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Secure Income REIT expects boost to income due to rising inflation

Secure Income REIT said it expects significant earnings growth this year due to rising inflation forecasts, after reporting an 11.8% uplift in EPRA net tangible assets (NTA) in full year results to 31 December 2021.

The group, which invests in property with long index-linked leases mainly in the healthcare, hotel and leisure sectors, said its EPRA NTA was 424.1p per share at the end of 2021, up from 379.3p a year earlier.

This was helped by a 9.3% increase in the value of the group’s portfolio to £2,127.6m (2020: £1,946.9m) as economic activity in the UK bounced back from COVID lows.

Adjusted EPRA earnings per share was up a whopping 400% over the year to 17.5p (2020: 3.5p) as rent deferred from the height of the pandemic was repaid and rental income increased 3.1%.

Dividends for the year were 15.2p per share, a slight reduction on 2020’s 15.7p. With dividends included, the group posted a NAV total return for the year of 15.8%.

Weighted average unexpired lease term (WAULT) across the portfolio increased by 50% over the year to 30.0 years following the regearing of the Merlin leases, which were extended by 35 years to a 55.5 year term without break.

Rent reviews on Merlin’s UK assets – Alton Towers, Thorpe Park and Warwick Castle – were also modified to CPI + 0.5% per annum with 1% minimum and 4% maximum uplifts. Rental uplifts on Merlin’s German assets remain at 3.34% per annum throughout the extended term.

The lease regear resulted in a £33.5m premium being paid by Secure Income REIT, which was recouped through valuation uplift of the Merlin properties.

Post year-end the company refinanced its Merlin leisure facility in March 2022. A £282.5m committed credit facility was signed with drawdown scheduled for April 2022. The debt is for a four year term, with a one year extension option, and a covenant with no LTV default provision and a low 100% interest cover requirement.

The group is targeting a dividend increase in July 2022 of around 15% to 18.2p per share, annualised. This, it said, was driven by the return of rents to their pre-COVID trajectories, together with targeted earnings enhancement arising from the Merlin facility refinancing and current expectations of high inflation which would translate into increased rents in the near term. 

The group’s net loan to value (LTV) reduced during the year to 33.8% (from 36.4% at 31 December 2020).

Martin Moore, non-executive chairman, said: “In 2021 we delivered a total accounting return of 15.8%, in line with our long term returns since listing in 2014. Our rents have not only resumed their pre-pandemic path, but future income expectations are now higher due to rising inflation.  Following the major regearing of our valuable Merlin leases to 55.5 years without break, the company’s WAULT at 30 years is now the longest amongst the major UK REITs. Since the year end the refinancing of our Merlin debt at a lower loan to value and a lower cost is expected to help boost our targeted dividend by an estimated 15% by the summer. Notwithstanding the uncertainty caused by the awful humanitarian crisis and geo-political events in Ukraine, these elements combine to form a strong platform for the year ahead.”

SIR : Secure Income REIT expects boost to income due to rising inflation

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