Secure Income positive on recovery after 2020 earnings plunge
By Josh White
Date: Thursday 11 Mar 2021
(Sharecast News) - Secure Income reported EPRA net tangible assets of £1.23bn at the end of its financial year on Thursday, or 379.3p per share, down from £1.39bn and 429.4p at the end of 2019.
The AIM-traded real estate investment trust said of that, 59.3p per share was unfettered cash and 0.5p in other net assets, while 125.3p per share was in the healthcare sector, 112.8p per share was in leisure, and 81.4p was in budget hotels.
It said its overall portfolio valuation was down 6.5% to £1.95bn in the year ended 31 December, with 91% of the total decline reflected in the June valuations, and the balance representing a modest decline of 0.6% in gross property values in the second half of the year.
Secure Income said healthcare asset valuations were up 2.8%, while budget hotel valuations accounted for 69% of the net value decline, falling by 20.3% following Travelodge's company voluntary arrangement, but remaining stable since 30 June, with leisure asset valuations falling 6.9%.
The group said its 20.2 year weighted average unexpired lease term remained "one of the longest" in the UK quoted real estate sector.
Its net loan-to-value ratio stood at 36.4%, up from 31.9% at the start of the year and 35.3% at the interim, with the company's debt held in six structurally-separate, non-recourse debt facilities, and the board saying that "appropriate levels" of headroom over financial covenants remained.
Adjusted EPRA earnings per share came in at 3.5p, down from 15.3p year-on-year, after the full impact of the temporary rent concessions granted to its leisure and hotels tenants, reflected in that measure on a cash flow basis.
The total impact of concessions on adjusted EPRA earnings in 2020 totalled £34m, or 10.5p per share.
Travelodge rents were reduced by a total of £23.4m from 1 April 2020 to 31 December 2021, of which £14.5m related to cash flows in 2020.
Merlin rents of £17.8m for June and September were deferred for collection in September 2021, with rental cash flows returning to their previously-contracted levels with effect from the December 2020 quarter.
Stonegate pubs were granted a six-month rent-free period of £1.1m from April to September in exchange for strengthened lease alienation provisions, and lease extensions to a 25-year term, up from 19.6 years.
From January 2021, cash rents receivable amounted to 92% of total contractual rents before concessions, and under current arrangements, would revert to 100% of their originally-contracted levels within 10 months.
Secure Income said the expected impact of concessions on 2021 cash flow and adjusted EPRA earnings was a reduction in Travelodge rents of £8.9m and the expected receipt of £17.7m of deferred rent from Merlin, resulting in a net positive impact of £8.8m, or 2.7p per share.
The board said rent collections had remained "strong", with 0.3% of passing rents after concessions in arrears as at 31 December, all of which were collected after the year-end.
It noted that dividend payments were maintained throughout 2020 and since the year-end, adding that neither the company or its investment adviser had requested or used any form of Covid-19 government support.
"The Covid-19 pandemic has created significant challenges for our leisure and hospitality tenants, which has in turn had an impact on the company's results, particularly in the first half of the year," said non-executive chairman Martin Moore.
"However, the many inherent strengths of the company, including its balance sheet, liquidity and management team, as well as the innately operational nature of our assets, means that the support we've been able to provide to occupiers should aid the resumption of their strong performance track record once the effects of the pandemic diminish.
"This in turn positions the company to regain its own growth trajectory."
Moore said that, while the company recognised the last 12 months had negatively impacted short-term returns for a number of investors, the performance of the business over the medium-to-longer term and its prospects over similar time scales remained the principal focus of the management and board.
"As economies and businesses hopefully emerge from these difficult circumstances, we believe that as and when pandemic restrictions are relaxed the bounce back in economic activity in the leisure and hospitality sectors will be significant and Secure Income's assets and tenants are well positioned to be early beneficiaries of any recovery.
"After a challenging period we are excited about opportunities for the business."
At 1030 GMT, shares in Secure Income REIT were down 1.98% at 346.5p.
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