Secure Income REIT completes two-thirds of £885m refinancing requirement

Secure Income REIT, managed by Prestbury Investments, has refinanced two-thirds of its outstanding £885m debt, reducing its cost of debt by 110 basis points and negotiating a discounted pay-off of part of the listed firm’s swap breakage costs.

Blackstone Mortgage Trust and Rothesay Life have extended a £367m, seven-year senior loan secured by the REIT’s five-strong leisure portfolio – which include Alton Towers and Thorpe Park theme parks and Warwick Castle in the UK.

The facility, which is split 50:50, is also secured by the REIT’s two German assets: Heide Park theme park and the Heide Park hotel, both located in Soltau, Saxony.

At the end of December, the carrying valuation of the leisure portfolio was £507.5m, net of currency fluctuations on the euro-denominated tranche, which would imply an LTV of just above 70%. Secure Income REIT will provide latest asset valuations in its interim results later in September.

Legal & General, alongside a third party client, have provided a 10-year £220m senior loan secured by nine of the REIT’s healthcare assets in the UK.

Steve Boyle, lending manager at Legal & General, said: “We are delighted to form part of what was a large refinancing project with Secure Income REIT plc, particularly as it has enabled Legal & General to continue to expand its role in supporting the UK’s social infrastructure.”

Late last month, Secure Income REIT completed the sale of Madame Tussauds to Fubon Life for £332.5m – which reflected a 7.5% premium to its December 2014 carrying value of £309.3m.

Together the £587m refinancing announced today with the repaid debt following the Madame Tussauds sale and a single healthcare asset sale in March, has enabled the REIT to repay £849m of the group’s secured loan facilities. The vast bulk of which was to Bank of Scotland (BoS), the legacy Lloyds Banking Group lending business.

Lloyds, through a legacy BoS equity investment vehicle called PIHL Property LLP, remains a 23.6% shareholder in Secure Income REIT.

Secure Income REIT has a remaining £298.2m in outstanding debt which the firm plan to conclude the refinancing of shortly, reportedly another long term financing with AIG.

The two new facilities represent a 110 bps reduction in the weighted average cost of debt to 5.7%.

In a statement, the Secure Income REIT said the advantages of securing long term, low cost debt outweighed the costs of swap breakage costs on its interest rate swaps. The burden of which, the REIT managed to reduce by a 30% discounted repayment.

“The Board considers that, whilst doing so crystallises certain hedging break costs, the advantages of a lower cost and longer term debt structure, along with the benefits of obtaining finance well ahead of scheduled maturity and while the markets remain relatively strong, are compelling.

“Following an approach by the company to BOS, an agreement has been concluded such that swap break costs and other fees that would otherwise have crystallised as a result of the accelerated repayment of the Group’s loan facilities will be reduced by up to 30% of swap break costs, subject to a maximum of £27.5m, with amounts saved depending on the amount and timing of any early repayments. This is in recognition of the economic advantages to BOS of early debt repayments.

“As a result, the first of the conditions to the recent agreement with BOS has been met and swap break costs that would otherwise have amounted to £70.5m have been reduced by £14.1m.”

Eastdil Secured and Morgan Stanley provided debt advisory services to the REIT.

Martin Moore, chairman of Secure Income REIT Plc, said: “We are pleased to have concluded these significant steps in the transformation of the business through which we aim to increase profitability, generate attractive growth in shareholder value and ultimately to generate a stable stream of cash distributions once the process is complete.”

About CoStar News

Finance Editor, CoStar News
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