Paper house under a magnifying lens

Strong FY21 with increasing momentum

LXi REIT 7 June 2021 Update
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LXi REIT

Strong FY21 with increasing momentum

FY21 results

Real estate

7 June 2021

Price

140p

Market cap

£870m

Net debt (£m) as at 31 March 2021

105.2

Net LTV as at 31 March 2021

11.2%

‘Pro-forma’ net LTV as at 31 March 2021

22.8%

Shares in issue

621.8m

Free float

99.3%

Code

LXI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.5

11.3

14.9

Rel (local)

(0.7)

4.4

(0.3)

52-week high/low

138p

103p

Business description

LXi REIT is an externally managed UK REIT investing in high-quality, smaller lot size (£5–15m) assets, let on long index-linked leases to strong financial covenants across a range of sectors with defensive characteristics. It aims to provide a secure and growing income with capital growth over the medium term, with a total return of at least 8% pa.

Next events

Q421 DPS paid

16 July 2021

Analyst

Martyn King

+44 (0)20 3077 5745

LXi REIT is a research client of Edison Investment Research Limited

LXi REIT’s FY21 results showed a strong performance against the challenging market backdrop, especially during the second half of the year. The 5.6% EPRA NTA total return takes the annual average since IPO to 10.1%, well ahead of the 8% minimum target. Accretive portfolio growth, inflation-protected rents and full rent collection are positive indicators for further growth, while the FY22 DPS target marks a new high level since IPO in February 2017.

Year end

Rental income (£m)

Adjusted earnings* (£m)

Adjusted EPS* (p)

EPRA NTA per share (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

03/20

38.5

30.5

6.3

124.3

5.75

1.13

4.1

03/21

42.8

39.2

7.5

125.7

5.55

1.12

4.0

03/22e

57.6

47.9

7.7

130.1

6.00

1.08

4.3

03/23e

59.4

50.1

8.1

134.4

6.20

1.04

4.4

Note: *Adjusted for gain/losses on investment properties, other fair value movements and licence fee income on forward funding extended.

Focus turning to FY22 growth

FY21 delivered strong levels of underlying earnings growth (adjusted earnings of £39.2m versus £30.5m in FY20; adjusted EPS of 7.5p versus 6.3p) and a strong rebound in H221 EPRA NTA per share to 125.7p, up 1.1% over the year. With rent collection restored to 100% in the most recent quarter (including 1% agreed deferral) and the £125m (gross) proceeds of the March 2021 equity raise swiftly deployed, the target 6.0p aggregate DPS for the full year looks well underpinned by cash earnings. Including debt drawdown, c £150m of capital has been committed since the equity raise at an accretive 5.3% net acquisition yield (portfolio valuation yield: 4.9%). Along with further commitment (we assume an additional c £34m), capital recycling, and fixed and inflation indexed rent uplifts, we expect further strong income and capital growth in the current year. The forecasts contained in our April 2021 initiation note are slightly increased (page 5).

Diversified and active long income strategy

With 95% of rents subject to fixed or index-linked upwards only increases, LXi offers significant inflation protection as inflation expectations increase. An average 22-year unexpired lease term and strong tenants add to income visibility and should smooth out volatility in capital values. The company’s multi-sector approach differentiates it from many specialist peers, spreads risks and broadens its universe of investment opportunities. Through its experienced investment advisor, it continues to demonstrate an ability to source attractively priced assets, often off-market, smaller lot size, sale and leaseback transactions and forward funded development schemes, enhancing both income and net asset value. Significant capital recycling has provided firm evidence of this, generating capital gains and allowing redeployment into accretive acquisitions at higher yields.

Valuation: Covered, growing, inflation protected DPS

We expect the FY22e DPS to be fully covered by cash earnings and well covered by EPRA earnings. It represents an attractive prospective yield of 4.3%, supporting the 12% premium to FY21 EPRA NTA similar to the peer group average.

Strong FY21 with increasing momentum

The FY21 results were ahead of the forecasts contained in our April 2021 initiation note, in terms of both recurring earnings and net asset value.

