Interim Results
24/11/2022 07:00
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RNS Number : 4241H LXI REIT PLC 24 November 2022
24 November 2022
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) No 596/2014. This announcement has been
authorised for release by the Board of Directors
LXi REIT plc
(the "Company" or the "Group")
INTERIM RESULTS FOR THE HALF-YEAR ENDED 30 SEPTEMBER 2022
Financial highlights
Alternative performance measures Half-year to Half-year to Change
30 September 30 September
2022 2021
Dividend per share 3.15p 3.00p +5.0%
Total accounting return 0.1% 9.0% -8.9pts
EPRA EPS 3.6p 2.8p +28.6%
Adjusted cash EPS 3.1p 2.6p +19.2%
EPRA cost ratio 12.6% 17.3% -4.7pts
As at As at Change
30 September 31 March
2022 2022
Portfolio value(1) £3,656.6m £1,544.4m +136.8%
EPRA NTA per share (ex-dividend) (2) 139.7p 142.6p -2.0%
Pro forma net LTV(3) 33% 22% +11pts
IFRS performance measures Half-year to Half-year to Change
30 September 30 September
2022 2021
Rental income £75.5m £25.4m +197.2%
Operating profit before fair value changes £66.0m £21.0m +214.3%
IFRS EPS -2.3p 11.3p -120.4%
As at As at Change
30 September 31 March
2022 2022
Investment property at fair value(1) £3,911.3m £1,499.1m +160.9%
Net assets £2,448.2m £1,300.7m +88.2%
NAV per share 142.8p 142.7p +0.1%
· Dividends per share totalled 3.15p in respect of the half-year
(30 September 2021: 3.00p per share), which represents 5% growth on the
previous six-months
· Total net tangible asset ("NTA") return of 0.1% for the
half-year (30 September 2021: 9.0%)
· Since IPO, the Group has delivered an annualised total
accounting return of 10.1% pa compounded, well ahead of our 8%+ medium term
target(4)
· EPRA earnings per share ("EPS") were 3.6p and Adjusted cash EPS
were 3.1p for the half-year (30 September 2021: 2.6p), representing full
dividend cover for the period. The current run rate is materially higher than
these figures given the period (i) only included two months of the merger
efficiencies and benefits(5), (ii) reflected deployment of a significant
capital raise, and (iii) did not include the earnings accretive 'income strip'
sale which completed following the period end
· Portfolio independently valued at £3,656.6m, reflecting a
six-month like for like change of -1.4%. The movement reflects an outward
yield shift of 40 bps to 4.9% at 30 September 2022 (31 March 2022: 4.5%),
offset by 2.5% like for like rental growth(6)
· The Group's net assets increased by 88.2% to £2,448.2m (31
March 2022: £1,300.7m), driven predominantly by the share for share element
of the merger with Secure Income REIT plc ("SIR plc") (the "Merger")
· EPRA NTA per share (ex-dividend)(2) of 139.7 p (31 March 2022:
142.6p), reflecting a half-year decline in value of 2.0%, primarily driven by
yield expansion across certain property sectors in response to wider economic
conditions and the costs associated with the Merger, which represented less
than 1% of the combined portfolio value(1) offset by the value generated by
the Merlin 'income strip' sale
· Pro forma net loan to value ("LTV")(3) ratio of 33% (31 March
2022: 22%), with significant headroom to our medium-term borrowing policy cap
of 40% and substantial covenant headroom. We remain committed to a
conservative medium-term LTV target of 30%
The UK's leading sector diversified REIT
· During the period, LXi REIT plc merged with Secure Income REIT
plc to create the UK's leading sector-diversified, long income REIT, with a
substantial, defensive and resilient portfolio
· The scale achieved provides a strong foundation to deliver
secure attractive long-dated and growing income returns and capital protection
to our shareholders
· The Group owns an inflation-protected portfolio of 348
properties that are 100% occupied with an aggregate valuation of £3.7bn at 30
September 2022, contracted annual rental income of £200.7m and a WAULT to
first break of 26 years
· Our assets are well diversified across a broad range of
resilient sub-sectors with high barriers to entry, strong underlying property
fundamentals and low starting rents, and are let on very long-term leases to
tenant counterparties that have demonstrated strong performance throughout
previous economic cycles
· Our properties are strategically important to the operations of
our broad range of institutional-quality tenants
· Our shareholders continued to benefit from the certainty
provided by the Group's highly diversified, triple-net portfolio of secure
real estate assets, our conservative and 100% fixed or capped debt position
and our very low cost base
Portfolio summary
As at As at
30 September 31 March
2022 2022
WAULT to first break 26 years 21 years
Number of assets 348 193
Number of tenants 83 71
Let or pre-let 100% 100%
Portfolio diversification by sector (by contracted annual rent)
- Healthcare 22% 8%
- Budget hotels 21% 13%
- Theme parks 19% -
- Foodstores 9% 25%
- Industrials 7% 18%
- Others 22% 36%
Rent review type (upward only)
- RPI 41% 54%
- CPI 23% 19%
- Fixed 34% 23%
- Open market 2% 4%
Regular predictable rental growth profile
- Annual reviews 57% 37%
- Five-yearly reviews 43% 63%
- Capped indexed linked uplifts 44% 67%
- Average cap 3.8% 3.6%
- Collared index-linked uplifts 40% 54%
- Average collar 1.3% 1.5%
Post period end highlights
Dividends
· Announced a dividend of 1.575p per share for the quarter ended
30 September 2022, keeping the Company on track to meet its annual dividend
per share target of 6.3p(4)
Debt and hedging
· Following completion of the Merlin 'income strip' sale, the
Group repaid in full the outstanding facility amount of £232m plus break
costs on Merlin A Sterling facility. Break costs are fully provided in the
Company's accounts to 30 September 2022 and the pro forma net LTV of 33% is
stated after accounting for this transaction
· Closed out the related interest rate cap, receiving proceeds
£23.1m net of costs used to pay down the Company's revolving credit facility
Outlook
· The Group's substantial scale will enable it to benefit from
significant growth opportunities within our portfolio and in the market. The
Company has already begun to do so, with the earnings and NAV accretive
'income strip' transaction
· The Board expects the Company and its shareholders to benefit
from significant merger synergies, including approximately £8.6m of potential
annual administrative cost savings(5), with the Group now having one of the
lowest cost bases in the UK listed real estate sector. We have already begun
to see the positive impact of this on our income returns for this six-month
period and the Board remains confident that the full year results, which will
comprise eight full months of the combined business, will further demonstrate
this benefit
· Our priority is to own profitable assets that are attractive to
tenant operators in sectors with the most positive and stable outlook. In
doing so we can continue to provide sustainable inflation-protected income
returns and capital growth to our shareholders
· Our strategies of recycling capital, moving in and out of
sub-sectors, financing tenant growth ambitions through sale and leasebacks and
our ability to forward fund provide a platform with significant opportunities,
that we are confident will continue to deliver attractive returns over the
longer term
· The low level of gearing within the Group also provides a wider
range of refinancing options in respect of the facilities that fall due in the
near term and we continue to explore alternative refinancing options
· Even in the current economic climate, there remain
opportunities to find attractive leverage terms, particularly given the size,
diversification and defensive qualities of our portfolio and the low loan to
value ratio. The Board is confident in the Company's ability to refinance in a
way that will protect the Group's assets and cash flows and continue to
provide attractive returns to shareholders
· We continue to receive significant unsolicited interest in the
Company's high quality portfolio and expect to continue to selectively sell
assets where capital could be better allocated to enhance shareholder returns
· Notwithstanding the very challenging wider economic headwinds,
we remain confident that the underlying characteristics of our carefully
curated portfolio, supported by our proactive accretive recycling of capital
and asset management strategies, will enable the Group to continue to deliver
outperformance
Cyrus Ardalan, Chairman of LXi REIT plc, commented:
"This year's merger between LXi and Secure Income REIT has been truly
transformational for the Group. I welcome our new shareholders and thank all
our shareholders for their continuing support.
The merger has significantly enhanced the scale of our operation. It has also
strengthened the defensive characteristics of our portfolio, positioning us
well to navigate the economic headwinds the UK now faces. Furthermore, we
achieved significant cost savings from the merger, which will be visible in
our full year results.
Geopolitical uncertainty and soaring inflation have resulted in volatile
markets. Interest rates continue to rise, and the economy is projected to
enter a recession. I am, however, comforted by the Group's defensive portfolio
with diversified and very long-let assets, high quality tenant operators and
resilient sub-sectors that are non-discretionary or 'trade down' alternatives.
Our inflation protected rents and very long leases are already showing their
defensive qualities. As a result, rental growth has largely offset the
negative movement in our portfolio valuations to deliver a neutral total
return for the half-year.
In the months ahead we will be focusing on a number of important initiatives.
We are in the process of refinancing our shorter-term debt to provide
stakeholders with longer-term certainty and to underwrite our progressive
dividend policy. We plan to recycle capital through selective disposals to
reduce leverage or to capitalise on opportunistic purchases. Finally, we aim
to generate and protect value for shareholders through accretive asset
management initiatives.
I am confident in our ability to deliver on these objectives in the near-term
and that we are well placed to continue to generate attractive risk-adjusted
returns with inflation protection for our shareholders."
FOR FURTHER INFORMATION, PLEASE CONTACT:
LXI REIT Advisors Limited Via H/Advisors Maitland
Simon Lee (Partner, Fund Manager)
John White (Partner, Fund Manager)
Freddie Brooks (CFO)
H/Advisors Maitland (Communications Advisor) 07747 113 930 / 020 7379 5151
James Benjamin / Alistair de Kare-Silver lxireit-maitland@h-advisors.global
The Company's LEI is: 2138008YZGXOKAXQVI45
NOTES:
LXI REIT plc invests in UK commercial property assets let, or pre-let, on long
(typically 20 to 30 years to expiry or first break), inflation-linked leases
to a wide range of strong tenant covenants across a diverse range of robust
property sectors.
The Company may invest in fixed-price forward funded developments, provided
they are pre-let to an acceptable tenant and full planning permission is in
place. The Company will not undertake any direct development activity nor
assume direct development risk.
The Company is targeting a dividend of 6.3 pence per ordinary share for the
year which commenced on 1 April 2022(3).
The Company, a real estate investment trust ("REIT") incorporated in England
and Wales, is listed on the premium listing segment of the Official List of
the UK Listing Authority and was admitted to trading on the main market for
listed securities of the London Stock Exchange in February 2017.
The Company is a constituent of the FTSE 250, EPRA/NAREIT, MSCI and STOXX
Europe 600 indices.
Further information on the Company is available at www.lxireit.com
(http://www.lxireit.com)
Company presentation for investors and analysts
A Company presentation for investors and analysts will take place today, 24
November 2022, via a live webcast and conference call at 9.00am UK.
To access the live webcast, please register in advance here:
https://www.lsegissuerservices.com/spark/LXIREIT/events/f6fcc833-c0b7-4524-885c-c31907082f57
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To register for the live conference call, please use this link to receive
unique dial-in details:
https://cossprereg.btci.com/prereg/key.process?key=PDRNEHC3D
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The recording of the webcast presentation will be available later in the day
via the Company website: https://www.lxireit.com/results-centre
(https://www.lxireit.com/results-centre)
Alternative performance measures
The Group uses alternative performance measures including the European Public
Real Estate ("EPRA") Best Practice Recommendations ("BPR") to supplement IFRS
as the Board considers that these measures give users of the Annual Report and
Financial Statements the best understanding of the underlying performance of
the Group's property portfolio.
The EPRA measures are widely recognised and used by public real estate
companies and investors and seek to improve transparency, comparability, and
relevance of published results in the sector.
Reconciliations between EPRA and other alternative performance measures and
the IFRS financial statements can be found in Notes 24 and 25 and in the
Additional Information of the Company's Annual Report.
Definitions of alternative performance measures are given in the Key
performance indicators and EPRA performance measures sections or otherwise
included in the Glossary section of the Group's March 2022 Annual Report and
in the Additional Information on page 104.
1 The portfolio valuation includes forward funding commitments and
assets held for sale. A reconciliation between portfolio value and investment
property at fair value and IFRS is included in Note 8 to the condensed
consolidated financial statements
2 The EPRA NTA per share (ex-dividend) is stated after deducting
the dividend of 1.575p per share in respect of the quarter ended 30 June 2022,
that went ex-dividend on 29 September 2022 and was paid on 18 November 2022
3 Pro forma net LTV is stated after adjusting the value of
investment properties (the denominator) for property transactions that have
exchanged but not completed and for costs to complete forward funded assets
and net debt (the numerator) for property transactions that have exchanged but
not completed plus associated transaction costs and for costs to complete
forward funded assets
4 These are targets and not profit forecasts
5 The Merger documents included a quantified financial benefit
statement that set out the Directors' expectation that the Merger would
deliver potential annual administrative cost savings of approximately £8.6m
6 Like for like statistics presented in this report are calculated
by reference to combined independent valuations included in the public merger
documents performed by Knight Frank in respect of LXi REIT plc and CBRE in
respect of Secure Income REIT plc as at 31 March 2022
CHAIRMAN'S STATEMENT
Dear shareholder
This report covers the six-month period from 1 April to 30 September 2022, and
the maiden results for the enlarged Group, following the merger with Secure
Income REIT plc ("SIR plc") (the "Merger"), which completed in July 2022. I
welcome the new shareholders to the Company, and I am very pleased to report
to you for the first time.
The combined Group owns a substantial defensive and resilient portfolio,
providing a strong foundation to deliver secure attractive long-dated and
growing income returns and capital protection to our shareholders. Our assets
are well diversified across a broad range of resilient sub-sectors with high
barriers to entry, strong underlying property fundamentals and low starting
rents. They are let on very long-term leases to tenant counterparties that
have demonstrated strong performance throughout previous economic cycles.
We are currently experiencing challenging external economic headwinds marked
by market turbulence, political uncertainty, soaring inflation and rising
interest rates. Notwithstanding this, we remain confident that the underlying
characteristics of our substantial, defensive and carefully curated portfolio,
supported by our proactive accretive recycling of capital and asset management
strategies, will enable the Board and management team to continue to deliver
outperformance. Our shareholders continue to benefit from the underlying
strength and resilience provided by the Group's highly diversified, triple-net
portfolio of secure real estate assets that are let on very long leases with
sustainable rents, fixed debt costs and low operating costs. Our properties
are strategically important to the operations of our broad range of
institutional-quality tenant operators. Virtually all of our rent has
inflation-protection, through indexed or fixed uplifts, providing us with
substantial protection and the opportunity to generate rental growth in this
highly inflationary environment.
Merger with SIR plc
On 11 May 2022, the Company announced the terms of the proposed Merger. Voting
from respective shareholder groups demonstrated overwhelming support for the
merger, which completed on 6 July 2022. This six-month reporting period
includes only two full months of the results of the enlarged entity. The
merger has been treated as an asset acquisition for accounting purposes rather
than a business combination. Further detail of the accounting judgement can be
found in Note 2 of this report.
The Merger has created the UK's leading diversified, long income REIT. The
Group's substantial scale will enable it to benefit from significant growth
opportunities within our portfolio and in the market. The Company has already
begun to do so, with the innovative, earnings and NAV accretive 'income strip'
transaction that the management team executed on certain portfolio assets
previously of SIR plc.
The Group owns a portfolio of 348 properties that are 100% occupied with an
aggregate valuation of £3.7bn at 30 September 2022, contracted annual rental
income of £200.7m and a very long WAULT to first break of 26 years.
The Board expects the Company and its shareholders to benefit from significant
synergies, including approximately £8.6m of potential annual administrative
cost savings(1), with the combined Group anticipated to have one of the lowest
cost bases in the UK listed real estate sector. We have already begun to see
the positive impact of this on our income returns for this six-month period
and the Board remains confident that the full year results, which will
comprise eight full months of the combined business, will further demonstrate
this benefit.
Since the Merger, the management team has continued to execute the
complementary investment strategies employed by both LXi and SIR plc. This has
included a focus on long income real estate, diversification, conservative
leverage, and an active portfolio management strategy identifying
opportunities to unlock further value for shareholders.
The Board and management team remain committed to a conservative medium-term
LTV target of 30%. While the partial cash alternative for SIR plc shareholders
resulted in increased leverage in the short term, transactions since then have
seen management immediately reduce the Company's debt to a pro forma net LTV
of 33% at 30 September 2022.
Following the Merger, the Group has further strengthened its shareholder
alignment with the largest Board and management team stake of any UK REIT,
totalling £140m (at 30 September 2022), Moreover, the investment advisory
fees continue to be payable on the Company's market capitalisation. Following
the Merger, the Group also introduced a new lower investment advisory fee
tier, and incremental management fees are now charged at a modest 55 bps on
that part of the Company's market capitalisation in excess of £2bn.
The Merger documents included a quantified financial benefit statement that
set out the Directors' expectation that the Merger would deliver potential
annual administrative cost efficiencies of approximately £8.6m
Results and dividends
Despite challenging market conditions and volatility in share prices and
property values, the Company has delivered a resilient performance for the six
months with a total accounting return of 0.1% (30 September 2021: 9.0%).
The Group's net assets increased by 88.3% to £2,448.2m in total, during the
six-month period, driven predominantly by the share for share element of the
Merger. On a per share basis, the Group's EPRA NTA contracted by 2.0% over the
six months, primarily driven by:
· yield expansion across certain property sectors in the second
quarter in response to wider economic conditions including net outflows for
open ended funds and an increasing interest rate environment, offset
materially by index-linked rental growth, delivering a like for like portfolio
valuation change of -1.4% in the half-year; and
· the costs associated with the Company's merger with SIR plc,
which totalled £35.3m and represented less than 1% of the combined portfolio
value or 2.7 pence per share(1,2).
We are pleased that the total of our two quarterly dividends paid and declared
in respect of the year of 3.15p per share, represents continued progress
toward the 6.3p target that we set for the financial year(3).
1 Combined independent valuations included in the public merger
documents performed by Knight Frank in respect of LXi REIT plc and CBRE in
respect of Secure Income REIT plc
2 These costs have been recognised as additions to investment
property and expensed through the profit and loss account as a fair value
movement in the period, in accordance with IFRS
3 These are targets and not profit forecasts
Environmental, Social and Governance ("ESG")
ESG matters remain high on the Board's agenda and we recognise both the risks
and the opportunities presented. We are pleased that the Investment Advisor's
commitment to this area has facilitated both the appropriate focus on
improving the ESG characteristics of the portfolio and the appropriate
investment in specialist resource during the period.
Our ESG strategy is focussed on three key pillars:
1. Integration of ESG into the Company's investment policy - this has
meant both uplifting our minimum requirements for the relevant criteria on
asset acquisitions such as EPC ratings on built assets and BREAM ratings on
forward fundings, as well as interrogating our portfolio evaluations to
identify and capitalise on potential opportunities to improve further our
existing portfolio. Both have contributed to the portfolio improvements
outlined in the ESG section of the Company's Annual Report.
