Results for the half-year ended 30 September 2023
30/11/2023 07:00
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RNS Number : 1396V LXI REIT PLC 30 November 2023
30 November 2023
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
("LXI", the "Company" or the "Group")
INTERIM RESULTS FOR THE HALF-YEAR ENDED 30 SEPTEMBER 2023
Continuing to deliver a robust operational and financial performance
Underpinned by a best-in-class, resilient, actively managed long-income
portfolio, which provides reliable and growing income with the potential for
capital growth
LXi REIT plc (ticker: LXI), the specialist inflation-protected very long
income REIT, announces its Interim Results for the six months ended 30
September 2023.
Cyrus Ardalan, Chairman of LXI REIT plc, commented:
"The performance of the Group, notwithstanding the macroeconomic headwinds
faced in the period, is testament to the resilience of our strategy,
diversified nature of the portfolio, proactive asset management and capital
structure. Our assets are well diversified across a broad range of sectors
with high barriers to entry, strong underlying property fundamentals and
attractive and sustainable rents. The portfolio is let to tenant
counterparties that have demonstrated strong performance throughout the
current and previous economic cycles and have, in many cases, continued to
outperform in the prevailing economic climate.
The fall in capital values, 4% like for like valuation reduction in the
period, is in line with prevailing market conditions. This has, in part, been
mitigated by inflation linked income returns underpinning a growing dividend,
up 5% on the previous year, and with the potential for further growth with a
further increase anticipated next year.
Contracted annual rental income grew to £204.2m at 30 September, up from
£202.2m at 31 March, as a result of rent reviews on 49% of the portfolio,
with an average increase of 3.6% pa in the period. Full occupancy across our
portfolio was maintained with strong rent collection of 100% continuing in the
period. EPRA EPS and Adjusted Cash EPS increased by 12% and 13% to 4.07pps and
3.44pps, respectively. A reduced EPRA cost ratio of 7.1% was delivered in the
period, which reflects the lowest cost ratio in our sector. A comprehensive
refinancing programme was completed, which increased debt maturity to over 5
years and provides strong foundation for progressive dividend. We have 100%
fixed or hedged rate debt(4) on drawn facilities at 30 September, providing
protection from ICR covenants in volatile market conditions. We delivered a
fully covered dividend in the half year, leaving us on target to meet 6.6p
FY24 dividend target*.
We are continuing to actively manage the portfolio, with disposals pursued to
reduce leverage, recycle capital and reduce our top tenant concentration.
£32.6m of disposal proceeds were generated in the half-year, with the Company
under offer and in solicitors' hands on the disposal of approximately £220m
of assets, at no less than book value, which would lower current LTV from 38%
to 34%.
Notwithstanding the challenging wider economic headwinds, we remain confident
that the underlying characteristics of our carefully curated long income
portfolio of key operating assets in structurally supported sectors, enhanced
by our proactive accretive recycling of capital and asset management
strategies, will enable the Group to continue to deliver reliable and growing
income, and with the potential for capital growth and outperformance over the
medium term."
HIGHLIGHTS
Financial highlights
Alternative performance measures Half-year to Half-year to Change
30 September 30 September
2023 2022
EPRA EPS 4.07p 3.63p +12.1%
Adjusted cash EPS 3.44p 3.06p +12.7%
Dividend per share 3.30p 3.15p +4.8%
EPRA cost ratio (including and excluding vacant property costs) 7.1% 12.6% -5.5pts
Total Expense Ratio (annualised) 0.6% 0.9% -0.3pts
Total accounting return -4.5% 0.1% -4.6pts
As at As at Change
30 September 31 March
2023 2023
Portfolio value(1) £3,191.4m £3.356.3m -4.1% LFL
EPRA NTA per share 114.1p 121.1p -5.8%
EPRA NTA per share (ex-dividend)(2) 112.4p 121.1p -7.1%
Pro forma net LTV(3) 38% 37% +1pts
IFRS performance measures Half-year to Half-year to Change
30 September 30 September
2023 2022
Net rental income £124.6m £75.5m +65.0%
Operating profit before fair value changes £115.9m £66.0m +75.6%
Earnings per share -4.85p -2.27p -2.58p
As at As at Change
30 September 31 March 2023
2023
Investment property at fair value(1) £3,450.1m £3,601.9m -4.4%
Net assets £1,995.7m £2,108.1m -5.3%
NAV per share 116.4p 123.0p -5.4%
Earnings driven by rental growth and sector leading low cost ratios,
supporting progressive dividend
· EPRA earnings per share ("EPS") up 12.1% to 4.07p (30 September
2022: 3.63p), and Adjusted cash EPS up 12.7% to 3.44p for the period (30
September 2022: 3.06p), driven by sustainable growth from index linked or
fixed rental growth and low cost ratios, underpinning the Company's
progressive dividend policy
· Contracted annual rental income of £204.2m at 30 September
2023, up from £202.2m at 31 March 2023 as a result of 84 rent reviews,
equating to 49% of contracted rent, with an average increase of 3.6% pa in the
period, coupled with strong rent collection in the period of 100%. A further
65 rent reviews will take place in the second half of the year, reflecting 12%
of current contracted rent
· Sector leading EPRA cost ratio of 7.1% (30 September 2022:
12.6%) and total expense ratio of 0.6% (30 September 2022: 0.9%), underpinned
by our dynamic management fee structure
· Dividend per share of 3.30p in respect of the period (30
September 2022: 3.15p per share), representing 5% growth on the prior period
Resilient performance from UK's leading sector diversified long income real
estate portfolio
· Portfolio independently valued at £3,191.4m (31 March 2023:
£3,356.3m), reflecting a like for like change of (4.1)%. The movement
reflects an outward yield shift of 30 bps to 5.7% at 30 September 2023 (31
March 2023: 5.4%), offset by rental growth of 1.9%
· EPRA NTA (ex-dividend)(2) per share of 112.4p (31 March 2023:
121.1p), reflecting a fall of 7.1%, primarily driven by yield expansion across
certain property sectors in response to wider economic conditions
· The Group owns an inflation linked portfolio of 348 properties
that are 100% let with an aggregate valuation of £3.2bn at 30 September 2023,
contracted annual rental income of £204.2m and a WAULT to first break or
expiry of 26 years
· Assets are 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 and
FRI terms to tenant counterparties that have a proven track record of strong
performance across previous challenging economic cycles
· Properties are strategically important to the operations of our
diverse range of institutional-quality tenants, underpinning the longevity and
security of the Group's income streams
· Shareholders continue to benefit from the certainty provided by
the Group's fully let, highly diversified, triple-net portfolio of secure real
estate assets, sector leading low expense ratios and a conservative, 100%
fixed or capped(4) debt position
Further strengthening of balance sheet
· Pro forma net loan to value ("LTV")(3) ratio of 38% (31 March
2023: 37%), with headroom to our medium-term borrowing policy cap of 40% and
comfortable covenant headroom on the financial covenants within the loan
facilities
· During the period, the Company completed a significant
refinancing programme comprising:
- A new facility totalling £565m, comprising three and five-year term
loans and a five-year revolving credit facility
- A new £148m 16-year debt facility
· The Group's weighted average term to maturity is now 5 years
and has a weighted average interest cost of 4.7% with 100% of drawn debt fixed
or capped(4)
Delivering on our Environmental, Social and Governance ("ESG") strategy and
ambitions
· Over the last 12-18 months, the Company has progressed from an
ambition to develop a Net Zero plan for the portfolio to publishing our
roadmap and embarking on its delivery
· This aligns with our overall objective to add value through asset
management opportunities across existing properties as our occupiers continue
to seek further investment into their leased sites in line with their own Net
Zero targets. We work collaboratively with our tenants to reach these shared
goals and monitor our progress carefully against our peer group
· Improving the quality and transparency of our ESG reporting to
investors and other stakeholders has been a top priority over the last 12-18
months. This commitment to ESG reflects our wider commitment to good
stewardship, as we pledge to transition to a fully environmentally sustainable
business and deliver value to society beyond purely financial returns
Strong alignment
· Strong Management Team and Board alignment to shareholders with
over 5% shareholding at 30 September 2023
Post period end highlights
Dividends
· Paid the 1.65p per share dividend relating to the quarter ended
30 June 2023
· Announced a dividend of 1.65p per share for the quarter ended
30 September 2023, keeping the Group on track to meet its dividend per share
target of 6.6p for the year, which is expected to be fully covered
Debt refinancing
· On 10 November 2023, the Group agreed a two-year extension of
the £60m HSBC facility, taking the expiry date of the facility out to
December 2026. The facility has a margin of 2.05% and there is currently a cap
in place until December 2024 meaning an all-in interest cost of 4.55%. The
Group expects to hedge the cost of the extended term of the HSBC Facility in
due course
Disposals
· The Company confirms that it is under offer and in solicitors'
hands, on the sale of 66 Travelodge hotels for a combined sum of £210m, which
is in line with book value as at September 2023. The sae remains subject to
contract and due diligence, and there is therefore no certainty that the sale
will complete. Upon completion, these targeted sales would:
- lower LTV from 38% to 34%
- further strengthen the security of our income by reducing tenant
concentration
Outlook
· Our priority is to continue to own profitable assets that are
attractive to tenant operators in sectors with the most positive and stable
outlook. In doing so, we will continue to provide attractive, sustainable,
inflation-protected income returns with the potential for capital growth to
our shareholders
· Our strategies of timely capital recycling, moving in and out
of sub-sectors, financing tenant growth ambitions through sale and leasebacks
and our ability to forward fund pre-let developments provide a platform with
significant accretive opportunities that we are confident will continue to
deliver attractive returns sustained over the longer term
· The company is actively pursuing a disposals strategy to reduce
leverage and demonstrate the value of our underlying NAV
· Capital recycling will also allow us to reduce tenant
concentrations and further diversify the portfolio
· 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 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 deliver outperformance over
the medium term
FOR FURTHER INFORMATION, PLEASE CONTACT:
LXI REIT Advisors Limited Via H/Advisors Maitland
Simon Lee (CEO)
Alex MacEachin (CFO)
H/Advisors Maitland (Communications Advisor) 07747 113 930 / 020 7379 5151
James Benjamin / Rachel Cohen lxireit-maitland@h-advisors.global (mailto:lxireit-maitland@h-advisors.global)
The Company's LEI is: 2138008YZGXOKAXQVI45
COMPANY PRESENTATION FOR INVESTORS AND ANALYSTS
A Company presentation for investors and analysts, immediately followed by a
Q&A, will take place today, Thursday, 30 November 2023 at 9.30am (UK) via
a live webcast and conference call.
To access the live webcast, please register in advance here:
https://brrmedia.news/LXI_HYR (https://brrmedia.news/LXI_HYR)
The live conference call dial-in is available using the below details:
Dial in numbers: UK Toll Free: 0808 109 0700
UK & International: +44 (0) 33 0551 0200
Password to quote: LXI REIT Half Year Results
Participants can type questions into the webcast question box or ask questions
verbally via the conference call.
The recorded webcast and slides will be available on demand later in the day
on the Company website: www.lxireit.com/results-centre
(http://www.lxireit.com/results-centre)
NOTES:
LXI REIT plc invests in commercial property assets predominantly in UK let, or
pre-let, on very 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 6.6 pence per ordinary share for the
year which commenced on 1 April 2023*.
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)
* This is a target and not a profit forecast.
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 25 and 26 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 2023 Annual Report and
in the Additional Information on page 129 of the Annual Report.
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 9 to the condensed
consolidated financial statements
2 The EPRA NTA per share (ex-dividend) is stated after deducting
the dividend of 1.65p per share in respect of the quarter ended 30 June 2023,
that went ex-dividend on 14 September 2023 and was paid on 13 October 2023
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 87% of total committed debt at 30 September 2023 is hedged or
fixed to full term maturity
Portfolio summary
As at As at
30 September 31 March
2023 2023
WAULT to first break 26 years 27 years
Number of assets 348 350
Number of tenants 84 84
Let or pre-let 100% 100%
Portfolio diversification by sector (by contracted annual rent)
- Healthcare 23% 22%
- Budget hotels 21% 21%
- Leisure 19% 19%
- Foodstores 9% 10%
- Industrials 7% 7%
- Others 21% 21%
Rent review type (upward only)
- RPI 25% 26%
- CPI 39% 38%
- Fixed 34% 34%
- Open market 2% 2%
Regular predictable rental growth profile
- Annual reviews 57% 56%
- Five yearly reviews 43% 44%
- Capped indexed linked uplifts 60% 60%
- Weighted average cap 4.0% 3.9%
- Collared index-linked uplifts 56% 56%
- Weighted average collar 1.1% 1.2%
CHAIRMAN'S STATEMENT
Dear Shareholder,
LXi is the UK's leading diversified, long income REIT with a substantial
£3.2bn portfolio, as of September 2023, delivering consistent income and
dividend growth along with capital protection to our shareholders.
The past year been a challenging period for the industry. Inflation has
remained stubbornly high with the Bank of England's Monetary Policy Committee
raising interest rates three times with current sentiment suggesting rates
will remain 'higher for longer'. This has led to a significant expansion in
property yields and increased funding costs. Notwithstanding this, LXi's
strong operational performance and robust rental growth have served to
mitigate the impact on net asset value.
The performance of the Group, notwithstanding the macroeconomic headwinds
faced in the period, is testament to the resilience of our strategy, portfolio
and capital structure. Our assets are well diversified across a broad range of
sectors with high barriers to entry, strong underlying property fundamentals
and attractive and sustainable rents. The portfolio is let to tenant
counterparties that have demonstrated strong performance throughout the
current and previous economic cycles and have, in many cases, continued to
outperform in the prevailing economic climate. It is testament to the
diversified nature of the portfolio, that has been carefully curated from
inception, and our proactive asset management, that we are able to weather
this storm effectively.
The fall in capital values (4% like for like valuation reduction in the
period), is in line with prevailing market conditions. This has, in part, been
mitigated by inflation linked income returns underpinning a growing dividend,
up 5% on the previous year, and with the potential for further growth with a
further increase anticipated next year.
We believe that portfolio diversification serves as a key risk management tool
over the medium term, reducing volatility and enhancing returns.
Simultaneously, our index linked rent reviews form the bedrock to capturing
rental growth and generating a predictable and growing income return secured
against a variety of investment grade covenants. Our conviction remains that
our diversified long income strategy provides shareholders with real estate
exposure truly anchored in robust property fundamentals.
The granularity of the portfolio enhances both the Company's diversification
and liquidity, with two asset sales completing in the period at prices at or
in excess of book value. This provides comfort that in a rapidly changing
interest rate environment our valuations remain robust, and the assets remain
liquid.
Strong and resilient capital structure
Across the peer group, as share prices and valuations have fallen, debt
management has become an area of increased focus. Our comprehensive debt
financing, which completed in April 2023, has shielded LXi from imminent
further interest rate fluctuations and has established a stable capital base
from which to operate effectively during these uncertain economic times. The
Company has an average debt maturity of 5 years, a well staggered maturity
profile and an average cost of debt of 4.7% pa, providing protection to the
Company's long term progressive dividend policy.
At 30 September 2023, pro forma net LTV stands at 38%, remaining within the
stated range of 30% to 40%. However, we remain committed to reducing LTV to
the medium to long term target of 30-35%. This will be achieved both through
selective disposals and value enhancing asset management transactions, as well
as by valuation gains that are anticipated as interest rates level off and
return to their long run average. The Company's current drawn debt position is
fully hedged, negating its exposure to any potential further interest rate
rises.