After the initial impacts of the pandemic, rent collection improved strongly in the second half of the year, supporting increasing DPS, and capital values also increased, driving a 4% increase in H221 EPRA net tangible assets (NTA) per share compared with end-H121, reversing the H121 dip, and generating a 1.1% increase on the year. Including DPS paid, the EPRA NTA total return was 5.6% and the average annual increase since IPO in February 2017 is 10.1%, well ahead of the target of at least 8%.

With the proceeds of the March equity raise swiftly deployed within eight weeks and deployment of increased debt facilities well-advanced, we continue to forecast another year of strong progress with returns in line with target. LXi continues to source attractively priced acquisitions at accretive yields, enhancing income and net asset value, and its pipeline of opportunities remains strong. As existing equity and debt capital resources are increasingly deployed, we expect capital recycling to remain an important driver of returns, optimising capital use and providing a means to rebalance exposures. With 95% of rents subject to fixed or inflation-indexed uplifts, income is well-protected against inflation, which is likely to remain a focus for investors in coming months.

FY21 results in brief

Exhibit 1 provides a summary of the FY21 underlying performance. The financial statements are shown in detail in the Financial summary (Exhibit 9).

Exhibit 1: Summary of underlying financial performance*

£m unless stated otherwise

FY21

FY20

FY21/FY20

H121

H221

Cash rental income

34.4

33.1

3.9%

16.8

17.6

IFRS rental income adjustments

8.4

5.4

55.6%

3.5

4.9

Rental income

42.8

38.5

11.2%

20.3

22.5

Administrative expenses

(5.9)

(6.6)

-10.6%

(2.7)

(3.2)

Operating profit

36.9

31.9

15.7%

17.6

19.3

Net finance expense

(3.4)

(4.8)

-29.2%

(2.6)

(2.7)

Gain on refinancing

0.0

1.9

EPRA earnings

33.5

27.1

23.6%

15.0

18.5

Adjust for:

License fees

3.5

2.1

1.6

1.9

Amortisation of cash-backed rental top ups and rent frees

2.2

1.3

0.6

1.6

Adjusted earnings

39.2

30.5

28.5%

17.2

22.0

Adjust for:

IFRS rental income adjustments

(8.4)

(5.4)

(3.5)

(4.9)

Gain on refinancing

(1.9)

0.0

0.0

(1.9)

Adjusted ‘cash’ earnings

28.9

25.1

15.1%

13.7

15.2

EPRA EPS (p)

6.4

5.6

14.3%

2.9

3.5

Adjusted EPS (p)

7.5

6.3

18.3%

3.3

4.1

Adjusted ‘cash’ EPS (p)

5.5

5.2

5.8%

2.6

2.9

DPS (p)

5.55

5.75

2.65

2.90

EPRA NTA per share (p)

125.7

124.3

1.1%

120.8

125.7

EPRA NTA total return

5.6%

13.4%

-0.6%

6.3%

Source: LXi REIT data. Note: *See the financial summary table, Exhibit 9, for a summary of the financial statements on an IFRS/reported basis.

Key features of the underlying income results were:

A combination of increased rental income and lower administrative costs drove a 15.7% increase in underlying operating profit. Rental income was driven by a growing portfolio, forward funding development completions and underlying rent growth. Administrative costs benefited from slightly lower investment adviser fees, linked to market capitalisation, and well-controlled other expenses including a positive swing in credit loss provisions from the precautionary position taken in late FY20 as the pandemic began.

Rent collection of 91% in H121 (including 3% deferred by agreement) increased to 98% in H221 (including 1–2% deferred). In Q121 collection reached 100% (of which 1% was deferred).

Increased net finance expense was driven by higher average borrowing to support portfolio growth, partly offset by a lower average cost of debt including the impact of the November 2020 refinancing of the term debt. The refinancing extended maturity to 2033 with a nine basis point reduction in the blended cost (to 2.85% pa) and additionally generated a £1.9m non-cash accounting gain.