2. Charting a route map to a carbon neutral or net zero strategy - to
date, this has involved categorising the Group's carbon output into relevant
emission scopes (1, 2 and 3) and assessing the current level of emissions
within scopes 1 and 2. We are fully committed to assessing our scope 3
emissions but recognise the challenge in data collection from such a broad
range and large number of tenants. The Group is committed to setting a
science-based target date by the publication of the next annual report, for
the year ending 31 March 2023.
3. Improving stakeholder reporting -we have included the two disclosure
frameworks that we committed to in the ESG section of the Company's 2022
Annual Report, the widely recognised EPRA sustainability measures and the 11
recommended disclosures under TCFD.
Our commitment to ESG reflects our wider commitment to good stewardship but
also represents a great opportunity to identify asset management initiatives
to unlock further value in the Group's portfolio as our tenants face the same
pressures that we do, namely becoming more sustainable businesses and
contributing positively to the move to a green economy.
The management team continues to invest in and to identify areas where the
Company's portfolio could be better serviced, and the Board was pleased to
welcome Barbora Melezinkova to the Company's management team as Head of ESG.
Barbora is responsible for delivering on the ESG strategies detailed above.
Board changes
Following the Merger, the Board was delighted to welcome Nick Leslau and Sandy
Gumm to the Board as Non-Executive Directors. They bring invaluable expertise
and experience to the Board as well as intricate knowledge of the assets and
debt portfolio of SIR plc.
On behalf of the Board and management team, I would like to express my deep
thanks to Jan Etherden and Patty Dimond, both of whom stepped down as
Directors, for their contributions to the growth and success of the
Company since its IPO and for the strong legacy they leave.
The Board changes have also enhanced the Company's flexibility in managing
succession planning allowing for a more staggered range of tenure among the
Board. I very much look forward to continuing to work closely with the Board
to help steward the business to further success and outperformance for our
shareholders.
Outlook
The wider effects of the economic measures taken by the Government and Bank of
England to bring inflation under control, and the expectation of poor economic
growth in the near term have begun to impact property values in the UK. The
most impacted sectors so far are those that had the tightest spread to the
risk-free rate, such as industrial and logistics, and yield prints from
transactional evidence show some further decline in values since September
this year.
What is clear from the data available relating to long income property
valuations over multiple cycles, is that correlation between property yields
and debt rates is limited. Prime index property yields over the past 40 years
have intersected the 10-year gilt rate at various times and the long lease
sector has tended to be the most defensive sector of all, benefiting from a
flight to safety as well as the income growth provided by index-linked rent
reviews.
I take great comfort from the Board's collective experience through various
other challenging economic environments, such as the Global Financial Crisis
and the Covid-19 pandemic. This has provided us with significant insight on
the potential impact of market developments on our portfolio.
The impact of inflation for the Group's rental income is positive, given the
portfolio's rent review linkage to UK inflation (41% RPI, 23% CPI). We are,
however, cognisant of the potential impact that current levels of inflation
could have on the wider economy. This may also be an impact on the prospects
of our tenant operators but they can be managed by the rent review caps to the
mutual benefit of the Company and its tenants.
The Company has seen valuation yields expand 40 bps to 4.9% (31 March 2022:
4.5%), in the half-year. The indexation in the Group's portfolio has meant
that, despite this yield expansion, like for like value change was offset
materially, resulting in a -1.4% change in the year.
Implicit growth in the Group's income stream over the five years from October
2022, based on the RPI and CPI forward curves, means that on today's values
the portfolio would be yielding 5.6% in September 2027, or that the blended
NIY of our properties could expand a further 70 bps (all other things being
equal) before having any impact on the value.
The Group has certain refinancing events over the coming 12 months, with the
first in April 2023 (please refer to the Investment Advisor's report). The
management team has numerous levers to pull in this regard given the very
long, inflation protected leases within the portfolio secured to a wide range
of strong tenants and the low LTV levels. They are currently evaluating and
negotiating options for refinancing the near-term facility maturities. The
Board remains highly confident in the Company's ability to refinance in a way
that will protect the Group's assets and cash flows to continue to deliver on
our fully covered and progressive dividend policy.
It is clear that the current economic climate will begin to separate those
real estate companies whose business model has been driven by arbitraging a
low interest rate environment and passively benefiting from a tightening of
long income yields, from those that generate value for shareholders through a
strategy of active management of their underlying assets, quality and
experience of their management team, scale and availability of capital.
Rising interest rates will put pressure on income returns over the medium to
long term for all leveraged property investment companies, but the environment
also provides buying opportunities. We are already seeing significant buying
opportunities in the market from open-ended funds suffering net outflows and
are finding tenants more amenable to value-add opportunities that we identify
through our asset management strategies.
Capitalising on these opportunities will allow the Company to cement its
appeal to investors by continuing to provide attractive risk adjusted returns
against a challenging economic backdrop.
I thank both the Board and the management team for their continued work in the
year. Going forward we remain focused on managing both the risks and
opportunities that our portfolio presents. We remain highly confident on our
ability to successfully capitalise on the growth opportunities that we
continue to identify and on continuing to provide a secure and growing income
return to our investors. This will enable us to continue to enhance and unlock
sustainable value in our defensive, resilient portfolio for all our
stakeholders.
Cyrus Ardalan
Chairman
23 November 2022
INVESTMENT ADVISOR'S REPORT
Certain statistics and KPIs are alternative performance measures for which
definitions are given in the Key performance indicators and EPRA performance
measures sections and were otherwise included in the Glossary of the Company's
March 2022 Annual Report and in the Additional information section on page
104.
Portfolio overview
The Group's portfolio comprises 348 properties across 13 property sub-sectors
with multiple underlying uses. Our assets are let on very long leases, to over
80 separate market leading tenant operators on low and sustainable rents.
The Group's lease arrangements provide contracted annual rent of £200.7m
(inclusive of £0.6m that have exchanged but not completed) and have a
weighted average term of 26 years to first tenant break, with 98% containing
regular index-linked or fixed rental uplifts.
The portfolio is fully let and all leases require full repairing and insuring
by the tenant, protecting the Group from property cost leakage and capital
expenditure requirements.
The Group's property portfolio was independently valued at 30 September 2022
at £3,656.6m, excluding assets that had exchanged but not completed at the
reporting date, representing a like for like change of -1.4% over the
six-month period. The valuation reflects a blended net initial yield of 4.9%
(31 March 2022: 4.5%).
The portfolio like for like change of -1.4% was driven by an outward yield
shift of 40bps, significantly offset by 2.5% rental growth across the
portfolio.
Sector exposures
The portfolio is very well-diversified by sub-sector and our multi-sector
strategy gives downside protection and offers a broad universe of assets in
which to deploy or recycle capital. The strategy allows portfolio weightings
to be increased or reduced as appropriate to address changing risk and
outlook, and to pivot toward sectors in which we expect the best returns for
our shareholders.
The Group's main sector weightings (by contracted annual rent), including
asset acquisitions for which contracts have exchanged but have not yet
completed, are as follows:
Healthcare - 22%
The addition of 11 Ramsay private acute Hospitals and the Nightingale
Psychiatric Hospital, Central London's only private psychiatric hospital, saw
the sector weighting significantly increase from 8% to 22% immediately
following the Merger. On a like for like basis healthcare values were down
0.1% for the half-year, with market movements largely offset by a 2.8% like
for like increase in rents. The leases on the Ramsay hospitals are all
guaranteed by Ramsay Health Care Limited, one of the top five private hospital
operators in the world and the largest operator of private hospitals in
Australia, France and Scandinavia.
The acute care market has seen good operating performance post pandemic
particularly in the private pay markets with key operators reporting strong
results. Ramsay have generally seen a below peer group recovery from Covid-19
owing to their focus on NHS contracting, which is yet to establish momentum
post pandemic. However, Ramsay are well positioned to benefit significantly
from anticipated NHS contracts to address the waiting lists that built up over
the Covid-19 pandemic.
The healthcare property investment market is a sophisticated and efficiently
priced sub-sector of the wider UK property universe and an attractive
non-discretionary underlying use. Healthcare remains an active market,
particularly for best-in-class real estate.
Budget hotels - 21%
The budget hotels sub-sector has continued to perform extremely well with both
Travelodge and Premier Inn reporting operating KPIs well ahead of pre-pandemic
levels for the current year.
This positive trading has resulted in strong investor sentiment in the sector
over the period with recovery noted in the Travelodge hotel investment market.
Transaction volumes during the period have not yielded in significant value
growth and yields have broadly held flat.
Following the SIR plc merger, the sector weighting to hotels has increased
from 13% to 21%. On a like for like basis hotel values were up 4.6% in the
half-year, predominantly due to rental growth which contributed to 3.6%
growth, with yields remaining flat.
Theme parks - 19%
The Theme Parks portfolio, consisting of four parks and two associated hotels,
accounts for 19% of the portfolio by contracted rent and was acquired as part
of the SIR plc merger. On a like for like basis values have moved positively
with annual rental increases capped at 4% on the UK leases and the 3.34% fixed
uplift in the Heide Park (Germany) leases.
During the half-year, the Group sold an 'income strip' for proceeds of £257m,
representing 30% of the annual rental income receivable on the Thorpe Park and
the Alton Towers Park and Hotel assets of £27.1m. The 'income strip' was
structured as a sale of the freehold interest in these assets with the Group
taking a 999-year leaseback, pursuant to which the Group pays an annual rent
of £8.2m, which grows in line with the rental income received on the related
assets. The freehold reverts to the Group after 65 years for a £1 nominal
amount.
The Group therefore retains a net 70% of the rental income for the properties,
along with the freehold and all reversionary value after 65 years. The
properties are let to Merlin Attractions Operations Limited with 55 years
unexpired until first break, with a 35 year tenant option to extend on expiry.
The sale generated an attractive net initial yield of 2.96% (with the previous
book value of the freehold interest reflecting a 4.25% net initial yield on
passing rent). After the half-year, following completion, the Group used the
sale proceeds to fully repay the outstanding £232m debt on the Merlin A
facility.
The capped cost of this debt was 4.95% per annum (1.5% SONIA strike rate), and
thus in repaying it with the sale proceeds, the Company has created a material
level of earnings accretion. The debt repayment reduced the Company's pro
forma net LTV from 37% to 33%, in line with the Company's aim of returning to
a medium-term LTV target of 30%.
Merlin, the tenant of the UK attractions and the operator of the German park
and hotel, has reported strong trading performance in the UK in their
half-year review with robust consumer demand and elevated revenues per
visitor. All UK seasonal attractions were able to open as planned and have not
been affected by Covid-19 related restrictions in the period. The leases are
guaranteed by Merlin Entertainments Limited, which owns all of Merlin's
operating businesses worldwide. The company operates over 140 attractions in
24 countries and has the benefit of all of Merlin's global operations
including leading brands such as Sea Life Centres and Legoland Parks. Measured
by the number of visitors, Merlin is Europe's largest and the world's second
largest operator of leisure attractions, second only to Disney.
Foodstores - 9%
Valuations for foodstores have been challenged, delivering a like for like
valuation decline of 8.4% in the half-year, having been slightly offset by
0.4% like for like rental growth.
There remains liquidity in the sector particularly given the main positives of
strong and established tenant operators and non-discretionary and defensive
long-term use. Investors are always expected to see the sector as a safe haven
particularly where properties have a very long lease and indexation.
Industrial - 7%
Industrial asset valuations have seen a like for like reduction in the
half-year of 12.5%, predominantly due to yields widening as a result of the
repricing and availability of debt in the sector, with no movement in like for
like rents.
The Group's industrial assets continue to be underpinned by their strategic
(often mission-critical) importance to the occupiers for fulfilment of their
operations. Occupier demand continues to drive up market rents, resulting in
under renting in the portfolio, which should mean that yields are less
sensitive from passing levels set within the last five years.
As many of the rent reviews are capped inflationary uplifts, the Group's rents
remain affordable for occupiers and the vacant possession value is close to or
sometimes in excess of current valuation given the low level of rent being
capitalised in the valuation.
Pubs - 4%
Following the addition of 17 pubs in the SIR plc portfolio, all of which are
long let to highly established operators, the sector weighting to pubs
increased from 3% to 4%. Like for like values saw a marginal fall of 0.7% with
no like for like rental growth.
Operationally, Greene King and Stonegate have reported resilient sales
revenues and remain market leading operators, but the pub sector continues to
face headwinds from inflationary pressures on food, energy, and wage costs.
There has been very limited comparable transactional evidence in the property
investment market, partly due to an absence of long-let assets with indexed
leases within the sector.
Manchester Arena (the "Arena") - 4%
The Arena exposure incorporates the Manchester AO Arena (59%), Arena Point
offices (5%), Martin House offices and leisure space (22%) as well as
ancillary advertising, car parking and naming rights revenue (14%).
The tenant, SMG Europe Holdings Limited ("SMG") is progressing with
comprehensive upgrades of the Arena, increasing capacity from 21,000 to 24,000
to retain its status as Europe's largest indoor arena, introducing several
premium hospitality areas and creating a new primary entrance off Trinity Way.
SMG has publicly referred to £50m of upgrades. Works commenced in July 2022
and are due to complete by March 2023. The Arena will remain operational
throughout.
Yields have softened marginally across the tenants at the Arena offsetting the
5% capped indexed annual uplift in the SMG rent contributing to 3.3% like for
like rental growth to leave values in the sub-sector down 1.6% in the period.
Acquisitions and disposals
During the half-year, as part of the Merger, the Group acquired 160 investment
property assets. The transaction has been treated as an asset acquisition in
line with IFRS 3 guidance and all related costs were capitalised as additions
to investment property. In addition, the Group acquired the following assets
during the period:
· An Asda foodstore in Halesowen, Birmingham with a 22-year
unexpired lease term and five yearly fixed uplifts of 3% per annum compounded;
· a sale and leaseback acquisition of a Dobbies garden centre in
Reading with a 35-year unexpired lease term from build completion and annual
CPI +1% linked uplifts;
· a pre-let forward funding of a nursery school in Surrey with a
25-year unexpired lease term from build completion and five-yearly CPI linked
uplifts; and
· a pre-let forward funding of a Costa Coffee drive-thru asset in
Kendal with a 15-year unbroken lease term and five-yearly RPI linked uplifts.
The Group regularly recycles capital to crystalise profits, refresh the
portfolio and manage exposures. During the half-year, the Group disposed of:
· a Premier Inn and connected retail park in Saffron Walden for
£19.3m, which crystalised a 19% geared IRR; and
· unconditionally exchanged contracts to sell the Merlin 'income
strip' referred to under the Theme Parks section of this report (completed in
October 2022).
Asset management
The Investment Advisor constantly reviews the portfolio for opportunities to
unlock further value for our shareholders and to enhance the security of our
income. During and since the half-year, the Group executed the following
accretive asset management activities:
· the Group achieved Practical Completion of four of its pre-let
forward funding projects; a Premier Inn in Worksop, an Aldi anchored-scheme in
Berwick upon Tweed, a Costa in Bromsgrove and a Premier Inn in Porthmadog;
· the Group has identified eight of its sites where substantial
solar panel arrays can be installed. Terms have been agreed with the tenants
at five of the sites for the Group to fund the construction of the panels and
the tenants will acquire the electricity generated. It is expected the panels
will generate 2.2MWh. It is expected the income generated will be earnings
accretive. Negotiations are ongoing at the remaining three sites; and
· the Group has instructed solicitors on a further three sites
with Fastned to install EV car charging points.
Inflation and rent reviews
Since the reopening of the UK economy after pandemic lockdowns, inflation has
picked up significantly, CPI annual growth averaged 10.1% and RPI annual
growth averaged 12.6% for the half-year to September 2022. The Group's 97
contracted rental uplifts in the period were broadly capped or fixed and
delivered average growth of 3.7% pa, resulting in like for like rental growth
of 2.5%.
The Group's portfolio income is 98% index-linked or contains fixed rental
uplifts, which breaks down between RPI 41%, CPI 23% and fixed 34%. The Group's
fixed uplifts average 2.7% pa. Of the Group's portfolio, 40% of the rents are
subject to collared uplifts, which average 1.3% pa and 44% are subject to
capped uplifts, which average 3.8% pa. We therefore expect the Group to
capture the vast majority of inflation over the medium-term, but the Group is
also well protected against lower inflationary periods.
The portfolio's rent reviews are either on annual (57%) or five-yearly (43%)
cycles, and over the following five year period the Group expects the
following percentage of rental income to review in each financial year:
Year Annual Five-yearly Total
ending 31 March
2023 57% 8% 65%
2024 57% 5% 62%
2025 57% 5% 62%
2026 57% 11% 68%
2027 57% 10% 67%
Linking rental growth in the Group's portfolio to indexation seeks to provide
investors with inflation-protection, whilst also capitalising on the
traditional faster pace of inflation beyond commercial real estate open market
rents in the UK.
The possibility for continued higher inflation represents an opportunity for
the Company to generate superior returns for investors, given the inflation
linkage in the Group's portfolio rent reviews and the long-term lease
arrangements. That said, levels of inflation that are currently being
experienced in the UK could, over the longer-term, cause rents in the
portfolio to grow to the point where they materially exceed equivalent market
rental values, as well as potentially resulting in unsustainable rental growth
for tenants or in properties made less attractive to alternative operators due
to profit erosion.
The portfolio is protected from this risk in a number of ways, including
(i) capped and fixed rental uplifts giving the tenant (and the Group)
certainty of rental growth profile,
(ii) regularly entering brand new leases at very low rents through forward
fundings and sale and leaseback that provide a higher level of rent cover and
are therefore better able to withstand rental growth,
(iii) constant recycling of capital into new assets to refresh the portfolio
and maintain a low spread to market rents, and
(iv) focussing on well capitalised tenants with a high proportion of freehold
ownership and lower exposure to rents that are better able to ride out such
inflationary periods.
Financial results
Total accounting return
30 Sep 30 Sep
2022 2021
Half-year total accounting return 0.1% 9.0%
The Group's total accounting return comprises income, through dividends paid
to shareholders, and capital returns, through changes in EPRA NTA during the
period. A summary of the dividends paid and EPRA NTA movement is given below.
EPRA NTA
30 Sep 31 Mar
2022 2022
EPRA NTA per share (ex-dividend) 139.7p 142.6p
During the six-months, the EPRA NTA contracted 2.0%, broadly reflecting the
outward shift in valuations during the six-month period, compounded slightly
by the Group's leverage.
Dividend per share
30 Sep 30 Sep
2022 2021
Half-year dividend per share 3.15p 3.0p
In respect of the half-year, the Company has proposed dividends totalling
3.15p per share. The dividend per share reflects an increase of 5% on the
previous half-year.
