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 debt4 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 to30 September2023 | Half-year to30 September2022 | Change |
| 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 at30 September2023 | As at31 March2023 | Change | |
| Portfolio value1 | £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 LTV3 | 38% | 37% | +1pts |
| IFRS performance measures | Half-year to30 September2023 | Half-year to30 September2022 | Change |
| 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 at30 September2023 | As at31 March 2023 | Change | |
| Investment property at fair value1 | £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 capped4 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 capped4
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 LimitedSimon Lee (CEO)Alex MacEachin (CFO) | Via H/Advisors Maitland |
| H/Advisors Maitland (Communications Advisor)James Benjamin / Rachel Cohen | 07747 113 930 / 020 7379 5151lxireit-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:
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