EPRA earnings and adjusted earnings (which additionally includes licence fee income on advanced forward funding balances and amortisation of cash-backed rental top-ups and rent free lease incentives) both showed strong increases, in absolute terms and in per share terms, despite an increase in the average number of shares. Excluding non-cash IFRS rent smoothing adjustments and the non-cash refinancing gain, adjusted ‘cash’ earnings also increased and effectively covered DPS (5.55p versus 5.75p), pegged to it. Quarterly DPS continued uninterrupted but at a reduced level in Q121, increasing with rent collection through the year. For FY22 LXi targets aggregate DPS of 6.0p paid in equal quarterly instalments.

Statutory IFRS earnings (not included in Exhibit 1 but shown in Exhibit 9) also included a £6.3m gain on disposals linked to capital recycling and a small net unrealised gain of £0.1m. Including these, EPRA NTA per share increased 1.1% to 125.7p.

Swift capital deployment

In March 2021 LXi raised £125m (gross) in a well-received and upsized equity raise and has received credit approval from a new lender and Lloyds Bank (the existing lender) to increase its revolving credit facility (RCF) by £65m (to £165m), along with an uncommitted £65m accordion, on the same terms as the existing facility (which carries a 1.55% margin over Libor). With acquisitions identified and legal processes advanced ahead of the equity issue, the net equity proceeds were fully deployed within eight weeks. In total, £151.1m (net of costs) has now been deployed, in 11 separate transactions at an accretive 5.3% acquisition net initial yield (portfolio valuation yield 4.9%), with a blended 21 year weighted average unexpired lease term (WAULT), and 100% inflation indexed (predominantly to the retail price index (RPI)). Around 40% of the deployment relates to forward funding transactions with added potential for valuation uplift.

Exhibit 2: Capital deployment summary

Source: LXi REIT presentation

Recent acquisitions have focused on the foodstore and drive-thru coffee sectors, which have increased as a percentage of contracted rents from 20% to 27% and 4% to 5% respectively, but also include industrial/distribution and garden centres. Most other sectors have been diluted, with budget hotels reducing from 21% to 18%. The portfolio continues to be well spread across eight different sectors, with the largest weightings in foodstores/essentials and industrials, which the investment adviser identifies as being structurally supported and relatively secure and offering good levels of growth. From a tenant perspective, Travelodge has reduced from 9.6% to 8.3%, although it remains the largest tenant, while there are now just three tenants that individually account for more than 5%, LXi’s medium-term target upper limit.

Only a small part of the recent capital deployment was reflected in the end-FY21 portfolio value of £938.4m (including £48m of capital commitments in respect of forward funding commitments). Including a little more than £50m of properties that had exchanged at year end but not completed as well as subsequent further commitments, the portfolio value is now more than £1bn, comprising 146 properties, fully let to more than 50 tenants. The current contracted rent roll (as at 19 May) is now £56.1m, including forward funded properties under construction, with 95% of leases fixed or indexed to inflation (see below), and a long 22-year WAULT.

Exhibit 3: Portfolio summary

Contracted rent*

Exposure*

Valuation**

Like for like valuation change**

Assets*

WAULT
(years)*

Fixed/indexed rents*

Food & essentials

£14.9m

27%

£209.4m

+10%

31

18

90%

Industrial

£11.8m

21%

£240.6m

+11%

14

24

100%

Hotels

£10.0m

18%

£178.4m

-12%

21

25

100%

Healthcare

£6.2m

11%

£106.0m

+6%

28

24

100%

Car parks

£3.8m

7%

£70.9m

-6%

9

31

100%

Drive-thru coffee

£2.7m

5%

£35.7m

+1%

24

15

91%

Pubs

£2.6m

5%

£37.4m

-18%

14

16

100%

Other

£4.0m

7%

£60.0m

-3%

5

15

79%

Portfolio total

£56.1m

100%

£938.4m

+0.2%

146

22

95%

Source: LXi REIT. Note: *Based on portfolio at reporting date (19 May 2021) including forward funded properties under construction. **Data as at 31 March 2021 (end-FY21) and like for like valuation movement during the year.