Total expense ratio
30 Sep 30 Sep
2022 2021
Total expense ratio (annualised) 0.9% 1.0%
Following the successful merger with Secure Income REIT plc, a new lower
investment advisory fee tier was introduced, and incremental management fees
are now charged at a modest 55 bps (on market capitalisation above £2bn). The
reported TER includes only 85 days of the enlarged Group post-merger and we
expect the efficiencies of scale achieved to be demonstrated through further
reductions in the total expense ratio in the full year and in years ahead.
Loan to value
30 Sep 30 Sep
2022 2021
Pro forma net LTV 33% 25%
Pro forma net LTV is stated after adjusting the value of investment properties
(the denominator) for the acquisition price of properties that have exchanged
but not completed and for costs to complete forward funded assets and net debt
(the numerator) for the acquisition price of properties that have exchanged
but not completed plus associated acquisition costs and for costs to complete
forward funded assets.
In the medium-term, in line with our conservative leverage policy, our LTV is
expected to be maintained at approximately 30%. Current pro forma net LTV
provides significant headroom to the Group's borrowing policy cap of 40%.
Specific facility LTV is outlined below also showing the headroom between
actual LTV and default LTV. At 30 September 2022 there were £492m of
unencumbered assets, including assets under construction. The pro forma net
LTV and the below table exclude the Merlin A Facility of which repayment was
unconditionally committed at 30 September 2022.
Facility Lead lender Asset value 30 Sep 2022 LTV at 30 Sep 2022 Default LTV limit Tolerable variance in value(1)
Cross collateralised term loans Scottish Widows £567.2m 30% 50% 40%
RCF Lloyds and RBSi £457.5m 36% 50% 28%
Merlin B Facility Blackstone £629.9m 9% n/a n/a
Budget hotels 1 M&G £229.7m 26% 50% 49%
Budget hotels 2 M&G £228.7m 29% 50% 43%
Leisure facility HSBC £186.3m 32% 50% 36%
Healthcare 1 L&G £164.8m 38% 80% 52%
Healthcare 2 AIG £701.1m 42% 79% 47%
Unencumbered £491.5m
Total £3,656.6m
1 Reduction in value required to breach LTV default covenant from 30
September 2022 independent valuation
A number of the Group's facilities also require testing of interest cover
ratio ("ICR") and debt service cover ratio ("DSCR") covenants in order to
ensure the ability of the Group to meet its interest payments. The Group has
significant headroom on all of these covenants, the tightest ICR covenant
requiring a 40% loss of rent before breach.
Financing
The Group's current debt pool is secured against the majority of the Group's
investment properties and comprises the facilities listed below.
A summary of the facilities, including facilities repaid post period end is
included below:
Facility Lender Principal Maximum cost Maturity
Term loan Scottish Widows £55.0m 2.74% Dec 2033
Term loan Scottish Widows £40.0m 2.74% Dec 2033
Term loan Scottish Widows £75.0m 2.99% Dec 2033
RCF Lloyds Bank and RBSi £165.0m 2.95% Aug 2024
New facilities in the period
Acquisition facility Barclays and HSBC £385.0m 4.81%(1) May 2024(2)
Merlin B Facility Blackstone £54.6m(3) 4.95% Mar 2026(2)
Budget hotels 1 M&G £59.0m 2.71% Oct 2023
Budget hotels 2 M&G £65.4m 3.35% Apr 2023
Leisure facility HSBC £60.0m 3.20% Jun 2023
Healthcare 1 L&G £63.4m 4.29% Sep 2025
Healthcare 2 AIG £294.9m 5.30% Oct 2025
£1,317.2m 4.2% 3.2 years
Facilities repaid post period end
Merlin A facility Blackstone £232.0m 4.95% Mar 2026(2)
After the half-year, the Group fully repaid the Merlin A facility with the
proceeds from the Merlin 'income strip' sale. Following the repayment of this
facility, the weighted average fixed or capped interest cost across all
remaining facilities is 4.2% pa with a weighted average term to maturity of
3.2 years. Detail about refinancing plans is provided below in the Outlook
section.
The Group manages interest rate risk by either fixing (by way of fixed rate
facilities or swapping floating rates) or capping rates. Fixing the rate of
interest on these facilities gives the Group long-term certainty over its
ability to generate significant growth in the generation of free cash flows as
a result of largely collared index-linked and fixed rental uplifts, and the
positive effects of conservative leverage. The Group monitors the headroom on
ICR covenants regularly and at present reports significant headroom on all
facilities.
The Investment Advisor and Board are actively considering and negotiating
options for refinancing the near-term facility maturities. Our consideration
focusses on what timing and structure of a refinancing arrangement would
provide maximum downside protection on financial covenants, accretion of
earnings, maintenance of borrowings within the Company's conservative
borrowing policy and operational flexibility.
The balance sheet is well positioned with pro forma net LTV of 33%. As
referred to above, our tightest covenant across the Group's secured facilities
would require a 28% reduction in value to breach and the Group has significant
unsecured assets and cash to use if required before any remedial action is
taken.
The LTV within the Group also provides a wider range of refinancing options in
respect of the facilities that fall due in the near term. There remain
opportunities to find attractive leverage terms through, for example, 'income
strip' sales such as the one that the Group executed during the period. The
Investment Advisor is confident in the Company's ability to refinance in a way
that will protect the Group's assets and cash flows and continue to provide
attractive returns to shareholders.
Of course, in an environment where debt yields are wider than equity yields,
it makes sense to strategically dispose of assets to reduce the debt stack and
near term refinancing events provide an opportunity to do that. The Investment
Advisor continues to receive significant unsolicited interest in the Company's
high quality portfolio both for disposals and 'income strip' sale
opportunities and expects to continue to selectively sell assets where capital
could be better allocated to enhance shareholder returns.
1 Capped interest rate of acquisition facility based on average
margin over first 12-months of the term beginning 11 May 2022 of 1.81% and a
300 bp strike rate on 3-month SONIA
2 Assumes extension options are exercised
3 Loan principal is in Euros hedging the NAV and income exposure
to Euro through the German asset. Translated to GBP at a rate of 0.88 to the
EUR
Outlook
The UK's economic outlook suggests significant headwinds with downgrades on
growth forecasts and high and growing levels of inflation continuing into
2023. Central banks across the world are expected to continue to increase
interest rates to levels not seen since before the Global Financial Crisis. A
sharp spike in the Gilt rate toward the end of the period saw a rebasing of
share prices across the UK listed property market as capital flowed out of the
sector.
Share prices of UK listed property companies have stabilised since the period
end but the sector remains deeply discounted to latest asset values suggesting
investors require a higher rate of return from property companies, and/or are
forecasting downgrades in income returns as well as valuations.
Although UK property values and in particular the inflation-protected long
income sector, have not traditionally correlated with the cost of debt, a mass
capital outflow from long income funds leading to fire sales and the impact of
debt costs on required investor returns has had a significant impact on
property valuations. Where values stabilise has yet to be seen, the sector is
much better placed to deal with the challenging economic climate than it was
in 2008 with materially lower levels of gearing.
The open-ended funds continue to struggle to deal with net outflows and this
forces disposals and may have a ripple effect across the market, but this can
present an opportunity to the Company, as well as a challenge.
Our priority is for the Group to own profitable assets that are attractive to
shareholders in sub-sectors with the most positive and stable outlook. In
doing so, the Group can continue to provide sustainable inflation-protected
income returns and capital growth to its shareholders. Our strategies of
moving in and out of sub-sectors, financing tenant growth ambitions through
sale and leasebacks and forward funding pre-let developments to provide a
platform with significant opportunities, that we are confident will continue
to deliver attractive returns over the longer term. This is in sharp contrast
to the wider property market where single sector focus means that capital
recycling is often unappealing and capital returns are sector correlated and
are often reliant on single sector yield compression for growth.
In these challenging times, our focus remains to:
· execute an attractive refinancing plan that will push out
maturities and underpin the Company's long-term progressive dividend policy
and capital preservation and growth
· protect and enhance shareholder value through accretive recycling
of capital, asset management initiatives and maintaining a very long WAULT and
diversification
· reduce leverage through selective disposals to improve balance
sheet strength and protect progressive income returns
In addition, market uncertainty, in particular in an economy where significant
property asset value is still held in liquid open-ended fund structures, will
potentially present buying opportunities. Change also often sees the emergence
of new sub-sectors. We remain confident that our defensive strategy is well
placed to deliver attractive risk adjusted income and capital returns to
shareholders.
For and on behalf of the Investment Advisor
Simon Lee Frederick Brooks
Director Director
LXi REIT Advisors LXi REIT Advisors
23 November 2022 23 November 2022
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Statement
The Company is committed to integrating environmental sustainability and
social impact matters into its strategy and to continually enhancing its
approach.
The Board of Directors and the Investment Advisor recognise that many of the
company's stakeholders both share and benefit from this. We therefore seek to
execute our investment strategy whilst contributing positively to the
environment and society and maintaining the highest standards of governance.
Governance
The Company's investment activities are overseen by the Company's
non-executive Board of Directors. The Investment Advisor and the Board work
together to ensure proper execution of the Company's investment strategies,
consistent application of policies, compliance with procedures and compliance
with local and regional regulatory requirements.
The Group has a mature structure of governance, compliant with the AIC Code of
Corporate Governance, which is detailed in the Group's Annual Report. The
Group's governance complies with its enhanced ESG policy adopted in 2021.
In this half-year, the Investment Advisor appointed Barbora Melezinkova as
Head of ESG as it continues to accelerate its environmental sustainability and
social impact agenda. Barbora will lead on all ESG matters and has joined from
Legal & General Investment Management ('LGIM'), where she was the ESG
Lead on LGIM's long income property funds.
Key decisions and relationships with stakeholders
Each year, the Group is required under section 172(1) of the Companies Act
2006 to report on how it considered the wider stakeholder needs in its key
decisions. The key stakeholders are considered to be shareholders, tenant
operators, service providers, employees, lenders, wider society and the
environment. Further information on stakeholder assessment (which is unchanged
in the half-year) is given in the Group's 2022 Annual Report on pages 33 and
34.
The Board considered the July Merger, further detail of which is covered
within the main report, the most fundamental decision of this half-year
period. The 160 new assets brought into the portfolio as a result present
further opportunity for LXi to invest into decarbonisation initiatives and
improve UK's existing built environment stock.
Environmental
The Climate Risk Working Group ("CRWG"), formed in 2021 and comprising members
of the Board of Directors and the Investment Advisor, set the following three
longer term goals for the Group:
1. Integrate climate-related matters into our investment process
2. Map a route to a net neutral target for the business
3. Improve investor reporting
An interim update on progress against these three key goals is detailed below.
1. Integration of the enhanced ESG policy
Our investment process is being aligned to our enhanced ESG policy
(https://uploads-ssl.webflow.com/5b363488036cc3c69396d69e/61a7c9e5e1b9565f231f163d_ESG%20policy.pdf)
through a standing agenda item at quarterly Board meetings, where the CRWG
reports updates on ongoing initiatives and compliance with the policy,
covering both due diligence on new acquisitions and asset management across
the existing portfolio.
New acquisitions:
· Investment Committee: During the period, the Investment Advisor
formed a new formal Property Investment Committee and while ESG considerations
have already formed a key component of transactional due diligence for some
time, enhanced scrutiny by the IC will further solidify the integration of
these considerations into everyday practice and facilitate a widening scope of
ESG due diligence requirements over time
· Forward-funded developments: The Company expects new buildings to
meet high standards of environmental performance and to promote the health and
well-being of both the building occupiers and the wider community. We target
for new buildings to have a BREEAM rating of at least ''Very Good".
Existing assets:
· Renewable energy tariffs: The remainder of landlord-controlled
areas in the portfolio, previously tied into long-term contracts, have now
been switched over to renewable energy providers, resulting in all
landlord-controlled areas now being supplied through green energy suppliers
· Decarbonisation of assets: In addition to the EPC improvement
reports focused on new acquisitions and assets with the poorest energy
efficiency, now in place for 11% of assets by passing rent, more detailed Net
Zero Carbon roadmap audits have been instructed across an initial batch of
seven assets in the portfolio accounting for a further 3% of the total
September rent roll, selected based on a combination of factors including
current energy efficiency, size of asset, expected feasibility of
implementation and ability to move the dial on the portfolio as a whole. The
next step will be to assess the viability of implementation of the
decarbonisation recommendations, in close collaboration with our occupiers,
and to use this pilot exercise to inform a strategy for a potential delivery
of decarbonisation roadmaps across the rest of the portfolio.
· Asset management initiatives:
Car charging: two sites currently in solicitors' hands
Solar panel installation: three deals to fund solar PV installation are
currently in solicitors' hands. These initiatives will generate a return on
investment as well as significant savings for the occupiers; more detail is
included in the Asset Management section of the Interim Report. Heads of Terms
to fund PVs are in circulation across two additional properties, and initial
discussions have also been had about PV funding opportunities across a further
three tenant organisations
· Biodiversity pilot: A proposal for a biodiversity enhancement
strategy has been delivered for the Columbus Quarter retail scheme in Andover.
Implementation stage of this pilot is planned for Q1-23, subject to
viability
· Occupier engagement: We continue to proactively build
relationships with senior management personnel at our occupier organisations
specifically responsible for energy management and ESG strategy, in order to
align our respective environmental sustainability and social impact agendas
and seek out opportunities to collaborate on implementation of initiatives,
including the decarbonisation of buildings
· EPC ratings: While the position within the original LXi portfolio
remains broadly unchanged since the March report, we are currently in the
process of compiling EPC ratings across all 160 assets brought into the
portfolio from SIR plc. At a high level, approximately 87% of the incoming
properties now have an EPC rating. Of those with a rating in place, 45% of
units are rated C or above, 37% are Ds and 18% are E or below. Our focus will
initially be on improvements to the properties rated D and below and
prioritising lowest ratings first, in line with the existing approach.
2. Mapping the route to an environmental target for the business
The Company is on track to establish a decarbonisation roadmap for the
portfolio, which will be set out in full in the next annual report to March
2023.
3. Improve investor reporting
Task Force on Climate-related Financial Disclosures ("TCFD"): Since March
2022, the Group's annual ESG reports are now disclosing against all 11
recommendations of the TCFD.
EPRA sBPR rating: LXi was assessed on its disclosure of performance measures
and compliance to the overarching recommendations of the EPRA sBPR rating
framework. The 2022 assessment achieved a vastly improved score compared to
the 2021 disclosure (a 40-point improvement out of 100), signalling a very
positive advancement trajectory in this area of reporting.
ESG reporting dashboard: in order to better quantify progress on ESG matters,
an ESG reporting dashboard is currently being developed for the portfolio. We
will use this to more precisely track ESG KPIs, improvements and initiatives.
Social
Charity involvement
The Investment Advisor is a member of The Academy of Real Assets, a
philanthropic members' group whose aim is to have a significant, positive
social impact on underprivileged students from schools across the UK.
The Academy of Real Assets supports members to pool resources to deliver the
maximum social impact, rather than relying on individual entities to deliver
their own strategy and more information can be found at
www.acadrealassets.com.
Forward funded developments
The Company does not undertake direct development but forward funds
development projects. The Company's developments always have support from
local authorities to have received planning consent prior to executing the
funding agreement and as such are expected to provide positive public benefits
and support local communities through provision of accessible amenities and
employment opportunities. We prioritise the use of local developers.
The Company uses its influence to encourage those developers to identify and
consult with a wide range of stakeholders in the local community and to
minimise any negative impacts or disruption to the local community during
construction.
People and culture
The Company is committed to diversity and inclusion and our aspiration is to
have a Board and key service providers that are representative of society and
our wider stakeholder groups. Following the retirement of two female Board
members, the Board now comprises four male and two female Directors and the
Investment Advisor comprise 50% male and 50% female employees.
PROPERTY PORTFOLIO
Tenant group Contracted rent Rental exposure
Merlin Entertainment £37.9m 19%
Ramsay Healthcare £36.3m 18%
Travelodge £35.9m 18%
Q-Park £4.4m 2%
SMG Arena £4.4m 2%
Bombardier £4.1m 2%
The Brewery £3.8m 2%
Sainsburys £3.5m 2%
Compass £3.4m 2%
Asda £3.2m 2%
Dobbies Garden Centres £3.2m 2%
Capita £2.9m 1%
Greene King £2.6m 1%
Premier Inn £2.6m 1%
Co-op £2.5m 1%
Other tenants £49.9m 25%
Total £200.7m 100%
Sector Contracted rent Rental exposure
Healthcare £45.1m 22%
Budget hotels £41.7m 21%
Theme parks £37.9m 19%
Foodstores £18.9m 9%
Industrial £14.3m 7%
Pubs £8.7m 4%
Arena £7.0m 4%
Car parks £4.4m 2%
Garden centres £3.2m 2%
Life sciences £2.9m 1%
Drive-thru coffee £2.8m 1%
Education £2.2m 1%
Other £11.5m 7%
Total £200.7m 100%
1 ERVs of assets that had exchanged but not
completed at the reported date are assumed to be let at market rents
Rental uplifts Contracted rent Rental exposure
RPI linked £81.9m 41%
CPI linked £45.1m 23%
Fixed uplifts £69.1m 34%
Open market £4.5m 2%
Total £200.7m 100%
Unexpired lease term to first break Contracted rent Rental exposure
20-years+ £100.7m 50%
More than 14-years, £86.7m 43%
fewer than 19-years
More than 9-years, £11.6m 6%
fewer than 14-years
More than 5-years, £0.9m 0%
fewer than 9-years
Fewer than 5-years £2.6m 1%
Total £200.7m 100%
Location Contracted rent Rental exposure
South East £41.9m 21%
West Midlands £34.5m 17%
East of England £29.8m 15%
North West £23.5m 12%
Yorkshire and the Humber £17.1m 8%
Scotland £13.6m 7%
South West £12.6m 6%
North East £8.7m 4%
East Midlands £7.9m 4%
Germany £7.4m 4%
Wales £2.6m 1%
Northern Ireland £1.2m 1%
Total £200.7m 100%
KEY PERFORMANCE INDICATORS
Our objective is to deliver attractive, low risk returns to shareholders, by
executing our investment policy. Set out below are the key performance
indicators ("KPIs") we use to track our performance. Comparative averages
since IPO are stated to 31 March 2022.
KPI and definition Relevance to strategy Performance
30 September 2022 Comparative periods
1. Total accounting return Total accounting return measures the ultimate outcome of our strategy, which 0.1% 18.2% (year ended 31 March 2022)
is to deliver value to our shareholders through our portfolio and to deliver a
Total accounting return measures the change in the EPRA NTA and dividends secure and growing income stream. A reconciliation of total accounting return 9% (half-year ended 30 September 2021)
during the period as a percentage of EPRA NTA at the start of the period. We is provided in the Additional Information section.
are targeting a minimum of 8% per annum over the medium term.
Average compounded annual total accounting return since IPO 10.1% 11.4%
2. Dividend per share The dividend reflects our ability to deliver a low risk but growing income 3.15p 6.00p (year ended 31 March 2022)
stream from our portfolio and is a key element of our total accounting return.
