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LXI REIT sells “income strip” on Thorpe Park and Alton Towers for £257m

LXi REIT has sold a 65-year “income strip” on its Thorpe Park and Alton Towers assets to an institutional investor for £257m.

As part of the deal, the company has sold the freehold in the properties to the buyer, with 999-year leases granted back to the company, with LXI paying the buyer an annual aggregate rent of £8.2m. The company can acquire the freehold back from the buyer for a nominal price of £1 in year 65, hence the term “income strip”.

The deal reflects a net initial yield of 2.96% (with the latest book value of the freehold interest in the properties of 4.25%).

LXI said that it retains 70% of the rental income for the properties, along with the freehold and all reversionary value after 65 years. The properties, which were acquired as part of the merger with Secure Income REIT, are let to Merlin with 55 years unexpired until first break, with a 35-year extension option on expiry.

Rental payments due to the company under the Merlin leases will remain unchanged with annual uplifts of CPI+0.5% (with a floor of 1% and a cap of 4% per annum), with these increases shared between the company and the buyer during the term of the “income strip” in proportion to their share of the annual rental income.

The company will use the sale proceeds to fully repay the £232m of debt currently secured against Thorpe Park and Alton Towers, as well as Warwick Castle (also operated by Merlin). The cost of this debt is 4.95% per annum, and thus in repaying it with the sale proceeds which reflect a 2.96% exit yield, the company has created a material level of earnings accretion.

The debt repayment reduces the company’s pro forma LTV from 37% to 33%, in line with its medium-term LTV target of 30%.

The group added that, having discussed the sale with its valuer, it also expects the transaction will be NAV accretive.

Simon Lee, fund manager of LXi REIT, commented: “We are delighted to have signed this innovative transaction, which materially reduces the company’s debt levels whilst generating significant earnings accretion.”

LXI : LXI REIT sells “income strip” on Thorpe Park and Alton Towers for £257m

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