Our portfolio, debt strategy and scale have also been pivotal in securing our
cost-effective debt profile. This has been underpinned by our S&P
Investment Grade credit rating, which should facilitate future refinancing
events, providing flexibility and enhancing the Company's earnings
potential.
The benefits of our resilient strategy and portfolio of sector diversified
long income real estate
The Group portfolio is valued at £3.2bn at 30 September 2023 comprising of
348 properties with contracted annual rental income of £204.2m and a very
long WAULT to first break of 26 years. Our income is 98% index linked or has
fixed uplifts, and I am pleased to report 84 rent reviews, equating to 49% of
contracted rent, with an average increase of 3.6%pa in the period.
The scale of our operations and our resilient strategy has enabled the Company
and its shareholders to also benefit from a sector leading, low total expense
ratio of 0.6%. In addition, our inflation linked rent review strategy provides
certainty of future rental increases. Avoiding adversarial rent review
negotiations with our tenants has helped foster a collaborative and mutually
beneficial working relationship, providing a platform for constructive
negotiation when we are seeking to pursue accretive asset management
initiatives within the portfolio.
.
Continuing to enhance our Environmental, Social and Governance ("ESG")
strategy, reporting and objectives
ESG matters are important to the Board, and we carefully consider both the
associated risks and opportunities on an on-going basis, which is being fully
integrated within our business and growth strategy. Within the property
industry there remains a lack of clarity around ESG factors, including the
implementation of EPC targets and structural changes impacting certain
sectors, including in particular the case of long FRI leases such as ours,
where the key issue of where liabilities lie between landlords and tenants
remains unresolved.
Over the last 12-18 months, the Company has progressed from an ambition to
develop a Net Zero plan for the portfolio to publishing our roadmap and
embarking on its delivery. This aligns well with our overall objective to add
value through asset management opportunities across existing properties, as
our occupiers continue to seek further investment into their leased sites in
line with their own Net Zero targets. We work collaboratively with our
tenants to reach these shared goals and monitor our progress carefully against
our peer group.
Improving the quality and transparency of our ESG reporting to investors and
other stakeholders has been one of our priorities over the last 12-18 months.
This commitment to ESG reflects our wider commitment to good stewardship
pledging to transition to a fully environmentally sustainable businesses and
to deliver value to society beyond purely financial returns.
Board
I would like to express my thanks to the Board for their continued commitment
and engagement, showing steady stewardship to the Company through recent
challenging conditions. It is often said that there is no substitute for
experience, and this has been as true as ever in recent times. Each member
of the Board brings their unique insight and expertise along with valuable
knowledge of the Company's assets. I very much look forward to continuing to
work closely with the Board to help steer the business to further success.
Outlook
The Company provides a stable platform from which we will be able to further
leverage our scale, experienced management team, and low cost base, to
continue to optimise our portfolio to create and deliver attractive value,
growth and outperformance to our shareholders.
We see attractive opportunities for the Company to generate further accretive
value for our shareholders through:
· actively pursuing disposal strategies to reduce leverage and
demonstrate the value of our underlying NAV
· capital recycling which will allow us to reduce tenant
concentrations and further diversify the portfolio
· value opportunities in our existing portfolio through lease
re-gears, strengthening relationships with key tenants and other asset
management initiatives
· continuing to be highly selective but remaining open to
compelling opportunities created by market uncertainty:
- possibility to benefit from structural change within open-ended
funds that have traditionally held large prime long income portfolios
- taking advantage of sale and leaseback opportunities arising from
large corporates as their historic low cost bonds mature
· to explore opportunities for consolidation and M&A in the
long income sector which are afforded to us by the scale and diversified
nature of our portfolio and investment strategy coupled with the expertise and
skills of our management team
With forecasts for inflation stabilising and interest rates quite possibly
reaching terminal level, we are increasingly confident that the repricing
which has impacted the property market will begin to reverse in the latter
part of this year. Properties with defensive qualities tend to be those that
rebound the quickest, with LXi well positioned to benefit.
Uncertain markets are a time to focus ever more clearly on the fundamental
principles of good estate management. We continue to use diversification as a
powerful risk mitigation tool, the portfolio is 100% occupied and we
consistently collect 100% of our inflation linked rent. We nurture close
relationships with our tenants and continue to extract maximum value from our
portfolio. There are exciting initiatives underway to extend lease terms and
enhance both security and value from existing assets. Whilst some uncertainty
and risk remain, we see further green shoots emerging and remain confident
that the Company will continue to deliver secure, growing income along with
the potential for capital growth and attractive total returns.
Cyrus Ardalan
Chairman
Date 29 November 2023
INVESTMENT ADVISOR'S REPORT
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 or otherwise as included in the Glossary- in the Annual
Report available on our website.
Portfolio overview
The Group's portfolio comprises 348 fully let and well diversified long income
properties across 13 sub-sectors with multiple underlying uses. The assets are
let on very long leases averaging 26 years to first break, to over 80 separate
tenant operators on low and sustainable rents. All leases are granted on full
repairing and insuring terms, protecting the Group from property cost leakage
and capex requirements. We own key operating assets in structurally supported
sectors, which drive reliable, compounding income and growth.
The Group's lease arrangements provide contracted annual rental income of
£204.2m. The lease rent review provisions provide inflation protection with
98% of the reviews by rental value either containing index linked or fixed
rental uplifts. Rents are reviewed on an annual (57%) or five yearly (43%)
cycle.
The expectation at the start of the reporting period of stagnant medium term
economic growth, elevated levels of inflation and higher for longer interest
rates across global economies significantly impacted property values in the
UK. Long income property value has traditionally correlated more closely with
GDP growth rather than interest rates, however, this linkage seems to have
decoupled in recent times. Investment in property as an alternative income
asset class has markedly risen due to its favourable spread compared to gilts,
alongside other debt and equity investments. However, as this gap has
tightened and even reversed through interest rate hikes, inflation-linked long
lease properties have experienced a significant yield shift.
The Company's defensive characteristics, with very long indexed leases, broad
diversification and a proactive management style have provided partial
protection. The portfolio was independently valued at £3,191.4m (31 March
2023: £3,356.3m) with contracted rental income of £204.2m per annum,
reflecting a like for like change of (4.1)%. The movement reflects an outward
yield shift of 30 bps to 5.7% at 30 September 2023 (31 March 2023: 5.4%),
offset by rental growth of 1.9%.
Our strategy remains to invest in assets that are mission critical to our
tenants' operations in defensive sectors with a stable outlook and high
barriers to entry. Last year's merger with Secure Income REIT plc enhanced
both the defensive characteristics of the portfolio and its income security.
It has provided additional accretive asset management opportunities, some of
which have already come to fruition and are detailed below. Additionally,
selective disposals have and will continue to provide the ability to reduce
sector and tenant concentration, repay debt, reduce leverage and to redeploy
capital opportunistically.
Sector exposures
The portfolio is well diversified across a broad range of resilient
sub-sectors with high barriers to entry, strong underlying property
fundamentals, and low starting rents. The assets are let on long-term leases
to tenant counterparties which have demonstrated strong performance throughout
previous economic cycles. Tenants are reliant on our assets to maintain
operations, providing embedded structural support beyond a typical real estate
lease.
This multi-sector diversification provides downside protection and offers a
broad universe of assets in which to deploy capital.
The Group's sector weightings are as follows:
Healthcare - 23% (30 September 2022: 22%)
Healthcare is the Company's largest sector by capital and rental value with a
mix of assets across acute, specialist, care homes and assisted living. The
sector continues to be underpinned by strong demand drivers and supply
constraints. Transactional activity has continued, albeit at a reduced pace to
recent highs and there has been some downward pressure on pricing in the
sector, largely due to wider economic factors rather than underlying sector
principles.
Acute hospitals account for 80% of the healthcare portfolio and 18% of the
total portfolio by rent. All acute hospital assets are let to Ramsay Health
Care Limited (Ramsay) which operates a global network of clinical practice,
teaching and research facilities. Ramsay operates from ten countries, with
over 11 million admissions and patient visits to facilities in more than 530
locations. Through the guarantees on each of the Ramsay leases, the Group has
the benefit of this substantial, listed parent with its global operations.
In August 2023, Ramsay published its 2023 full year results for the year ended
30 June 2023. The UK region results benefited from good volume growth and
improvement in the acute hospital business from both the public and private
sectors. Ramsay UK reported a 10.8% increase in revenue from £1,037m to
£1,149m, driven by a 14.4% increase in admissions with growth in both private
and public channels. NHS volumes increased by 16.0% and private volumes
increased by 10.4%. Excluding the impact of non recurring items, the business
reported a significant turnaround in EBIT from negative $4.8m to positive
$77.3m.
Strong occupier demand, high barriers to entry, long indexed-linked leases and
the opportunity to deliver on ESG strategies underpin the Company's long-term
commitment to this sector that we expect will continue to deliver a resilient
performance.
Hotels - 21% (30 September 2022: 21%)
Savills report UK hotel transactions for the first half of 2023 at £825m,
some 66% below the 10-year first half average, citing the rising cost of debt
and the resultant mismatch between seller and buyer expectations. Private
buyers are continuing to dominate activity at lower ticket prices as they are
less driven by debt and more focused on wealth preservation and the inflation
hedge that budget hotel leases offer.
The sector has continued to show excellent performance operationally. The
speed of recovery post pandemic has been well reported with both Travelodge
and Premier Inn reporting record performance in Revenue per Available Room,
driven by a strong uplift in average daily rates. The UK regions led the
initial recovery, fuelled by the staycation trend which has continued
throughout 2023. However, London has also seen its performance accelerate in
2023 as international tourism recovers.
There is a clear divergence of investor appetite between the leading
operators, Premier Inn and Travelodge. Whitbread bought the freehold of the
Premier Inn at Holborn for 4.75% NIY, the first Premier Inn investment deal
seen following the UK's problematic mini budget in September 2022. Since then,
further deals have completed at Borehamwood, Dalston and Ringwood,
demonstrating a tightening towards pre-covid yields. However, more recently
the consultancies are reporting sentiment trending back out. Travelodge's
continued record trading performance has helped the market to improve. This is
supported by the strong interest which we have in our Travelodge portfolio
which is now under offer.
Travelodge accounts for 18.1% of the portfolio rent roll, across 135 assets
with an average lot size of £3.7m. Premier Inn accounts for 1.3% of the
portfolio rent roll, across 7 assets with an average lot size of £6.6m.
Leisure - 19% (30 September 2022: 19%)
This sector gives the Group exposure to a diverse, uncorrelated sub sector,
secured against the leading operator in the UK, Merlin Entertainments. Merlin
operates major attractions in the UK, including our assets Alton Towers,
Thorpe Park and Warwick Castle. They are the only operator of UK attractions
to feature in the Aecom's Top 20 attended attractions for EMEA in 2021.
Merlin is Europe's largest, and the world's second largest, visitor attraction
operator with 142 attractions in 25 countries. In 2022 Merlin welcomed 55
million visitors to their attractions (2021:35 million) with revenue of
£2bn, increasing by £699m on 2021. This sub sector of UK leisure and
hospitality has proven to be non-cyclical and benefits from a level of
discretionary spend consumers are not willing to forgo. Merlin reported
continued growth in revenue and Adjusted EBITDA for the first half of 2023,
supported by ongoing recovery in international tourism driving growth for
gateway city clusters. The Resort Theme Parks Operating Group has built on a
strong 2022 trading result with further revenue growth in the first half of
2023.
Merlin continues to invest heavily in its estate. Works are advanced at Thorpe
Park for a new rollercoaster due to open in 2024 with a capital investment
from Merlin of c.£20m. The Company works closely with Merlin to realise
opportunities within the estate and have agreed to fund the development of a
new 60-bedroom hotel at Warwick Castle, set to open in 2024.
Given the significant barriers to entry for any new theme park sites in the
UK, and the very long inflation linked income on the Merlin assets with over
53 years to expiry, the Company sees this sector as providing a key source of
long term, defensive and diversified income.
The Group benefits from a parent company guarantee on all of our Merlin assets
from Merlin Entertainments Limited providing increased levels of security.
Foodstores and Essentials - 9% (30 September 2022: 10%)
Despite an improvement in investment demand and liquidity throughout the
period in foodstores, transaction volumes remain lacklustre due to limited
availability of stock. There has been a bifurcation in investor pricing in the
sector with Tesco, Aldi, Lidl and Sainsburys trading at a much sharper yield
than their PE owned peers in Morrisons and Asda.
However, the asset class remains an important sector for the Group and
underlying occupational demand remains strong. It is a sub-sector that forms
an essential part of the structure of the economy with significant
non-discretionary spend. Our assets have been carefully selected, are well
located, rack rented or reversionary and have long inflation linked leases.
They are let to a variety of well-established occupiers and we anticipate they
will continue to perform well in the medium term as capital markets stabilise.
Numerous foodstore development projects have become financially unviable in
the past eighteen months due to rising construction costs and widening
capitalisation rates. Consequently, to facilitate the development of these
projects, supermarket tenants have notably raised the rents they are willing
to pay. As a result, there are indicators of rental growth in this subsector,
a trend that hasn't been evident for over ten years.
We continue to see value in asset purchases in this sector by working with
major operators on sale and leaseback opportunities and from open ended long
income funds disposing of standing investments to meet their redemption
requirements.
Industrial - 7% (30 September 2022: 7%)
The Group's industrial assets are generally underpinned by their strategic,
often business-critical, importance to the occupiers across several uses. They
are let on long inflation linked leases to a range of strong covenants and, in
many cases, rents are reversionary. Generally, rent reviews are subject to
4%pa capped uplifts, securing inflation protected growth in the long run,
whilst ensuring that rents remain affordable for occupiers. At purchase, we
target assets where vacant possession value is close to, or sometimes in
excess of, the purchase price.
From a valuation perspective, the prime equivalent yield has remained steady
at 5.25% during the initial months of 2023 (compared to around 3.50% in Q1
2022). The sector has been largely unaffected by the general decrease in
investment volumes, as investors have taken a more meticulous approach to
evaluating assets against a challenging market backdrop. Investment volumes
for the first half of 2023 have totalled approximately £1bn, marking a
substantial decline from the record volumes achieved in the first half of
2022.
Development supply in the market has shown indications of slowdown, with the
amount of space under construction remaining stable and completions decreasing
by approximately 50% compared to the previous quarter. Development financing
has grown more challenging as construction costs have surged over the past
12-months.
Looking forward, it is anticipated that occupier demand will remain resilient,
and that industrial property development will continue to be constrained by
inflated build costs putting upward pressure on rents in the medium term.
It is anticipated investors will begin to chase this rental growth, exerting
downward pressure on yields in the medium term. The Group's industrial assets
are well positioned to benefit from this recovery.
Other - 21% (30 September 2022: 21%)
The Company's diversified strategy offers investors exposure to a wide array
of assets and tenants, creating a truly diversified portfolio. The largest
sectors, detailed above, account for 79% of the Company's total holdings. The
remaining 21% includes leisure, pubs, the Manchester Arena, car parks, garden
centres, life sciences, drive-thru coffee pods and education. For a detailed
breakdown, refer to the property portfolio section below.
Acquisitions and disposals
The Company acquired one asset in the half year, a foodstore forward funding
in Largs, Scotland, with a maximum commitment of £5.7m. The asset is pre-let
to Marks and Spencer Plc on a 15 year lease, with a five yearly rental uplifts
at a fixed growth rate of 2.5%pa. It is expected the asset will reach
practical completion in Q2 2024.