Dividends paid to shareholders and proposed in relation to a period. 3.0p (half-year ended 30 September 2021)
Average compounded annual dividend growth since IPO 5% 5%
3. EPRA Net Tangible Assets ("NTA") (ex-dividend) The NAV reflects our ability to grow the portfolio and to add value to it 139.7p 142.6p (at 31 March 2022)
throughout the life cycle of our assets.
A measure of NAV designed by EPRA to present the fair value of a company on a 134.0p (at 30 September 2021)
long term basis. Assumes that entities buy and sell assets, thereby
crystallising certain levels of unavoidable deferred tax.
Average compounded EPRA NTA growth since IPO 6.5% 7.6%
4. Pro forma net loan to value The LTV measures the prudence of our financing strategy, balancing the 33% 22% (at 31 March 2022)
additional returns and portfolio diversification that come with using debt
The proportion of our total assets that is funded by borrowings. Our against the need to successfully manage risk. 25% (at 30 September 2021)
medium-term target LTV is 30%.
5. Adjusted earnings per share The Adjusted earnings per share reflects our ability to generate income from 4.0p 7.0p (year ended 31 March 2022)
our portfolio, which ultimately underpins our dividend payments. A
Post-tax Adjusted earnings per share attributable to shareholders, which reconciliation of Adjusted earnings is included in Note 24 to the consolidated 3.5p (half-year ended 30 September 2021)
includes the licence fee receivable on our forward funded development assets financial statements.
treated under IFRS as discounts to investment property acquisitions.
6. Total expense ratio The total expense ratio is a key measure of our operational excellence. 0.9% 1.0% (year ended 31 March 2022)
Maintaining a low cost base supports our ability to pay dividends.
The ratio of total operating expenses, including management fees expressed as 1.0% (half-year ended 30 September 2021)
a percentage of the average net asset value.
The measure is annualised for half-year periods by multiplying the operating
expenses by two.
7. Weighted average unexpired lease term The WAULT is a key measure of the quality of our portfolio. Long lease terms 26 years 21 years (at 31 March 2022)
underpin the security and predictability of our income stream.
The average unexpired lease term of the property portfolio weighted by annual 23 years (at 30 September 2021)
passing rents. Our target WAULT is a minimum of 20 years.
8. Percentage of contracted rents index-linked or fixed This measures the extent to which we are investing in line with our investment 98% 96% (at 31 March 2022)
objective, to provide inflation-linked returns.
This takes the total value of contracted rents that contain rent reviews 96% (at 30 September 2021)
linked to inflation or fixed uplifts.
EPRA PERFORMANCE MEASURES
The table below shows additional performance measures, calculated in
accordance with the Best Practices Recommendations of European Public Real
Estate ("EPRA"). We provide these measures to aid comparison with other
European real estate businesses.
Reconciliations of EPRA Earnings and NAV measures are included in Notes 24 and
25 to the consolidated financial statements respectively. Reconciliations of
other EPRA performance measures in the Notes to the EPRA and alternative
performance measures further below.
Measure and Definition Purpose Performance
30 September Comparative periods
2022
1. EPRA Earnings Per Share A key measure of a company's underlying operating results and an indication of 3.6p 6.1p (at 31 March 2022)
the extent to which current dividend payments are supported by earnings.
2.8p (at 30 September 2021)
2a. EPRA Net Tangible Assets ("NTA") Assumes that entities buy and sell assets, thereby crystallising certain 141.3p 142.6p (at 31 March 2022)
levels of unavoidable deferred tax.
2b. EPRA Net Tangible Assets ("NTA") (ex-dividend) 135.5p (at 30 September 2021)
139.7p (ex-dividend)
3. EPRA Net Reinstatement Value ("NRV") Assumes that entities never sell assets and aims to represent the value 156.3p 153.7p (at 31 March 2022)
required to rebuild the entity.
142.5p (at 30 September 2021)
4. EPRA Net Disposal Value ("NDV") Represents the shareholders' value under a disposal scenario, where deferred 138.6p 143.7p (at 31 March 2022)
tax, financial instruments and certain other adjustments are calculated to the
full extent of their liability, net of any resulting tax. 133.6p (at 30 September 2021)
5. EPRA Net Initial Yield ("NIY") EPRA NIY is annualised net rents on investment properties as a percentage of 5.2% 4.5% (at 31 March 2022)
the investment property valuation, less purchaser's costs.
4.8% (at 30 September 2021)
6. EPRA 'Topped-Up' NIY The 'topped-up' measure incorporates an adjustment to the EPRA NIY in respect 8.4% 6.6% (at 31 March 2022)
of the expiration of rent-free periods (or other unexpired lease incentives
such as discounted rent periods and step rents). 7.2% (at 30 September 2021)
Note under IFRS stepped rents and collared uplifts are treated as lease
incentives and as such are factored into the top up.
7. EPRA Vacancy A 'pure' (%) measure of investment property space that is vacant, based on 0% 0% (at 31 March 2022)
ERV.
0% (at 30 September 2021)
8. EPRA Cost Ratio (including and excluding voids) A key measure to enable meaningful measurement of the changes in a company's 12.6% 15.9% (at 31 March 2022)
operating costs.
17.3% (at 30 September 2021)
9. EPRA LTV A key (shareholder-gearing) metric to determine the percentage of net debt 30% 13% (at 31 March 2022)
comparing to the appraised value of the properties
20% (at 30 September 2021)
PRINCIPAL RISKS AND UNCERTAINTIES
The Audit Committee, which assists the Board with its responsibilities for
managing risk, regularly considers changes to the principal risks and
uncertainties of the Group. Following those presented on page 35 of the 31
March 2022 Annual Report, the following risks are no longer deemed principal
risks of the Group but remain on the internal risk register:
- Covid-19 global pandemic
- Competition for properties
- REIT status
The following risks have been added as principal risks in the period:
- Ability to access attractive debt capital for refinancing
Global and local political and economic uncertainty has resulted in a
repricing of risk and in some parts of the market a reduction in the
availability of debt capital. Furthermore, the UK is currently experiencing
high levels of inflation and the Bank of England has responded by multiple
successive interest rate increases, contributing to an increasing cost of debt
finance. The current weighted average term to maturity of the Group's debt is
3.2 years and the Group has certain staged refinancing events over the coming
12 months beginning in April 2023. This presents a risk to the Group of
refinancing upcoming maturing debt on attractive terms. The Investment Advisor
and Board regularly review the Group's financing arrangements and considers
options for refinancing. There remain opportunities to find attractive
leverage terms through for example inflation linked debt, hybrid debt/equity
products and 'income strip' sales such as the Group executed during the period
in addition to more conventional debt financing which still remains available.
The Board is confident in the Company's ability to refinance in a way that
will protect the Group's assets and cash flows and continue to provide
attractive returns to shareholders.
The condensed consolidated financial statements have been prepared on a going
concern basis (Note 1).
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that to the best of their knowledge this condensed set
of financial statements has been prepared in accordance with UK-adopted IAS 34
and that the operating and financial review includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority namely:
· an indication of important events that have occurred during the
period and their impact on the condensed consolidated financial statements and
a description of the principal risks and uncertainties for the remaining six
months of the financial year; and disclosure of any material related party
transactions in the period are included in Note 20 to the condensed
consolidated financial statements.
A list of the Directors is shown in the Company Information section of the
Interim Report. Shareholder information is as disclosed on the LXi REIT plc
website at www.lxireit.com.
For and on behalf of the Board
Cyrus Ardalan
Chairman
23 November 2022
INDEPENDENT REVIEW REPORT TO LXi REIT PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2022 which comprises the condensed consolidated statement of
comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated cash flow statement, the condensed
consolidated statement of changes in equity and related notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in Note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
23 November 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2022 2021 2022
Note £m £m £m
Rental income 4 75.5 25.4 58.5
Administrative and other expenses 5 (9.5) (4.4) (9.3)
Operating profit before change in fair value and gain on disposal of 66.0 21.0 49.2
investment property
Change in fair value of investment property 8 (80.3) 55.5 117.7
Loss on disposal of investment property 8 (0.1) - -
Change in fair value of financial instruments 25.0 0.1 1.2
Operating profit 10.6 76.6 168.1
Finance income 0.1 - -
Finance costs 6 (17.6) (3.0) (6.8)
Loss on extinguishment of debt 6 (20.6) - -
(Loss)/profit before tax (27.5) 73.6 161.3
Taxation 7 (1.7) 0.7 0.7
(Loss)/profit for the period (29.2) 74.3 162.0
Other comprehensive income
Currency translation gain 1.7 - -
Total comprehensive (loss)/income attributable to shareholders (27.5) 74.3 162.0
(Loss)/Earnings per share - basic and diluted 24 (2.3)p 11.3p 22.8p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 September 2022 30 September 31 March
2021 2022
Note £m £m £m
Non-current assets
Investment property 8 3,911.3 1,171.4 1,480.1
Fixed assets 0.2 - -
Total non-current assets 3,911.5 1,171.4 1,480.1
Current assets
Trade and other receivables 11 11.3 10.0 19.4
Amount receivable from 'income strip' sale 11 257.0 - -
Assets held for sale 9 - 20.7 19.0
Deferred acquisition costs 0.1 0.4 0.7
Derivative financial instruments 39.8 0.1 1.2
Restricted cash 12 19.0 4.0 -
Cash and cash equivalents 12 95.3 20.6 72.5
Total current assets 422.5 55.8 112.8
Total assets 4,334.0 1,227.2 1,592.9
Current liabilities
Trade and other payables 13 112.2 23.2 38.6
Other financial liabilities 13 8.2 - -
Bank borrowings 14 739.8 - -
Current tax payable 13 0.9 - -
Total current liabilities 861.1 23.2 38.6
Non-current liabilities
Bank borrowings 14 727.2 243.5 240.0
Leasehold liabilities 13 36.4 12.0 13.6
Other financial liabilities 13 248.8 - -
Deferred tax 7 12.3 - -
Total non-current liabilities 1,024.7 255.5 253.6
Total liabilities 1,885.8 278.7 292.2
Net assets 2,448.2 948.5 1,300.7
Equity
Share capital 15 17.1 7.0 9.1
Share premium reserve 16 2,120.6 645.5 940.0
Other reserves 9.1 53.1 21.0
Retained earnings 301.4 242.9 330.6
Total equity 2,448.2 948.5 1,300.7
Net asset value per share - basic and diluted 25 142.8p 135.5p 142.7p
EPRA NTA per share 25 141.3p 135.5p 142.6p
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Half-year ended 30 September 2022 Share capital Share premium reserve Other reserves(1) Retained earnings Total equity
Note £m £m £m £m £m
Balance at 1 April 2022 9.1 940.0 21.0 330.6 1,300.7
Loss for the period - - - (29.2) (29.2)
Other comprehensive income - - 1.7 - 1.7
Transactions with owners
Issue of ordinary shares in the year 15,16 8.0 1,180.6 - - 1,188.6
Share issue costs 16 - - - - -
Dividends paid in the period 17 - - (13.6) - (13.6)
Balance at 30 September 2022 17.1 2,120.6 9.1 301.4 2,448.2
1 Other reserves includes the capital reduction reserve and the foreign
exchange reserve
Half-year ended 30 September 2021 Share capital Share premium reserve Other reserves Retained earnings Total equity
Note £m £m £m £m £m
Balance at 1 April 2021 6.2 544.5 62.1 168.6 781.4
Profit and total comprehensive income attributable to shareholders - - - 74.3 74.3
Transactions with owners
Issue of ordinary shares in the year 15,16 0.8 102.9 - - 103.7
Share issue costs 16 - (1.9) - - (1.9)
Dividends paid in the period 17 - - (9.0) - (9.0)
Balance at 30 September 2021 7.0 645.5 53.1 242.9 948.5
Year ended 31 March 2022 Share capital Share premium reserve Other reserves Retained earnings Total equity
Note £m £m £m £m £m
Balance at 1 April 2021 6.2 544.5 62.1 168.6 781.4
Profit and total comprehensive income attributable to shareholders - - - 162.0 162.0
Transactions with owners
Issue of ordinary shares in the year 15,16 2.9 402.6 - - 405.5
Share issue costs 16 - (7.1) - - (7.1)
Dividends paid in the year 17 - - (41.1) - (41.1)
Balance at 31 March 2022 9.1 940.0 21.0 330.6 1,300.7
CONSOLIDATED CASH FLOW STATEMENT
Half-year ended Half-year ended Year ended
30 September 2022 30 September 2021 31 March 2022
Note £m £m £m
Cash flows from operating activities
(Loss)/profit before tax (27.5) 74.3 161.3
Adjustments for:
Finance income (0.1) - -
Finance costs 6 17.6 3.0 6.8
Loss on extinguishment of debt 6 20.6 - -
Change in fair value of investment property 8 80.3 (55.5) (117.7)
Loss/(gain) on disposal of investment property 8 0.1 - -
Change in fair value of derivatives (25.0) (0.1) (1.2)
Accretion of tenant lease incentives 4 (13.7) (5.7) (9.9)
Operating results before working capital changes 52.3 16.0 39.3
Decrease/(increase) in trade and other receivables 11.5 3.8 (3.2)
Increase/(decrease) in trade and other payables 24.5 2.2 15.3
Net cash flow generated from operating activities 88.3 22.0 51.4
Cash flows from investing activities
Purchase of derivative (1.3) - (0.1)
Purchase of investment properties (54.9) (240.0) (425.4)
Partial cash alternative paid to SIR plc shareholders (390.2) - -
Proceeds from sale of investment property - 5.3 8.3
Interest received 0.1 - -
Property, plant and equipment - - -
Net cash flow used in investing activities (446.3) (234.7) (417.2)
Cash flows from financing activities
Proceeds from shares issued in the period - 103.7 353.8
Share issue costs paid - (1.9) (7.2)
Dividend paid (13.6) (9.1) (41.1)
Interst paid (11.5) (3.1) (6.6)
Drawdown of borrowings 439.0 129.4 239.7
Repayment of borrowings (30.9) (72.0) (186.0)
Loan arrangement fees paid (2.2) (0.8) (1.4)
Net cash flow generated from financing activities 380.8 146.2 351.2
Net increase/(decrease) in cash and cash equivalents 22.8 (66.5) (14.6)
Cash and cash equivalents at the beginning of the year 72.5 87.1 87.1
Cash and cash equivalents at the end of the year 12 95.3 20.6 72.5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
This consolidated set of condensed financial statements have been prepared in
accordance the Disclosure Guidance and Transparency Rules of the UK Financial
Conduct Authority and IAS 34 'Interim Financial Reporting' in accordance with
the measurement and recognition principles of UK adopted international
accounting standards. They do not include all the information required for
full annual financial statements and should be read in conjunction with the
2022 Annual Report and Accounts, which were prepared in accordance with
UK-adopted International Accounting Standards (IFRS).
The condensed consolidated financial statements for the half-year ended 30
September 2022 have been reviewed by the Company's Independent Auditor, BDO
LLP, in accordance with the International Standard on Review Engagements 2410
Review of Interim Financial Information Performed by the Independent Auditor
of the Entity and were approved for issue on 23 November 2022. The condensed
consolidated financial statements are unaudited and do not constitute
statutory accounts for the purposes of the Companies Act 2006.
The comparative financial information presented herein for the year ended 31
March 2022 does not constitute full statutory accounts within the meaning of
Section 435 of the Companies Act 2006. The Group's Annual Report for the year
ended 31 March 2022 has been delivered to the Registrar of Companies. The
Group's Independent Auditor's report on those accounts was unqualified.
The condensed consolidated financial statements for the half-year ended 30
September 2022 have been prepared on a historical cost basis, as modified for
the Group's investment properties and derivative financial instruments which
are carried at fair value with changes presented in the statement of
comprehensive income.
The condensed consolidated financial statements are presented in Sterling, as
this is the currency of the primary economic environment in which the Group
operates, and values are rounded to the nearest hundred thousand, except where
indicated otherwise.
Euro denominated results of the German operations have been converted to
Sterling at the average exchange rate for the half-year of €1: £0.85 which
is not considered to produce materially different results from using the
actual rates at the date of the transactions. Period end balances have been
converted to Sterling at the 30 September 2022 exchange rate of €1: £0.88.
The accounting policy for foreign currency translation is in Note 3.
· Standards effective from 1 April 2022
New standards impacting the Group that have been adopted for the first time in
this set of financial statements are:
· Amendments to IFRS 3 'Business Combinations': reflecting changes
in reference to the Conceptual Framework but not significantly changing its
requirements. The amendment is effective for periods beginning on or after 1
January 2022 but is not expected to have a material impact on the Group's
accounts. The acquisition by the Group of Secure Income REIT in the period
falls outside the definition of a business combination.
· Annual improvements to IFRS standards (applicable to periods
beginning on or after 1 January 2022):
i) IFRS 9: to add clarification of the fees a company includes in
assessing the terms of a new or modified financial liability to determine
whether to derecognise a financial liability.
ii) IFRS 16: the addition of an illustrative example in the standard in
order to remove confusion around lease incentives.
These standards have been assessed to have no significant impact to the Group
as they are either not relevant to the Group's activities or require
accounting which is consistent with the Group's current accounting policies.
· Standards issued not yet effective
The following are new standards, interpretations and amendments, which are not
yet effective, and have not been early adopted in this financial information,
that will or may have an effect on the Group's future financial statements:
· Amendments to IAS 1 which clarifies the criteria used to
determine whether liabilities are classified as current or
non-current (effective 1 January 2023). These amendments clarify that current
or non-current classification is based on whether an entity has a right at the
end of the reporting period to defer settlement of the liability for at least
twelve months after the reporting period. The amendment is not expected to
have an impact on the presentation or classification of the liabilities in the
Group based on rights that are in existence at the end of the reporting
period.
· Update to IAS 8 'Definition of Accounting Estimates' to add
clarification around the difference between accounting policies and accounting
estimates including a new definition of 'accounting estimates (effective 1
January 2023).
· Update to IAS 1 and IFRS Practice Statement 2 'Disclosure of
Accounting Policies' in order to help entities apply materiality judgements to
accounting policy disclosure (effective 1 January 2023).
There are other new standards and amendments to standards and interpretations
which have been issued that are effective in future accounting periods, and
which the Group has decided not to adopt early. None of these are expected to
have a material impact on the condensed consolidated financial statements of
the Group.
Going concern
The condensed consolidated financial statements have been prepared on a going
concern basis.
The Group has a healthy liquidity position and substantial headroom against
financial covenant levels. The Board believes that the Company remains well
placed to navigate any future periods of uncertainty that could arise and to
mitigate the risks presented. We draw comfort from the Group's robust balance
sheet and high-quality portfolio of commercial property assets let or pre-let
on long term, index-linked leases to a wide range of strong tenant covenants
highly diversified by tenant, sector and location.
