Secure Income REIT PLC (LON: SIR) – Lower Leverage and headroom of Uncommitted Facility are giving strength to withstand the market turmoil.

Secure Income REIT PLC is FTSE AIM UK 50 Index listed Company, which generates inflation-protected and stable long-term income from real estate investments. As of 31^st December 2019, the value of its investment property portfolio stood at £2.1 billion.

Recent News
4^th June 2020: Travelodge Hotels Limited put forward the Creditors Voluntary Arrangement for the review to the Company. The approval of which can result in a short-term reduction in rent by around £23.4 million.
23^rd April 2020: The Company declared an interim quarter dividend of 4.2 pence per share (for the year ended 31^st December 2019), which was paid on 29^th May 2020. The Group further updated that 74 per cent of the total rent due for the March ending quarter has been received.

COVID-19 Update (as on 6^th April 2020)
In this update, the Group affirmed its strong financial position despite the economic turmoil, while it has been focussing on keeping the stakeholders safe during the evolving impact of COVID-19. Moreover, the Group confirmed that 76 per cent of the rent that was due to date, was paid on time. During the difficult scenario, the Company has been supporting its tenants as it has a longstanding relationship with them. At the end of 31^st December 2019, the Group had £234 million of uncommitted cash. The Company also maintained its guidance of quarterly dividend at 4.2 pence per share.

Share Price Performance

Daily Chart as on 11^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Secure Income REIT’s shares were trading at GBX 271.50 on 11^th June 2020, which was down 1.63% against the last day closing price. Stock's 52 weeks High is GBX 476.00 and Low is GBX 180.00.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology


Valuation Metrics

(Source: London Stock Exchange)

As on 29^th May 2020 2020, the Price/Book and EV/EBITDA multiples of the SIR were 0.6x and 19.0x, respectively, which were lower as compared with the Real Estate Investment Trusts industry of 0.8x and 39.4x, respectively, reflecting that the Company is trading at a lower multiple as compared to its peers.
 
Growth Catalysts
The Company has a well-established relationship with its tenants which secures their rental income. The Group has a substantial level of uncommitted cash and the lowest ever level of net leverage, reflecting its ability to withstand the short-term storm.

Conclusion
During the financial year 2019, the Company reported a strong financial performance at both top-line and bottom-line items of the income statement. The net assets grew by 8.0 per cent in FY19 versus FY18, while the total shareholders return was up by 134 per cent and stood at 19.4 per cent in FY19 versus 8.3 per cent in FY18. The Company reported a substantial reduction in net loan to value to 31.9 per cent at the end of FY19. Even in the difficult scenario of FY20, the Group maintained its dividend guidance as the rental income continues to rise, and its earnings do not suffer materially. Overall, the Company has a resilient business model with the potential for long-term growth.

Based on the decent growth prospects and the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 265.50 (as on 11th June 2020, before the market close at 9.50 AM GMT+1) with lower double-digit upside potential based on 0.79x NTM Price/Book (approx.) on FY20E Book Value Per Share (approx.).

Empiric Student Property PLC – Decent Outlook with New Bookings Secured

FTSE-All Share listed Empiric Student Property Plc (LON: ESP) is a United Kingdom-based real estate investment trust company. The company acquires, develops and manages student accommodation properties.

Trading Update (as on 6^th May 2020)
On 6^th May 2020, the Group provided a further business and trading update. The Company said it anticipates a total decrease in income for FY20 of up to 12 per cent, which is short of the worst-case-scenario decrease in revenue of up to approximately GBP 21 million (earlier announced by the Group). ESP said it continues to receive bookings for FY21, with 47 per cent of rooms reserved. The Group stays well capitalised with a significant headroom (against its financial covenants) and healthy balance sheet. Currently, the Group has GBP 12 million of cash and GBP 35 million of undrawn debt facilities available.

Share Price Performance

1-Year Chart as at June-11-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 11^th June 2020, before the market close (at 8:30 AM GMT+1), Empiric Student Property PLC’s shares were trading at GBX 61 and were down by 2.56 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 104.00 /GBX 50.30.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology 


*Peers: Workspace Group Plc, Derwent London Plc, Urban&Civic Plc, Great Portland Estates Plc, and Unite Group Plc.


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, EV/EBITDA and Price/Book multiples of the Empiric Student Property were 27.7x, 0.6x, respectively, which were lower as compared with the Real Estate Investment Trusts industry. Hence, it is indicating that the Company is trading at a lower multiple against its peers.

Growth Catalysts
Both the top-line and the bottom-line performance have increased for the period (FY19). The Group made progress in its in-sourcing programme and revenue management remained on track for 2021 delivery.

Conclusion
Demand from international students is continuing, albeit at lower levels, but the Group said it is starting to see a surge in bookings from the UK domestic market. However, given ESP’s priority of conserving cash in this period of uncertainty, the Company said it had deferred the delivery of further 3 developments until market conditions stabilise. It also expects to report a double-digit reduction in income this academic year (FY20) but continues to see demand for accommodation for FY21. The Group witnessed a strong balance sheet. The company is closely monitoring the Impact of COVID-19 outbreak and is following advice from Public Health Scotland, Public Health England and the World Health Organisation. With effective cost management and operating efficiencies, the group witnessed a reduction in average cost per bed.

Based on the above rationale and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 60.30 (as on 11^th June 2020, before the market close at 10:10 AM GMT+1) with lower double-digit upside potential based on 34.27x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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