Investment trust insider on LXI REIT – James Carthew: Happy long returns to ‘eclectic’ LXI Reit
LXI Reit (LXI) recently celebrated the fifth anniversary of its initial public offer (IPO). The trust launched in February 2017, raising £138m versus an original target of £200m. Any initial disappointment is presumably long behind it as the trust can now boast a market value of £1.3bn and, barring the initial phase of the Covid-19 pandemic, a pretty good track record of trading at a premium.
The portfolio is differentiated by a focus on long leases, inflation-linked rents and significant diversification. The inflation linkage is obviously working to LXI’s advantage now. The company says that, at the end of December 2021, 96% of its contracted rents were index-linked or contained fixed uplifts designed to reflect inflation over the medium term.
Over 60% of LXI’s rents are reviewed on a five-yearly basis, the balance being reviewed annually. It is worth bearing in mind, however, that around two-thirds of LXI’s rents are subject to a cap on the inflation-linked uplift, which averaged 3.8% at the end of September 2021. Rents will rise but perhaps not as fast as the 9.9% RPI or 7% CPI rates of inflation might suggest.
At flotation, LXI was targeting a 5% dividend yield – in other words, 5p on the 100p IPO price. In January this year, it set a target dividend for the financial year to 31 March 2023 of 6.3p, 5% higher than for the previous period. Dividends are paid quarterly and form part of a target for shareholder returns of 8% a year on average over the medium term. At Friday’s share price of 144p, that gives a forward yield of 4.4%.
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