The completion of the acquisition of Secure Income REIT during the quarter
provided further strength and resilience to the balance sheet, with net assets
increasing from £1.3bn at 31 March 2022 to £2.4bn at 30 September 2022. In
particular, the Board is comforted by the following characteristics of the
platform:
Low-cost debt facilities, with significant covenant headroom
· The Group's pro forma net loan to value ("LTV") is 33%, following
a £232m repayment of the Merlin A Sterling facility
· The Group's portfolio is currently valued at £3.7bn reflecting a
valuation yield of 4.9%
· The Group has significant headroom to LTV and ICR covenant levels
within each facility
· The total weighted average cost of debt across all facilities is
capped at 4.2%
Defensive and diversified portfolio that is 100% let or pre-let on long leases
to strong tenant covenants
· The Group's portfolio is 100% let or pre-let to over 80 strong
tenants, across 13 sub-sectors. Furthermore, the tenants are the main trading
or parent companies within the tenant groups
· The Group's leases average 26 years to first break and each lease
is drawn on a fully repairing and insuring basis - tenants are responsible for
repair, maintenance and outgoings, so there is no cost leakage for the Company
Strong liquidity
· At 30 September 2022 the Group had net assets of £2.4bn (31
March 2022: £1.3bn) and a cash balance of £114.3m (31 March 2022: £72.5m)
with £65.0m of undrawn revolving credit facility (31 March 2022: £89.0m)
· Post balance sheet date, the Group closed out an interest rate
cap related to the Merlin A facility, receiving proceeds of £23.1m net of
costs
Debt maturity
The Group has £184m of bank borrowings maturing within 12 months after the
approval of these consolidated financial statements (being £739.8m disclosed
as current liabilities in the balance sheet, net of the £385m acquisition
facility which has two 6 month borrower extension options and the £232m
Merlin A facility repaid after the period end and adding back the £59m Budget
hotels 1 facility due for repayment in October 2023 and unmortised arrangement
fees).
The Group's policy is to arrange alternative finance in advance of expected
requirements and based on ongoing discussions with existing and new lenders
the Directors have reasonable confidence that an extension, additional or
replacement debt facilities will be put in place prior to the refinancing
date. Furthermore, the Group has the ability to make disposals of investment
properties to meet the future financing requirements and has demonstrated its
ability to do so.
The Directors have reviewed the current and projected financial position of
the Group, making reasonable assumptions about its future trading performance.
Various forms of sensitivity analysis have been performed having a particular
regard to the financial performance of its tenants, taking into account any
discussions held with tenants surrounding operating performance and the
current and ongoing rent collection levels achieved by the Group.
Sensitivity analysis
The Investment Advisor has considered the sensitivity of the financial
projections to a range of key assumptions impacting compliance with secured
debt covenants.
The Board have also considered reverse stress testing and the circumstances
that would lead to a covenant breach of the loan to value covenants and the
interest cover ratio covenants. All facilities have significant headroom to
covenants, with the tightest LTV covenant requiring a 37% reduction in value
before a breach and the tightest ICR covenant requiring a 40% loss of rent
before a breach.
2. Significant accounting judgments, estimate and assumptions
In the application of the Group's accounting policies the Board is required to
make estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates
and associated assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are outlined below:
Estimates:
· Valuation of investment properties (Note 8)
The market value of Investment property is determined by an independent
property valuation expert to be the estimated amount for which a property
should exchange on the date of the valuation in an arm's-length transaction.
The Group uses the valuations carried out by Knight Frank LLP (the
"Independent Valuer") as the fair value of its property portfolio. The
valuation is based upon assumptions including future rental income and the
appropriate capitalisation rate. The Independent Valuer refers to market
evidence of transaction prices for similar properties.
The Group's properties have been independently valued by its Independent
Valuer in accordance with the definitions published by the Royal Institute of
Chartered Surveyors ("RICS") Valuation - Professional Standards, July 2017,
Global and UK Editions (commonly known as the 'Red Book').
Investment properties under construction are financed by the Group where the
Group enters into contracts for the development of a pre-let property under a
funding agreement. All such contracts specify a fixed amount of consideration.
The Group does not expose itself to any speculative development risk as the
proposed building is pre-let to a tenant under an agreement for lease and the
Group enters into a fixed-price development agreement with the developer.
Investment properties under construction are initially recognised at cost
(including any associated costs), which reflect the Group's investments in the
assets. Subsequently, the assets are remeasured to fair value at each
reporting date. The fair value of investment properties under construction is
estimated as the capitalised income calculated by the Independent Valuer, less
any costs still payable in order to complete, which include an appropriate
developer's margin.
With respect to the consolidated financial statements, investment properties
are valued at their fair value at each reporting date in accordance with IFRS
13 which recognises a variety of fair value inputs depending upon the nature
of the investment. Given the bespoke nature of each of the Group's
investments, all of the Group's investment properties are included in Level 3.
Details of the nature of these inputs and sensitivity analysis is provided in
Note 8.
Judgments:
· Classification of lease arrangements - the Group as lessor (Note
18)
The Group has acquired investment property that is leased to tenants. In
considering the classification of lease arrangements, at inception of each
lease the Group considers the economic life of the asset compared with the
lease term and the present value of the minimum lease payments and any
residual value compared with the fair value and associated costs of acquiring
the asset as well as qualitative factors as indicators that may assert to the
risks and rewards of ownership having been substantially retained or
transferred. Based on evaluation the Group has determined that it retains all
the significant risks and rewards of ownership of its investment property and
accounts for the lease arrangements as operating leases.
· Lease term (Note 4)
Rental income is recognised on a straight-line basis over the expected lease
term. A judgement has to be made by the Directors as to the expected term of
each lease. The judgement involves determining whether break clauses on
certain leases will be exercised. This judgement impacts the length of time
over which lease incentives are recognised. The key element of this judgement
is whether the Directors can be "reasonably certain" that any breaks in place
to extend the lease term will be exercised at the expiry of the current lease.
The Directors concluded that it was impossible to say with reasonable
certainty that an option will be exercised. The Directors concluded that lease
terms should be restricted to the initial length of the lease, or to the break
date, except where reversionary leases have already been executed or where
options to extend have already been exercised.
· Recognition of 'income strip' transaction
The sale of the Merlin 'income strip' has been accounted for during the
half-year period through recognition of a receivable and a transfer from
freehold to long-leasehold in investment property. The judgement involves
determining whether the risks and rewards had been substantially transferred
at 30 September 2022. Completion of the Merlin 'income strip' sale occurred
following the period end on 19 October 2022, however contracts for the
transaction had unconditionally exchanged before the half-year end and at that
point the risks and rewards of ownership of the assets had substantially
transferred to the buyer. In addition, from this date the Group was
contractually committed to repay the Merlin A loan facility which is presented
as a current liability.
· Treatment of corporate acquisitions in the period (Note 8)
The merger with SIR plc (the acquisition of the entire issued share capital of
Secure Income REIT plc) during the period has been treated as an asset
acquisition rather than a business combination and therefore is outside the
scope of IFRS 3.
The Company acquired on a share for share basis, with a 25% cash alternative,
the shares of Secure Income REIT plc (the "target"). The target operations
were solely the ownership of investment properties complete with extant tenant
operating leases along with related cash and leverage and other associated
assets and working capital balances.
The target was a real estate investment trust with the operations of the
target group managed by Prestbury Investments Limited (the "target adviser").
The management contract with the target advisor made the target advisor
responsible for the operations required to manage the property owned by the
target.
Simultaneously on the merger, the target advisor was acquired by the
Investment Advisor's group, and the management contract between Prestbury and
SIR plc was immediately cancelled as the operations of the Group were taken
over by LXi REIT Advisors Limited who remain Investment Advisor to the
enlarged group.
IFRS 3 provides guidance in assessing whether an acquired process (or group of
processes) are considered substantive when applied to an input. In making
the judgement, the Directors considered whether the operations and activities
of Secure Income REIT plc, constituted a business which they consider would
require the acquisition of inputs and processes, that are designed to create
outputs.
The Directors consider that in order that a business would be capable of being
conducted and managed for the purposes defined above, an integrated set of
activities and assets requires two essential elements - inputs and the
relevant processes applied to those inputs, which together are or will be used
to create outputs.
The Directors consider that the target was a passive investor in 'inputs' and
did not directly possess any 'processes' required to produce 'outputs'. The
Directors have also considered whether the management contract between target
adviser and target gave rise to an organised workforce and substantive
processes. They consider that the immediate cancellation of the management
contract between target adviser and SIR plc on the merger means that no
contract was acquired and as such no substantive processes could have been
acquired. This means that a business has not been acquired through the merger.
This transaction has therefore been accounted for in the consolidated
financial statements as an asset acquisition.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of the
consolidated financial statements are set out below. The policies have been
consistently applied.
· Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Group as at the half-year end date.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity. All
intra-group transactions, balances, income and expenses are eliminated on
consolidation. The financial statements of the subsidiaries are included in
the consolidated financial statements from the date that control commences
until the date that control ceases.
On 6 July 2022 the Group completed a merger with Secure Income REIT Plc, from
which date the company became a wholly owned subsidiary of the Group.
Accounting policies of the subsidiaries are consistent with the policies
adopted by the Company.
· Investment property
Investment property, which is property held to earn rentals and/or for capital
appreciation, is initially recognised at the point where conditions to the
purchase are substantially met and measured at cost, being the fair value of
the consideration given, including expenditure that is directly attributable
to the acquisition of the investment property. After initial recognition,
investment property is stated at its fair value at the reporting date. Gains
and losses arising from changes in the fair value of investment property are
included in the period in which they arise in the statement of comprehensive
income.
Investment properties under construction are financed by the Group where the
Group enters into contracts for the development of a pre-let property under a
funding agreement. All such contracts specify a fixed amount of consideration.
The Group does not expose itself to any speculative development risk as the
proposed building is pre-let to a tenant under an agreement for lease and the
Group enters into a fixed price development agreement with the developer.
Investment properties under construction are initially recognised at cost
(including any associated costs), which reflect the Group's investment in the
assets. Subsequently, the assets are remeasured to fair value at each
reporting date. The fair value of investment properties under construction is
estimated as the fair value of the completed asset less any costs still
payable in order to complete, which include an appropriate developer's margin.
During the period between initial investment and the rent commencement date,
the Group receives licence fee income from the developer. Licence fees
receivable by the Group in respect of the period are treated as discounts to
the cost of investment property. Any economic benefit of the licence fee is
recognised through the change in fair value of investment property.
When development completion is reached, the completed investment property is
transferred to the appropriate class of investment property at the fair value
at the date of practical completion so that any economic benefit of the
licence fee is appropriately reflected within investment property under
construction.
Subsequent expenditure is capitalised only when it is probable that future
economic benefits are associated with the expenditure. Ongoing repairs and
maintenance are expensed as incurred.
An investment property is derecognised upon disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected from the disposal. Any gain or loss arising on derecognition of the
property (calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is incurred in profit or loss in the period
in which the property is derecognised.
Deferred acquisition costs represent costs incurred on investment properties
which completed after the period end and will subsequently be capitalised.
Significant accounting judgments, estimates and assumptions made in the
valuation of investment properties are described in Note 2.
· Assets held for sale
An asset will be classified as held for sale, in line with IFRS 5 Non-Current
Assets Held for Sale and Discontinued Operations, where there is Board
approval at the half-year end date, the asset is available for immediate sale
in its current condition and the asset is expected to be disposed of within 12
months after the date of the Consolidated Statement of Financial Position.
Financial instruments
a. Financial assets
The Group classifies its financial assets as fair value through profit or loss
or amortised cost, depending on the purpose for which the asset was acquired
and based on the business model test. There are no financial assets held at
fair value through profit or loss. The Group's accounting policy for financial
assets classified as amortised cost is as follows:
Amortised cost
These assets arise principally from the provision of goods and services to
customers (e.g. rent receivables), but also incorporate other types of
financial assets where the objective is to hold these assets in order to
collect contractual cash flows and contractual cash flows are solely payments
of principal and interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their acquisition or issue
and are subsequently carried at amortised cost being the effective interest
rate method, less provision for impairment.
Impairment provisions for receivables are recognised based on the simplified
approach within IFRS 9 using a provision matrix in the determination of the
lifetime expected credit losses. During this process the probability of the
non-payment of the rent receivables is assessed. This probability is then
multiplied by the amount of the expected loss arising from default to
determine the lifetime expected credit loss for the rent receivables. For rent
receivables, which are reported net, such provisions are recorded in a
separate provision account with the loss being recognised in the consolidated
statement of comprehensive income. On confirmation that the receivable will
not be collectable, the gross carrying value of the asset is written off
against the associated provision.
The Group's financial assets measured at amortised cost comprise rent
receivable, restricted cash and cash and cash equivalents in the consolidated
statement of financial position.
Cash and cash equivalents comprise cash in hand and deposits held at call with
banks. Cash and cash equivalents also include cash held by lawyers for
subsequent completions.
Restricted cash represents cash withheld by the lender on drawdowns of
borrowings referred to in Note 14 until certain security is provided to
release the funds as well as amounts withheld when a securitised asset is
disposed prior to the bank replacing the asset with adequate security.
Restricted cash does not form an integral part of the Group's cash management
as at the reporting date.
b. Financial liabilities
The Group classifies its financial liabilities as fair value through profit or
loss or other financial liabilities, depending on the purpose for which the
liability was acquired and based on the business model test. There are no
financial liabilities held at fair value through profit or loss. The Group's
accounting policy for financial liabilities classified as other financial
liabilities is as follows:
Other financial liabilities
Bank borrowings which are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the instrument. Such
interest bearing liabilities are subsequently measured at amortised cost using
the effective interest rate method, which ensure that any interest expense
over the period to repayment is at a constant rate on the balance of the
liability carried in the Group Statement of Financial Position. For the
purposes of each financial liability, interest expense includes initial
transaction costs and any premium payable on redemption, as well as any
interest or coupon payment while the liability is outstanding.
In the event of a modification to the terms of a loan agreement, the Group
considers both the quantitative and qualitative impact of the changes. Where a
modification is considered substantial, the existing facility is treated as
settled and the new facility is recognised. Where the modification is not
considered substantial, the carrying value of the liability is restated to the
present value of the cash flows of the modified arrangement, discounted using
the effective interest rate of the original arrangement. The difference is
recognised as a gain or loss on refinancing through the statement of
comprehensive income.
Trade and other payables that are financial liabilities are initially
recognised at fair value. Where a financing component is identified in respect
of long term payables the fair value is calculated with reference to an
imputed interest rate and subsequently amortised using the effective interest
rate method. Short term financial liabilities are carried at their expected
settlement value.
· Fair value hierarchy
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by reassessing categorisation at the end of
each reporting period.
· Leases - the Group as lessor
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Group has determined that it retains all the significant risks and rewards
of ownership of the properties and accounts for the contracts as operating
leases.
Properties leased out under operating leases are included in investment
property in the consolidated statement of financial position. Rental income
from operating leases is recognised on a straight line basis over the expected
term of the relevant leases.
For leases which contain fixed or minimum uplifts, the rental income arising
from such uplifts is recognised on a straight line basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental income on a
straight line basis over the term of the lease. The Group recognises the
impact of the temporary rent reductions agreed to support tenants as a result
of the Covid-19 pandemic as a reduction of rental income on a straight-line
basis over the expected lease term.
Sub-leases of leasehold properties are classified with reference to the right
of use asset arising from the head lease. All other leases are classified as
operating leases.
· Leases - the Group as lessee
All leases where the Group is a lessee are accounted for by recognising a
right-of-use asset and a lease liability, except for leases of low value
assets and leases with a term of 12 months or less.
Lease liabilities are measured at the present value of the lease payments of
ground rents due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless this is not
readily determinable, in which case the Group's incremental borrowing rate on
commencement of the lease is used. Subsequent to initial measurement, lease
liabilities increase as a result of interest charged at a constant rate on the
balance outstanding and are reduced for lease payments made.
Right-of-use assets are initially measured at the amount of the lease
liability, reduced for any tenant lease incentives received. As leasehold
properties meet the definition of investment property, the right-of-use assets
are presented within investment property and are subsequently measured at fair
value.
· Taxation
Taxation on the profit or loss for the period not exempt under UK REIT
regulations or otherwise, comprises current and deferred tax. Tax is
recognised in the consolidated statement of comprehensive income except to
the extent that it relates to items recognised as direct movement in equity,
in which case it is recognised as a direct movement in equity. Current tax is
expected tax payable on any non-REIT taxable income for the period, using tax
rates enacted or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous periods.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The amount of deferred tax that is provided is
based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantively
enacted at the reporting date.
· Foreign currency translation
The results of Group undertakings with a functional currency other than
Sterling are translated into Sterling at the actual exchange rates prevailing
at the time of the transaction, unless the average rate for the reporting
period is not materially different from the actual rate, in which case that
average rate is used.
The gains or losses arising on the end of year translation of the net assets
of such Group undertakings at closing rates and the difference between
translating the results at average rates compared to the closing rates are
taken to other reserves. Monetary assets and liabilities denominated in
foreign currencies are translated into Sterling at the rates of exchange
ruling at the balance sheet date with any gains or losses arising on
translation recognised in the income statement.
· Dividends payable to shareholders
Dividends to the Company's shareholders are recognised as a reduction in
equity in the financial statements at the earlier of the date they are paid
and the date they are approved at the AGM.
· Finance income and finance costs
Finance income is recognised as interest accrues on cash balances held by the
Group. Finance costs consist of interest payable and loan arrangement fees
which are expensed using the effective interest rate method over the term of
the loan and other costs that the Group incurs in connection with bank and
other borrowings which are expensed in the period in which they occur.
Any finance costs that are separately identifiable and directly attributable
to the development of an investment property that takes a period of time to
complete are capitalised as part of the cost of the asset.
· Equity issue costs
The costs of issuing equity instruments are accounted for as a deduction from
equity.
4. Rental income
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
Rental income from investment property 61.8 19.7 48.6
Accretion of tenant lease incentives (Note 8,24) 13.7 5.7 9.9
75.5 25.4 58.5
5. Administrative and other expenses
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
Investment advisory fees (Note 20) 6.2 3.3 7.1
Legal and professional fees 0.5 0.3 0.5
Other administrative costs 0.6 0.4 0.6
Corporate administration fees 0.3 0.1 0.3
Fees paid to the Company's Independent Auditor 0.2 0.1 0.2
Directors' fees (Note 20) 0.2 0.1 0.3
Recruitment fees - - 0.2
Advertising and Marketing 0.1 0.1 0.1
Abortive fees (Note 24) 1.4 - -
Expected credit loss movement - - -
9.5 4.4 9.3
Fees paid to the Company's Independent Auditor comprise the review of the
Interim Report, the audit of the Annual Report and the audit of the financial
statements of the Company's subsidiaries.
The Company paid £0.1m of additional fees to the Company's Independent
Auditor in respect of reporting accountant services in the year relating to
the merger which have been recognised as capitalised transaction costs on
acquisition of the investment properties (30 September 2021: £nil, 31 March
2022: £0.1m).