Strong gains in the external valuations of assets in the foodstores/essentials and industrial sectors, and to a lesser extent healthcare, slightly more than offset negative movements in budget hotels and pubs, obviously significantly affected by pandemic restrictions. LXi observes that hotel and pub valuations were significantly affected by sentiment, with relatively little transactions evidence, and sees good potential for a recovery as well as for continuing valuation growth for its foodstores/essentials and industrial assets, supported by low, sustainable and growing rents and further yield contraction. Acquisition completions in the current year should also continue to be a source of capital uplift, particularly forward-funding transactions.

Protection against increasing inflation expectations

While LXi’s long upwards-only, mostly index-linked leases may be expected to mitigate some of the cyclical volatility in capital values (and to a greater extent income returns) historically exhibited by the commercial property market, its index-linked leases (mostly capped and collared) and fixed uplift leases provide significant inflation protection, an increasing concern for investors. Only if inflation rises above c 4% will rent growth lag in real terms, while fixed rents and rent collars (minimum uplifts to indexed rents) ensure continuing rent growth if inflation falls to low levels.

Of the 95% of rents that were indexed or fixed at end-FY21, 78% were indexed to inflation (57% indexed to RPI and 21% indexed to the consumer price index (CPI)). The 21% of rents that provided fixed uplifts did so at an average of 2.4% pa. Taken together, the fixed and collared income amounts to 67% of the total at an average minimum uplift of c 2.0% pa regardless of how low inflation may fall. Rent reviews concluded in FY21 generated average uplifts of 2.1% pa.

As economies begin to recover from the pandemic there are expectations that inflation will continue to increase. Official expectations are that any increase will be a temporary phenomenon, but this is far from assured. The most recent UK data for April 2021 surprised on the upside, with the trailing 12-month change in CPI increasing to 1.5% from 0.7% in March, while the 12-month change in RPI was 2.9%, up from 1.5% in March. The Treasury comparison of independent forecasters shows a mean expectation that CPI will be increasing at a 2.1% rate by Q4 of 2021 and at a similar rate in Q4 of 2022, but there is a high level of uncertainty reflected in a wide range of expectations (from 1.3% to 3.7% for 2021). A similar trend is apparent for RPI, with a mean expectation of 3.0% in Q4 of 2021 and 2.9% in Q4 of 2022.

Exhibit 4: CPI* historical trend and forecasts

Exhibit 5: RPI* historical trend and forecast

Source: ONS historical data, Treasury Forecasts for the UK economy: a comparison of independent forecasts, April 2021. Note: *UK consumer price index.

Source: ONS historical data, Treasury Forecasts for the UK economy: a comparison of independent forecasts, April 2021. Note: *UK retail price index.

Exhibit 4: CPI* historical trend and forecasts

Source: ONS historical data, Treasury Forecasts for the UK economy: a comparison of independent forecasts, April 2021. Note: *UK consumer price index.

Exhibit 5: RPI* historical trend and forecast

Source: ONS historical data, Treasury Forecasts for the UK economy: a comparison of independent forecasts, April 2021. Note: *UK retail price index.

The most recent Investment Property Forum (IPF) consensus data published in February 2021 shows an all-property average forecast decline in rents of 2.7% in 2021, followed by growth of 0.4% in 2022 and 1.4% in 2023. Industrial assets are expected to show further rent growth with retail weakness continuing to suppress the average.

Estimates

FY21 adjusted earnings of £39.2m was £2.9m ahead of our forecast, mainly driven by the £1.9m gain on refinancing. EPRA NTA of 125.7p per share was 2% ahead of our forecast.

We have made no material changes to our key forecasting assumptions set out in detail in our initiation note other than to increase the non-cash contribution to rental income in respect of IFRS smoothing adjustments in line with H221. These mainly relate to the straight-line recognition under IFRS of fixed rent uplifts over the life of the leases as well as lease incentives.

We continue to assume £185m of capital deployment after the April £125m gross capital raise, with c £34m of this deployment remaining.

We also allow for capital recycling, assuming c 10% of the completed asset portfolio is sold each year (at book value and reflecting the existing portfolio yield) with the proceeds redeployed into new opportunities.

