The board of directors of Secure Income REIT Plc, the specialist long term income REIT, is pleased to announce that it has agreed to acquire 55 hotels with a weighted average unexpired lease term of 27 years with upwards only RPI linked rent reviews throughout the term, let to Travelodge Hotels Limited, the UK’s second largest budget hotel brand (the “Travelodge Portfolio”), at a total cost of €232 million (£196.2 million) including purchase costs reflecting a yield of 7% (the “Acquisition”).
To finance the Acquisition, the Company is proposing a placing to institutional investors of up to 46.9 million new ordinary shares in the Company (the “Placing Shares”) targeting gross proceeds of up to approximately €166 million (£140 millio)n (the “Placing” and, together with the Acquisition, the “Transaction”). The placing price will be 298.6 pence per share (the “Placing Price”), equal to the 30 June 2016 EPRA NAV per share adjusted for the completion of the Transaction. The balance of the consideration for the Acquisition will be financed via a new €71 million (£60 million) seven year non-recourse secured debt facility in respect of which the Company has the lender’s credit approval and is in advanced negotiations on documentation.
The Acquisition will be earnings accretive to the Company with the Travelodge Portfolio expected to produce €16.2 million (£13.7 million) of rental income per annum initially, rising in line with the upwards only RPI linked uplifts throughout the term. In addition, assuming completion of the Transaction, the Company’s Net LTV ratio will reduce from 59.5% to 56.0%.
Following completion of the Acquisition, the Company’s dividend yield is expected to increase by 14%, growing from a current level of 3.9% on 30 June 2016 EPRA NAV to 4.5% on the Placing Price. In addition, the Company’s long term contracted rental income with fixed and RPI linked rent reviews should continue to result in increased net rent every year and hence provides attractive dividend growth prospects which the board of directors (the “Board” or “Directors”) estimates should equate to 6.5% per annum over the first six years following the Transaction.
Martin Moore, Independent Non-Executive Chairman of the Company, commented: “Today’s proposed acquisition and placing are exciting for the Company and indicative of the strong ambitions we have to grow the business. This transaction delivers further upwards only RPI linked income, which will be significantly accretive to earnings, enabling us to continue to increase dividend payments and improve total shareholder returns. Furthermore, the acquisition expands and diversifies Secure Income REIT’s asset base through the purchase, at an attractive yield, of a portfolio of long lease assets in a highly robust sector, let to the UK’s second largest budget hotel chain.”