LXI REIT has exchanged contracts on the forward funding acquisition of a 94,000 sq ft garden centre in Reading for £19m, reflecting an accretive 5.3% net initial yield.
The property is pre-let to Dobbies, the UK’s largest garden centre operator and an existing tenant of the company, on a new 35-year lease, with no break right, and benefits from CPI plus 1% per annum rental uplifts, reviewed on an annual basis, with a collar (minimum annual increase) of 1.5% per annum and a cap (maximum annual increase) of 4% per annum.
LXI said the rent has been set at a low and sustainable level which is forecast to provide rent cover of at least two times (net income of twice the rental level). The seven-acre site is located in Shinfield, Reading, and has an affluent catchment population of 1.1 million people within a 30-minute drive.
The property will sell 3,000 items of Sainsbury’s grocery and household products, under the terms of a joint venture between Dobbies and Sainsbury’s. Dobbies will also provide online connectivity through both home delivery and click & collect. It will also incorporate energy efficiency features such as solar panelling, rainwater harvesting, air/ground source heat pumps, recycling/waste management and EV charging points.
Construction works are scheduled to complete in spring 2022 and the company will earn an income during the construction period. The development will be funded through the company’s revolving credit facility.
LXI now owns four long-let garden centres. It said one of the key benefits of garden centres is their flexible planning consent, which permits the sale of a wide range of products, including food. Garden centres have been classified as essential retail and thus have continued to trade during the UK’s last two national lockdowns.
This latest acquisition takes the Company’s total funding deployed/committed to £170m since its £125m capital raise in March 2021, across 13 separate transactions in sectors including foodstores, industrial, drive-thru coffee and garden centres, with a long weighted average unexpired lease term to first break of 22 years and with 100% of the rent roll being inflation-linked (86% to RPI, 11% to CPI+1 and 3% to CPI).
Disposal
The company has announced the sale of a small, ancillary retail parade acquired last year as part of the Co-op foodstore portfolio purchase.
The sale proceeds of £575,000 represent a 100% premium to the purchase price paid by the company and will go into its forward funding pipeline.
Lease re-gears
LXI has also extended the lease terms on six Greene King pubs from 13 years to expiry to 20 years to expiry, without break, in return for a 10% reduction in the passing rent.
LXI anticipates that the re-gear will have a material positive impact on the value of the assets, along with providing the additional security of longer term cash flows with annual contractual fixed rental uplifts of 2.5% per annum.
LXI : LXI forward funds £19m garden centre