Nick Leslau, chairman of Prestbury Group, the asset manager of Secure Income REIT, has predicted that the real estate market will see an uptick in activity following the UK’s eventual departure from the European Union but that ultimately the market will experience a cyclical slowdown.
Following the announcement of Secure Income REIT’s annual results, Leslau said: “There are so many political and economic potential headwinds out there it is difficult to say what the future is going to bring. Our view is that post-Brexit there is likely to be a bit of euphoria and a possible bounce back, but following Lehman, with the exception of around nine to 12 months, we have had a bull market.
“We have eye-wateringly low yields and all-time-high rents. How long can it be sustained? We think there will be a correction of some sort but that it won’t be that significant as there is still so much capital chasing real estate.”
Secure Income REIT reported a like-for-like increase in portfolio value of 5.1% to £2.3bn during 2018. EPRA NAV per share increased by 8.1% to 400.5p, with earnings per share also up by 8.1% to 14.7p
Leslau said that he was still comfortable with the long-let area of the market.
“The only thing we can say with a high degree of certainty is if you are in the real estate sector we feel pretty strongly that we want to be in our end, holding long-let, high-quality assets. It is about the most defensive position you can be in and that’s why management of Secure Income REIT has £170m behind this thesis.”
Secure Income REIT undertook £436m of acquisitions during 2018, having raised £315.5m through an equity issue, buying the Chiswell Street Brewery, Manchester Arena and 59 Travelodge hotels, but Leslau said that finding new acquisitions with strong covenants that fitted the company’s return criteria and were value-accretive was becoming increasingly difficult as yields continued to move in.
He said that the introduction of IFRS 16, the accounting regulation introduced at the start of the year whereby corporates now have to account for leases as liabilities on their balance sheets, had not been a major deterrent for sale-and-leasebacks, pointing to the likes of Goldman Sachs and KPMG, which have sold off their corporate real estate over the past year.
“The reality is that any company that has a long-lease obligation and has been worth their salt has been putting them in the notes of their accounts before anyway. Not a lot is changing as it has always been in the calculation of anyone looking at a company’s balance sheet who is a sophisticated observer. It is not a problem, but we are not seeing a lot of sale-and-leasebacks for the moment as there are cheaper ways of raising finance against real estate assets, although it will not definitely be that way for long.”
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