6. Finance costs
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
Interest payable on bank borrowings 14.6 2.4 5.4
Amortisation of loan arrangement fees 2.3 0.5 1.2
Leasehold interest 0.5 0.1 0.2
Loss on extinguishment of debt 20.6 - -
Other bank charges 0.2 - -
38.2 3.0 6.8
Capitalised finance costs are included within property acquisitions in Note 8.
The total interest payable on financial liabilities carried at amortised cost
comprised:
· the interest payable on bank borrowings totalling £14.6m of which
£0.6m was capitalised (30 September 2021: £3.0m of which £0.5m was
capitalised, 31 March 2022: £6.5m of which £1.1m was capitalised); and
· the amortisation of loan arrangement fees totalling £2.3m of which
£nil was capitalised (30 September 2021: £0.5m, 31 March 2021: £1.2m of
which £nil was capitalised).
The capitalisation rate used to determine the amount of borrowing costs
eligible for capitalisation during the period was 2.85% pa (30 September 2021:
2.85%, 31 March 2022: 2.85%)
A £20.6m make-whole payment was payable on the early repayment of the £232m
Merlin A facility following the completion of the Merlin 'income strip' sale,
following which the related interest rate cap was closed-out for proceeds of
£23.1m and a gain of £12.8m.
7. Taxation
The Group is a real estate investment trust ("REIT") and as a result the
profit and gains arising from the Group's property rental business are exempt
from UK corporation tax provided the Group meets certain conditions as set out
in the UK REIT regulations. Profits arising from any residual activities (e.g.
trading activities and interest income), after the utilisation of any
available residual tax losses, are subject to corporation tax at the main rate
of 19% for the half-year.
As a result of the Merger the Group acquired one German property and is now
subject to German corporation tax on its German property rental business at an
effective rate of 15.825%, resulting in a tax charge of £0.1m. A deferred
tax liability of £12.3m is recognised for the German capital gains tax that
would potentially be payable on the sale of the relevant investment
properties. Movements in deferred tax are disclosed below.
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
Balance at 1 April 2022 - - -
Liability acquired as part of SIR plc merger 11.0 - -
Charge in the period 1.1 - -
Foreign exchange loss 0.2 - -
Deferred tax liability 12.3 - -
The German tax assets have been subject to a routine tax audit by the German
tax authorities since January 2021. The current estimate of the tax liability
that might arise, including interest up to the balance sheet date but
excluding any penalties, is estimated at £0.5m and a provision has been made
to that extent.
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
Current tax - UK - (0.7) (0.7)
Current tax - Germany 0.6 - -
Total current tax 0.6 (0.7) (0.7)
Origination and reversal of temporary differences 1.1 - -
Total deferred tax 1.1 - -
Tax charge / (credit) 1.7 (0.7) (0.7)
Reconciliation of the total tax charge / (credit)
The reconciliation of profit before tax multiplied by the standard rate of
corporation tax for the half-year of 19% to the total tax charge in the
consolidated statement of comprehensive income is as follows:
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
(Loss)/profit before tax (27.5) 73.6 161.3
Tax at the standard rate of UK corporation tax of 19% (5.2) 14.0 30.6
Effects of:
REIT exempt income (7.0) (3.7) (8.5)
Revaluation of investment properties 15.3 (10.5) (22.4)
Gain on disposal of investment properties not exempt under REIT rules - 0.4 0.4
Residual losses brought forward as at 31 March 2022 - (0.4) (0.4)
Residual losses not recognised as deferred tax asset 0.2 0.2 0.3
Expenses not deductible for tax purposes 0.3 - -
Reversal of overstated tax creditor - (0.7) (0.7)
Revaluation of derivative instruments (3.7) - -
German current tax charge 0.6 - -
Deferred tax movement 1.1 - -
Tax charge / (credit) 1.7 (0.7) (0.7)
UK REIT exempt income includes property rental income that is exempt from UK
Corporation Tax in accordance with Part 12 of CTA 2010.
8. Investment property
Investment property long leasehold Investment property freehold Investment property in course of construction Total
£m £m £m £m
Half-year ended 30 September 2022
Balance at 1 April 2022 331.0 1,093.4 55.7 1,480.1
Property acquisitions 23.4 46.7 17.5 87.6
Property acquisitions relating to the merger of SIR plc 376.1 2,035.3 - 2,411.4
Licence fee receivable (Note 24) - - (1.2) (1.2)
Tenant lease incentives (Note 4) 4.1 9.6 - 13.7
Transfer of assets post 'income strip' sale 596.5 (596.5) - -
Change in fair value 1.2 (74.2) (7.3) (80.3)
Assets transferred to held for sale - - - -
Transfers of completed property 1.8 18.8 (20.6) -
Balance at 30 September 2022 1,334.1 2,533.1 44.1 3,911.3
Half-year ended 30 September 2021
Balance at 1 April 2021 147.4 636.0 104.1 887.5
Property acquisitions 22.2 216.0 13.8 252.0
Licence fee receivable (Note 24) - - (1.8) (1.8)
Tenant lease incentives (Note 4) 1.1 4.6 - 5.7
Tenant lease contributions - 0.9 - 0.9
Property disposals - (7.7) - (7.7)
Change in fair value 6.8 40.7 8.0 55.5
Assets transferred to held for sale (12.0) (8.7) - (20.7)
Transfers of completed property (0.4) 22.8 (22.4) -
Balance at 30 September 2021 165.1 904.6 101.7 1,171.4
Year ended 31 March 2022
Balance at 1 April 2021 147.4 636.0 104.1 887.5
Property acquisitions 49.3 375.3 70.4 495.0
Licence fee receivable (Note 24) - - (3.6) (3.6)
Tenant lease incentives (Note 4) 2.1 7.3 0.5 9.9
Tenant lease contributions - 0.9 - 0.9
Property disposals - (8.3) - (8.3)
Change in fair value 16.4 77.1 24.2 117.7
Assets transferred to held for sale - (19.0) - (19.0)
Transfers of completed property 115.8 24.1 (139.9) -
Balance at 31 March 2022 331.0 1,093.4 55.7 1,480.1
The investment property has been independently valued at fair value by Knight
Frank LLP, the Independent Valuer who are accredited external valuers with
recognised and relevant professional qualifications and recent experience of
the location and category of the investment property being valued. The
valuations are the ultimate responsibility of the Board.
The Independent Valuer valued the entire property portfolio at 30 September
2022 at £3,656.6m (31 March 2022: £1,544.4m, 30 September 2021: £1,216.6m)
including capital commitments on forward funded assets. The valuation included
a €184.9m valuation of the German asset in the portfolio, the only asset
held outside of the UK. This was translated to GBP at a rate of €1: £0.88.
All corporate acquisitions during the year have been treated as asset
purchases rather than business combinations as they are considered to be
acquisitions of property rather than a business.
The Group identifies the potential impact of climate-related risks on property
valuations as a principal risk. The current valuation of the property
portfolio is not materially impacted by any climate-related risks. We will
continue to work closely with the Independent Valuer to monitor how
climate-related factors impact values in long-lease property sector and of our
individual asset valuations.
Reconciliation of fair value to total portfolio valuation
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Investment property and assets held for sale at fair value 3,911.3 1,192.1 1,499.1
Capital commitments on forward funded assets (Note 23) 42.5 31.2 53.6
Vendor discount in respect of rent-free periods and top-ups 2.6 3.2 3.0
Licence fee receivable 1.1 2.1 1.5
Leasehold liability (Note 13) (300.9) (12.0) (12.8)
Total completed portfolio valuation 3,656.6 1,216.6 1,544.4
Capital commitments represent the costs to bring the asset to completion under
the funding agreements with the developers which includes a developer's
margin. These costs are not provided for in the statement of financial
position.
Vendor discounts in respect of rent-free periods and top-ups represent amounts
by which a purchase price was reduced by the vendor on acquisitions to cover
future rent-free periods or periods to the next rent review under the lease.
The total portfolio valuation assumes the property to be income generating
during the unexpired rent-free periods and passing rent to be the topped-up
rent during the unexpired period to next rent review and therefore includes
this income in the valuation.
Licence fee receivable represent amounts due from developers under funding
agreements that have not been settled at the period end. The valuation assumes
the property to be income generating throughout the period of development and
therefore includes this income in the valuation.
The valuation of investment properties that are long leaseholds are grossed up
to include the carrying value of the leasehold liability where headlease rents
are material.
Investment property and assets held for sale at fair value
Valuation Quoted prices in active markets Significant observable inputs Significant unobservable inputs Total
(Level 1) (Level 2) (Level 3)
£m £m £m £m
30 September 2022 - - 3,911.3 3,911.3
30 September 2021 - - 1,192.1 1,192.1
31 March 2022 - - 1,499.1 1,499.1
There have been no transfers between levels during the period.
The valuations have been prepared in accordance with the RICS Valuation -
Professional Standards (incorporating the International Valuation Standards).
The determination of the fair value of investment property requires the use of
estimates such as future cash flows from assets (such as lettings, tenants'
profiles, future revenue streams, capital values of fixtures and fittings,
plant and machinery, any environmental matters and the overall repair and
condition of the property) and discount rates applicable to those assets.
The descriptions and definitions relating to valuation techniques and key
inputs made in determining fair values are as follows:
Valuation techniques
· Standing assets
Standing assets are valued using the investment valuation method. Using the
investment valuation method, the passing rent is divided by an appropriate
yield with a deduction of standard purchaser's costs. The method uses analysis
of appropriate comparable investments, rental and sale transactions, together
with evidence of demand within the vicinity of the subject property and of
properties of a similar nature. The yield applied takes into account the size,
location, terms, covenant strength and other material factors.
· Investment property in the course of construction
For property in the course of construction the fair value is calculated by
estimating the fair value of the completed property using the income
capitalisation technique less estimated costs to completion under fixed price
developer funding agreements which include an appropriate developer's margin.
· Observable input: passing rent
The prevailing rent at which space is let at the date of valuation. Passing
rents are dependent upon a number of variables in relation to the Group's
property. These include property use, size, location, tenant covenant strength
and terms of the lease.
· Unobservable input: rental growth
The estimated average increase in rent based on both market estimations and
contractual arrangements. A reduction of the estimated future rental growth in
the valuation model would lead to a decrease in the fair value of the
investment property and an inflation of the estimated future rental growth
would lead to an increase in the fair value. No quantitative sensitivity
analysis has been provided for estimated rental growth as a reasonable range
would not result in a significant movement in fair value.
· Unobservable input: net initial yield
The net initial yield is defined as the initial gross income as a percentage
of the market value (or purchase price as appropriate) plus standard costs of
purchase.
Sector Passing rent pa Passing rent Valuation Valuation yield
30 September 2022(1) pa range 30 September 2022(1) range
£m £m £m %
Healthcare 45.1 0.0 - 9.4 976.9 3.9 - 6.4
Budget hotel 41.6 0.0 - 2.2 651.5 4.1 - 12.4
Theme Park 37.9 1.9 - 12.8 629.9 4.2 - 4.5
Foodstores 18.4 0.1 - 2.7 401.3 3.5 - 7.5
Industrial 14.3 0.2 - 4.1 308.3 3.7 - 6.8
Pubs 8.7 0.0 - 3.8 128.4 4.7 - 7.0
Arena 7.0 0.1 - 4.3 99.2 6.7 - 6.7
Car park 4.4 0.0 - 1.1 81.5 4.2 - 5.5
Garden centre 3.2 0.4 - 1.0 63.3 1.9 - 4.8
Life sciences 2.9 2.9 - 2.9 61.9 4.3 - 4.3
Drive-thru coffee 2.6 0.0 - 0.1 40.5 4.0 - 5.9
Education 2.2 0.0 - 0.3 39.8 5.0 - 5.2
Other 11.5 0.0 - 1.8 174.1 4.7 - 9.8
Portfolio 200.1 0.0 - 12.8 3,656.6 1.9 - 12.4
Sector Passing rent pa Passing rent Valuation Valuation yield
30 September pa range 30 September Range
2021 2021
£m £m £m %
Foodstores 12.5 0.1 - 2.0 280.7 3.3 - 7.0
Industrial 12.1 0.2 - 3.5 293.0 3.3 - 6.3
Budget hotel 10.0 0.1 - 1.8 201.3 4.1 - 6.5
Healthcare 6.2 0.0 - 1.0 108.7 4.8 - 6.1
Car parks 3.9 0.1 - 1.1 73.6 4.0 - 5.3
Garden centres 3.1 0.3 - 1.0 40.4 4.9 - 4.9
Life sciences 2.9 2.9 - 2.9 53.0 5.1 - 5.1
Drive-thru coffee 2.7 0.0 - 0.1 25.3 4.2 - 5.8
Pubs 2.5 0.1 - 0.3 40.2 5.5 - 6.2
Education 1.9 0.0 - 0.1 33.5 5.1 - 5.2
Other 5.0 0.0 - 1.4 66.9 4.5 - 10.0
Portfolio 62.8 0.0 - 3.5 1,216.6 3.3 - 10.0
Sector Passing rent pa Passing rent Valuation Valuation yield
31 March 2022 pa range 31 March 2022 range
£m £m £m %
Foodstores 16.3 0.1 - 2.7 386.3 3.3 - 7.5
Industrial 13.8 0.2 - 3.5 352.4 3.0 - 6.8
Budget hotel 10.4 0.1 - 1.8 212.6 4.1 - 6.5
Healthcare 6.3 0.0 - 1.0 110.4 5.0 - 6.4
Car parks 4.3 0.0 - 1.1 82.4 4.0 - 5.3
Garden centres 2.1 0.3 - 0.9 43.3 4.6 - 4.6
Life sciences 2.9 2.9 - 2.9 59.8 4.5 - 4.5
Drive-thru coffee 2.5 0.0 - 0.1 38.6 4.0 - 5.8
Pubs 2.6 0.1 - 0.4 41.3 5.5 - 6.2
Education 1.9 0.0 - 0.1 34.8 5.0 - 5.0
Other 11.4 0.0 - 1.8 182.5 4.0 - 9.5
Portfolio 74.5 0.0 - 3.5 1,544.4 3.0 - 9.5
§ Excludes £0.6m of contracted rent on assets that had exchanged but not
completed as at the reporting date
Sensitivities of measurement of significant inputs
As set out within significant accounting estimates and judgments above, the
Group's property portfolio valuation is open to judgments and is inherently
subjective by nature. The table below shows the sensitivities of measurement
of the Group's investment property to certain inputs:
Valuation -5% in passing rent +5% in passing rent +25bps in net initial yield -25bps in net initial yield
£m £m £m £m
30 September 2022 (182.9) 182.9 (178.6) 197.9
30 September 2021 (60.8) 60.8 (62.6) 69.8
31 March 2022 (60.8) 60.8 (64.9) 72.7
Realised gain on disposal of investment property
During the year, the Group disposed of certain assets within investment
property. The table below shows a reconciliation of the gain recognised on
disposal through the consolidated statement of comprehensive income and the
realised gain on disposals in the year which includes changes in fair value of
the investment property recognised in previous periods.
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Consideration received 19.0 7.8 8.3
Less:
Carrying value (18.9) (7.8) (8.3)
Selling costs (0.2) - -
(Loss)/gain on disposal of investment property (0.1) - -
Add:
Change in fair value recognised in previous periods 3.0 2.1 2.1
Realised gain on disposal of investment property 2.9 2.1 2.1
9. Assets held for sale
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Assets held for sale - 20.7 19.0
- 20.7 19.0
Assets held for sale relates to investment property for which there was board
approval to dispose of at the half-year end date and the intention is to
dispose of these assets within 12-months.
10. Financial instruments
Set out below is a comparison of the book value and fair value of the Group's
financial instruments where a difference exists. For all other financial
instruments, the book value is equal to the fair value.
Bank borrowings Book value Fair value
£m £m
30 September 2022 1,467.0 1,395.2
30 September 2021 243.5 246.7
31 March 2022 240.0 237.1
11. Trade and other receivables
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Recoverable VAT - - 5.7
Licence fee receivable 2.7 3.9 5.3
Rent receivable 6.7 5.8 8.0
Prepayments and other receivables 1.9 0.3 0.4
Amount receivable from 'income strip' sale 257.0 - -
Amounts due within one year 268.3 10.0 19.4
The carrying value of trade and other receivables classified at amortised cost
approximates fair value.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables.
To measure expected credit losses on a collective basis, trade receivables are
grouped based on similar credit risk and ageing.
The expected loss rates are based on the Group's historical credit losses
experienced over the period from incorporation to 30 September 2022. The
historical loss rates are then adjusted for current and forward-looking
information on macroeconomic factors affecting the Group's customers. The
expected credit loss provision at 30 September 2022 is £0.1m (31 March 2022:
£0.1m, 30 September 2021: £0.1m).
Trade and other receivables that are financial assets amount to £266.4m (31
March 2022: £13.3m, 30 September 2021: £9.7m) which comprises amount
receivable from 'income strip' sale, licence fee receivable and rent
receivable.
Amount receivable from 'income strip' sale consists of £257.0m receivable in
relation to the sale of the Merlin 'income strip' which completed after the
period end. The amount was received after the period end and was used to fully
repay the Merlin A facility.
The following table sets out the maturity profile of trade and other
receivables that are financial assets:
30 September 30 September 31 March
2022 2021 2022
£m £m £m
30 days or fewer 268.3 8.9 13.0
31 to 60 days - 0.1 0.1
61 to 90 days - 0.1 0.1
91 days or more - 0.6 0.1
Over one year - - -
268.3 9.7 13.3
12. Cash reserves
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Cash at bank 92.9 16.9 26.0
Cash held by lawyers 2.4 3.7 46.5
Cash and cash equivalents 95.3 20.6 72.5
Restricted cash 19.0 4.0 -
Cash at bank 114.3 24.6 72.5
Cash held by lawyers is money held in escrow for expenses expected to be
incurred in relation to investment properties pending completion. These funds
are available immediately on demand.
There are times throughout the year when the Group has restricted cash.
Restricted cash is money held in accounts to which the Group does not have
immediate access and as such do not form part of the Group's short-term cash
management. Restricted cash is not included in the Group's cash flow
statement. These amounts arise both when initially drawing on term-loans prior
to the bank taking adequate security and where a securitised asset is disposed
prior to the bank replacing the asset with adequate security.
13. Trade and other payables
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Accrued investment property costs 5.4 3.7 4.0
Deferred rental income 44.6 11.4 14.5
Accruals 23.5 0.3 0.4
Trade and other payables 4.3 7.4 17.9
Early repayment of debt costs 20.2 - -
Leasehold liability 7.5 - 0.3
Retentions payable 2.9 - 1.5
VAT payable 3.8 0.4 -
Corporation tax payable 0.9 - -
Other financial liabilities 8.2 - -
Amounts due within one year 121.3 23.2 38.6
Leasehold liability 36.4 12.0 12.5
Other financial liabilities 248.8 - -
Retentions payable - - 1.1
Amounts due in more than one year 285.2 12.0 13.6
Trade and other payables that are financial liabilities amount to £361.0m (31
March 2022: £37.7m, 30 September 2021: £23.8m) which comprises early
repayment of debt costs, leasehold liabilities, other financial liabilities,
VAT payable accrued investment property costs, accruals, retentions, trade and
other payables and the leasehold liability.