The Company disposed of the following assets in the period for proceeds
totalling £32.7m:
· A multi-let asset in St Albans let to B&Q as an anchor
tenant. The investment generated a 10.6% return over the Company's 4 year
period of ownership
· A car showroom in Newcastle, sold to an owner occupier at book
value
Asset management updates
EPCs
The Company continues to monitor energy performance across its portfolio.
Since April 2023, certificates for 66 units (10.7% total portfolio value) have
been successfully assessed to meet current MEES compliance levels. Of those
units added in the period, 86% were given a rating of 'C' or above, and 60%
achieved a minimum 'B' rating.
Development
During the period three assets subject to forward funding agreements have
reached practical completion:
Lidl and Lok n' Store, Basildon, Essex
The Company's development in Basildon is anchored by a Lidl foodstore and a
Lok n' Store self-storage unit. Lidl has signed an unbroken 20-year lease,
with five yearly RPI inflation-linked uplifts and Lok n' Store has signed an
unbroken 25-year lease, with five yearly rental uplifts at a fixed growth rate
of 2.5%pa.
Sainsbury's, Bewdley, Worcestershire
Sainsbury's is in occupation and trading from the pre-let forward funded unit
in Bewdley, Worcestershire. The foodstore reached practical completion in
July 2023 and is let on a 25-year term (with a break at year 15) with five
yearly CPI linked rent reviews capped at 3% with a collar of 1%.
Lidl, East Ham
Sectional completion was achieved in August 2023 with practical completion of
the wider site estimated to reach completion towards the end of 2023. Lidl has
signed a new 25-year lease (with a tenant break at year 20), subject to RPI
rent reviews capped at 3% with a collar of 1%.
In addition to the above sites, the practical completion of a Costa Coffee
drive-thru unit in Kendal was also achieved in the period with new 15-year
unbroken lease subject to RPI rent reviews.
A number of other pre-let forward fundings continue to progress on schedule
for completion later in 2023 and early 2024. These comprise:
· BT, Dundee. A new telecoms facility let to BT for an unbroken
term of 17.5 years, subject to five yearly CPI rent reviews which are uncapped
with a collar of 1%
· Costa Coffee, Oswestry. A Costa Coffee drive-thru unit, subject
to a new 15-year lease with RPI rent reviews capped at 4% with a collar of 1%
· Marks & Spencer, Largs. A 15-year lease to Marks &
Spencer for a new foodstore with a 15-year term, subject to a five yearly
rental uplift at a fixed growth rate of 2.5%pa.
· Tesco and Home Bargains, Houghton Le Spring. This development
comprises a foodstore let to Tesco for an unbroken 20-year term, with CPI
linked rent reviews capped at 2.5% with a collar of 1%, and a retail unit let
to Home Bargains for an unbroken 15-year term, with open market rent reviews
and no cap or collar.
Rent collection
The Company's operational performance has remained robust throughout the
period with 100% of rent due having been collected. The Investment Advisor
works closely with both tenants and property managers to ensure timely payment
of rent. The portfolio has 100% occupancy and 98% of rent reviews are
inflation linked or subject to fixed uplifts. This further assists with the
tenant relationships, removing the requirement for protracted rent review
negotiations and enables businesses to plan effectively, which in turn
encourages prompt rent payment.
Inflation and rent reviews
Due to various geopolitical and macroeconomic factors, inflation has subdued
slightly in the period compared with the year to 31 March 2023 and continues
to trend downwards. CPI annual growth averaged 9.1% and RPI annual growth
averaged 11.9% for the year to September 2023. The majority of the Group's 84
contracted rental uplifts in the period were capped or fixed, and delivered
average growth of 3.6%pa, resulting in like for like rental growth of 1.9%.
The Group's portfolio income is 98% index-linked or contains fixed rental
uplifts, which breaks down between RPI 25%, CPI 39% (Travelodge comprises 32%
of this which are CPI + 0.5%) and fixed 34%. The Group's fixed uplifts average
2.7%pa. Of the Group's portfolio, 56% of the rents are subject to collared
uplifts, which average 1.1%pa and 60% are subject to capped uplifts, which
average 4.0%pa. We therefore expect the Group to capture the vast majority of
inflation over the medium-term. The Group is also well protected against lower
inflationary periods through the provision of caps which protect the portfolio
from overrenting during high inflationary periods and therefore enhances
income security.
The portfolio undergoes rent reviews either annually (57%) or five yearly
(43%). Over the following five year period, the Group expects the following
percentage of rental income to undergo a review in each financial year:
Year Annual Five-yearly Total
ending 31 March
2024 57% 5% 62%
2025 57% 4% 61%
2026 57% 10% 67%
2027 57% 9% 66%
2028 57% 10% 67%
Financial results
Total accounting return
30 Sep 30 Sep
2023 2022
Half-year total accounting return (4.5)% 0.1%
The Group's total accounting return comprises income, through dividends
received by 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
2023 2023
EPRA NTA per share (ex-dividend) 112.4p 121.1p
During the six-months, the EPRA NTA (ex-dividend) contracted 7.1%, broadly
reflecting the outward shift in valuations during the six-month period, after
the effect of leverage.
Dividend per share
30 Sep 30 Sep
2023 2022
Half-year dividends per share 3.30p 3.15p
In respect of the half-year, the Company has proposed dividends totalling
3.30p per share. The dividend per share reflects an increase of 5% on the
previous half-year.
Total expense ratio
30 Sep 30 Sep
2023 2022
Total expense ratio (annualised) 0.6% 0.9%
Loan to value
30 Sep 31 Mar
2023 2023
Pro forma net LTV 38% 37%
In the medium-term, in line with our conservative leverage policy, our LTV is
expected to be approximately 30%, which we expect to achieve through a
combination of active and selective disposals and through the general recovery
of the property sector. Current pro forma net LTV is well within the Group's
borrowing policy cap of 40% and the Company maintains adequate headroom to all
banking covenants.
Financing
The Group's debt pool is secured against the majority of the Group's
investment properties and comprises the facilities listed below.
A summary of the facilities at 30 September 2023 are listed below:
Position as at 30 September 2023
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
Leisure facility(1) HSBC £60.0m 4.55% Dec 2024
Healthcare 1 L&G £63.0m 4.29% Sep 2025
Healthcare 2 AIG £290.9m 5.30% Oct 2025
New facilities in the period
Institutional 1 Canada Life £148.0m 5.75% Mar 2039
Syndicate loan A Lloyds, Barclays, £115.0m 4.30%(2) Jan 2028
Santander,
RBS International and Hai Tong
Syndicate loan B £250.0m 4.15% Jan 2026
Syndicate RCF £200.0m 5.84%(23) Jan 2028
1. In November 2023, the HSBC facility was extended by a further two
years to December 2026; the new facility has a margin of 2.05% meaning an all
in cost of 4.55% to December 2024. The Group will hedge the remaining extended
term in the near future
2. Hedging in place to April 2026, from which point 48% of committed
debt is hedged. The Group will hedge the remaining term in the near future
3. Rate based on drawn debt at 30 September
We successfully completed a refinancing in April 2023, securing a new £565m
secured interest-only debt facility with a syndicate of major clearing banks,
including of a number of the Company's existing lenders.
The successful refinancing of a substantial nominal value of debt at
favourable rates in a challenging economic climate underscores the quality of
our assets, the robustness of our tenants and our strong relationships with
lenders.
The Group manages interest rate risk by either fixing (by way of fixed rate
facilities or swapping floating rates) or capping rates. Fixing the maximum
rate of interest in this way 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 conservatively structured leverage. The Group monitors the
headroom on ICR and DSCR covenants regularly and reports adequate headroom on
all facilities throughout the period and currently.
The balance sheet is well positioned with pro forma net LTV of 38%. Our
tightest covenant across the Group's secured facilities would require a 26%
reduction in value to breach and the Group has unsecured assets and cash to
use if required before any remedial action is taken.
The LTV is within our agreed range but is above our medium-term target. If
yields remain flat, this would result in a material positive movement of the
LTV to 36.4% in FY24 and 35.6% in FY25. We remain committed to a conservative
medium-term LTV target of 30% and will continue to actively manage down our
LTV through disposals and value enhancing asset management initiatives. We
continue to receive significant unsolicited interest in the Company's high
quality portfolio both for disposals and 'income strip' opportunities and
expect to continue to selectively sell assets where capital could be better
allocated to enhance shareholder returns.
Outlook
The Company is continuing to deliver a robust operational and financial
performance, underpinned by a strong balance sheet and a best-in-class,
long-income portfolio. From this platform, we aim to further leverage our
scale, experienced management team, liquidity and low cost base to capture and
generate attractive long term value to our shareholders and wider
stakeholders.
The Group has continued its progressive dividend and earnings growth, with an
announced dividend target of 6.6p for the year to 31 March 2024, an increase
of 5% on the previous year. We expect the dividend will be fully covered by
our cash adjusted earnings and to continue our dividend growth in 2025.
Our focus remains to:
· 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, active asset
management and capital recycling, to further strengthen our balance sheet and
protect progressive income returns, supporting and potentially enhancing our
investment grade credit rating
· continue to build a business which has the ability to grow
profitably using innovative strategies to provide market leading returns to
our shareholders
We see a number of opportunities such as assets coming out of open-ended funds
due to redemptions and a number of corporate bonds are coming to maturity
meaning they will need to find alternative sources of funding such as sale and
leasebacks. The most significant opportunity we see is further M&A
activity in the REIT market. Potential mergers can provide enhanced access to
capital, liquidity and help to reduce our cost base. We believe we have shown
the material tangible benefits which a merger can achieve through our
transaction with Secure Income REIT plc.
The Government and Bank of England believe they have more certainty over
inflation over the near term, with inflation expected to return to more normal
levels by early next year.
The impact of inflation for the Group's rental income is positive, given the
portfolio's rent review linkage to UK inflation (25% RPI, 39% CPI). We are,
however, cognisant of the potential impact that current levels of inflation
could have on the wider economy. This may also have an impact on the prospects
of our tenant operators. However, this risk to tenants can be managed by the
rent review caps to the mutual benefit of the Company and its tenants.
The interest rate rises used to combat inflation have meant that property
values in the UK have been impacted, as was evident in the Groups valuation
yield shifting to 5.7%. There are signs that the bottom of this value cycle
has been met with the CBRE monthly index showing a fallof (0.6%) in capital
values for first time since the repricing last year.
For and on behalf of the Investment Advisor
Simon
Lee
Alex MacEachin
LXi REIT
Advisors
LXi REIT Advisors
29 November
2023
29 November 2023
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
ESG matters are embedded high on the Board's agenda and we carefully consider
both the associated risks and the opportunities on an on going basis.
Over the last 12-18 months, the Company has progressed from an ambition to
develop a Net Zero plan for the portfolio to publishing our roadmap and having
embarked on its delivery. This aligns well with our objective to add value
through asset management opportunities across existing properties, as our
occupiers continue to seek further investment into their leased sites in line
with their own Net Zero targets.
The Investment Advisor remains committed to bringing in additional resource
where required, and the Board is pleased that Emma Hinds joined the Company's
management team in November as ESG Associate. Emma will be working closely
with Barbora Melezinkova, the Head of ESG, to further accelerate the delivery
of our strategy. Barbora is also represented on the Group's Climate Risk
Working Group which is chaired by Cyrus Ardalan, the Company's Chairman,
underlining the importance of ESG to our business.
PROPERTY PORTFOLIO
Tenant group Contracted rent Rental exposure
Merlin Entertainment £39.3m 19%
Travelodge £37.3m 18%
Ramsay Healthcare £37.0m 18%
Q-Park £4.6m 2%
SMG Arena £4.6m 2%
The Brewery £3.8m 2%
Bombardier £3.7m 2%
Sainsburys £3.5m 2%
Compass £3.5m 2%
Dobbies Garden Centres £3.3m 2%
Asda £3.2m 2%
Capita £2.9m 1%
Co-op £2.9m 1%
Tesco £2.8m 1%
Greene King £2.7m 1%
Other tenants £49.1m 25%
Total £204.2m 100%
Sector Contracted rent Rental exposure
Healthcare £46.5m 23%
Budget hotels £42.8m 21%
Leisure £39.3m 19%
Foodstores £18.9m 9%
Industrial £13.3m 7%
Pubs £8.7m 4%
Arena £7.3m 4%
Car parks £4.6m 2%
Garden centres £3.3m 2%
Life sciences £2.9m 1%
Drive-thru coffee £2.5m 1%
Education £2.3m 1%
Other £11.8m 6%
Total £204.2m 100%
Rental uplifts Contracted rent Rental exposure
RPI linked £51.0m 25%
CPI linked £78.6m 39%
Fixed uplifts £69.8m 34%
Open market £4.8m 2%
Total £204.2m 100%
Unexpired lease term to first break Contracted rent Rental exposure
20-years+ £121.7m 60%
More than 14-years, £27.6m 14%
fewer than 19-years
More than 9-years, £51.1m 25%
fewer than 14-years
More than 5-years, £0.7m 0%
fewer than 9-years
Fewer than 5-years £3.1m 1%
Total £204.2m 100%
Location Contracted rent Rental exposure
South East £39.6m 19%
West Midlands £36.1m 18%
East of England £30.9m 15%
North West £24.4m 12%
Yorkshire and the Humber £17.4m 9%
Scotland £13.2m 6%
South West £13.0m 6%
North East £9.8m 5%
East Midlands £8.2m 4%
Germany £7.6m 4%
Wales £2.8m 1%
Northern Ireland £1.2m 1%
Total £204.2m 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.
KPI and definition Relevance to investment objective Performance Result
30 September 2023 Comparative periods
1. Total NTA return Total accounting return measures the ultimate outcome of our strategy, which (4.5)% (10.7)% (year ended 31 March 2023) The current year result is below the Group's medium-term minimum target of 8%
is to deliver value to our shareholders through our portfolio and to deliver a
per annum, primarily driven by negative valuation movements, slightly offset
Total NTA return measures the change in the EPRA NTA and dividends during the secure and growing income stream. A reconciliation of total accounting return 0.1% (half-year ended 30 September 2022) by positive rental growth and higher dividends paid
period as a percentage of EPRA NTA at the start of the period. We are is provided in the Additional Information section.
targeting a minimum of 8% per annum over the medium term.
Average compounded annual total accounting return since IPO 6.4% 17.5% (year ended 31 March 2023)
2. Dividend per share The dividend reflects our ability to deliver a low risk but growing income 3.30p 6.30p (year ended 31 March 2023) During the year the Group targeted dividends on a quarterly basis and all
stream from our portfolio and is a key element of our total accounting return.
dividend targets announced were met
Dividends paid to shareholders and proposed in relation to a period. 3.15p (half-year ended 30 September 2022)
Average compounded annual dividend growth since IPO 8.7% 9.5% (year ended 31 March 2023)
3. EPRA Net Tangible Assets ("NTA") (ex-dividend) The NTA reflects our ability to grow the portfolio and to add value to it 112.4p 121.1p (at 31 March 2023) EPRA NTA per share contracted by 7.1%
throughout the life cycle of our assets.
A measure of NAV designed by EPRA to present the fair value of a company on a 139.7p (at 30 September 2022)
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 2.1% 6.5% (year ended 31 March 2023)
4. Pro forma net loan to value The LTV is a measure of the relative risk of our financing strategy, balancing 38% 37% (at 31 March 2023) Above our medium term maximum target of 35%
the additional returns and portfolio diversification that come with using debt
The proportion of our total assets that are funded by borrowings adjusted for against the need to successfully manage risk. 33% (at 30 September 2022)
full drawdown of committed capital increasing the net leverage and completion
of assets under construction increasing the portfolio value. Our medium-term
target LTV is 30%. See glossary for calculation.
