Prestbury Investments has appointed advisers to refinance the portfolio of Secure Income REIT ahead of a sale of the the REIT’s famous Madame Tussauds waxwork tourist attraction, Real Estate Capital can reveal.
Secure Income REIT, which is managed by Nick Leslau and Mike Brown’s Prestbury Investments, is looking to refinance the debt on the rest of its £1.15bn, long-leased portfolio which is made up of private hospitals and leisure attractions. Eastdil Secured and Morgan Stanley have been appointed.
The listed company currently has £1.13bn of net debt, which matures in 2017, all of which is held by Lloyds Banking Group. It is the bank’s biggest real estate position which it is still looking to offload post the downturn.
With the market having improved, the refinancing is set to put Secure Income REIT on a more stable footing by reducing its leverage and cutting debt costs.
The REIT was listed last June and owns 21 private hospitals in the UK, 20 of which are let to Australian private healthcare group Ramsay Health Care, and seven leisure assets let to Merlin Entertainments. The hospitals are let for a further 23 years and the leisure assets a further 35 years.
As well as London’s Madame Tussauds, the leisure assets include Thorpe Park, Warwick Castle, Alton Towers and Heide Park and its associated hotel in Saxony, Germany.
The ongoing sale of Madame Tussauds, which is being marketed by CBRE, is expected to bring in around £320m. This would reduce the company’s net assets from £1.47bn to £1.15bn and its net loan-to-value from 76.5% to 70% with an £88.3m payment.
The company is expected to put new leverage on the portfolio of between 50% and 60% implying it would look for between £575m and £690m of new finance.
The remaining portfolio will be made up of £727.5m of healthcare assets and £424.3m of leisure assets. The best available financing for each is unlikely to be from the same lender.
Assuming gearing levels of 50% – 60%, £363.75m – £436.m is sought for the healthcare assets and £212.15m – £254.6m for the leisure assets.
A refinancing at this level would leave a repayment shortfall of the Lloyds debt of £115m – £230m. The company could consider undertaking a rights issue in order to repay the debt, having only issued £15m of new shares when it was listed.
If Madame Tussauds sells for above £320m it could prompt a positive revaluation of the remainder of the Secure Income REIT portfolio. Were this the case this would decrease the loan-to-value across the portfolio, lessen the shortfall on the repayment to Lloyds and mean that any rights issue required would be smaller.
The new debt is unlikely to be sourced from traditional bank lenders given the long leases, but through issuers of long-term finance such as insurance companies, investment banks looking to securitise or the bond market.
The company’s German assets are currently valued at £66.7m and as they are a relatively small part of the portfolio may be part of any larger refinancing deal for the UK assets, despite their income being in Euros. However, given the highly competitive German banking market for local assets there may be an opportunity to finance them separately.
Gearing the company at a 50% – 60% level would bring it closer, though still higher, to the level of other UK REITs, which generally sit at around 35% – 40%. Higher gearing would be justified by Secure Income REIT’s defensive, long-leased portfolio and due to it containing no development projects.
The earlier the debt is pre-paid the greater the prepayment costs of the loan, but this is likely to be out-weighed by the current low interest rate and competitive lending environment.
Both of Secure Income REIT’s debt advisors have close links with the company. The company’s board includes Jonathan Lane, chairman of EMEA real estate investment banking at Morgan Stanley and long-term advisor to Leslau as well as Ian Marcus, senior advisor at Eastdil and the former managing director and chairman of Credit Suisse’s European real estate investment banking division.