LXi REIT plc
(the “Company” or the “Group”)
INTERIM RESULTS FOR THE HALF-YEAR ENDED 30 SEPTEMBER 2022
Financial highlights
| Alternative performance measures | Half-year to30 September2022 | Half-year to30 September2021 | Change |
| Dividend per share | 3.15p | 3.00p | +5.0% |
| Total accounting return | 0.1% | 9.0% | -8.9pts |
| EPRA EPS | 3.6p | 2.8p | +28.6% |
| Adjusted cash EPS | 3.1p | 2.6p | +19.2% |
| EPRA cost ratio | 12.6% | 17.3% | -4.7pts |
| As at30 September2022 | As at31 March2022 | Change | |
| Portfolio value1 | £3,656.6m | £1,544.4m | +136.8% |
| EPRA NTA per share (ex-dividend) 2 | 139.7p | 142.6p | -2.0% |
| Pro forma net LTV3 | 33% | 22% | +11 pts |
| IFRS performance measures | Half-year to30 September2022 | Half-year to30 September2021 | Change |
| Rental income | £75.5m | £25.4m | +197.2% |
| Operating profit before fair value changes | £66.0m | £21.0m | +214.3% |
| IFRS EPS | -2.3p | 11.3p | -120.4% |
| As at30 September2022 | As at31 March2022 | Change | |
| Investment property at fair value1 | £3,911.3m | £1,499.1m | +160.9% |
| Net assets | £2,448.2m | £1,300.7m | +88.2% |
| NAV per share | 142.8p | 142.7p | +0.1% |
· Dividends per share totalled 3.15p in respect of the half-year (30 September 2021: 3.00p per share), which represents 5% growth on the previous six-months
· Total net tangible asset (” NTA “) return of 0.1% for the half-year (30 September 2021: 9.0%)
· Since IPO, the Group has delivered an annualised total accounting return of 10.1% pa compounded, well ahead of our 8%+ medium term target4
· EPRA earnings per share (” EPS “) were 3.6p and Adjusted cash EPS were 3.1p for the half-year (30 September 2021: 2.6p), representing full dividend cover for the period. The current run rate is materially higher than these figures given the period (i) only included two months of the merger efficiencies and benefits5, (ii) reflected deployment of a significant capital raise, and (iii) did not include the earnings accretive ‘income strip’ sale which completed following the period end
· Portfolio independently valued at £3,656.6m, reflecting a six-month like for like change of -1.4%. The movement reflects an outward yield shift of 40 bps to 4.9% at 30 September 2022 (31 March 2022: 4.5%), offset by 2.5% like for like rental growth6
· The Group’s net assets increased by 88.2% to £2,448.2m (31 March 2022: £1,300.7m), driven predominantly by the share for share element of the merger with Secure Income REIT plc (” SIR plc “) (the ” Merger “)
· EPRA NTA per share (ex-dividend)2 of 139.7 p (31 March 2022: 142.6p), reflecting a half-year decline in value of 2.0%, primarily driven by yield expansion across certain property sectors in response to wider economic conditions and the costs associated with the Merger, which represented less than 1% of the combined portfolio value1 offset by the value generated by the Merlin ‘income strip’ sale
· Pro forma net loan to value (” LTV “)3 ratio of 33% (31 March 2022: 22%), with significant headroom to our medium-term borrowing policy cap of 40% and substantial covenant headroom. We remain committed to a conservative medium-term LTV target of 30%
The UK’s leading sector diversified REIT
· During the period, LXi REIT plc merged with Secure Income REIT plc to create the UK’s leading sector-diversified, long income REIT, with a substantial, defensive and resilient portfolio
· The scale achieved provides a strong foundation to deliver secure attractive long-dated and growing income returns and capital protection to our shareholders
· The Group owns an inflation-protected portfolio of 348 properties that are 100% occupied with an aggregate valuation of £3.7bn at 30 September 2022, contracted annual rental income of £200.7m and a WAULT to first break of 26 years
· Our assets are well diversified across a broad range of resilient sub-sectors with high barriers to entry, strong underlying property fundamentals and low starting rents, and are let on very long-term leases to tenant counterparties that have demonstrated strong performance throughout previous economic cycles
· Our properties are strategically important to the operations of our broad range of institutional-quality tenants
· Our shareholders continued to benefit from the certainty provided by the Group’s highly diversified, triple-net portfolio of secure real estate assets, our conservative and 100% fixed or capped debt position and our very low cost base
Portfolio summary
| As at30 September2022 | As at31 March2022 | |||
| WAULT to first break | 26 years | 21 years | ||
| Number of assets | 348 | 193 | ||
| Number of tenants | 83 | 71 | ||
| Let or pre-let | 100% | 100% | ||
| Portfolio diversification by sector (by contracted annual rent) | ||||
| – Healthcare | 22% | 8% | ||
| – Budget hotels | 21% | 13% | ||
| – Theme parks | 19% | – | ||
| – Foodstores | 9% | 25% | ||
| – Industrials | 7% | 18% | ||
| – Others | 22% | 36% | ||
| Rent review type (upward only) | ||||
| – RPI | 41% | 54% | ||
| – CPI | 23% | 19% | ||
| – Fixed | 34% | 23% | ||
| – Open market | 2% | 4% | ||
| Regular predictable rental growth profile | ||||
| – Annual reviews | 57% | 37% | ||
| – Five-yearly reviews | 43% | 63% | ||
| – Capped indexed linked uplifts | 44% | 67% | ||
| – Average cap | 3.8% | 3.6% | ||
| – Collared index-linked uplifts | 40% | 54% | ||
| – Average collar | 1.3% | 1.5% | ||
Post period end highlights
Dividends
· Announced a dividend of 1.575p per share for the quarter ended 30 September 2022, keeping the Company on track to meet its annual dividend per share target of 6.3p4
Debt and hedging
· Following completion of the Merlin ‘income strip’ sale, the Group repaid in full the outstanding facility amount of £232m plus break costs on Merlin A Sterling facility. Break costs are fully provided in the Company’s accounts to 30 September 2022 and the pro forma net LTV of 33% is stated after accounting for this transaction
· Closed out the related interest rate cap, receiving proceeds £23.1m net of costs used to pay down the Company’s revolving credit facility
Outlook
· The Group’s substantial scale will enable it to benefit from significant growth opportunities within our portfolio and in the market. The Company has already begun to do so, with the earnings and NAV accretive ‘income strip’ transaction