5. Adjusted cash earnings per share The Adjusted earnings per share reflects our ability to generate cash flow 3.44p 6.69p (year ended 31 March 2023) Reflecting 1.04x dividend cover
from our portfolio, which ultimately underpins our dividend payments. A
Post-tax Adjusted earnings per share attributable to shareholders, which reconciliation of IFRS earnings to Adjusted is included in Note 26 to the 3.06p (half-year ended 30 September 2022)
includes the licence fee receivable on our forward funded development assets consolidated financial statements.
treated under IFRS as discounts to investment property acquisitions and
includes the caps received from our financial instruments. See note 26.
6. Total expense ratio The total expense ratio is a key measure of our operational efficiency. 0.6% 0.9% (year ended 31 March 2023) In line with our target
Maintaining a low cost base supports our ability to pay dividends.
The ratio of total operating expenses, including management fees expressed as 0.9% (half-year ended 30 September 2022)
a percentage of the average net asset value.
7. Weighted average unexpired lease term The WAULT is a key measure of the quality of our portfolio. Long lease terms 26 years 27 years (at 31 March 2023) In line with our investment objective
underpin the security and predictability of our income stream.
The average unexpired lease term of the leases in the property portfolio, to 26 years (at 30 September 2022)
the earlier of tenant break or lease expiry, weighted by annual passing rents.
.
8. Percentage of contracted rents index-linked or fixed This measures the extent to which we are investing in line with our investment 98% 98% (at 31 March 2023) In line with our investment objective
objective, to provide inflation protected returns.
This takes the total value of contracted rents that contain rent reviews 98% (at 30 September 2022)
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 26 and
27 to the unaudited 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
2023
1. EPRA Earnings Per Share A key measure of a company's underlying operating results and an indication of 4.07p 8.29p (at 31 March 2023)
the extent to which current dividend payments are supported by earnings.
A measure of EPS designed by EPRA to present underlying earnings from core 3.63p (at 30 September 2022)
operating activities.
2a. EPRA Net Tangible Assets ("NTA") Assumes that entities buy and sell assets, thereby crystallising certain 114.1p 121.1p (ex div at 31 March 2023)
levels of unavoidable deferred tax.
2b. EPRA Net Tangible Assets ("NTA") (ex-dividend) (112.4p ex div) 139.7p (ex div at 30 September 2022)
An EPRA NAV per share metric which assumes entities buy and sell assets,
thereby crystallising certain levels of unavoidable deferred tax.
3. EPRA Net Reinstatement Value ("NRV") Assumes that entities never sell assets and aims to represent the value 125.8p 131.4p (at 31 March 2023)
required to rebuild the entity.
An EPRA NAV per share metric which assumes entities never sell assets and aims 156.3p (at 30 September 2022)
to represent the value required to rebuild the entity.
4. EPRA Net Disposal Value ("NDV") Represents the shareholders' value under a disposal scenario, where deferred 112.2p 119.8p (at 31 March 2023)
tax, financial instruments and certain other adjustments are calculated to the
An EPRA NAV per share metric which represents the Shareholders' value under a full extent of their liability, net of any resulting tax. 138.6p (at 30 September 2022)
disposal scenario, where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability, net of any
resulting tax.
5. EPRA Net Initial Yield ("NIY") EPRA NIY is annualised net rents on investment properties as a percentage of 6.0% 5.7% (at 31 March 2023)
the investment property valuation, less purchaser's costs.
Annualised rental income based on the cash rents passing at the balance sheet
5.2% (at 30 September 2022)
date, less non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchasers' costs.
6. EPRA 'Topped-Up' NIY The 'topped-up' measure incorporates an adjustment to the EPRA NIY in respect 8.8% 9.4% (at 31 March 2023)
of the expiration of rent-free periods (or other unexpired lease incentives
This measure incorporates an adjustment to the EPRA NIY in respect of the such as discounted rent periods and step rents). 8.4% (at 30 September 2022)
expiration of rent-free periods (or other unexpired lease incentives such as
discounted rent periods and step rents). Note under IFRS stepped rents and collared uplifts are treated as lease
incentives and as such are factored into the top up. As our leases are
exceptionally long, this means that uplifts over a weighted average 26 years
are taken into account, giving an unusually high Topped-Up Yield.
7. EPRA Vacancy A 'pure' (%) measure of investment property space that is vacant, based on 0% 0% (at 31 March 2023)
ERV.
Estimated Market Rental Value (ERV) of vacant space divided by ERV of the 0% (at 30 September 2022)
whole portfolio
8. EPRA Cost Ratio A key measure to enable meaningful measurement of the changes in a company's 7.1% 9.5% (at 31 March 2023)
operating costs.
Administrative & operating costs (including direct vacancy costs) divided 12.6% (at 30 September 2022)
by gross rental income.
9. EPRA LTV A key (shareholder-gearing) metric to determine the percentage of net debt 38% 36% (at 31 March 2023)
comparing to the appraised value of the properties
Net debt divided by total property portfolio and other eligible assets in line 30% (at 30 September 2022)
with EPRA guidance.
(Note this is different to pro forma net LTV in our KPIs)
PRINCIPAL RISKS AND UNCERTAINTIES
The Board of LXi REIT plc has responsibility for risk management including
reviewing the effectiveness of the risk management processes and internal
controls which are operated by the Investment Advisor and the Administrator.
As part of their risk management responsibilities, at least twice yearly the
Investment Advisor undertakes a formal review to identify new risks and review
existing risks.
This review considers the velocity of each risk to highlight significant
emerging risks that are raised and discussed with the Board and Audit
Committee. The principal risks are presented on page 29 of the 31 March 2023
Annual Report and have the potential to materially impact the execution of the
Group's strategy and business model. There have been no changes to the
principal risks in the period.
GOING CONCERN
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 22 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
29 November 2023
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 2023 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 2023 which comprises the condensed consolidated statement of
comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated statement of changes in equity, the
condensed consolidated cash flow statement 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
29 November 2023
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
2023 2022 2023
Note £m £m £m
Rental income 4 128.3 75.5 203.5
Property expenses 5 (3.7) - (5.3)
Gross profit 124.6 75.5 198.2
Administrative and other expenses 6 (8.7) (9.5) (18.8)
Operating profit before movements in investment property and financial 115.9 66.0 179.4
instruments
Change in fair value of investment property 9 (161.3) (80.3) (406.7)
Change in fair value of financial instruments 17 13.3 25.0 22.2
Loss on disposal of assets held for sale 10 (0.5) (0.1) (2.8)
Operating (loss)/profit (32.6) 10.6 (207.9)
Finance income 0.1 0.1 -
Finance costs 7 (45.9) (17.6) (54.0)
Loss on extinguishment of debt 7 (4.1) (20.6) (20.6)
Loss on close out of financial instruments 26 (0.3) - (4.6)
Loss before tax (82.8) (27.5) (287.1)
Taxation 8 (0.3) (1.7) (1.0)
Loss for the period (83.1) (29.2) (288.1)
Other comprehensive income
Currency translation (loss)/gain (2.3) 1.5 1.3
Total comprehensive loss attributable to shareholders (85.4) (27.7) (286.8)
Loss per share - basic and diluted 26 (4.9)p (2.3)p (19.2)p
The notes on pages 37 to 80 form part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 September 2023 30 September 31 March
2022 2023
(restated) (restated)
Note £m £m £m
Non-current assets
Investment property 9 3,347.7 3,911.3 3,569.6
Fixed assets 0.2 0.2 0.2
Derivative financial instruments 17 40.0 - 29.3
Total non-current assets 3,387.9 3,911.5 3,599.1
Current assets
Trade and other receivables 12 19.1 11.3 16.8
Amount receivable from 'income strip' sale 12 - 257.0 -
Deferred acquisition costs 0.1 0.1 2.6
Derivative financial instruments 17 - 39.8 3.1
Restricted cash 13 10.0 19.0 -
Cash and cash equivalents 13 102.0 95.3 74.4
131.2 422.5 96.9
Investment properties held for sale 102.4 - 32.3
Total current assets 233.6 422.5 129.2
Total assets 3,621.5 4,334.0 3,728.3
Current liabilities
Trade and other payables 14 82.0 112.2 82.6
Other financial liabilities 14 1.5 8.2 -
Bank borrowings 15 1.7 739.8 508.7
Current tax payable 14 0.8 0.9 -
Total current liabilities 86.0 861.1 591.3
Non-current liabilities
Bank borrowings 15 1,241.3 727.2 729.8
Leasehold liabilities 14 43.6 36.4 43.7
Other financial liabilities 14 254.0 248.8 254.7
Other payables 14 0.9 12.3 0.7
Total non-current liabilities 1,539.8 1,024.7 1,028.9
Total liabilities 1,625.8 1,885.8 1,620.2
Net assets 1,995.7 2,448.2 2,108.1
Equity
Share capital 18 17.1 17.1 17.1
Share premium reserve (restated) 18 940.0 940.0 940.0
Merger reserve (restated) 18 1,180.8 1,180.8 1,180.8
Foreign exchange reserve 18 (1.0) 1.5 1.3
Capital reduction reserve 18 - 7.4 -
Retained earnings 18 (141.2) 301.4 (31.1)
Total equity 1,995.7 2,448.2 2,108.1
Net asset value per share - basic and diluted 27 116.4p 142.8p 123.0p
EPRA NTA per share 27 114.1p 141.3p 121.1p
EPRA NTA per share (Ex div) 27 112.4p 139.7p 119.5p
The notes on pages 37 to 80 form part of the consolidated financial
statements.
During the period a restatement was required, see note 30 for details.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Half-year ended 30 September 2023 Share capital Share premium reserve Merger reserve Foreign exchange reserve Capital reduction reserve Retained earnings Total equity
Note £m £m £m £m £m £m £m
Balance at 1 April 2023 17.1 940.0 1,180.8 1.3 - (31.1) 2,108.1
Loss and total comprehensive income attributable to shareholders - - - - - (83.1) (83.1)
Exchange reserve - - - (2.3) - - (2.3)
Transactions with owners
Issue of ordinary shares in the period 18 - - - - - - -
Dividends paid in the period 19 - - - - - (27.0) (27.0)
Balance at 30 September 2023 17.1 940.0 1,180.8 (1.0) - (141.2) 1,995.7
Reserves are defined in Note 18.
Half-year ended 30 September 2022 (restated) Share capital Share premium reserve Merger reserve Foreign exchange reserve Capital reduction reserve Retained earnings Total equity
(restated) (restated)
Note £m £m £m £m £m £m £m
Balance at 1 April 2022 9.1 940.0 - - 21.0 330.6 1,300.7
Loss and total comprehensive income attributable to shareholders - - - - - (29.2) (29.2)
Exchange reserve - - - 1.5 - - 1.7
Transactions with owners
Issue of ordinary shares in the period 18 8.0 - 1,180.8 - - - 1,188.8
Dividends paid in the period 19 - - - - (13.6) - (13.6)
Balance at 30 September 2022 17.1 940.0 1,180.8 1.5 7.4 301.4 2,448.2
Year ended 31 March 2023 (restated) Share capital Share premium reserve Merger reserve Foreign exchange reserve Capital reduction reserve Retained earnings Total equity
(restated) (restated)
Note £m £m £m £m £m £m £m
Balance at 1 April 2022 9.1 940.0 - - 21.0 330.6 1,300.7
Loss and total comprehensive income attributable to shareholders - - - - (288.1) (288.1)
-
Exchange reserve - - - 1.3 - - 1.3
Transactions with owners
Issue of ordinary shares in the year 18 8.0 - 1,180.8 - - - 1,188.8
Dividends paid in the year 19 - - - - (21.0) (73.6) (94.6)
Balance at 31 March 2023 17.1 940.0 1,180.8 1.3 - (31.1) 2,108.1
The notes on pages 37 to 80 form part of the consolidated financial
statements.
During the period a restatement was required, see note 30 for details.
CONSOLIDATED CASH FLOW STATEMENT
Half-year ended Half-year ended Year ended
30 September 2023 30 September 2022 31 March 2023
Note £m £m £m
Cash flows from operating activities
Loss before tax (82.8) (27.5) (287.1)
Adjustments for:
Finance income (0.1) (0.1) -
Finance costs 7 45.9 17.6 54.0
Loss on extinguishment of debt 7 4.1 20.6 20.6
Change in fair value of investment property 9 161.3 80.3 406.7
Loss on disposal of investment property 9 0.5 0.1 2.8
Loss on disposal of derivative 0.3 - 4.6
Change in fair value of derivatives (13.3) (25.0) (22.2)
Accretion of tenant lease incentives 4 (24.9) (13.7) (37.8)
Tax paid 8 (0.2) - (0.1)
Operating results before working capital changes 90.8 52.3 141.5
Decrease/(increase) in trade and other receivables 12 (2.4) 11.5 4.3
Increase/(decrease) in trade and other payables 14 0.8 24.5 23.9
Net cash flow generated from operating activities 89.2 88.3 169.7
Cash flows from investing activities
Purchase of investment properties (18.2) (54.9) (80.0)
Partial cash alternative paid to SIR plc shareholders - (390.2) (392.3)
Proceeds from sale of investment property 32.7 - 29.5
Interest received 0.1 0.1 0.4
Net cash flow from / (used in) investing activities 14.6 (446.3) (442.4)
Cash flows from financing activities
Dividend paid (27.0) (13.6) (89.0)
Interest paid (36.3) (11.5) (40.4)
Payments of other financial liabilities (4.7) - (4.5)
Interest received on in-the-money financial instruments 5.0 - 2.2
Purchase of interest rate derivatives (6.1) (1.3) (26.5)
Proceeds from recognition of income strip - - 257.0
Proceeds from close out of interest rate cap 4.3 - 23.1
Make-whole costs on settlement of debt (4.1) - (20.6)
Drawdown of borrowings 687.4 439.0 499.0
Repayment of borrowings (666.1) (30.9) (322.6)
Loan arrangement fees paid (18.6) (2.2) (3.1)
Net cash flow generated from / (used in) financing activities (66.2) 380.8 274.6
Net increase/(decrease) in cash and cash equivalents 37.6 22.8 1.9
Cash and cash equivalents at the beginning of the year 74.4 72.5 72.5
Cash and cash equivalents at the end of the period 13 112.0 95.3 74.4
The notes on pages 37 to 80 form part of the consolidated financial
statements.
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
2023 Annual Report and Accounts, which were prepared in accordance with
UK-adopted International Accounting Standards (IFRS).
The condensed consolidated financial statements for the period ended 30
September 2023 have been reviewed by the Company's Independent Auditor, BDO
LLP, in accordance with the International Standard on Review Engagements 240
Review of Interim Financial Information Performed by the Independent Auditor
of the Entity and were approved for issue on 29 November 2023. The condensed
consolidated financial statements are unaudited and do not constitute
statutory accounts for the purposes of the Companies Act 2006.
The comparative information included in the financial statements relates to
the year ended 31 March 2023 and the period ended 30 September 2022 and 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
2023 has been delivered to the Registrar of Companies. The Group's Independent
Auditor's report on those accounts was unqualified.