14. Bank borrowings
Drawn Undrawn Total
£m £m £m
Half-year ended 30 September 2022
At beginning of the year 246.0 89.0 335.0
Book value of debt on SIR plc merger 827.4 - 827.4
New acquisition facility 385.0 - 385.0
Drawdowns 54.0 (54.0) -
Repayments (30.9) - (30.9)
At end of the year 1,481.5 65.0 1,546.5
Less: unamortised loan arrangement fees (14.5) - (14.5)
1,467.0 65.0 1.532.0
Half-year ended 30 September 2021
At beginning of the year 192.3 77.7 270.0
New facilities - 65.0 65.0
Drawdowns 129.4 (129.4) -
Repayments (72.0) 72.0 -
At end of the year 249.7 85.3 335.0
Less: unamortised loan arrangement fees (6.2) - (6.2)
243.5 85.3 328.8
Year ended 31 March 2022
At beginning of the year 192.3 77.7 270.0
New facilities - 65.0 65.0
Drawdowns 239.7 (239.7) -
Repayments (186.0) 186.0 -
At end of the year 246.0 89.0 335.0
Less: unamortised loan arrangement fees (6.0) - (6.0)
240.0 89.0 329.0
Maturity of drawn bank borrowings
30 September 30 September 31 March
2022 2021 2022
£000 £000 £000
Repayable under 1 year 739.8
Repayable between 1 and 2 years 159.5 - 74.6
Repayable between 2 and 5 years 400.2 78.3 -
Repayable after 5 years 167.5 165.2 165.4
1,467.0 243.5 240.0
The Group's borrowings comprise the following:
Scottish Widows Term Loan Facilities
· A fixed rate, interest only loan facility of £55.0m. The
facility has an all-in rate of 2.74% pa, for the duration of the loan term and
is due for repayment in December 2033
· A fixed rate, interest only loan facility of £40.0m. The
facility has an all-in rate of 2.74% pa, for the duration of the loan term and
is due for repayment in December 2033
· A fixed rate, interest only loan facility of £75.0m. The
facility has a fixed all-in rate payable of 2.99% pa, for the duration of the
loan term and is due for repayment in December 2033
Other secured loans
· A SONIA linked floating rate 'Leisure' facility with HSBC Plc of
£60.0m, of which £50.0m has a margin of 1.80% is fixed at an all-in rate of
3.15% using an interest rate swap. The remaining £10m has a margin on 1.80%
and is capped using interest rate derivatives at an all-in rate of 3.45%. The
loan is due for repayment in June 2023
· A fixed rate, interest only 'Budget hotels 1' facility of £59.0m
with M&G. The facility has a fixed all-in rate payable of 2.71% pa, for
the duration of the loan term and is due for repayment in October 2023
· A mixed rate, interest only 'Budget hotels 2' facility with
M&G of £65.4m, £52.2m of which is fixed at an all-in rate of 3.25% pa
and £13.2m is SONIA linked with a margin of 2.32%. The Group uses interest
rate derivatives to cap the interest on the floating elements of the facility
at a total of 3.75%. The loan is due for repayment in April 2023
· A EURIBOR linked floating rate 'Merlin B' facility with
Blackstone of €60.2m. The facility has a margin of 3.45%, is capped at an
all-in rate of 4.95% pa and is due for repayment in March 2025. The loan has
two one-year extension options
· A SONIA linked floating rate 'Merlin A' facility with Blackstone
of £232.0m. The facility has a margin of 3.45%, is capped at an all-in rate
of 4.95% and was due for repayment in March 2025. Post period end, following
the completion of the sale of the Merlin 'income strip', the facility was
repaid in full and the cap sold
· A fixed rate amortising loan 'Healthcare 1' facility of £63.4m
with Legal and General. The facility has a fixed all-in rate payable of 4.29%
pa, for the duration of the loan term and is due for repayment in September
2025. Annual amortisation on the loan is £0.3m
· A fixed rate amortising 'Healthcare 2' facility of £294.9m with
AIG. The facility has a fixed all-in rate payable of 5.30% pa, for the
duration of the loan term and is due for repayment in October 2025. Annual
amortisation on the loan is £3.2m
Revolving credit facility (Lloyds Bank plc and the Royal Bank of Scotland
International Ltd)
· A revolving credit facility of £165.0m (of which £100.0m was
drawn down as at 30 September 2022) with Lloyds and RBSi at a 1.55% margin
over SONIA maturing in August 2024. The Group has traded interest rate
derivatives to cap the interest on the full facility at a total of 2.95%
Acquisition facility
· In May 2022 the Group entered into a £385.0m unsecured interest
only loan with Barclays Bank Plc and HSBC Plc to finance the partial cash
alternative for SIR plc shareholders in the Merger. The loan was priced at a
1.5% margin on daily average SONIA with the margin increasing by 25bps every
quarter. The margin payable as at 30 September 2022 was 1.75%. The Group has
traded interest rate derivatives to cap the SONIA at 3% until May 2023. The
loan is repayable in May 2024 assuming two six-month extension options are
exercised
The Group has remained compliant with the covenants throughout the period up
to the date of this report. The facilities are secured against respective
pools of the Group's investment property.
Reconciliation of liabilities to cash flows from financing activities
Half-year ended 30 September 2022 Half-year ended 30 September 2021 Year ended
31 March
2022
£m £m £m
Bank borrowings and leasehold liability at start of the period 252.8 190.4 190.4
Cash flows from financing activities
Bank borrowings drawn 439.0 129.4 239.7
Bank borrowings repaid (30.9) (72.0) (186.0)
Bank debt acquired on SIR plc merger at fair value on acquisition 817.9 - -
Loan arrangement fees paid (2.4) (0.9) (1.4)
Non-cash movements
Amortisation of loan arrangement fees 2.3 0.5 1.1
Loan arrangement fees accrued (0.2) - -
Revaluation FX on loan 1.3 - -
Increase in leasehold liability resulting from property acquisitions 31.1 8.0 9.0
Other financial liability arising from 'income strip' sale 257.0 - -
Bank borrowings and leasehold liability at end of the period 1,767.9 255.5 252.8
15. Share capital
Shares of £0.01 each No. (million) £m
Half-year ended 30 September 2022
At the beginning of the period 911.6 9.1
Issued during the period in relation to the Merger 802.9 8.0
At the end of the year 1,714.5 17.1
Issued and fully paid 1,714.5 17.1
Half-year ended 30 September 2021
At the beginning of the period 621.8 6.2
Issued during the period 78.0 0.8
At the end of the period 699.8 7.0
Issued and fully paid 699.8 7.0
Year ended 31 March 2022
At the beginning of the year 621.8 6.2
Issued during the year 289.8 2.9
At the end of the year 911.6 9.1
Issued and fully paid 911.6 9.1
On 17 June 2019 the Company issued 169.1 million ordinary shares at 118.0p per
share (1p nominal value and a premium of 117.0p) for total consideration of
£200 million.
On 15 March 2021 the Company issued 100.4 million ordinary shares at 124.5p
per share (1p nominal value and a premium of 123.5p) for total consideration
of £125 million.
On 5 July 2021 the Company issued 78.0 million ordinary shares at 133.0p per
share (1p nominal value and a premium of 132.0p) for total consideration of
£104 million.
On 7 January 2022 the Company issued 35.7 million ordinary shares at 145.0p
per share (1p nominal value and a premium of 144.0p) as part consideration for
the acquisition of a long-let property let to Sainsbury's Supermarkets Ltd.
The transaction had no profit or loss impact in the year and there is no
liability in respect of the transaction as at the year end date. The remaining
consideration was settled in cash. The transaction was measured directly at
the fair value of the acquired asset.
On 14 February 2022 the Company issued 176.1 million ordinary shares at 142.0p
per share (1p nominal value and a premium of 141.0p) for total consideration
of £250 million.
On 6 July 2022 the Company issued 802.9 million ordinary shares at 143.4p per
share (1p nominal value and a premium of 142.4p). The shares were issued as
consideration for the acquisition of 100% of the issued share capital of SIR
plc along with a partial cash settlement. SIR plc shareholders were entitled
to receive 3.32 shares for each SIR plc share held, with the option to elect
to receive cash instead of some, or potentially all, of the shares to which
they would otherwise be entitled. The issue price of the shares reflects the
fair value of the assets acquired.
16. Share premium reserve
The share premium relates to amounts subscribed for share capital in excess of
nominal value net of directly attributable share issue costs.
Share premium reserve 30 September 30 September 2021 31 March
2022 2022
£m £m £m
At the beginning of the period 940.0 544.5 544.5
Premium on issue of ordinary shares 1,180.6 102.9 402.6
Share issue costs - (1.9) (7.1)
At the end of the period 2,120.6 645.5 940.0
17. Dividends
Dividends paid and declared £m
Dividends in respect of the year ended 31 March 2022
Fourth quarterly dividend at 1.50p per share 13.6
Dividends in respect of the year ended 31 March 2023
First quarterly dividend at 1.575p per share -
Second quarterly dividend at 1.575p per share -
Total dividends paid 13.6
Total dividend per share paid in the period 1.50p
Total dividend per share proposed in respect of the year 3.15p
Dividends in respect of the year ending 31 March 2023
On 22 September 2022, the Company announced a first quarterly dividend in
respect of the year ended 31 March 2023 of 1.575p per share which was paid on
18 November 2022 to shareholders on the register on 30 September 2022.
On 24 November 2022, the Company announced a second quarterly dividend in
respect of the year ended 31 March 2023 of 1.575p per share which will be paid
on 4 January 2023 to shareholders on the register at 2 December 2022.
Dividends in respect of the year ended 31 March 2022
Dividends paid and declared £m
Dividends in respect of the year ended 31 March 2021
Fourth quarterly dividend at 1.46p per share 9.1
Dividends in respect of the year ended 31 March 2022
First quarterly dividend at 1.50p per share 10.5
Second quarterly dividend at 1.50p per share 10.5
Third quarterly dividend at 1.50p per share 11.0
Total dividends paid 41.1
Total dividend per share paid in the year 5.96p
Total dividend per share proposed in respect of the year 6.0p
On 17 September 2021, the Company announced a first quarterly dividend in
respect of the year ended 31 March 2022 of 1.50p per share which was paid on
29 October 2021 to shareholders on the register on 1 October 2021.
On 24 November 2021, the Company announced a second quarterly dividend in
respect of the year ended 31 March 2022 of 1.50p per share which was paid on
30 December 2021 to shareholders on the register on 3 December 2021.
On 28 January 2022, the Company announced a third quarterly dividend in
respect of the year ended 31 March 2022 of 1.50p per share which was paid on
25 March 2022 to shareholders on the register on 11 February 2022.
On 19 May 2022, the Company announced a final dividend in respect of the year
ended 31 March 2022 of 1.50p per share which was paid on 24 June 2022 to
shareholders on the register on 27 May 2022
18. Leases
The Group as lessor
The undiscounted future minimum lease receivable after the reporting date by
the Group under non-cancellable operating leases are as follows:
Lease receivables < 1 year 1-5 years > 5 years Total
£m £m £m £m
30 September 2022 194.7 807.6 5,970.9 6,973.2
31 March 2022 68.2 281.8 1,288.5 1,638.5
30 September 2021 53.3 219.4 931.4 1,204.1
The Group as lessee
The following table sets out a maturity analysis of lease payments, showing
the undiscounted lease payments to be paid after the reporting date:
Lease payables < 1 year 1-5 years > 5 years Total
£m £m £m £m
30 September 2022 2.3 9.3 201.4 213.0
31 March 2022 0.3 1.3 36.6 38.2
30 September 2021 0.3 1.2 34.8 36.3
The above is in respect of leasehold properties held by the Group. There are
194 properties (31 March 2022: 37 properties, 30 September 2021: 32
properties) held under leasehold with lease ranges from 99 years to 999 years.
The increase in lease payables in the period is attributable to the
acquisition of investment property in the period with headlease charges.
The Group's leasing arrangements with lessors are headlease arrangements on
land and buildings that have been sub-let under the Group's normal leasing
arrangements (see above) to tenants. The Group carries its interest in these
headlease arrangements as long leasehold investment properties (Note 8).
19. Segmental information
Operating segments are identified on the basis of internal financial reports
about components of the Group that are regularly reviewed by the chief
operating decision maker (which in the Group's case is the Board, comprising
the non-executive Directors, and the Investment Advisor) in order to allocate
resources to the segments and to assess their performance.
The internal financial reports contain financial information at a Group level
as a whole and there are no reconciling items between the results contained in
these reports and the amounts reported in the consolidated financial
statements. These internal financial reports include the IFRS figures but also
report the non-IFRS figures for the EPRA and alternative performance measures
as disclosed in Notes 24 and 25 and the Additional Information.
The Group's property portfolio comprises investment property, diversified
across 13 different property sub-sectors. The Board considers that all the
properties have similar economic characteristics. Therefore, in the view of
the Board, there is one reportable segment.
The geographical split of revenue and material applicable non-current assets
was:
Revenue
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
UK 73.9 25.4 58.5
Germany 1.6 - -
75.5 25.4 58.5
Investment properties
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
£m £m £m
UK 3,749.2 822.3 1,480.1
Germany 162.1 - -
3,911.3 822.3 1,480.1
During the half-year the Group had three tenants (30 September 2021: Nil, 31
March 2022: Nil) that are considered major customers, contributing more than
10% of the Group's contractual annual passing rent per tenant. The Group's
turnover is allocated to major customers as follows:
Revenue including tenant lease incentives
Half-year ended 30 September Half-year ended 30 September Year ended
2022 2021 31 March
2022
Major tenants 42% - -
Other tenants (each less than 10% of revenue) 58% 100% 100%
100% 100% 100%
20. Related party transactions
Transactions with the Board of Directors
In respect of the period ended 30 September 2021 fees of £0.2m were payable
to the Directors (30 September 2021: £nil, 31 March 2022: £0.3m) in the form
of short-term employee benefits.
Until 31 December 2019 the Directors' fees were settled by way of purchase of
shares in the Company on the open market. Shares acquired by the Directors
pursuant to this arrangement are subject to an 18-month Lock-in Deed. From 1
January 2020 the Directors' fees are settled in cash.
The following table summarises the number of ordinary shares purchased during
the year by Directors and the number of ordinary shares held period end:
30 September 2022 30 September 2021 31 March
2022
Number Number Number
Cyrus Ardalan Acquired - - 206,000
Held 206,000 - 206,000
John Cartwright* Acquired - - -
Held 66,687 66,687 66,687
Jan Etherden (resigned 15 July 2022) Acquired - - -
Held 77,274 77,274 77,274
Patricia Dimond (resigned 19 July 2022)** Acquired - - 14,084
Held 39,520 26,149 39,520
Hugh Seaborn Acquired 40,595 - -
Held 40,595 - -
Ismat Levin Acquired - - 14,084
Held 14,084 - 14,084
Nick Leslau (appointed 6 July 2022)** Acquired 95,978,407 - -
Held 95,978,407 - -
Sandy Gumm (appointed 6 July 2022) Acquired 639,345 - -
Held 639,354 - -
* Includes a company wholly owned by John Cartwright and persons closely
associated (as defined by the EU Market Abuse Regulation) with him.
** includes persons closely associated (as defined by the EU Market Abuse
Regulation) with the Director.
None of the Directors sold any shares in the Company during the half-year.
Transactions with the Investment Advisor
A fee of £6.2m was payable to the Investment Advisor in respect of the period
(30 September 2021: £3.3m, 31 March 2022: £7.1m). At 30 September 2022,
£1.6m was due to the Investment Advisor (30 September 2021: £0.7m ,31 March
2022: £0.9m) for provision of key management services.
The investment advisory fee is calculated in arrears in respect of each month,
in each case based upon the average market capitalisation of the Company on
the following basis:
· One-twelfth of 0.75% per calendar month of market
capitalisation up to or equal to £500m;
· One-twelfth of 0.65% per calendar month of market
capitalisation between £500m and £2bn; and
· One-twelfth of 0.55% per calendar month of market
capitalisation above £2bn.
No performance fee is payable to the Investment Advisor.
The previous fee structure which applied up until 6 July 2022 is as follows:
· One-twelfth of 0.75% per calendar month of market
capitalisation up to or equal to £500m; and
· One-twelfth of 0.65% per calendar month of market
capitalisation above £500m.
21. Consolidated entities
The Company owns 100% of the equity shares of all subsidiaries listed below
and has the power to appoint and remove the majority of the Board of Directors
of those subsidiaries. The relevant activities of the below subsidiaries are
determined by the respective Directors based on simple majority votes.
Therefore, the Board of the Company has concluded that the Company has control
over all these entities and all these entities have been consolidated within
this set of financial statements.