For new deployment, including recycled capital, we assume a c 50:50 split between completed assets and forward funding commitments at an average 5.5% yield on invested/committed capital (before acquisition costs). This implies an acquisition net initial yield of between 5.15% and 5.4% depending on whether the assets are completed properties (we assume standard acquisition costs of 6.8%) or forward funded developments (we assume acquisition costs of 2%).

The increase in rental income and adjusted earnings/EPS is substantially driven by the forecast increase in the IFRS smoothing adjustment. This is excluded from the adjusted ‘cash’ earnings measure used as the basis for dividend distributions for which our forecasts remain little changed, fully covering increased DPS in FY22 and FY23.

Our capital value forecasts assume no change in the portfolio average net initial yield during FY22 and FY23; although the company is hopeful that budget hotel and pub valuations may recover in response to lockdown easing, we have not assumed this.

Exhibit 6: Performance versus forecast and forecast revisions

Rental income (£m)

Adjusted earnings (£m)

Adjusted EPS (p)

EPRA NTA per share (p)

DPS (p)

Actual

F’cast

Diff. (%)

Actual

F’cast

Diff. (%)

Actual

F’cast

Diff. (%)

Actual

F’cast

Diff. (%)

Actual

F’cast

Diff. (%)

03/21

42.8

43.5

-1.6

39.2

36.3

7.9

7.5

6.9

7.9

125.7

123.2

2.0

5.6

5.6

0.0

New

Old

Change (%)

New

Old

Change (%)

New

Old

Change (%)

New

Old

Change (%)

New

Old

Change (%)

03/22e

57.6

54.9

4.9

47.9

44.3

8.0

7.7

7.1

8.0

130.1

126.8

2.6

6.0

6.0

0.0

03/23e

59.4

56.8

4.5

50.1

47.4

5.8

8.1

7.6

5.8

134.4

130.2

3.2

6.2

6.2

0.0

Source: LXi REIT actual FY21 data, Edison Investment Research forecasts

Valuation

Despite the pandemic, since IPO LXi has achieved its aim of providing shareholders with secure and growing income, fully covered by adjusted earnings along with capital growth over the medium term. The FY21 DPS of 5.55p was slightly down on FY20 (5.75p), but by H221 was slightly above H220, while the targeted level of 6.0p in FY22 represents a new high since IPO. Despite the H121 dip, the FY22 DPS target represents growth of 4.3%, ahead of expected inflation.

EPRA NTA per share has increased from 98p at IPO (adjusted for issue costs) to 125.7p (end-FY21). Including DPS paid the EPRA NTA total return was 5.6% in FY21 taking the total since IPO to 48.0% or an annual average increase of 10.1%, well ahead of the medium-term target of at least 8%.

Exhibit 7: 10.1% pa average EPRA NTA total return since IPO

FY18

FY19

FY20

FY21

IPO to FY21

Opening EPRA NTA per share (p)

98.0

107.7

114.6

124.3

98.0

Closing EPRA NTA per share (p)

107.7

114.6

124.3

125.7

125.7

Dividends paid (p) – differs from declared

2.00

6.13

5.69

5.53

19.34

NTA total return

11.9%

12.1%

13.4%

5.6%

48.0%

Average annual return

10.1%

Source: LXi REIT data

LXi shares offer a 4.3% FY22e prospective yield and trade at 1.12x FY21 NTA. In Exhibit 8 we show the key valuation and performance metrics for LXi and a group of other long-income REITs, mostly comprising sub-sector specialist investors but also diversified investment peers (Secure Income REIT and to a lesser extent LondonMetric). LXi’s long WAULT of 22 years is above the average of the group. For comparative purposes, the DPS and NTA/NAV data are shown on a trailing basis, taking the last 12 months DPS declared and last reported NTA/NAV. LXi shares show a lower trailing yield than the average of the group, although based on the FY22 target DPS the prospective yield is 4.3%, while trading at a similar P/NTA. Across this long-income group, 12-month share price performance and valuation differ considerably, reflecting the varying fortunes of the sub-sectors on which most are focused. This variability underlines the potential attraction of an actively managed vehicle such as LXi to investors who seek but are otherwise unable to achieve an optimal diversification of risks.