The condensed financial statements for the half-year ended 30 September 2023
have been prepared on a historical cost basis, as modified for the Group's
investment properties and derivative financial instruments which have been
measured at fair value with changes recognised through the statement of
comprehensive income.
The condensed consolidated financial statements are presented in Sterling,
which is also the Company's functional currency, 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 period of €1: £0.87 (period
from acquisition to 30 September 2022: €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 2023 exchange rate of €1: £0.87 (30 September 2022:
€1: £0:88). The accounting policy for foreign currency translation is in
Note 3.
Standards effective from 1 April 2023
New standards impacting the Group that have been adopted for the first time in
this set of financial statements are:
· 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 (Periods
beginning after 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 (Periods beginning after 1 January 2023).
These standards have been assessed to have no significant impact on 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 adopted early 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 (applicable to periods beginning after 1 January 2024). 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.
· Amendments to IFRS 16 which requires an explanation of how an
entity accounts for sale and leaseback transaction after the date of the
transaction (applicable to periods beginning after 1 January 2024).
There are other new standards and amendments to standards and interpretations
which have been issued that become effective in future accounting periods.
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 an Investment Grade credit rating, an adequate liquidity
position, predictable income and costs, and comfortable headroom against
financial covenant levels within its debt facilities. In light of current
macroeconomic uncertainty, 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 supports the Board's conclusion to
adopt the going concern basis of accounting.
The completion of the Group's latest debt refinancing during the period saw
over £700m of debt refinanced and £60m extended. The refinancing increased
the weighted average term to maturity from 2.8 years at 31 March 2023 to 5.2
years at 30 September 2023 and pushed the first maturity out from December
2024 to September 2025. The current weighted average cost of drawn debt is
4.7% (4.3% at 31 March 2023).
Contracted annual rental income grew in the period from £202.2m at 31 March
2023 to £204.2m at 30 September 2023 as a result of 84 rent reviews in the
period, equating to 49% of contracted rent, with an average increase of
3.6%pa. The EPRA cost ratio decreased from 12.6% to 7.1% in the half year
period, the lowest cost ratio in our sector, compared with the period to
September 2023, showing increased earnings and cash flow generation which will
support liquidity.
In particular, the Board has regard to the following characteristics of the
Group in assessing going concern:
Low-cost debt facilities, with comfortable covenant headroom
· The Group's pro forma net loan to value ("LTV") as at 30
September 2023 was 38% following the refinancing that completed during the
period
· The Group's portfolio is currently valued at £3.2bn reflecting a
valuation yield of 5.7%, a 100bps spread from the weighted average cost of
debt of 4.7%
· The Group has comfortable headroom to LTV, ICR and DSCR covenant
levels within each facility at covenant levels at 30 September 2023
· No breaches of loan covenants during the forecast going concern
period
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 with strong financial covenants
· Insolvency for one of the three major tenants (being Ramsay
Health Care, a major company listed in Australia) would result in an event of
default on the AIG and L&G facilities. Insolvency of Travelodge and/or
Merlin could also lead to an event of default if rental income was lost
following insolvency on the Lloyds Syndicate facility only if the properties
weren't re-let at sufficient levels within 12 months, however this is
considered highly unlikely. The financial strength of the major tenants,
including Ramsay, Travelodge and Merlin, is regularly monitored and reported
to the Board along with the financial position of all tenants contributing to
>2% of contracted rent roll on a quarterly basis
· The Group benefits from a contractually secure income stream from
leases with a weighted average of 26 years to first break across the
portfolio. 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
· Continued strong rent collection from tenants in the period of
100% rent and 100% occupancy
Appropriate gearing and liquidity
· At 30 September 2023 the Group had net assets of £2.0bn (31
March 2023: £2.1bn) and a cash balance of £112.0m (31 March 2023: £74.4m),
including uncommitted cash of £70.1m
· Post balance sheet, the HSBC £60m facility has been extended
from December 2024 to December 2026. Following this, the next significant
refinancing event relates to the £291m AIG healthcare facility in October
2025
Virtually all rent has inflation-protection, through indexed or fixed uplifts,
providing substantial protection and a high degree of predictability.
Uncommitted cash
Uncommitted cash at 30 September was £70.1m and consists of the following:
Total cash balance(1) £112.0m
Capital commitments on forward funded assets £(39.2)m
Undrawn RCF allocated to forward funded commitments(2) £25.6m
Dividend payment relating to June QE £(28.3)m
Total uncommitted cash £70.1m
1 Including 62.3m of cash held in rent accounts that has subsequently been
released post period end.
2 The undrawn RCF is included in the uncommitted cash balance, however under
certain circumstances the Group could be unable to draw down further on the
RCF. These circumstances include a change of control event, an event of
default or an intention to fund or finance business activities with a
restricted party.
The Investment Advisor is currently marketing a number of portfolios and
assets for disposal which will contribute to cash rebuilding and place the
Group in a position to take advantage of market opportunities.
Debt maturity
Post refinancing, the Group has a 5-year weighted average term to maturity
with no debt maturing within 12 months of the approval date of the condensed
consolidated financial statements. The next significant refinancing event
relates to the £291m AIG healthcare facility and represents 22% of total
committed debt.
Going concern statement
The Board has considered the period to 30 November 2024 in assessing the
Group's and the Company's going concern scenarios. Based on the considerations
above and on stress tests and reverse stress tests, the Board believes that
the Group and the Company have the ability to continue in business for at
least twelve months from the date of approval of these condensed consolidated
financial statements and therefore has adopted the going concern basis in the
preparation of this financial information.
Sensitivity Analysis
Loan covenant reverse stress test
We have performed analyses to test the extent to which the valuation of our
portfolio and rental income should have to fall in order to result in a breach
in each facility for the debt profile as at 30 September 2023 and the post
refinancing debt profile. All facilities at 30 September 2023 have comfortable
headroom to covenants, with the tightest LTV covenant requiring a 26%
reduction in value before a breach and the tightest ICR or DSCR covenant
requiring a 34% loss of rent before a breach. This represents our 'reverse
stress test' and shows at what point the Group would breach its covenants. The
Board is satisfied that that these falls in values or income fall outside the
range of reasonable outcomes.
In the unlikely event portfolio valuations decrease by the amount required to
trigger a breach, the Group has a number of options available to rectify a
breach. These include revising dividend payments, considering a rights issue
and disposal of assets. Similarly, if rent reduced by an amount to trigger a
breach, the Group is able to cash cure with uncommitted cash.
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 9)
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 Board considers
Knight Frank LLP to be suitably qualified and experienced to conduct this
work.
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 property 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 9 .
Judgments:
· Classification of lease arrangements - the Group as lessor (Note
20)
The Group has acquired investment property that is leased to tenants. In
considering the classification of lease arrangements, at inception of each
lease or on acquisition of an asset that is already let, 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 attest 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 break clauses in
leases will not be enacted or that any options in place to extend the lease
term will be exercised at the expiry of the current lease. The Directors
conclude that it is impossible to say with reasonable certainty that a break
clause will not be enacted or an extension option will be exercised and
therefore further conclude that lease terms should be restricted to the
initial length of the lease, or to any earlier tenant break date, except where
reversionary leases have already been executed or where options to extend have
already been exercised.
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.
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 any
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 when an unconditional contract is in
place for 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 for the asset to be sold at the balance sheet 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.
· Rental income
Revenue comprises rental income exclusive of VAT, recognised in the income
statement on an accruals basis. Future anticipated rental income is spread
over the term of a lease on a straight line basis, giving rise to a lease
incentive in cases where future rental variations can be determined with
sufficient certainty. Where income has been cumulatively recognised in advance
of the contractual right to receive that income, such as from leases with
fixed or minimum rental uplifts, an adjustment is made to ensure that the
carrying value of the relevant investment property including accrued rent does
not exceed the fair value of the property as assessed by the independent
external valuers. Income arising from contractual rights that are subject to
external factors, such as inflation-linked or open market rent reviews, is
recognised in the income statement in the period in which it is determinable
and reasonably certain.
Lease incentives are not considered to be financial assets as the amounts are
not yet contractually due. As such, the requirements of IFRS 9 (including the
expected credit loss model) are not applied to those balances.
Cash flows from rental income are included in the cash flow statement within
cash flows from operating activities.
· Financial instruments
a. Financial assets
The Group classifies its financial assets as either fair value through profit
or loss or amortised cost. This classification depends on the purpose for
which the asset was acquired and is based on the business model test. The
Group's accounting policy for financial assets is as follows:
Fair value through profit or loss
These are carried in the Statement of Financial Position at fair value with
changes in fair value recognised in the Statement of Comprehensive Income in
the finance income or expense line. The Group does not have any assets held
for trading nor does it voluntarily classify any financial assets as being at
fair value through profit or loss.
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 on behalf
of the Group or Company without restriction.
Secured cash is cash held in accounts over which the providers of secured debt
have fixed security. The Group is unable to access this cash unless and until
it is released to free cash each quarter, which takes place after quarterly
interest and loan repayments have been made as long as the terms of the
associated secured facility are complied with.
Restricted cash represents cash withheld by the lender on drawdowns of
borrowings referred to in Note 15 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.
Interest rate derivatives
The Group has used interest rate derivatives to hedge its exposure to cash
flow interest rate risk. Derivatives are initially recognised at fair value
on the date on which the derivative contract is entered into and are
subsequently measured at fair value.
Derivatives are held at fair value and subsequent fair value movements are
recognised through the income statement.
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 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 ensures that any interest expense over
the period to contractual repayment, ignoring any extension options, is
recognised 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 its 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.
Income arising from contractual rights that are subject to external factors,
such as inflation-linked or open market rent reviews, is recognised in the
income statement in the period in which it is determinable and reasonably
certain.
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
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 (under £100 p.a.) and leases with a term of 12 months or less.
Lease liabilities are measured at the present value of the lease payments of
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
2023 2022 31 March
2023
£m £m £m
Rental income from investment property 99.9 61.8 160.4
Accretion of tenant lease incentives (Note 9,26) 24.9 13.7 37.8
Service charge income 2.6 - 4.1
Head rent income 0.9 - 1.2
128.3 75.5 203.5
5. Property expenses
Half-year ended 30 September Half-year ended 30 September Year ended
2023 2022 31 March
2023
£m £m £m
Service charge expenditure recoverable 2.6 - 4.1
Head rent expenditure recoverable 0.9 - 1.2
Void property costs 0.1 - -
Property repairs 0.1 - -
3.7 - 5.3
6. Administrative and other expenses
Half-year ended 30 September Half-year ended 30 September Year ended
2023 2022 31 March
2023
£m £m £m
Investment advisory fees (Note 22) 5.6 6.2 12.9
Legal and professional fees 1.2 0.5 1.4
Other administrative costs 0.7 0.6 1.0
Corporate administration fees 0.6 0.3 1.1
Fees paid to the Company's Independent Auditor 0.3 0.2 0.4
Directors' fees (Note 22) 0.2 0.2 0.4
Advertising and Marketing 0.1 0.1 0.1
Abortive fees (Note 26) - 1.4 1.5
8.7 9.5 18.8
Fees paid to the Company's Independent Auditor comprise the review of the
Interim Report, the audit of the Annual Report and the audits of the financial
statements of the Company's subsidiaries.
The Company paid £0.1m of additional fees to the Company's Independent
Auditor in the period in respect of their review of the Interim Report (30
September 2022: £0.1m in respect of accounting services in relation to the
merger, 31 March 2023: £0.1m in respect of reviewing the Interim Report and
£0.1m in respect of accounting services relating to the merger).
7. Finance costs
Half-year ended 30 September Half-year ended 30 September Year ended
2023 2022 31 March
2023
£m £m £m
Interest payable on bank borrowings 35.8 14.6 43.1
Amortisation of loan arrangement fees 5.8 2.3 6.1
Leasehold interest 3.9 0.5 4.6
Other bank charges 0.4 0.2 0.2
Loss on extinguishment of debt 4.1 20.6 20.6
50.0 38.2 74.6
Capitalised finance costs are included within property acquisitions in Note 9.
The total interest payable on financial liabilities carried at amortised cost
comprised:
· the interest payable on bank borrowings totalling £35.8m of which
£0.4m was capitalised (30 September 2022: £14.6m of which £0.6m was
capitalised, 31 March 2023: £43.7m of which £0.6m was capitalised); and
· the amortisation of loan arrangement fees totalling £5.8m of which
£nil was capitalised (30 September 2022: £2.3m of which £nil was
capitalised, 31 March 2023: £6.1m of which £nil was capitalised).
The capitalisation rate used to determine the amount of borrowing costs
eligible for capitalisation during the period was 5.9% pa, based on the
weighted average cost of the syndicate RCF (30 September 2022: 2.85%, 31 March
2023: 2.95%).
Leasehold interest relates to the head rent expense charged on leasehold
properties to the extent that it is not recoverable from our tenants.
Loss on extinguishment of debt
During the year ended 31(st) March 2023, the Company made a £20.6m make-whole
payment 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, representing a gain
of £12.8m versus the book value at 31 March 2022. The current period balance
of £4.1m relates to make whole costs on early repayment of loans during the
refinancing in the current period.
8. 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 (such
as trading activities and interest income), after the utilisation of any
available residual tax losses, are subject to corporation tax at the main rate
of 25%.
As a result of the merger in 2022 the Group acquired one German property and
is subject to German corporation tax on its German property rental business at
an effective rate of 15.825%, resulting in a tax charge for the half year of
£0.3m.
The German assets have been subject to a routine tax audit by the German tax
authorities since January 2021. The additional tax liability arising,
including interest but excluding any penalties, totals £0.6m and was provided
for in the half year to 30 September 2022.
As a result of the change in the ultimate ownership of the German asset
arising from the merger, the Group became liable for German RETT at an
estimated cost of £5.3m. This cost is provided for but is yet to be formally
demanded by the German Tax Authority. It was recognised as an acquisition cost
at the time of the transaction and capitalised.
Half-year ended 30 September Half-year ended 30 September Year ended
2023 2022 31 March
2023
£m £m £m
Current tax - Germany 0.3 0.6 1.0
Total current tax 0.3 0.6 1.0
Origination and reversal of temporary differences - 1.1 -
Total deferred tax - 1.1 -
Tax charge 0.3 1.7 1.0
Reconciliation of the total tax charge
The reconciliation of profit before tax multiplied by the standard rate of
corporation tax for the half-year of 25% 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
2023 2022 31 March
2023
£m £m £m
Loss before tax (82.8) (27.5) (287.1)
Tax at the standard rate of UK corporation tax of 25% (19% to April 2023) (20.7) (5.2) (54.5)
Effects of:
REIT exempt income (11.5) (7.0) (21.1)
Lease incentive adjustment (6.2) - -
Revaluation of investment properties 40.3 15.3 77.3
Loss on disposal of investment properties 0.1 - 0.5
Residual losses not recognised as deferred tax asset 1.0 0.2 0.6
Realised loss on close out of financial instruments 0.1 - 0.9
Exempt expenses not deductible for tax purposes 0.2 0.3 0.5
Valuation adjustment in fair value of derivative instruments (3.3) (3.7) (4.2)
Deferred tax movement - 1.1 -
Local income tax expense 0.3 0.6 1.0
Tax charge 0.3 1.7 1.0
UK REIT exempt income includes property rental income that is exempt from UK
Corporation Tax in accordance with Part 12 of CTA 2010.
