Trading Update and Notice of Half Year Results

LXi REIT

10/10/2022 07:00

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RNS Number : 2453C  LXI REIT PLC  10 October 2022

10 October 2022

LXI REIT PLC

("LXI REIT" or the "Company")

TRADING UPDATE AND NOTICE OF HALF YEAR RESULTS

The Board of LXI REIT (ticker: LXI), the specialist inflation-protected very
long income REIT, announces an update ahead of its results for the half year
ended 30 September 2022 ("the Period"), which will be released on Thursday, 24
November 2022.

 

Cyrus Ardalan, Chairman of LXI, commented:

 

"Against the challenging macroeconomic backdrop, investors can take comfort in
LXI's resilient, highly diversified, triple-net portfolio of secure,
long-dated and inflation-protected real estate assets. Our growing income,
robust 100% fixed or capped debt position and the Board and management team's
strong alignment with shareholders further supports our confidence in
continuing to deliver on our fully covered and progressive dividend."

 

Operational metrics

 

Following the merger with Secure Income REIT which completed in July, the
Company owns a substantial, highly diversified, triple-net portfolio of
secure, long-dated, inflation-protected real estate assets.

 

The portfolio is 100% let on very long-term leases averaging 26 years to first
break to a wide range of strong tenant covenants across a diverse range of
robust property sectors. 98% of the rent is inflation-protected or contains
fixed uplifts.

 

The Company's strategy focuses on relationship driven forward fundings and
sale and leasebacks in structurally supported sub-sectors, with strong
underlying property fundamentals and low starting rents.

 

Accretive capital recycling, inflation-protected income and a conservative,
fully hedged debt pool further supports the Company's fully covered and
progressive dividend. The Company has delivered a compounded dividend growth
rate of 5% per annum on a fully covered basis and an average total NAV return
of 10.5% per annum since IPO in 2017.*

 

There is strong alignment with shareholders via the largest Board and
Management stake of any major UK REIT, totalling £140 million, and low
management fees averaging less than 65 bps and payable on market
capitalisation.

 

Rent collection and rental growth

 

The Company has collected 100% of rents due in respect of the Period.

 

The Company carried out 97 index linked rent reviews during the Period with an
average annualised rental growth rate of 3.7% on the rents reviewed. This
resulted in like for like rental growth across the portfolio of £4.8 million
over the six month period and takes total annual rent to £201.2 million.

 

LTV and debt facilities

 

As at 30 September, the Company's pro-forma LTV was 33%. 100% of the Company's
debt cost is fixed or capped, with a maximum weighted average cost of debt of
4.2% per annum.

 

Each of the Company's debt facilities has significant headroom to any default
covenants. The average net initial yield on valuations that would breach the
Group's LTV covenants is 9.2%, with the tightest being 6.7%, significantly
above the current valuation yield.

 

The Company also benefits from £538 million of unsecured assets and cash.

 

Disposals

 

In September, the Company exchanged unconditionally on an earnings accretive
£257 million 'income strip' sale at a low 2.96% exit yield. Upon completion
of the sale on 19 October 2022, the Company will repay in full the £232
million of debt secured against the Alton Towers, Thorpe Park and Warwick
Castle properties (which carried a 4.95% per annum interest cost).

 

In so doing, the Company will also release a surplus interest rate cap, which
is anticipated to provide a material mark-to-market cash gain for the Company
(with a current value of approximately £26 million), which will be used to
pay down the Company's Revolving Credit Facility. The capital is then
available to be redrawn in due to course if needed to fund new hedging or to
reduce leverage longer term.

 

During the Period, the Company also sold a Premier Inn anchored property in
Saffron Walden with a WAULT to first break of 14 years for £19.3 million,
reflecting a 4.6% exit yield and delivering a 19% per annum IRR.

 

Acquisitions

 

In addition to the Secure Income REIT merger, which added £2.3 billion of
high quality, long income assets to the Company's portfolio, the Company also
acquired during the Period four long, index-linked assets with a WAULT to
first break of 25 years for a total price of £68 million, reflecting an
accretive 5.3% average net initial yield. These acquisitions comprised the
pre-let forward funding of a drive-through coffee unit in Kendal, the pre-let
forward funding of a garden centre in Reading, the pre-let forward purchase of
a pre-school nursery in Surrey and the investment purchase of a foodstore in
the West Midlands.

 

Portfolio valuation and net asset value

 

Knight Frank, the Company's valuer, has valued the portfolio at £3.65 billion
as at 30 September 2022. The valuation equates to a net initial yield of 4.9%
(31 March 2022: 4.6%), which is estimated to rise to 5.6% in five years' time
by virtue of the portfolio's index linked rent reviews.**

 

The like for like valuation change over the Period is -1.4%, with the outward
yield shift countered, in large part, by the index linked rental growth
mentioned above. The Company continues to believe that long index linked
assets provide strong downside protection, as demonstrated by returns in
respect of the reporting period where the capitalisation of index linked
rental growth provided an element of counterbalance to some market yield
softening.***

 

In addition, the compounding effect of long index-linked income should remain
attractive to investors for its ability to grow the current rental yield. The
attraction of long inflation-linked income is further evidenced by the fact
that the 20-year index-linked gilt rate remains low at 0.63%, which provides a
significant spread to the Company's current portfolio yield.

 

The estimated, unaudited EPRA NTA as at 30 September 2022 is expected to be
not less than 139 pence per share.

 

* Average total NAV return from IPO to July 2022

** Based on the latest RPI and CPI forecasts by Oxford Economics, as modelled
through the Company's specific, individual rent review provisions, and
assuming all other things being equal

 

*** The like for like change in valuation compares the independent valuation
of assets that were owned at 31 March 2022 (both by Secure Income REIT plc and
LXI) and at 30 September 2022

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 LXI REIT Advisors Limited                      Via H/Advisors Maitland

 Simon Lee (Partner, Fund Manager)

 John White (Partner, Fund Manager)

 Freddie Brooks (CFO)

 Peel Hunt LLP                                  020 7418 8900

 Luke Simpson / Liz Yong / Huw Jeremy

 Jefferies International                        020 7029 8000

 Tom Yeadon / Ed Matthews / Rishi Bhuchar

 Alvarium Securities Limited                    020 7016 6700

 Mark Thompson / Eddie Nissen / Oliver Kenyon

 H/Advisors Maitland (Communications Advisor)   07747 113 930 / 020 7379 5151

 James Benjamin / Alistair de Kare-Silver       lxireit-maitland@h-advisors.global

 

The Company's LEI is: 2138008YZGXOKAXQVI45

 

NOTES

LXI REIT plc invests in commercial property assets predominantly in the UK,
let, or pre-let, on long (typically 20 to 30 years to expiry or first break),
inflation-linked leases to a wide range of strong tenant covenants across a
diverse range of robust property sectors.

 

The Company may invest in fixed-price forward funded developments, provided
they are pre-let to an acceptable tenant and full planning permission is in
place. The Company will not undertake any direct development activity nor
assume direct development risk.

 

The Company is targeting a dividend of 6.3 pence per ordinary share for the
year which commenced on 1 April 2022*.

 

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 Financial Conduct 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 profit forecast.

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