Exhibit 8: Peer comparison

Recent WAULT (years)

Price (p)

Market cap. (£m)

P/NAV* (x)

Yield** (%)

Share price performance

1 month

3 months

12 months

From 12M high

Assura

12

76

2019

1.34

3.7

3%

3%

-6%

-12%

Civitas Social Housing

23

117

727

1.08

4.6

1%

9%

6%

-2%

Impact Healthcare

20

111

354

1.00

5.7

-1%

2%

5%

-5%

LondonMetric

12

238

2161

1.38

3.5

3%

13%

7%

-3%

Primary Health Properties

12

155

2198

1.38

3.8

3%

5%

2%

-6%

Secure Income

20

381

1233

1.00

4.0

0%

8%

31%

-2%

Supermarket Income

16

116

549

1.12

5.0

2%

8%

6%

0%

Target Healthcare

29

116

531

1.06

5.8

-2%

6%

7%

-4%

Triple Point Social Housing

26

106

427

0.99

4.9

1%

0%

7%

-7%

Tritax Big Box

14

198

3400

1.13

3.2

3%

12%

36%

-1%

Average

18

1.13

4.5

1%

7%

12%

-3%

Lxi REIT

22

140

874

1.12

4.1

4%

12%

20%

-2%

UK property sector index

1,785

1%

12%

12%

-1%

UK equity market index

4,042

-1%

7%

13%

-1%

Source: Company data, Edison Investment Research, Refinitiv prices as at 4 June 2021. Note: *Based on last reported EPRA NAV/NTA. **Based on 12-month trailing dividends declared.

Exhibit 9: Financial summary

Year to 31 March (£m)

2018

2019

2020

2021e

2022e

2023e

INCOME STATEMENT

Cash rental income

7.7

18.6

33.1

34.4

47.8

49.6

IFRS rental adjustments

1.7

3.0

5.4

8.4

9.8

9.8

Total rental income

9.3

21.6

38.5

42.8

57.6

59.4

Administrative & other expenses

(2.4)

(3.5)

(6.6)

(5.9)

(7.8)

(7.9)

Operating profit before property & other valuation movements

6.9

18.0

31.9

36.9

49.8

51.4

Change in value of investment property

15.1

15.9

45.4

0.1

20.4

20.0

Gain/(loss) on disposal of investment property

0.1

3.3

1.2

6.3

0.0

0.0

Change in fair value of financial instruments

0.0

0.0

(0.1)

0.0

0.0

0.0

Operating profit

22.1

37.3

78.4

43.3

70.2

71.5

Net interest expense

(1.1)

(3.2)

(4.8)

(5.3)

(5.6)

(6.6)

Gain on refinancing

1.9

Profit before tax

21.0

34.1

73.6

39.9

64.6

64.9

Tax

0.0

0.0

0.0

0.0

0.0

0.0

Net income

21.0

34.1

73.6

39.9

64.6

64.9

Adjust for:

Change in value of investment property

(15.1)

(15.9)

(45.4)

(0.1)

(20.4)

(20.0)

Gain/(loss) on disposal of investment property

(0.1)

(3.3)

(1.2)

(6.3)

0.0

0.0

Change in fair value of financial instruments

0.0

0.0

0.1

0.0

0.0

0.0

EPRA earnings

5.8

14.9

27.1

33.5

44.2

44.8

License fee receivable

1.2

1.5

2.1

3.5

3.7

5.3

Amortisation of cash-backed rental top ups and rent frees

0.0

0.0

1.3

2.2

0.0

0.0

Adjusted earnings

7.0

16.4

30.5

39.2

47.9

50.1

Period-end number of shares (m)

196.9

352.3

521.4

621.8

621.8

621.8

Weighted average number of shares (m)

138.6

267.6

485.4

525.9

621.8

621.8

IFRS EPS (p)

15.1

12.8

15.2

7.6

10.4

10.4

EPRA EPS (p)

4.2

5.6

5.6

6.4

7.1

7.2

Adjusted EPS (p)

5.1

6.1

6.3

7.5

7.7

8.1

Cash EPS (p)

3.8

5.0

5.2

5.5

6.1

6.5

DPS declared (p)