Unrecognised deferred tax liability
As part of the Secure Income REIT merger in July 2022 a deferred tax liability
at acquisition of £11.0m was netted off against the investment property
acquisition in line with IAS 12. Subsequent to that a deferred tax liability
will only be recognised for the German capital gains tax that would
potentially be payable on the sale of the relevant investment properties if
the fair value exceeds the acquisition cost to LXi. Therefore, at 30 September
2023 there was an unrecognised deferred tax liability of £9.7 million (31
March 2023: £9.5 million, 30 September 2022: £11.9 million) arising on the
Heide Park asset which is not included in our net asset position.
9. 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 2023
Balance at 1 April 2023 1,248.8 2,290.7 30.1 3,569.6
Property acquisitions - 18.6 18.6
Licence fee receivable (Note 26) - - (0.2) (0.2)
Tenant lease incentives (Note 4) 7.4 17.3 0.2 24.9
Headlease movement - - - -
FX movement - (1.5) -- (1.5)
Change in fair value (28.6) (130.2) (2.5) (161.3)
Assets transferred to held for sale (35.4) (67.0) - (102.4)
Transfers of completed property 1.4 18.7 (20.1) -
Balance at 30 September 2023 1,193.6 2,128.0 26.1 3,347.7
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 26) - - (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)
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
Year ended 31 March 2023
Balance at 1 April 2022 331.0 1,093.4 55.7 1,480.1
Property acquisitions 22.7 51.1 31.9 105.7
Property acquisitions relating to the merger of SIR plc 374.9 2,021.0 - 2,395.9
Licence fee receivable (Note 26) - - 0.2 0.2
Tenant lease incentives (Note 4) 11.7 26.1 - 37.8
Property disposals - (13.2) - (13.2)
Transfer of assets post 'income strip' sale 596.5 (596.5) - -
Change in fair value (95.2) (288.9) (22.6) (406.7)
Currency translation - 3.2 - 3.2
Headlease movement (1.1) - - (1.1)
Assets transferred to held for sale (2.1) (30.2) - (32.3)
Transfers of completed property 10.4 24.7 (35.1) -
Balance at 31 March 2023 1,248.8 2,290.7 30.1 3,569.6
The investment properties have been independently valued at fair value by
Knight Frank LLP, the Independent Valuer, an accredited external valuation
firm 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 £3,191.4m at
30 September 2023 (31 March 2023: £3,356.3m, 30 September 2022: £3,656.6m)
including capital commitments on forward funded assets. The valuation included
a €161.7m 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: £0.87.
The Group identifies the potential impact of climate-related risks on property
valuations as a principal risk as outlined on pages 55 to 61 within the Annual
Report. 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
2023 2022 2023
£m £m £m
Investment property at fair value 3,347.7 3,911.3 3,569.6
Assets held for sale at fair value 102.4 - 32.3
Capital commitments on forward funded assets (Note 24) 37.5 42.5 50.8
Vendor discount in respect of rent-free periods and top-ups 2.1 2.6 2.7
Licence fee receivable 1.2 1.1 1.0
Leasehold and other financial liabilities Note 14) (299.5) (300.9) (256.3)
Total completed portfolio valuation 3,191.4 3,656.6 3,356.3
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 property that is long leasehold where headlease
rents are material is grossed up to include the carrying value of the
leasehold liability. The income strip is accounted for on the same basis.
Investment property at fair value
Investment property and assets held for sale are all held at fair value and
are valued using significant unobservable inputs (Level 3). There have been no
transfers between levels during the year. 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, tenant 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.
· 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, given the nature
and length of the leases, the rental growth is contractual and therefore
included in the net initial yield.
· Unobservable input: net initial yield
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 2023 pa range 30 September 2023 range
£m £m £m %
Healthcare 46.5 0.0 - 9.6 843.8 4.1 - 7.7
Budget hotel 42.8 0.0 - 2.2 603.5 4.9 - 13.5
Leisure 39.3 2.0 - 13.3 561.2 4.9 - 4.9
Foodstores 18.9 0.0 - 2.7 336.8 4.5 - 9.0
Industrial 13.3 0.2 - 3.7 247.0 4.2 - 7.5
Pubs 8.7 0.0 - 3.8 120.6 5.0 - 7.1
Arena 7.3 0.1 - 4.6 85.8 6.8 - 6.8
Car park 4.6 0.0 - 1.1 70.2 5.3 - 6.4
Garden centre 3.3 0.4 - 1.0 53.2 2.2 - 5.9
Life sciences 2.9 2.9 - 2.9 53.9 5.0 - 5.0
Drive-thru coffee 2.5 0.0 - 0.1 37.6 4.6 - 6.1
Education 2.3 0.0 - 0.3 35.5 5.8 - 6.0
Other 11.8 0.0 - 1.9 142.5 5.1 - 9.1
Portfolio 204.2 0.0 - 13.3 3,191.4 2.2 - 13.5
Sector Passing rent pa Passing rent Valuation Valuation yield
30 September pa range 30 September Range
2022 2022
£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
Leisure 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
31 March 2023 pa range 31 March 2023 range
£m £m £m %
Healthcare 45.2 0.0 - 9.4 916.9 4.1 - 7.7
Budget hotels 42.8 0.0 - 2.2 617.3 4.9 - 13.5
Leisure 37.9 1.9 - 12.8 562.8 4.9 - 4.9
Foodstores 20.2 0.1 - 2.7 374.4 4.0 - 9.0
Industrial 13.3 0.2 - 3.7 260.7 4.2 - 7.5
Pubs 8.7 0.1 - 3.8 128.8 5.0 - 7.1
Arena 7.1 0.1 - 4.3 90.6 6.8 - 6.8
Car parks 4.5 0.1 - 1.1 70.6 5.3 - 6.4
Garden centres 3.2 0.4 - 1.0 53.2 5.5 - 5.9
Life sciences 2.9 2.9 - 2.9 53.9 5.0 - 5.0
Drive-thru coffee 2.7 0.1 - 0.2 39.4 4.6 - 6.1
Education 2.2 0.1 - 0.3 35.5 5.8 - 6.0
Other 11.5 0.0 - 1.8 152.2 5.1 - 9.1
Portfolio 202.2 0.0 - 12.8 3,356.3 4.0 - 13.5
Sensitivities of measurement of significant inputs
As set out within significant accounting estimates and judgments above, the
Group's property portfolio valuation is subject 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 2023 (159.6) 159.6 (134.9) 147.3
30 September 2022 (182.9) 182.9 (178.6) 197.9
31 March 2023 (182.9) 182.9 (162.5) 178.3
10. Assets held for sale
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Assets held for sale 102.4 - 32.3
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. 32 assets have been classified as
held for sale as at the period end.
Realised gain on disposal of assets held for sale
During the year, the Group disposed of certain assets within assets held for
sale. The table below shows a reconciliation of the loss recognised on
disposal through the consolidated statement of comprehensive income and the
realised gain on disposals in the period which includes changes in fair value
of the investment property recognised in previous periods.
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Consideration received 32.7 19.0 29.5
Less:
Carrying value (32.3) (18.9) (32.1)
Selling costs (0.4) (0.2) (0.2)
Rental guarantee given (0.5) - -
(Loss)/gain on disposal of assets held for sale (0.5) (0.1) (2.8)
Add:
Change in fair value recognised in previous periods 3.3 3.0 3.6
Realised gain on disposal of assets held for sale 2.8 2.9 0.8
11. 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 2023 1,243.0 1,200.0
30 September 2022 1,467.0 1,395.2
31 March 2023 1,238.5 1,184.0
Fair value is not the same as a liquidation valuation, the amount required to
prepay the loans at the balance sheet date, and therefore does not represent
an estimate of the cost to the Group of prepaying the debt before the
scheduled maturity date, which would be materially higher.
12. Trade and other receivables
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Licence fee receivable 3.4 2.7 2.9
Rent receivable 9.1 6.7 8.6
Rent deposit 2.8 - 2.8
Prepayments and other receivables 3.8 1.9 2.5
Amount receivable from 'income strip' sale - 257.0 -
Amounts due within one year 19.1 268.3 16.8
The carrying value of trade and other receivables held 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 2023. 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 2023 is £nil (31 March 2023:
£nil, 30 September 2022: £0.1m).
Trade and other receivables that are financial assets amount to £12.5m (31
March 2023: £11.5m, 30 September 2022: £266.4m) which comprises licence fee
receivable and rent receivable.
The following table sets out the maturity profile of trade and other
receivables that are financial assets:
30 September 30 September 31 March
2023 2022 2023
£m £m £m
30 days or fewer 12.5 266.4 11.5
31 to 60 days - - -
61 to 90 days - - -
91 days or more - - -
Over one year - - -
12.5 266.4 11.5
13. Cash reserves
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Cash at bank 82.0 92.9 43.6
Cash held by lawyers 1.2 2.4 1.7
Secured cash 18.8 29.1
Cash and cash equivalents 102.0 95.3 74.4
Restricted cash 10.0 19.0 -
Total cash and cash equivalents 112.0 114.3 74.4
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.
Secured cash is held in accounts over which the providers of secured debt have
fixed security. The Group is unable to access this cash until it is released
to free cash each quarter, which takes place after quarterly interest and loan
repayments have been made as long as the terms of the associated secured
facility are complied with.
There are times throughout the year when the Group has restricted cash. At the
period end £10.0m was held as restricted cash (31 March 2023: £nil, 30
September 2022: £19.0m). 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. 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.
14. Trade and other payables
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Accrued investment property costs 0.2 5.4 1.7
Deferred rental income 46.2 44.6 44.3
Accruals 10.5 23.5 6.5
Trade and other payables 18.3 4.3 22.3
Early repayment of debt costs - 20.2 -
Leasehold liability 0.2 7.5 0.2
Retentions payable 0.8 2.9 1.5
VAT payable 5.8 3.8 4.5
Corporation tax payable 0.8 0.9 -
Other financial liabilities 1.5 8.2 1.6
Amounts due within one year 84.3 121.3 82.6
Leasehold liability 43.6 36.4 43.7
Other financial liabilities 254.0 248.8 254.7
Retentions payable 0.9 - 0.7
Amounts due in more than one year 298.5 285.2 299.1
Trade and other payables that are financial liabilities amount to £330.0m (31
March 2023: £332.7m, 30 September 2022: £361.0m) which comprises accrued
investment property costs, accruals, retentions, trade and other payables, the
leasehold liability and the other financial liability.
During the prior year, the Group entered into the sale of a 65-year income
strip of Alton Towers and Thorpe Park in for £257m. The sale price
represented a net initial yield of 2.96% on 30% of the annual rental income.
The structure comprised selling the freehold of the properties to a UK
institutional investor, with 999-year leases granted back to the Company
pursuant to which the Company pays an annual aggregate rent of £8.2m,
representing 30% of the annual rental income received from the tenant. The
Company can acquire the freehold for £1 at the end of the leaseback in 2087.
The obligations in relation to this transaction amount to £255.5m at the
period end and the balance is classified separately from leasehold liabilities
as an other financial liability. Of this balance £1.5m is due within one year
and £254.0m is due in more than one year.
15. Bank borrowings
Drawn Undrawn Total
£m £m £m
Half-year ended 30 September 2023
At beginning of the year 1,250.0 63.0 1,313.0
New facilities 687.4 25.6 713.0
Facilities repaid (664.4) (63.0) (727.4)
Scheduled repayments (1.7) - (1.7)
At end of the period 1,271.3 25.6 1,296.5
Less: unamortised loan arrangement fees (28.3) - (28.3)
1,243.0 25.6 1,268.6
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 facilities 385.0 - 385.0
Drawdown of existing facilities 54.0 (54.0) -
Repayments (30.9) 30.0 (0.9)
At end of the period 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
Year ended 31 March 2023
At beginning of the year 246.0 89.0 335.0
Book value of debt on SIR plc merger 826.1 - 826.1
New facilities 385.0 - 385.0
Drawdown of existing facilities 114.0 (114.0) -
Repayments (322.6) 88.0 (234.6)
Foreign currency translation 1.5 - 1.5
At end of the period 1,250.0 63.0 1,313.0
Less: unamortised loan arrangement fees (11.5) - (11.5)
1,238.5 63.0 1,301.5
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Current borrowings 3.5 745.9 512.9
Less: unamortised loan arrangement fees (1.8) (6.1) (4.2)
Total current borrowings 1.7 739.8 508.7
Non current borrowings 1,267.8 735.6 737.1
Less: unamortised loan arrangement fees (26.5) (8.4) (7.3)
Total non current borrowings 1,241.3 727.2 729.8
1,243.0 1,467.0 1,238.5
Maturity of drawn bank borrowings
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Repayable under 1 year 3.5 745.9 512.9
Repayable between 1 and 2 years 119.5 162.5 215.0
Repayable between 2 and 5 years 830.3 403.1 352.1
Repayable after 5 years 318.0 170.0 170.0
1,271.3 1,481.5 1,250.0
Unamortised finance costs (28.3) (14.5) (11.5)
1,243.0 1,467.0 1,238.5
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 which was extended on 1 March for repayment in December 2024. The loan
has a margin of 2.05% is fixed at an all-in rate of 4.55% using an interest
rate cap.
· A 2039 gilt linked floating rate 'Institutional 1' facility with
Canada Life of £148.0m. The facility has a margin of 1.75%, is capped at an
all-in rate of 4.00% and is due for repayment in January 2028.
· A SONIA linked floating rate 'Syndicate RCF' facility with
Lloyds, Barclays, Santander, RBS International and Haitong of £200.0m. The
facility has a margin of 2.3%, is capped at an all-in rate of 4.3% and is due
for repayment in January 2028.
· A SONIA linked floating rate 'Syndicate Term Loan A' facility
with Lloyds, Barclays, Santander, RBS International and Haitong of £115.0m.
The facility has a margin of 2.3%, is capped at an all-in rate of 4.3% and is
due for repayment in January 2028.
· A SONIA linked floating rate 'Syndicate Term Loan B' facility
with Lloyds, Barclays, Santander, RBS International and Haitong of £250.0m.
The facility has a margin of 2.15%, is capped at an all-in rate of 4.15% and
is due for repayment in January 2026.
· A fixed rate amortising loan 'Healthcare 1' facility of £63.0m
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 £291.7m 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.
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 2023 Half-year ended 30 September 2022 Year ended
31 March
2023
£m £m £m
Bank borrowings and leasehold liability at start of the period 1,538.7 252.8 252.8
Cash flows from financing activities
Bank borrowings drawn 687.4 439.0 499.0
Bank borrowings repaid (666.1) (30.9) (322.6)
Bank debt acquired on SIR plc merger at fair value on acquisition - 817.9 817.8
Loan arrangement fees paid (18.5) (2.4) (3.1)
Headlease payments (4.7) - (4.5)
Non-cash movements
Amortisation of loan arrangement fees 5.8 2.3 6.1
Loan arrangement fees accrued (4.1) (0.2) -
Revaluation FX on loan - 1.3 1.4
Increase in leasehold liability resulting from property acquisitions - 31.1 29.6
Amortisation of headlease present value 3.8 - 5.2
Other financial liability arising from 'income strip' sale - 257.0 257.0
Bank borrowings and leasehold liability at end of the period 1,524.3 1,767.9 1,538.7
In addition to the above cash flows relating to financing activities, there
has also been £36.3m of interest paid in the period (period ended 30
September 2022: £11.5m, year ended 31 March 2023: £40.4m).
