LXI REIT sees small increase in portfolio value

LXI REIT said on Tuesday that its portfolio has been valued by its independent valuer at £907.25m as at 31 December, , reflecting a 1.7% like-for-like increase on the 30 September valuation.

The FTSE 250 commercial real estate investment trust said the key drivers behind the increase were the continued outperformance of two of the sectors where it had some of its largest exposures - industrial and food stores - which were benefiting from “attractive” supply and demand fundamentals and a “strong” investment market, as well as the effect of the embedded income growth within the portfolio.

It said the portfolio had an average EPRA net initial yield of 5%, which reflected a small amount of yield compression in industrials and food stores, with the yield remaining stable in the group's other sectors.

The company said its portfolio comprised 125 properties let or pre-let to more than 50 institutional-quality tenants on long index-linked leases, with over 21 years unexpired to first break on a weighted average basis.

Its portfolio was 100% let on full repairing and insuring, triple-net leases.

LXI said 96% of its rental income was either index-linked or contained fixed uplifts.

The index-linked reviews were primarily RPI-based, and during the quarter, it completed 28 rent reviews with a weighted average uplift of 2.1% per annum.

It said the average increase outperformed both RPI and CPI inflation over the period, and reflected the benefit of the collared and fixed rental uplifts which were contained in 72% of the portfolio's rent reviews by value.

The company's portfolio remained focused on structurally-supported sectors, including industrial at 21%, budget hotels at 21%, food stores and essentials at 20%, healthcare at 13%, car parks at 8%, and drive-thru coffee at 4%.

LXI said it remained “prudently geared” at 30% loan-to-value, with long-term loans averaging 13 years to expiry at an average fixed rate of 2.84% per annum.

Looking at its net asset value, the company said the updated portfolio valuation resulted in an estimated unaudited EPRA net tangible assets and IFRS net asset value of 123.2p per share as at 31 December.

That represented an increase of 2% over the quarter, with the group's quarterly total return, comprising growth in the EPRA net tangible assets and dividends paid, being 3.1%.

The growth in net asset value reflected the like-for-like portfolio valuation increase and the value achieved through redeployment of the capital proceeds generated from disposals, invested into 'off-market' asset acquisitions and forward fundings.

During the quarter, the company sold its BCA facility in Corby for £68m, reflecting a low 4.45% exit yield and crystallising a 14% geared internal rate of return following its proactive regear of the occupational lease to 25 years.

The company reinvested the sale proceeds at a “materially higher” average net initial yield of 5.7% across 13 assets let on long, index-linked leases to grocery tenants, including Aldi, Lidl, Waitrose and the Co-op.

It said the new assets, acquired through both pre-let forward funding and built asset structures, reflected its current focus on smaller lot-sized food stores of 10,000 to 30,000 square feet with online connectivity through home delivery and click and collect and low, sustainable rents averaging £14 per square foot.

In addition, the firm, alongside its tenant partners, had been rolling out both electric vehicle charging and solar panelling initiatives across many of its sites.

The company said it was continuing to see “interesting” investment opportunities in long, index-linked assets in structurally-supported sectors, and believed material value could still be generated in those sectors, especially when targeting pre-let forward fundings in smaller lot sizes.

“Whilst these remain challenging times, the company's diversified long income portfolio continues to perform strongly with robust ongoing rent collection and further growth in the underlying valuations and rents during the quarter,” said co-manager Simon Lee.

“We continue to see some exciting investment opportunities in the market, in particular through pre-let forward fundings, as demonstrated by our acquiring £61m of right-sized and attractively priced food stores in November.”

At 0828 GMT, shares in LXI REIT were up 0.33% at 121.8p.