4.0

5.5

5.8

5.6

6.0

6.2

Dividend cover (cash earnings basis)

0.68

0.89

0.91

0.95

1.02

1.05

BALANCE SHEET

Investment property

255.2

511.5

809.7

887.5

1,087.6

1,139.6

Other non-current assets

0.0

0.0

0.0

0.4

0.0

0.0

Total non-current assets

255.2

511.5

809.7

887.9

1,087.6

1,139.6

Cash (unrestricted)

30.8

19.4

13.4

87.1

13.3

23.6

Restricted cash

17.9

43.2

0.0

0.0

0.0

0.0

Other current assets

6.9

5.9

10.6

15.1

18.8

18.7

Total current assets

55.6

68.5

24.0

102.2

32.1

42.3

Trade & other payables

(5.2)

(9.0)

(16.1)

(18.3)

(29.8)

(29.6)

Other non-current liabilities

0.0

0.0

0.0

0.0

0.0

0.0

Total current liabilities

(5.2)

(9.0)

(16.1)

(18.3)

(29.8)

(29.6)

Bank borrowings

(93.5)

(167.3)

(166.1)

(186.6)

(277.4)

(313.2)

Other non-current liabilities

0.0

0.0

(3.5)

(3.8)

(3.5)

(3.5)

Total non-current liabilities

(93.5)

(167.3)

(169.6)

(190.4)

(280.9)

(316.7)

Net assets

212.0

403.7

648.0

781.4

808.9

835.6

Adjust for:

Mark to market derivative adjustment

0.0

0.0

0.1

0.0

0.0

0.0

EPRA net tangible assets (NTA)

212.0

403.7

648.1

781.4

808.9

835.6

EPRA NTA per share (p)

107.7

114.6

124.3

125.7

130.1

134.4

CASH FLOW

Net cash flow from operating activity

2.7

19.5

25.8

28.9

47.9

41.6

Acquisition of investment property

(238.5)

(288.0)

(260.1)

(160.5)

(255.8)

(118.9)

Proceeds from sale of investment property

0.7

54.7

20.9

96.0

87.1

98.0

Other investment activity

0.0

0.1

0.4

0.0

0.0

0.0

Net cash flow from investing activity

(237.7)

(233.2)

(238.8)

(64.5)

(168.7)

(21.0)

Net proceeds from equity issuance

195.0

171.8

195.7

122.3

0.0

0.0

Dividends paid

(3.5)

(14.2)

(25.0)

(28.8)

(37.1)

(38.2)

Interest paid

(1.3)

(3.6)

(4.7)

(5.9)

(6.0)

(7.0)

Net debt drawn/(repaid)

77.1

49.7

43.2

22.3

90.0

35.0

Other cash flow from financing activity

(4.3)

(21.0)

(28.0)

(29.5)

(47.9)

(41.6)

Net cash flow from financing activity

265.8

202.3

207.0

109.3

46.9

(10.2)

Change in cash

30.8

(11.4)

(6.0)

73.7

(73.8)

10.4

Opening cash

0.0

30.8

19.4

13.4

87.1

13.3

Closing cash

30.8

19.4

13.4

87.1

13.3

23.7

Balance sheet debt

(93.5)

(167.3)

(166.1)

(186.6)

(277.4)

(313.2)

Unamortised loan costs

(1.5)

(2.7)

(3.9)

(5.7)

(4.9)

(4.1)

Net debt

(64.2)

(150.6)

(156.6)

(105.2)

(269.0)

(293.6)

Net LTV

23.0%

28.0%

17.1%

11.2%

23.9%

25.4%

‘Pro-forma’ net LTV*

30.8%

41.9%

29.5%

22.8%

27.5%

27.1%

Source: LXi REIT historical data, Edison Investment Research forecasts. Note: *Net gearing on a fully developed basis.


General disclaimer and copyright

This report has been commissioned by LXi REIT and prepared and issued by Edison, in consideration of a fee payable by LXi REIT. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison’s policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

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United States of America

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by LXi REIT and prepared and issued by Edison, in consideration of a fee payable by LXi REIT. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison’s policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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