LXi sells two housing porfolios, forward funds a Lidl

LXi REIT announced a number of disposals and an accretive acquisition on Friday, selling two portfolios of long-let social housing assets for a combined sum of £10.7m to two separate infrastructure funds.

The FTSE 250 real estate investment trust said the sales reflected a 5.25% exit yield, with the pricing reflecting a premium of 14% to purchase price, and a geared internal rate of return of 14% per year over its three-year ownership.

It said the prices were in line with latest book values as at 31 March.

“The company is recycling the sale proceeds into the following pre-let forward funding acquisition, which is being acquired at a higher yield, with enhanced tenant covenants and RPI uplifts, underpinned by the robust discount foodstore sector,” the board said in its statement.

LXi said it had exchanged contracts on the pre-let forward funding acquisition of a Lidl store in Barnard Castle, County Durham, for £7.5m, reflecting a 5.9% net initial yield, net of acquisition costs.

The 20,828 square foot supermarket had been fully pre-let to Lidl on a 20-year lease, with a one-off break right at year 15, with rental uplifts in line with RPI inflation.

The adjoining 15,000 square foot unit had been fully pre-let as a discount store to Home Bargains on an unbroken 15-year lease, with upwards-only open market rent reviews.

LXi said the Lidl accounted for 70% of the total value.

Both leases were guaranteed by the top trading companies of the tenant groups, which had “significant” net assets, with Lidl at £10.5bn, and Home Bargains parent TJ Morris at £1.1bn.

The properties also benefited from a low average rent of £13 per square foot, resulting in a low capital cost of £209 per square foot.

“The attractive pricing reflects the off-market, relationship-driven nature of the acquisition and the thinner market for forward funding pre-let assets in smaller lot sizes in the current climate,” the board said in its statement.

“The company is not developing the property or assuming development risk and is forward funding the property on a fixed price basis.

“The company will receive an income from the developer during the construction period.”

At 0816 BST, shares in LXi REIT were down 0.55% at 107.6p.