16. Leasehold liabilities
Headlease obligations in respect of amounts payable on leasehold properties
are as follows;
30 September 30 September 31 March
2023 2022 2023
Minimum headlease payments £m £m £m
Within one year 2.3 2.3 2.3
Between one and five years 9.3 9.3 9.2
More than five years 198.3 201.4 196.0
Less future finance charges (166.10) (169.1) (163.8)
43.8 43.9 43.7
The earliest expiry date of all the headlease obligations is in more than five
years. £1.5m (31 March 2023: £1.5m, 30 September 2022: £nil) of the minimum
headlease payments due within one year are recoverable from occupational
tenants.
The Group's accounting policy for headleases is disclosed in Note 3.
The leasehold liabilities relate to where the Group has long term leasehold
properties and under the leasehold agreement is required to pay the freeholder
rent. These total £43.8m and are reflected on the face of the Statement of
Financial Position and in note 14. Of this balance £0.2m is due in less than
one year and £43.6m is due in more than one year. The leasehold assets are
held within investment property, see Note 9. The lease terms are generally
fixed rent payable, subject to periodic CPI or RPI uplifts.
17. Interest rate derivatives
A number of interest rate caps and one interest rate swap have been taken out
in respect of the Group's variable rate debt in order to mitigate the interest
rate risk that arises as a result of entering into variable rate loans.
Half-year ended Half-year ended Year ended
30 September 2023 30 September 2022 31 March 2023
£m £m £m
Current assets - Derivative financial instruments - 39.8 3.1
Non-current assets - Derivative financial instruments 40.0 - 29.3
40.0 39.8 32.4
The interest rate derivatives are valued by the relevant counterparty banks on
a quarterly basis in accordance with IFRS 9. Any movement in the
mark-to-market values of the derivatives are taken to Group profit or loss.
Half-year ended Half-year ended Year ended
30 September 2023 30 September 2022 31 March 2023
£m £m £m
Interest rate derivative valuation brought forward 32.4 1.2 1.2
Derivatives acquired on merger - 12.4 12.4
Premium paid 6.1 1.2 26.5
Closed instruments (4.8) - (27.7)
Amounts received on interest rate derivatives held at fair value through (7.0) - (2.2)
profit and loss
Changes in fair value of interest rate derivatives 13.3 25.0 22.2
40.0 39.8 32.4
Fair value hierarchy
The fair value of Group's interest rate derivatives is recorded in the Group
Statement of Financial Position and is determined by forming an expectation
that interest rates will exceed strike rates and discounting these future cash
flows at the prevailing market rates as at the period end.
This valuation technique falls within Level 2 of the fair value hierarchy as
defined by IFRS 13. There have been no transfers between Level 1 and Level 2
during any of the years, nor have there been any transfers between Level 2 and
Level 3 during any of the years.
18. Reserves
Share capital
Shares of £0.01 each 30 September 2023 30 September 2023 30 September 2022 30 September 2022 31 March 2023 31 March 2023
No. (million) £m No. (million) £m No. (million) £m
At the beginning of the period 1,714.5 17.1 911.6 9.1 911.6 9.1
Issued during the period - - 802.9 8.0 802.9 8.0
At the end of the period 1,714.5 17.1 1,714.5 17.1 1,714.5 17.1
Issued and fully period 1,714.5 17.1 1,714.5 17.1 1,714.5 17.1
In the prior financial year, on 7 July 2022 the Company issued 802.9m ordinary
shares at 143.4p per share (1p nominal value and a premium of 142.4p per
share). The shares were issued as consideration for the acquisition of 100% of
the issued share capital of Secure Income REIT plc ("SIR") along with a
partial cash settlement. SIR shareholders were entitled to receive 3.32 shares
for each SIR 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 up to a maximum of 25% of the total consideration. The issue price of
the shares reflects the fair value of the assets acquired.
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 2022 31 March
2023 (restated) 2023
(restated)
£m £m £m
At the beginning of the period 940.0 940.0 940.0
At the end of the period 940.0 940.0 940.0
Share issue costs relating to the merger have been capitalised.
At the AGM on 7 September 2023, shareholders approved a resolution to cancel
the Company's share premium account, which stood at £940m. The court order to
confirm the cancellation was received on 10 October 2023, following which the
share premium account was cancelled. Cancellation results in this capital
being treated as realised profit, giving us the flexibility to declare
dividends or make other distributions to shareholders, although there is no
current intention to do so.
Merger reserve
The merger reserve relates to amounts subscribed for share capital in excess
of nominal value net of directly attributable share issue costs relating to
the SIR transaction described above. This reserve is not distributable.
Merger reserve 30 September 30 September 2022 31 March
2023 (restated) 2023
(restated)
£m £m £m
At the beginning of the period 1,180.8 - -
Premium on issue of ordinary shares - 1,180.8 1,180.8
At the end of the period 1,180.8 1,180.8 1,180.8
Foreign exchange reserve
Non-monetary assets and liabilities carried at fair value that are denominated
in foreign currencies are translated at the rates prevailing on the date that
the fair value was determined. Gains and losses arising on exchange are
included in the profit or loss for the year, except for exchange differences
arising on non-monetary assets and liabilities where the changes in fair value
are recognised directly to equity, and any exchange component of that gain and
loss is also recognised directly to equity.
Capital reduction reserve
The capital reduction reserve account is classed as a distributable reserve.
Movements in the period relate to dividends paid.
Retained earnings
Retained earnings relate to all net gains and losses not recognised elsewhere.
Note although the Group has negative retained earnings at the period end due
to the downward revaluation in property, the Company still has a large amount
of distributable reserves. At the AGM on 7 September 2023 shareholders
approved a resolution to cancel the Company's share premium account which
stood at £940m. The court order to confirm the cancellation was received on
10 October 2023, following which the share premium account was cancelled.
Cancellation results in this capital being treated as realised profit,
therefore creating even further headroom. At the period end the group has
distributable reserves of £221.0m.
During the prior period the Directors became aware that certain dividends paid
since the merger had been made otherwise than in accordance with the Companies
Act 2006 as the relevant accounts of the Company did not show distributable
reserves at the time of payment.
The affected dividends are the interim dividend of 1.575 pence per Ordinary
Share for the quarter ended 30 June 2022 (paid on 18 November 2022), the
interim dividend of 1.575 pence per Ordinary Share for the quarter ended 30
September 2022 (paid on 4 January 2023) and the interim dividend of 1.575
pence per Ordinary Share for the quarter ended 31 December 2022 (paid on 10
March 2023) (the "Relevant Dividends").
At the AGM held in September 2023, the Company's shareholders approved a
special resolution which remedied this issue. The effect of this resolution
being passed was to return all parties to the position they would have been in
had the Relevant Dividends been made in full compliance with the Companies Act
2006. The removal of any right for the Company to pursue its directors for
repayment of the Relevant Dividends constitutes a related party transaction
under IAS 24 and, for the purposes of the UK Listing Rules, a smaller related
party transaction under Listing Rule 11.1.10R.
19. Dividends
Dividends paid and declared £m
Dividends in respect of the year ended 31 March 2023
Fourth quarterly dividend at 1.575p per share 27.0
Dividends in respect of the year ended 31 March 2024
First quarterly dividend at 1.65p per share -
Second quarterly dividend at 1.65p per share -
Total dividends paid 27.0
Total dividend per share paid in the period 1.575p
Total dividend per share proposed in respect of the period 3.30p
Dividends in respect of the year ending 31 March 2024
On 6 September 2023, the Company announced a first quarterly dividend in
respect of the year ended 31 March 2024 of 1.65p per share which was paid on
13 October 2023 to shareholders on the register at 15 September 2023.
On 30 November 2023, the Company announced a second quarterly dividend in
respect of the year ended 31 March 2024 of 1.65p per share which will be paid
on 10 January 2023 to shareholders on the register at 7 December 2023.
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 27.0
Second quarterly dividend at 1.575p per share 27.0
Third quarterly dividend at 1.575p per share 27.0
Total dividends paid 94.6
Total dividend per share paid in the period 6.225p
Total dividend per share proposed in respect of the year 6.3p
Dividends in respect of the year ended 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.
On 9 February 2023, the Company announced a third quarterly dividend in
respect of the year ended 31 March 2023 of 1.575p per share which was paid on
10 March 2023 to shareholders on the register on 16 February 2023.
On 7 June 2023 the Board approved a final quarterly dividend in respect of the
year ended 31 March 2023 of 1.575 pence per share, payable on 6 July 2023 to
shareholders on the register at 16 June 2023. The ex-dividend date will be 15
June 2023.
20. Leases
The Group as lessor
The future minimum lease receivable 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 2023 197.7 819.3 6,061.5 7,078.5
31 March 2023 197.1 825.1 6,090.1 7,112.3
30 September 2022 194.7 807.6 5,970.9 6,973.2
An overview of the Group's leasing activities is given in the Investment
Advisors Report.
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 2023 2.3 9.3 198.3 209.8
31 March 2023 2.3 9.2 196.0 207.5
30 September 2022 2.3 9.3 201.4 213.0
The above is in respect of leasehold properties held by the Group. There are
191 properties (31 March 2023: 194 properties, 30 September 2022: 194
properties) held leasehold with lease ranges from 99 years to 999 years.
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 9).
21. 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) 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 26 and 27 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
2023 2022 31 March
2023
£m £m £m
UK 118.2 70.9 187.0
Germany 10.1 4.6 16.5
128.3 75.5 203.5
Investment properties
Half-year ended 30 September Half-year ended 30 September Year ended
2023 2022 31 March
2023
£m £m £m
UK 3,050.7 3,749.2 3,427,3
Germany 140.7 162.1 142.3
3,191.4 3,911.3 3,569.6
During the half-year the Group had three tenants (30 September 2022: 3, 31
March 2023: 3) 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
2023 2022 31 March
2023
Major tenants 63% 42% 51%
Other tenants (each less than 10% of revenue) 37% 58% 49%
100% 100% 100%
22. Related party transactions
Transactions with the Board of Directors
In respect of the period ended 30 September 2023 fees of £0.2m were payable
to the Directors (30 September 2022: £0.2m, 31 March 2023: £0.4m) under
service contracts. Employers NI contributions were nil in the period (30
September 2022: nil, 31 March 2023: nil).
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 2023 30 September 2022 31 March
2023
Number Number Number
Cyrus Ardalan Acquired - - -
Held 206,000 206,000 206,000
John Cartwright* Acquired - - -
Held 66,687 66,687 66,687
Hugh Seaborn Acquired - 40,595 40,595
Held 40,595 40,595 40,595
Ismat Levin Acquired - - -
Held 14,084 14,084 14,084
Nick Leslau (appointed 6 July 2022)** Acquired - 95,978,407 95,978,407
Held 95,978,407 95,978,407 95,978,407
Sandy Gumm (appointed 6 July 2022) Acquired - 639,345 639,345
Held 639,354 639,354 639,345
* 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 or
in any prior period.
Transactions with the Investment Advisor
A fee of £5.6m was payable to the Investment Advisor in respect of the period
(30 September 2022: £6.2m, 31 March 2023: £12.9m). At 30 September 2023,
£1.1m was due to the Investment Advisor (30 September 2022: £1.6m ,31 March
2023: £1.2m) for provision of 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.
The previous fee structure which applied up until 7 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.
No performance fee is payable to the Investment Advisor.
23. 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 and borrower UK 100%
LXi Property Holdings 2 Limited(1) Property investment UK 100%
LXi Property Holdings 3 Limited Property investment and borrower UK 100%
LXi Property Holdings 4 Limited(1) Property investment UK 100%
LXi Property Holdings 4a Limited(1) Property investment UK 100%
Alco 1 Limited(1) Property investment UK 100%
FPI Co 223 Limited(1) Dormant UK 100%
LXi Cowdenbeath Limited(1) Property investment UK 100%
SM Plymouth Hotel Limited(1) Property investment UK 100%
Corby (General Partner) Limited(1) Dormant UK 100%
Corby Limited Partnership2 Dormant UK 100%
LXi Pacific Limited(1) Property investment UK 100%
Corby (No.2) Unit Trust(1) Dormant Jersey 100%
LXi Spirit Limited(1) Property investment Isle of Man 100%
Welling Property Limited(1) Property investment Jersey 100%
LXi Property Holdings 5 Limited(1) Property investment UK 100%
LXi Property Holdings 5a Limited(1) Property investment UK 100%
LXi Property Holdings 6 Limited(1) Property investment UK 100%
LXi Finco Limited Intermediate parent company UK 100%
LXi Finco 1 Limited(1) Intermediate parent company and borrower UK 100%
LXi Holdco 1 Limited Intermediate parent company UK 100%
LXi Finco 2 Limited(1) Intermediate parent company and borrower UK 100%
LXi Holdco 2 Limited Intermediate parent company UK 100%
LXi Cornbow Limited(1) Property investment UK 100%
LXi SIR Holdco Limited (previously Secure Income REIT Plc) Intermediate parent company UK 100%
SIR Theme Park Subholdco Limited(1) Intermediate parent company UK 100%
SIR ATH Limited(1) Property investment UK 100%
SIR ATP Limited(1) Property investment UK 100%
SIR HP Limited(1) Property investment (incorporated in England, operating in Germany) UK 100%
SIR TP Limited(1) Property investment UK 100%
SIR WC Limited(1) Property investment UK 100%
SIR Hospital Holdings Limited(1) Intermediate parent company UK 100%
SIR Umbrella Limited(1,3) Intermediate parent company UK 100%
SIR Hospitals Propco Limited(1,3) Intermediate parent company and borrower UK 100%
SIR Duchy Limited(13) Property investment UK 100%
SIR Springfield Limited(13) Property investment UK 100%
SIR Healthcare 1 Limited(1,4) Intermediate parent company UK 100%
SIR Healthcare 2 Limited(1,4) Intermediate parent company UK 100%
SIR Fitzwilliam Limited(1,4) Property investment UK 100%
SIR Fulwood Limited(1,4) Property investment UK 100%
SIR Lisson Limited(1,4) Property investment UK 100%
SIR Midlands Limited(1,4) Property investment UK 100%
SIR Oaklands Limited(1,4) Property investment UK 100%
SIR Oaks Limited(1,4) Property investment UK 100%
SIR Pinehill Limited(1,4) Property investment UK 100%
SIR Rivers Limited(1,4) Property investment UK 100%
SIR Woodland Limited(1,4) Property investment UK 100%
SIR Yorkshire Limited(1,4) Property investment UK 100%
Thomas Rivers Limited(1,4) Property investment UK 100%
SIR Hotels 1 Limited(1) Dormant UK 100%
SIR Hotels Jersey Limited(1) Dormant Jersey 100%
SIR Unitholder 1 Limited(1) Intermediate parent company Jersey 100%
SIR Unitholder 2 Limited(1) Intermediate parent company Jersey 100%
Grove Property Unit Trust 6(1) Property investment Jersey 100%
Grove Property Unit Trust 7(1) Property investment Jersey 100%
Grove Property Unit Trust 9(1) Property investment Jersey 100%
Grove Property Unit Trust 11(1) Property investment Jersey 100%
Grove Property Unit Trust 12(1) Property investment Jersey 100%
Grove Property Unit Trust 16(1) Property investment Jersey 100%
SIR Hotels 2 Limited(1) Dormant UK 100%
SIR Hotels Jersey 2 Limited(1) Intermediate parent company and property investment Jersey 100%
SIR Unitholder 3 Limited(1) Intermediate parent company Jersey 100%
SIR Unitholder 4 Limited(1) Intermediate parent company Jersey 100%
Grove Property Unit Trust 2(1) Property investment Jersey 100%
Grove Property Unit Trust 5(1) Property investment Jersey 100%
Grove Property Unit Trust 13(1) Property investment Jersey 100%
Grove Property Unit Trust 14(1) Property investment Jersey 100%
Grove Property Unit Trust 15(1) Property investment Jersey 100%
SIR Maple 4 Limited(1) Property investment UK 100%
SIR Maple Holdco Limited(1,5) Intermediate parent company UK 100%
SIR Maple 1 Limited(1,5) Intermediate parent company Jersey 100%
SIR Unitholder 5 Limited(1) Intermediate parent company Jersey 100%
MIF 1 Unit Trust(1) Property investment and borrower Jersey 100%
SIR Maple 2 Limited(1,5) Property investment and borrower UK 100%
SIR Maple 3 Limited(1,5) Property investment and borrower UK 100%
SIR New Hall Limited(1) Dormant UK 100%
SIR MTL Limited(1) Dormant UK 100%
Charcoal Bidco Limited(1) Dormant UK 100%
SIR Hotels 2 Holdco Limited(1) Dormant Jersey 100%
SIR Hotels 2 GP Limited(1) Dormant Jersey 100%
SIR Hotels 2 Nominee Limited(1) Dormant Jersey 100%
SIR Newco Limited(1) Dormant UK 100%
SIR Newco 2 Limited(1) Dormant UK 100%
1 Subsidiaries indirectly owned.
2 Subsidiary dissolved post period end
3 These subsidiary undertakings are taking advantage of the exemption from
audit under section 479a of the Companies Act 2006 and as a result SIR
Hospitals Propco Limited will provide a statutory guarantee for any
outstanding liabilities of these undertakings as at 31 March2023.
