LXI REIT has reported its first results since its merger with Secure Income REIT, showing “material cost savings” feeding through to earnings growth.
EPRA earnings per share (EPS) was up 36.1% to 8.3p (31 March 2022: 6.1p), while adjusted cash EPS was up 17.5% to 6.7p for the year (31 March 2022: 5.7p).
This fully covered its dividend for the year of 6.3p (which was up 5% from 6.0p in 2022).
The group’s EPRA cost ratio was sector leading at just 9.5% (31 March 2022: 15.9%) and its total expense ratio was 0.9% (31 March 2022: 1.0%).
The expanded portfolio, which now has 350 properties and 84 tenants with a WAULT of 27 years, was independently valued at £3,356.3m (31 March 2022: £1,544.4m), reflecting a like for like fall in value of 9.6%.
The movement reflects an outward yield shift of 90 basis points (0.9%) to 5.4% at 31 March 2023 (31 March 2022: 4.5%), which was offset by 2.3% like for like rental growth.
EPRA NTA per share was 121.1p (31 March 2022: 142.6p), reflecting a fall of 15%, primarily driven by the yield expansion and the costs associated with the merger, which represented less than 1% of the combined portfolio value.
Pro forma net loan to value (LTV) ratio was 37% (31 March 2022: 22%), below its medium-term borrowing policy cap of 40% but above the board’s medium-term target of 30%.
The company has recently completed a substantial refinancing programme comprising a new £565m three and five-year term loan and five year revolving credit facility, and a new £148m 16-year debt facility. This has increased the weighted average term to maturity from 2 years to 6 years and the weighted average interest cost from 4.3% to 4.7%.
Portfolio summary
|
|
As at 31 March 2023 |
As at 31 March 2022 |
|
WAULT to first break |
27 years |
21 years |
|
Number of assets |
350 |
193 |
|
Number of tenants |
84 |
71 |
|
Let or pre-let |
100% |
100% |
|
Portfolio diversification by sector (by contracted rent) |
|
|
|
– Healthcare |
22% |
8% |
|
– Budget hotels |
21% |
13% |
|
– Theme parks |
19% |
– |
|
– Foodstores |
10% |
25% |
|
– Industrials |
7% |
18% |
|
– Others |
21% |
36% |
|
Rent review type (upward only) |
|
|
|
– RPI |
26% |
54% |
|
– CPI |
38% |
19% |
|
– Fixed |
34% |
23% |
|
– Open market |
2% |
4% |
|
Regular predictable rental growth profile |
|
|
|
– Annual reviews |
56% |
37% |
|
– Five-yearly reviews |
44% |
63% |
|
– Capped indexed linked uplifts |
60% |
67% |
|
– Average cap |
3.9% |
3.6% |
|
– Collared index-linked uplifts |
56% |
54% |
|
– Average collar |
1.2% |
1.5% |
Outlook
The company said that it is seeing opportunities in the market in the form of:
- a significant pipeline of assets through permanent structural change within open-ended funds that have traditionally held vast prime long income portfolios;
- corporates facing a cliff-edge of refinancing events as their historic, low-cost bonds mature that we expect will create a source of new, long income stock through sale and leasebacks;
- the opportunity for consolidation in the long income sector, due to share price discounts and a range of sub-scale platforms that fail to provide desired liquidity and downside protection. The scale and diversified nature of our portfolio and investment strategy and the demonstrated expertise and skills of our management team put the company in a strong position to capitalise on these opportunities; and
- value opportunities in our existing portfolio through lease re-gears, strengthening relationships with our key tenants and other asset management initiatives.
Cyrus Ardalan, chairman, commented:
“The successful merger has created a platform from which we will be able to grow the group even further, leveraging our scale and low-cost base.
“Notwithstanding the very challenging wider economic headwinds, we remain confident that the underlying characteristics of our carefully curated portfolio, supported by our proactive recycling of capital and asset management strategies, will enable the group to continue to outperform.
“Challenging markets often throw up interesting opportunities and we intend to take advantage of them as and when they do.
“With forecasts for inflation stabilising and the working assumption, all things being equal, that interest rates are peaking, we believe the property market repricing will begin to slowly reverse in the second half of the calendar year. Property values appear to have stabilised since the year end. Those with robust defensive qualities tend to rebound the quickest, particularly in tougher economic climates where capital chases well let, secure, long- term investments with built-in inflation protection.
“The group continues to deliver progressive dividend growth supported by our index-linked rents, fixed debt costs as well as accretive asset management targeting a fully covered dividend of 6.6p for the year to 31 March 2024, representing an increase of 5% on the prior year.
“Going forward, we remain focused on managing both the risks and opportunities that our portfolio presents. We remain confident in our ability to successfully capitalise on the growth opportunities that we continue to identify and on continuing to provide a secure and growing income return to our investors. This will enable us to continue to enhance and unlock sustainable value in our defensive, resilient portfolio for all of our stakeholders.”
LXI : LXI REIT seeing benefits of merger, bullish on outlook