Nick Leslau managed real estate investment trust continues to scour polarised property market for buying opportunities with cash from its recent sale of hospitals.
Secure Income (SIR) real estate investment trust (Reit) continues to scour the market for buying opportunities thrown up by Brexit uncertainty.
The £1.4 billion long-lease, property fund managed by Nick Leslau’s Prestbury Investments, has a £230 million cash pile following the £347 million sale of eight private hospitals in July.
Having splashed £436 million on two leisure and Travelodge hotel portfolios last year, chairman Martin Moore said ‘only time will tell whether similarly attractive opportunities await us’.
However, he said the gap in valuations between the most highly-rated properties, such as warehouses, and the most lowly rated, such as shopping centres, was at an all-time high.
Secure Income, which owns 164 properties worth £2 billion, saw its net asset value (NAV), adjusted for the recent disposal, rise 5% to 420.5p per share in the six months to 30 June. Including dividends of 7.9p per share, the total half-year return on net assets was 7%.
The rise in NAV was underpinned by a 2% like-for-like increase in the value of the portfolio driven by a 1.9% lift in passing rents. The property assets were valued on a net initial yield of 5.1% unchanged from December.
The sale of the hospitals to Medical Properties Trust of the US has cut the proportion of Secure Income’s debts to assets to their lowest ever level. With a 33% loan-to-value compared to 43% at the end of last year, Moore said the trust was well placed to weather any economic downturn from Brexit and global uncertainty.
Moore said the 19% premium secured on the hospital disposal showed the value in its diversified, long, 21-year average, inflation-linked leases.
‘In much of the developed world a government bond yield of 2% has become the stuff of dreams, with all German and Swiss bonds across the entire maturity spectrum offering negative yields,’ he said.
UK government bonds, or gilts, he said offered less than 0.5% and inflation-proofing has ‘been expensive for several years but investors now face an even steeper bill’.
‘In contrast, the yields offered by well-let property with index-linked uplifts continue to be much more generous,’ added Moore.
A drop in rental income after the sale of hospitals will leave the dividend uncovered by earnings but the board has previously stated it will maintain the level of payouts until cover is restored.
Assuming dividends are maintained at the last payout of 4.2p, the shares yield 3.9%. At 435p, the shares trade on a 3.4% premium over their end of June NAV. They have delivered an annual shareholder return of 21.7% since listing on the stock market five yeas ago, according to Numis Securities, which has the trust on its list of recommendations.