Rothesay, L&G and AIG line up £900m for Secure Income REIT

Rothesay Life, Legal & General and AIG are the frontrunners to lend close to £900m to refinance Secure Income REIT’s (SIR) leisure and private hospital assets.

Rothesay is believed to have agreed a 10-year facility of at least £350m secured on the UK REIT’s six leisure assets, which include Alton Towers theme park and Warwick Castle. L&G and AIG will lend at least £225m each for terms over 10 years to refinance the REIT’s 20 private hospital assets.

The refinancing will replace SIR’s two current facilities on its healthcare and leisure assets with Lloyds, which total about £1.1bn and mature in mid-2017. SIR, managed by Nick Leslau’s and Mike Brown’s Prestbury Investments, expects to cut its cost of debt by almost a third to around 4.5%.

In May, Secure Income REIT raised cash via the sale of its world famous Madame Tussauds wax museum for just over £330m to Taiwanese insurer Fubon Life.

Rothesay’s loan is its second significant investment to real estate private debt this year after taking the lion’s share of motorway service area group Extra MSA’s £220m bond issue in January. It was also the lead investor in Affordable Housing Finance’s £200m bond issue last year, to raise funds for the development of 2,200 affordable homes.

Established in 2007, the life assurance group is owned by Goldman Sachs, GIC, Blackstone and MassMutual and is being prepared for flotation. It has provided about £1.4bn in long-dated UK real estate debt, mostly secured on ground rents.

“We started doing real estate loans about a year-and-a-half ago. To match our liabilities we invest in very secure senior assets,” said Prateek Sharma, head of investment origination at Rothesay, who declined to comment on Secure Income REIT but spoke on the insurer’s debt strategy.

“As you’d expect we have liabilities in excess of 15 years duration, we look for long dated assets like social housing, commercial real estate debt and ground rent financings that we can match against those liabilities. The key for us is term certainty, so what we need is principal coming along at a particular date.”

SIR’s refinancing was signaled in the company’s annual report published in March and is expected to be agreed by end of the summer.

“With interest rates at historic lows, it makes sense for us to investigate whether an early refinancing of the portfolio would be in shareholders’ best interests,” said Secure Income REIT chairman Martin Moore in the annual report.

“This would present an opportunity to lock into lower interest rates for a longer period, but at the cost of breaking our interest rate swaps which otherwise expire in 2017 when the associated debt matures.”

SIR’s leisure destinations are let to Merlin Entertainments on long leases, with over 30 years remaining. There is one asset in Germany.

Almost all of its 20 UK healthcare properties are let to Australian private healthcare group Ramsay Health Care for a further 22-23 years with fixed rental uplifts or five yearly open market reviews, whichever is the higher. The average yield on the hospitals at the last 31 December valuation was 5.6%.

One Ramsay Health Care hospital, New Hall in Salisbury, was sold last March to LaSalle Investment Management for £49.8m, a net initial yield of 5,3%.

Eastdil Secured and Morgan Stanley are advising the Secure Income REIT.