4 These subsidiary undertakings are taking advantage of the exemption from
audit under section 479a of the Companies Act 2006 and as a result SIR
Healthcare 2 Limited will provide a statutory guarantee for any outstanding
liabilities of these undertakings as at 31 March2023.
5 These subsidiary undertakings are taking advantage of the exemption from
audit under section 479a of the Companies Act 2006 and as a result SIR Maple
Holdco Limited will provide a statutory guarantee for any outstanding
liabilities of these undertakings as at 31 March2023.
The registered office for UK subsidiaries is 8th Floor, 100 Bishopsgate,
London, EC2N 4AG.
The registered office of Jersey subsidiaries is 26 New Street St Helier Jersey
JE2 3RA.
The registered office of Isle of Man subsidiaries is First Names House,
Victoria Road, Douglas, IM2 4DF.
24. 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 Board
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
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 holding cash deposits and those that are derivative
counterparties. The Board believes that the credit risk on short term
deposits, receivables under derivative contracts 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 12 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
incur 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. Rent collection statistics are benchmarked in
internal reports to identify any problems at any early stage, and if necessary
and where possible (in the absence, for example, of a Government imposed
moratorium on the enforcement of rent collection) rigorous credit control
procedures are applied to facilitate the recovery of trade receivables.
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 involves maintaining
sufficient cash, 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 as and when it is
required.
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 2023
Financial liabilities
Bank borrowings (Note 15) 0.9 2.6 949.8 318.0 1,271.3
Early repayment of debt costs - - - - -
Interest payable on bank borrowings 14.3 42.8 127.4 114.6 299.1
Trade and other payables 29.0 - - - -
Other financial liabilities 2.1 6.4 34.2 503.7 546.4
Lease payables 0.6 1.7 9.2 198.3 209.8
Retentions payable 0.2 0.6 0.9 - 1.7
47.1 54.1 1,121.5 1,134.6 2,328.3
30 September 2022
Financial liabilities
Bank borrowings (Note 15) 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
31 March 2023
Financial liabilities
Bank borrowings (Note 15) 451.3 61.6 567.1 170.0 1,250.0
Interest payable on bank borrowings 9.8 22.6 51.5 27.7 111.6
Trade and other payables 30.5 - - - 30.5
Lease payables 0.6 1.7 9.2 196.0 207.5
Other financial liability 2.1 6.2 32.8 488.5 529.6
Retentions payable 0.7 0.2 0.7 - 1.6
495.0 92.3 661.3 882.2 2,130.8
In April 2023 the Group completed on two refinancing events for over £700m of
debt that was due to mature within one year. On 10 November the Group agreed a
two year extension of the £60m HSBC facility which was the next maturing
debt. Following this, the next significant refinancing event falls in
September 2025.
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 attractive 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. On both an IFRS basis
and EPRA basis, 4.2% by value of the Group's net assets are Euro denominated
and as a result the Group is subject to foreign currency exchange risk.
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
2023
£m
Investment property revaluation net of deferred tax (0.6)
Other income statement movements 0.5
Increase in loss for the half-year (0.1)
Increase in other comprehensive income and equity 10.1
25. Capital commitments
At 30 September 2023 the Group had capital commitments of £39.3m inclusive of
accrued retentions of 1.8m (31 March 2023: £50.8m, 30 September 2022 £42.5m)
in relation to the cost to complete its forward funded pre-let development
assets and £nil in respect of acquisitions for which contracts had exchanged
but conditions to completion remain outstanding (31 March 2023: £5.7m, 30
September 2022 £9.8m). All commitments fall due for settlement within one
year from the date of this report.
26. 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 2022 31 March
2023 2023
£m £m £m
Loss for the period/year (83.1) (29.2) (288.1)
Weighted average number of ordinary shares (million) 1,714.5 1,288.9 1,501.1
Earnings per share ("EPS") (4.9)p (2.3)p (19.2)p
Adjustments to remove:
Change in fair value of investment property 161.3 80.3 406.7
Loss on disposal of investment property 0.5 0.1 2.8
Loss on close out of derivatives 0.3 - 4.6
Change in fair value of interest rate derivative (13.3) (25.0) (22.2)
Loss on extinguishment of debt 4.1 20.6 20.6
EPRA earnings 69.8 46.8 124.4
Weighted average number of ordinary shares (million) 1,714.5 1,288.9 1,501.1
EPRA EPS 4.1p 3.6p 8.3p
Adjustments to include:
One off items 0.4 - -
Licence fees receivable 1.3 1.2 3.1
Amortisation of cash backed rental top ups and rent-free periods 0.5 0.3 0.9
Amortisation of loan fees 5.8 2.3 6.1
Amounts received on interest rate derivatives held at fair value through 7.0 - 2.2
profit and loss
Cash differential on PV leasehold unwinding (0.8) - -
Reverse deferred tax provision - 1.1 -
Adjustments to exclude:
Accretion of tenant lease incentives (Note 9) (24.9) (13.7) (37.8)
Abortive fees (Note 6) - 1.4 1.5
Adjusted cash earnings 59.1 39.4 100.4
Weighted average number of ordinary shares (million) 1,714.5 1,288.9 1,501.1
Adjusted cash EPS 3.4p 3.1p 6.7p
Adjusted cash EPS is a performance measure used by the Board to assess the
Company's underlying cash earnings and, importantly, its dividend cover. 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 costs including 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.
27. 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 2023 30 September 2022 31 March
2023
£m £m £m
Net asset value ("NAV") 1,995.7 2,448.2 2,108.1
Number of ordinary shares (million) 1,714.5 1,714.5 1,714.5
NAV per share 116.4p 142.8p 123.0p
Less derivative financial instruments (40.0) (25.9) (32.4)
EPRA NTA 1,955.7 2,422.3 2,075.7
Number of ordinary shares 1,714.5 1,714.5 1,714.5
EPRA NTA per share 114.1p 141.3p 121.1p
EPRA NTA per share (Ex div) 112.4p 139.7p 121.1p
28. Post balance sheet events
At the AGM on 7 September 2023, shareholders approved a resolution to cancel
the Company's share premium account, which stood at £940m. The court order to
confirm the cancellation was received on 10 October 2023, following which the
share premium account was cancelled. Cancellation results in this capital
being treated as realised profit, giving us the flexibility to declare
dividends or make other distributions to shareholders, although there is no
current intention to do so.
On 10 November the extension of the HSBC £60m Leisure facility was signed,
moving the maturity date of that facility from December 2024 to December 2026.
Following this, the next significant refinancing event relates to the £291m
AIG healthcare facility in October 2025.
On 30 November 2023 the board declared an interim quarterly dividend in
respect of the quarter ended 30 September 2023 of 1.65 pence per ordinary
share.
29. Controlling parties
There is no ultimate controlling party of the Group.
30. Prior period restatement
During the period, the Directors identified the incorrect application of
section 612 of the Companies Act 2006 to the shares issued as part of the
acquisition of Secure Income REIT plc ("SIR"). The £1,180.8m excess of fair
value over the nominal value of the shares recognised on the SIR acquisition
and presented on the September 2022 and March 2023 statement of financial
position and statement of changes in equity was erroneously recorded as share
premium and should instead have been recorded as a merger reserve. The prior
year comparatives have been restated to decrease share premium by £1,180.8m
and increase merger reserve by the same amount in the statement of financial
position and statement of changes in equity. The adjustment has no overall
effect on the total net assets of the Company and Group at either 30 September
2023, 31 March 2023 or 30 September 2022 or on the Company and Group loss for
either the period ended 30 September 2023, the year ended 31 March 2023 or the
period ended 30 September 2022. The adjustment has no impact on distributable
reserves as both reserves are non-distributable.
NOTES TO THE EPRA AND ALTERNATIVE PERFORMANCE MEASURES
EPRA NAV measures
The Board consider EPRA NTA to be the most relevant NAV measure for the Group
and we report this as our primary NAV measure. EPRA requires the publication
of three different measures of NAV. EPRA NTA is reconciled to IFRS net asset
value as follows.
As at 30 September 2023 Current measures
EPRA NTA EPRA NRV EPRA NDV
£m £m £m
Net asset value 1,995.7 1,995.7 1,995.7
Mark-to-market adjustments of derivatives (40.0) (40.0) -
Fair value of debt - - (43.0)
Real estate transfer tax - 211.6 -
At 30 September 2023 1,955.7 2,167.3 1,952.5
Number of ordinary shares (million) 1,714.5 1,714.5 1,714.5
Per share 114.1p 126.4p 113.9p
As at 30 September 2022 Current measures
EPRA NTA EPRA NRV EPRA NDV
£m £m £m
Net asset value 2,448.2 2,448.2 2,448.2
Mark-to-market adjustments of derivatives (25.9) (25.9) -
Fair value of debt - - (71.8)
Real estate transfer tax - 245.5 -
At 30 September 2022 2,422.3 2,667.8 2,376.4
Number of ordinary shares (million) 1,714.5 1,714.5 1,714.5
Per share 141.3p 155.6p 138.6p
As at 31 March 2023 Current measures
EPRA NTA EPRA NRV EPRA NDV
£m £m £m
Net asset value 2,108.1 2,108.1 2,108.1
Mark-to-market adjustments of derivatives (32.4) (32.4) -
Fair value of debt - - (54.5)
Real estate transfer tax - 176.3 -
At 31 March 2023 2,075.7 2,252.0 2,053.6
Number of ordinary shares (million) 1,714.5 1,714.5 1,714.5
Per share 121.1p 131.4p 119.8p
As disclosed in Note 8 as at 30 September 2023, the Group has an unrecognised
deferred tax liability of £9.7 million (31 March 2023: £9.5 million, 30
September 2022: £11.9 million) arising on the German property which is not
included in within the net asset position of the Group and therefore not
reflected in these EPRA measures in line with EPRA guidance.
EPRA NIY and EPRA 'Topped Up' NIY
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Investment property - wholly owned 3,191.4 3,656.6 3,356.3
Less: development properties (54.4) (89.9) (85.7)
Completed property portfolio 3,137.0 3,572.7 3,270.6
Allowance for estimated purchasers' costs 213.3 242.9 222.4
Gross up completed property portfolio valuation (b) 3,350.3 3,815.6 3,493.0
Annualised passing rental income 204.2 200.1 201.9
Less: contracted rental income in respect of development properties (3.6) (3.5) (4.8)
Property outgoings - - -
Annualised net rents(1) (a) 200.6 196.6 197.1
Contractual increases for lease incentives(2) 94.0 122.2 129.8
Topped up annualised net rents (c) 294.6 318.8 326.9
EPRA NIY (a/b) 6.0% 5.2% 5.6%
EPRA Topped Up NIY (c/b) 8.8% 8.4% 9.4%
EPRA Vacancy Rate
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Annualised estimated rental value of vacant premises - - -
Annualised net rents(1) 200.6 196.6 197.1
EPRA Vacancy Rate 0% 0% 0%
EPRA Cost Ratio
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Property operating costs 0.2 0.1 -
Vacant property costs - - -
Administration expenses(3) 8.7 9.4 18.8
Total costs (both including and excluding vacant property costs(4)) 8.9 9.5 18.8
Total net rental income 124.6 75.5 198.2
Total EPRA cost ratio 7.1% 12.6% 9.5%
EPRA LTV
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2023 2022 2023
£m £m £m
Borrowings from financial institutions 1,271.3 1,249.5 1,250.0
Net payables 61.9 - 53.7
Exclude cash (112.0) (114.3) (74.4)
Net debt (a) 1,221.2 1,137.8 1,229.3
Built investment property at fair value 3,137.0 3,566.4 3,356.3
Fair value of properties under development 54.4 44.1 30.1
Net receivables - 175.9 -
Total property value (b) 3,191.4 3,786.4 3,386.4
LTV (a/b) 38% 30% 36%
Total NAV return
Half-year ended Half-year ended Year ended
30 September 30 September 31 March
2023 2022 2023
£m £m £m
EPRA NTA per share at beginning of the period 121.1 142.6 142.6
EPRA NTA per share at end of the period 114.1 141.3 121.1
Change in EPRA NTA per share in the period (7.0) (1.3) (21.5)
Dividend per share paid in the period 1.6p 1.5p 6.3
Total of change in EPRA NTA and dividend per share (5.4) 0.2 (15.2)
Total accounting return (4.5)% 0.1% (10.7)%
1 Excludes contracted rents receivable on development properties
2 e.g. Step rents and expiry of rent-free periods
3 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
4 The Group has no vacant property costs
Company Information
Company number: 10535081
Country of incorporation: England and Wales
Directors, Management and Advisers
Non-Executive Directors Communications adviser
Cyrus Ardalan (Chairman) H/Advisors Maitland
Hugh Seaborn 3 Pancras Square
Ismat Levin London
John Cartwright N1C 4AG
Nick Leslau
Sandy Gumm
Depositary
Registered office Langham Hall UK Depositary LLP
8th Floor 8th Floor
100 Bishopsgate 1 Fleet Place
London London
EC2N 4AG EC4M 7RA
AIFM Registrar
Alvarium Fund Managers (UK) Limited Link Group
10 Old Burlington Street 10(th) Floor, Central Square
London 29 Wellington Street
W1S 3AG Leeds
LS1 4DL
Investment Advisor
LXI REIT Advisors Limited Administrator
58 Grosvenor Street Langham Hall UK Services LLP
London 8th Floor
W1K 3JB 1 Fleet Place
London
Company secretary EC4M 7RA
Law Debenture Corporation plc
8th Floor Valuer
100 Bishopsgate Knight Frank LLP
London 55 Baker Street
EC2N 4AG London
W1U 8AN
Joint broker
Barclays Bank PLC Auditor
1Churchill Place BDO LLP
London 55 Baker Street
E14 5HP London
W1U 7EU
Joint broker Legal advisers
Jefferies International Limited Stephenson Harwood LLP
100 Bishopsgate 1 Finsbury Circus
London London
EC2N 4JL EC2M 7SH
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