Name of entity Principal activity Country of incorporation Ownership
LXi Property Holdings 1 Limited Property investment UK 100%
LXi Property Holdings 2 Limited* Property investment UK 100%
LXi Property Holdings 3 Limited Property investment UK 100%
LXi Property Holdings 4 Limited Property investment UK 100%
LXi Property Holdings 4a Limited* Property investment UK 100%
Alco 1 Limited* Property investment UK 100%
FPI Co 223 Limited* Property investment UK 100%
LXi Cowdenbeath Limited* Property investment UK 100%
SM Plymouth Hotel Limited* Property investment UK 100%
Corby (General Partner) Limited* Property investment UK 100%
Corby Rail Services Limited* Property investment UK 100%
Corby Limited Partnership* Property investment UK 100%
Firethorn Glasgow Limited Property investment UK 100%
Corby (No.2) Unit Trust* Property investment Jersey 100%
LXi Spirit Limited Property investment Isle of Man 100%
Welling Property Limited Property investment BVI 100%
Acquired in the period: Property investment UK 100%
LXi Property Holdings 5 Limited
LXi Property Holdings 5a Limited* Property investment UK 100%
LXi Property Holdings 6 Limited Property investment UK 100%
LXi Finco Limited Intermediate parent company UK 100%
LXi Cornbow Limited Property investment UK 100%
LXi SIR Holdco Limited (previously Secure Income REIT Plc) Intermediate parent company UK 100%
SIR Theme Park Subholdco Limited* Intermediate parent company UK 100%
SIR ATH Limited* Property investment UK 100%
SIR ATP Limited* Property investment UK 100%
SIR HP Limited* Property investment and borrower (incorporated in England, operating in UK 100%
Germany)
SIR TP Limited* Property investment UK 100%
SIR WC Limited* Property investment UK 100%
SIR Hospital Holdings Limited* Intermediate parent company UK 100%
SIR Umbrella Limited* Intermediate parent company UK 100%
SIR Hospitals Propco Limited* Intermediate parent company UK 100%
SIR Duchy Limited* Property investment UK 100%
SIR Springfield Limited* Property investment UK 100%
SIR Healthcare 1 Limited* Intermediate parent company UK 100%
SIR Healthcare 2 Limited* Intermediate parent company UK 100%
SIR Fitzwilliam Limited* Property investment UK 100%
SIR Fulwood Limited* Property investment UK 100%
SIR Lisson Limited* Property investment UK 100%
SIR Midlands Limited* Property investment UK 100%
SIR Oaklands Limited* Property investment UK 100%
SIR Oaks Limited* Property investment UK 100%
SIR Pinehill Limited* Property investment UK 100%
SIR Rivers Limited* Property investment UK 100%
SIR Woodland Limited* Property investment UK 100%
SIR Yorkshire Limited* Property investment UK 100%
Thomas Rivers Limited* Property investment UK 100%
SIR Hotels 1 Limited* Intermediate parent company UK 100%
SIR Hotels Jersey Limited* Intermediate parent company Jersey 100%
SIR Unitholder 1 Limited* Intermediate parent company Jersey 100%
SIR Unitholder 2 Limited Intermediate parent company Jersey 100%
Grove Property Unit Trust 6* Property investment and borrower Jersey 100%
Grove Property Unit Trust 7* Property investment and borrower Jersey 100%
Grove Property Unit Trust 9* Property investment and borrower Jersey 100%
Grove Property Unit Trust 11* Property investment and borrower Jersey 100%
Grove Property Unit Trust 12* Property investment and borrower Jersey 100%
Grove Property Unit Trust 16* Property investment and borrower Jersey 100%
SIR Hotels 2 Limited* Intermediate parent company UK 100%
SIR Hotels Jersey 2 Limited* Intermediate parent company and property investment Jersey 100%
SIR Unitholder 3 Limited* Intermediate parent company Jersey 100%
SIR Unitholder 4 Limited* Intermediate parent company Jersey 100%
Grove Property Unit Trust 2* Property investment and borrower Jersey 100%
Grove Property Unit Trust 5* Property investment and borrower Jersey 100%
Grove Property Unit Trust 13* Property investment and borrower Jersey 100%
Grove Property Unit Trust 14* Property investment and borrower Jersey 100%
Grove Property Unit Trust 15* Property investment and borrower Jersey 100%
SIR Maple 4 Limited* Property investment and borrower UK 100%
SIR Maple Holdco Limited* Intermediate parent company UK 100%
SIR Maple 1 Limited* Intermediate parent company UK 100%
SIR Unitholder 5 Limited* Intermediate parent company Jersey 100%
MIF 1 Unit Trust* Property investment and borrower Jersey 100%
SIR Maple 2 Limited* Property investment and borrower UK 100%
SIR Maple 3 Limited* Property investment and borrower UK 100%
SIR New Hall Limited* Dormant UK 100%
SIR MTL Limited* Dormant UK 100%
Charcoal Bidco Limited* Dormant UK 100%
SIR Hotels 2 Holdco Limited* Dormant Jersey 100%
SIR Hotels 2 GP Limited* Dormant Jersey 100%
SIR Hotels 2 Nominee Limited* Dormant Jersey 100%
SIR Newco Limited* Dormant Jersey 100%
SIR Newco 2 Limited* Dormant Jersey 100%
* Subsidiaries indirectly owned.
The registered office for UK subsidiaries is 1st Floor Senator House, 85 Queen
Victoria Street, London, EC4V 4AB.
The registered office of Jersey subsidiaries with the exception of MIF 1 Unit
Trust is 26 New Street, St Helier, Jersey JE2 3RA.
The registered office of MIF 1 Unit Trust is 44 Esplanade, St Helier, Jersey,
JE4 9WG.
The registered office of Isle of Man subsidiaries is First Names House,
Victoria Road, Douglas, IM2 4DF.
The registered office of BVI subsidiaries is Wickhams Cay II, Tortola, British
Virgin Islands, VG 1110.
22. Financial risk management
The Group is exposed to interest rate risk, credit risk, liquidity risk and
foreign exchange risk in the current and future periods. The Board of
Directors oversees the management of these risks. The policies of the
Directors for managing each of these risks are summarised below.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
The Group has reduced the interest rate risk on its external borrowing by
fixing the rate of interest payable by entering into interest rate
derivatives, which at the balance sheet date included interest rate swaps and
caps. In addition, a number of the facilities acquired as part of the SIR plc
merger bear interest at a fixed rate.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The Group will be exposed to credit risk on both its leasing activities
and financing activities, including deposits with banks and financial
institutions.
Credit risk related to financial instruments and cash deposits
One of the principal credit risks of the Group arises with the banks and
financial institutions. The Board of Directors believes that the credit risk
on short term deposits and current account cash balances is limited because of
low counterparty risk, the counterparties being banks with high credit
ratings.
All financial assets are regularly monitored. The maximum exposure to credit
risk at the reporting date is the carrying value of financial assets disclosed
in Note 11 excluding cash or cash equivalents.
Credit risk related to leasing activities
In respect of occupational leasing arrangements, in the event of a default by
a tenant, the Group may suffer a void period where no rents are received and
additional re-letting costs. The quality of the tenant is assessed based on an
extensive tenant covenant review scorecard prior to acquisition of the
property. The assessment of the tenant credit worthiness is also monitored on
an ongoing basis. Credit risk is assisted by the vast majority of occupational
leases requiring that tenants pay rentals in advance. The Investment Advisor
monitors the rent collection in order to anticipate and minimise the impact of
defaults by tenants. Outstanding rent receivables are regularly monitored. The
Group defines default as a tenant being unable to make the required payments
on their rental obligations.
Liquidity risk
The Group manages its liquidity and funding risks by considering cash flow
forecasts and ensuring sufficient cash balances are held within the Group to
meet future needs. Prudent liquidity risk management implies maintaining
sufficient cash and marketable securities, the availability of financing
through appropriate and adequate credit lines, and the ability of customers to
settle obligations within normal terms of credit. The Group ensures, through
forecasting of capital requirements, that adequate cash is available.
The following table details the Group's liquidity analysis in respect of its
financial liabilities on contractual undiscounted payments:
< 3 months 3-12 1-5 > 5 Total
months years years
£m £m £m £m £m
30 September 2022
Bank borrowings (Note 14) 232.8 513.1 565.6 170.0 1,481.5
Early repayment of debt costs 20.2 - - - 20.2
Interest payable on bank borrowings 13.3 29.6 60.6 30.1 133.6
Trade and other payables 4.3 - - - 4.3
Other financial liabilities 2.1 6.2 32.8 492.6 533.7
Lease payables 0.6 1.7 9.3 201.4 213.0
Retentions payable 0.2 0.5 2.2 - 2.9
273.5 551.1 670.5 894.1 2,389.2
30 September 2021
Bank borrowings (Note 14) - - 79.7 170.0 249.7
Interest payable on bank borrowings 1.5 4.4 20.2 24.9 61.0
Trade and other payables 23.2 - - - 23.2
Lease payables 0.1 0.2 1.2 34.8 36.3
24.84.6101.1239.7370.2 24.8 4.6 101.1 239.7 370.2
31 March 2022
Bank borrowings (Note 14) - - 76.0 170.0 246.0
Interest payable on bank borrowings 1.5 4.4 19.7 32.5 58.1
Trade and other payables 17.9 - - - 17.9
Lease payables 0.1 0.2 1.3 36.6 38.2
Retentions payable - 1.5 1.1 - 2.6
19.5 6.1 98.1 239.1 362.8
Capital management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and to maintain an optimal capital structure to reduce the cost
of capital.
The Group considers proceeds from share issuance, bank borrowings and retained
earnings as capital. The Group's policy on borrowing is as set out below:
· The level of borrowing will be on a prudent basis for the asset
class and will seek to achieve a low cost of funds, whilst maintaining
flexibility in the underlying security requirements and structure of the
Group.
· The Board intends to maintain a conservative level of aggregate
borrowings with a medium term maximum target of 30% of the Group's total
assets.
The Group has remained compliant with all banking covenants during and since
the half-year.
Foreign currency exchange risk
The Group prepares its financial statements in Sterling. Following the Merger,
on an IFRS basis, 4.7% by value of the Group's net assets are Euro denominated
and as a result the Group is subject to foreign currency exchange risk. On
an EPRA NTA basis, the Euro exposure is 4.7%. This risk is partially hedged
because within the Group's German operations, rental income, interest costs
and the majority of both assets and liabilities are Euro denominated. An
unhedged currency risk remains on the value of the Group's net investment in,
and net returns from, its German operations.
The Group's sensitivity to changes in foreign currency exchange rates,
calculated on the basis of a 10% increase in average and closing Sterling
rates against the Euro, was as follows, with a 10% decrease having the
opposite effect:
Half-year ended
30 September
2022
£m
Investment property revaluation net of deferred tax (0.1)
Other income statement movements 0.6
Increase in profit / (loss) for the half-year 0.5
Increase in other comprehensive income and equity 10.6
23. Capital commitments
At 30 September 2022 the Group had capital commitments of £42.5m (30
September 2020 £31.2m, 31 March 2022: £53.6m) in relation to the cost to
complete its forward funded pre-let development assets and £9.8m in respect
of acquisitions for which contracts had exchanged but conditions to completion
remain outstanding (30 September 2021 £31.0m, 31 March 2022: £90.1m). All
commitments fall due for settlement within one year from the date of this
report.
24. Earnings per share
Earnings per share is calculated by dividing profit for the period
attributable to ordinary equity holders of the Company by the weighted average
number of ordinary shares in issue during the period. Amounts shown below are
both basic and diluted measures as there were no dilutive instruments in issue
throughout the current or comparative periods.
Half-year ended Half-year ended Year ended
30 September 30 September 2021 31 March
2022 2022
£m £m £m
(Loss)/earnings (29.2) 74.3 162.0
Weighted average number of ordinary shares (million) 1,288.9 659.3 710.2
Earnings per share ("EPS") (2.3)p 11.3p 22.8p
Adjustments to remove:
Change in fair value of investment property 80.3 (55.5) (117.7)
Gain/loss on disposal of investment property 0.1 - -
Change in fair value of interest rate derivative (25.0) (0.1) (1.2)
Loss on extinguishment of debt 20.6 - -
EPRA earnings 46.8 18.7 43.1
Weighted average number of ordinary shares (million) 1,288.9 659.3 710.2
EPRA EPS 3.6p 2.8p 6.1p
Adjustments:
Licence fees receivable 1.2 1.8 3.6
Amortisation of cash backed rental top ups and rent-free periods 0.3 2.3 3.2
Amortisation of loan fees 2.3 - -
Reverse deferred tax provision 1.1 - -
Adjusted earnings 51.7 22.8 49.9
Weighted average number of ordinary shares (million) 1,288.9 659.3 710.2
Adjusted EPS 4.0p 3.5p 7.0p
Adjustments to remove:
Accretion of tenant lease incentives (Note 8) (13.7) (5.7) (9.9)
Abortive fees (Note 5) 1.4 - 0.6
Adjusted cash earnings 39.4 17.1 40.6
Weighted average number of ordinary shares (million) 1,288.9 659.3 710.2
Adjusted cash EPS 3.1p 2.6p 5.7p
Adjusted cash EPS is a performance measure used by the Board to assess the
Company's dividend payments. The metric adjusts EPRA earnings to include
licence fees receivable from developers, amortisation of rental top ups and
exclude amortisation of loan fees, movements in the deferred tax provision,
accretion of tenant lease incentives and one-off abortive costs.
The Group's accounting policy for licence fees, cash backed rental top ups
received from vendors and rent-free periods that are cash covered by
developers receivable is to recognise them as a discount to the cost of the
investment property, however the Board considers these returns an important
component of the Group's performance and key to underpinning the Company's
dividend targets and payment.
25. Net asset value per share
Net asset value per share is calculated by dividing the consolidated net
assets attributable to ordinary equity holders of the Company by the number of
ordinary shares outstanding at the reporting date. Amounts shown below are
both basic and diluted measures as there were no dilutive instruments in issue
throughout the current or comparative periods.
30 September 2022 30 September 2021 31 March
2022
£m £m £m
Net asset value ("NAV") 2,448.2 948.5 1,300.7
Number of ordinary shares (million) 1,714.5 699.8 911.6
NAV per share 142.8p 135.5p 142.7p
Adjustments to calculate EPRA NTA (25.9) 0.1 (1.2)
EPRA NTA 2,422.3 948.6 1,299.5
Number of ordinary shares 1,714.5 699.8 911.6
EPRA NTA per share 141.3p 135.5p 142.6p
Dividend paid post period end (1.575)p (1.5)p -
EPRA NTA per share (ex-dividend) 139.7p 134.0p 142.6p
A reconciliation of IFRS NAV per share to the three EPRA NAV measures under
the new BPR (NTA, NRV and NDV) and the two measures under old BPR (NAV and
NNNAV) is included in the section Notes to EPRA NAV calculations.
26. Post balance sheet events
Dividends
Dividends in respect of the year ending 31 March 2023
· On 22 September 2022, the Company announced a first quarterly
dividend in respect of the year ended 31 March 2023 of 1.575p per share which
was paid on 18 November 2022 to shareholders on the register on 30 September
2022.
· On 24 November 2022, the Company announced a second quarterly
dividend in respect of the year ended 31 March 2023 of 1.575p per share which
will be paid on 4 January 2023 to shareholders on the register at 2 December
2022
Acquisitions and disposals
· The Group completed the sale of the 65 year Merlin 'income
strip' representing 30% of the annual rental income from the Thorpe Park and
Alton Towers assets, operated by Merlin, to a UK institution for £257
million, reflecting a NIY of 2.96%
Debt
· Following the completion of the 'income strip' sale on 19 October
2022, the Group repaid in full the outstanding facility amount of £231.8m on
the Merlin facility A
· The Group closed out the Merlin facility A cap which generated a
net cash payment to the Group of £23.1m. Cash proceeds will be used to pay
down the RCF facility with flexibility to re-draw
27. Controlling parties
There is no ultimate controlling party of the Group.
NOTES TO THE EPRA AND ALTERNATIVE PERFORMANCE MEASURES
EPRA NAV measures
The Group considered EPRA NTA to be the most relevant NAV measure for the
Group and we are now reporting this as our primary NAV measure, replacing our
previously reported EPRA NAV and EPRA NAV per share metrics. EPRA NTA excludes
the cumulative fair value adjustments for debt-related derivatives which are
unlikely to be realised.
As at 30 September 2022 Current measures Previous measures
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
£m £m £m £m £m
Net asset value 2,448.2 2,448.2 2,448.2 2,448.2 2,448.2
Mark-to-market adjustments of derivatives (25.9) (25.9) - (25.9) -
Deferred tax - 12.3 - - -
Fair value of debt - - (71.8) - (71.8)
Real estate transfer tax - 245.5 - - -
At 30 September 2022 2,422.3 2,680.1 2,376.4 2,422.3 2,376.4
Number of ordinary shares (million) 1,714.5 1,714.5 1,714.5 1,714.5 1,714.5
Per share 141.3 156.3 138.6 141.3 138.6
As at 30 September 2021 Current measures Previous measures
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
£m £m £m £m £m
Net asset value 948.5 948.5 948.5 948.5 948.5
Mark-to-market adjustments of derivatives - - - - -
Fair value of debt - - (3.2) - (3.2)
Real estate transfer tax - 59.2 - - -
At 30 September 2021 948.5 1,007.2 945.3 948.5 945.3
Number of ordinary shares (million) 699.8 699.8 699.8 699.8 699.8
Per share 135.5p 144.0p 135.1p 135.5p 135.1p
As at 31 March 2022 Current measures Previous measures
EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
£m £m £m £m £m
Net asset value 1,300.7 1,300.7 1,300.7 1,300.7 1,300.7
Mark-to-market adjustments of derivatives (1.2) (1.2) - (1.2) -
Fair value of debt - - 8.8 - -
Real estate transfer tax - 101.5 - - -
At 31 March 2022 1,299.5 1,401.0 1,309.5 1,299.5 1,309.5
Number of ordinary shares (million) 911.6 911.6 911.6 911.6 911.6
Per share 142.6p 153.7p 143.7p 142.6p 143.7p
EPRA NIY and EPRA 'Topped Up' NIY
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Investment property - wholly owned 3,656.6 1,216.6 1,544.4
Less: development properties (89.9) (164.4) (123.6)
Completed property portfolio 3,572.7 1,052.2 1,420.8
Allowance for estimated purchasers' costs 242.9 71.6 96.5
Gross up completed property portfolio valuation (b) 3,815.6 1,123.8 1,517.3
Annualised passing rental income(1) 200.1 61.1 74.5
Less: contracted rental income in respect of development properties (3.5) (6.6) (5.6)
Property outgoings - - -
Annualised net rents(2) (a) 196.6 54.5 68.9
Contractual increases for lease incentives(3) 122.2 26.0 31.9
Topped up annualised net rents (c) 318.8 80.5 100.8
EPRA NIY (a/b) 5.2% 4.8% 4.5%
EPRA Topped Up NIY (c/b) 8.4% 7.2% 6.6%
EPRA Vacancy Rate
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Annualised estimated rental value of vacant premises - - -
Annualised net rents(2) 196.6 54.5 68.9
EPRA Vacancy Rate 0% 0% 0%
EPRA Cost Ratio
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Property operating costs - - -
Vacant property costs - - -
Administration expenses(4) 9.5 4.4 9.3
Total costs (both including and excluding vacant property costs(5)) 9.5 4.4 9.3
Total gross rental income 75.5 25.4 58.5
Total EPRA cost ratio 12.6% 17.3% 15.9%
EPRA LTV
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2022 2021 2022
£m £m £m
Borrowings from financial institutions 1,249.5 249.7 246.0
Net payables - 13.3 20.3
Exclude cash (114.3) (24.6) (72.5)
Net debt (a) 1,137.8 238.3 193.8
Built investment property at fair value 3,566.4 1,216.6 1,544.4
Fair value of properties under development 44.1 - -
Net receivables 175.9 - -
Total property value (b) 3,786.4 1,216.6 1,544.4
LTV (a/b) 30% 20% 13%
Total accounting return
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2022 2021 2022
p p p
EPRA NTA per share at beginning of the period 142.6 125.7 125.7
EPRA NTA per share at end of the period 141.3 135.5 142.6
Change in EPRA NTA per share in the period (1.3) 9.8 16.9
Dividend per share paid in the period 1.5p 1.5p 6.0p
Total of change in EPRA NTA and dividend per share 0.2 11.3 22.9
Total accounting return 0.1% 9.0% 18.2%
1 Excludes £0.6m of contracted rent on assets that had exchanged
but not completed as at the reporting date
2 Excludes contracted rents receivable on development properties
3 e.g. Step rents and expiry of rent-free periods
4 The Group does not have a policy of capitalising overheads and
all administrative expenses are recognised in the P&L in the period to
which they relate
5 The Group has no vacant property costs
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