

Secure Income REIT SIR

Secure Income REIT reported a 6% fall in property valuations in half-year results, mainly due to a 20.3% write down in the value of its budget hotel portfolio.

The company is the biggest landlord to Travelodge, which secured a controversial CVA earlier this year that wiped millions off its rent bill. Secure Income REIT’s portfolio was valued at £1.96bn at 30 June 2020, down from £2.08bn at the end of 2019.

The effect on EPRA net tangible assets (NTA), the new EPRA metric used by property companies that has replaced EPRA NAV, was a 10% fall from 429.3p per share to 386.4p per share in the period.

Adjusted earnings per share was down 37% to 5.1p per share (Dec 2019: 8.1p). The company paid a dividend of 3.65p in July, bringing total dividends paid in the period to 8.4p (up 6.3% on the first six months of 2019).

The company’s leisure assets also suffered a fall in value, reflecting the turmoil in the sector since the onset of Covid-19, of 5.5%. Secure Income REIT’s healthcare portfolio saw a 2.8% increase in value.

Rent concessions agreed for leisure tenants and the Travelodge CVA are as follows:

  • Travelodge rents are reduced by a total of £22.9m over the period from 1 April 2020 to 31 December 2021, of which £4.8m relates to cash flows in the period to 30 June 2020; 119 of the 123 hotel leases now include a landlord only break right exercisable at any time up to 20 November 2020

  • Merlin rents of £17.8m for June and September 2020 have been deferred for collection in September 2021, with rental cash flows returning to their previously contracted levels at the December 2020 collection date

  • Stonegate pubs was granted a £1.1m six month rent free period from April to September 2020 in exchange for strengthened lease alienation provisions and lease extensions to a 25 year term.

Healthcare rents (which makes up 34% of passing rents before concessions) have continued to be paid in full and on time.

The company said under the current arrangements, total rents will revert to their previous contracted levels within 16 months. Its loan to value was 35.3% (Dec 2019: 31.9%) and it has uncommitted cash of £219.6m (Dec 2019: 234.2m).

Martin Moore, chairman, said: “There is no doubt that Covid-19 has created very challenging conditions for the company. The impact of the lockdown and sharply curtailed international travel has hit leisure and hotel businesses particularly hard across the globe. Having taken action in 2019 to further reduce the company’s leverage and maintain a much enhanced liquidity buffer, the company was able to provide appropriate assistance to those tenants who needed it to protect shareholder value while maintaining the payment of quarterly dividends, without having had any recourse to government financial support or tax deferrals.

“Negative real interest rates continue to pose a challenge for investors to protect their savings against inflation. This environment sets the investment case for long-dated inflation-linked rental income, including for Secure Income REIT, albeit one which has been interrupted by the impact of Covid-19. Beyond the current disruption lies significant potential for recovery and the resumption of the strong performance seen from flotation in 2014 up to February of this year.”

SIR : Covid weighs heavy on Secure Income REIT

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