· The Board expects the Company and its shareholders to benefit from significant merger synergies, including approximately £8.6m of potential annual administrative cost savings5, with the Group now having one of the lowest cost bases in the UK listed real estate sector. We have already begun to see the positive impact of this on our income returns for this six-month period and the Board remains confident that the full year results, which will comprise eight full months of the combined business, will further demonstrate this benefit
· Our priority is to own profitable assets that are attractive to tenant operators in sectors with the most positive and stable outlook. In doing so we can continue to provide sustainable inflation-protected income returns and capital growth to our shareholders
· Our strategies of recycling capital, moving in and out of sub-sectors, financing tenant growth ambitions through sale and leasebacks and our ability to forward fund provide a platform with significant opportunities, that we are confident will continue to deliver attractive returns over the longer term
· The low level of gearing within the Group also provides a wider range of refinancing options in respect of the facilities that fall due in the near term and we continue to explore alternative refinancing options
· Even in the current economic climate, there remain opportunities to find attractive leverage terms, particularly given the size, diversification and defensive qualities of our portfolio and the low loan to value ratio. The Board is confident in the Company’s ability to refinance in a way that will protect the Group’s assets and cash flows and continue to provide attractive returns to shareholders
· We continue to receive significant unsolicited interest in the Company’s high quality portfolio and expect to continue to selectively sell assets where capital could be better allocated to enhance shareholder returns
· Notwithstanding the very challenging wider economic headwinds, we remain confident that the underlying characteristics of our carefully curated portfolio, supported by our proactive accretive recycling of capital and asset management strategies, will enable the Group to continue to deliver outperformance
Cyrus Ardalan, Chairman of LXi REIT plc, commented:
“This year’s merger between LXi and Secure Income REIT has been truly transformational for the Group. I welcome our new shareholders and thank all our shareholders for their continuing support.
The merger has significantly enhanced the scale of our operation. It has also strengthened the defensive characteristics of our portfolio, positioning us well to navigate the economic headwinds the UK now faces. Furthermore, we achieved significant cost savings from the merger, which will be visible in our full year results.
Geopolitical uncertainty and soaring inflation have resulted in volatile markets. Interest rates continue to rise, and the economy is projected to enter a recession. I am, however, comforted by the Group’s defensive portfolio with diversified and very long-let assets, high quality tenant operators and resilient sub-sectors that are non-discretionary or ‘trade down’ alternatives.
Our inflation protected rents and very long leases are already showing their defensive qualities. As a result, rental growth has largely offset the negative movement in our portfolio valuations to deliver a neutral total return for the half-year.
In the months ahead we will be focusing on a number of important initiatives. We are in the process of refinancing our shorter-term debt to provide stakeholders with longer-term certainty and to underwrite our progressive dividend policy. We plan to recycle capital through selective disposals to reduce leverage or to capitalise on opportunistic purchases. Finally, we aim to generate and protect value for shareholders through accretive asset management initiatives.
I am confident in our ability to deliver on these objectives in the near-term and that we are well placed to continue to generate attractive risk-adjusted returns with inflation protection for our shareholders.”
FOR FURTHER INFORMATION, PLEASE CONTACT:
| LXI REIT Advisors LimitedSimon Lee (Partner, Fund Manager)John White (Partner, Fund Manager)Freddie Brooks (CFO) | Via H/Advisors Maitland |
| H/Advisors Maitland (Communications Advisor)James Benjamin / Alistair de Kare-Silver | 07747 113 930 / 020 7379 5151lxireit-maitland@h-advisors.global |
The Company’s LEI is: 2138008YZGXOKAXQVI45
NOTES:
LXI REIT plc invests in UK commercial property assets let, or pre-let, on long (typically 20 to 30 years to expiry or first break), inflation-linked leases to a wide range of strong tenant covenants across a diverse range of robust property sectors.
The Company may invest in fixed-price forward funded developments, provided they are pre-let to an acceptable tenant and full planning permission is in place. The Company will not undertake any direct development activity nor assume direct development risk.
The Company is targeting a dividend of 6.3 pence per ordinary share for the year which commenced on 1 April 2022 3 .
The Company, a real estate investment trust ( ” REIT ” ) incorporated in England and Wales, is listed on the premium listing segment of the Official List of the UK Listing Authority and was admitted to trading on the main market for listed securities of the London Stock Exchange in February 2017.
The Company is a constituent of the FTSE 250, EPRA/NAREIT, MSCI and STOXX Europe 600 indices.
Further information on the Company is available at www.lxireit.com
Company presentation for investors and analysts
A Company presentation for investors and analysts will take place today, 24 November 2022, via a live webcast and conference call at 9.00am UK .
To access the live webcast, please register in advance here:
https://www.lsegissuerservices.com/spark/LXIREIT/events/f6fcc833-c0b7-4524-885c-c31907082f57
To register for the live conference call, please use this link to receive unique dial-in details:
https://cossprereg.btci.com/prereg/key.process?key=PDRNEHC3D
The recording of the webcast presentation will be available later in the day via the Company website: https://www.lxireit.com/results-centre