LXI REIT has announced that it has sold two portfolios of long-let social housing assets for £10.7m, and has exchanged contracts on the pre-let forward funding acquisition of a Lidl foodstore in Barnard Castle, County Durham for £7.5m.
Disposal of social housing asset portfolios
The sales, to two separate social infrastructure funds, reflect a 5.25% exit yield. The disposal pricing reflects a premium of 14% to purchase price and generates a geared IRR of 14% per annum over the Company’s three year ownership. The prices are in line with latest book values as at 31 March 2020. LXI says that it is recycling the sale proceeds into the pre-let forward funding acquisition of the Lidl foodstore, which is discussed below. The foodstore is being acquired at a higher yield, with enhanced tenant covenants and RPI uplifts.
Forward funding acquisition of Lidl foodstore in County Durham
The purchase reflects a 5.9% net initial yield (net of acquisition costs). The 20,828 sq ft foodstore has been fully pre-let to Lidl on a 20-year lease (with a one-off break right at year 15), with rental uplifts in line with RPI inflation. The adjoining 15,000 sq ft unit has been fully pre-let as a discount store to Home Bargains on an unbroken 15-year lease, with upwards only open market rent reviews. The Lidl store accounts for 70% of the total value.
LXI says that both leases are guaranteed by the top trading companies of the tenant groups, which have significant net assets (Lidl: £10.5 billion; TJ Morris (t/a Home Bargains): £1.1 billion). The properties also benefit from a low average rent of £13 per sq ft, resulting in a low capital cost of £209 per sq ft.
LXI says that the pricing reflects the off-market, relationship-driven nature of the acquisition and the thinner market for forward funding pre-let assets in smaller lot sizes in the current climate. It reiterates that it is not developing the property or assuming development risk and is forward funding the property on a fixed price basis. The Company will receive an income from the developer during the construction period.