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20 Oct 2020 | 09:06

LXi disposes of three properties, buys two supermarket sites

(Sharecast News) - LXi REIT announced three profitable disposals for a total of £17m on Tuesday, as well as two accretive acquisitions in the foodstore sector, which were being acquired for a total of £15m, reflecting a blended net initial yield of 5.5%. The FTSE 250 real estate investment trust said it had sold its sole office - a long-let property in Cambuslang, Glasgow occupied by the local council - to a specialist REIT for £8m, reflecting a low exit yield of 4.2%.

It said the disposal pricing reflected a premium of 17% to the purchase price, and generated a geared internal rate of return of over 16% per annum, which is double the company's 8% per annum target return.

The sale price was in line with the latest book value.

It also sold 11 long-let social housing assets for a combined sum of £8.5m, reflecting a 5.2% exit yield, to a social infrastructure fund.

The disposal pricing reflected a premium of 14% to the purchase price, a 2% premium to the latest book value as at 31 March, and generated a geared internal rate of return of 13% per annum.

Finally, LXi said it had sold a non-operational plot adjacent to its Travelodge hotel in Llanelli to a petrol filling station operator for £0.5m.

The land was not used by the hotel, and the sale had not reduced its rental level or capital value, and as a result it represented an additional net receipt for the company from land which had zero book value.

The board said its investment advisor was also in advanced discussions iver further value-enhancing asset management transactions at other Travelodge sites.

Looking at the acquisitions, LXi said it had exchanged contracts on the pre-let forward funding acquisition of a Lidl foodstore in West Bridgford, Nottinghamshire.

The foodstore had been fully pre-let to Lidl on a 25-year lease, with a one-off break right at year 15, with five-yearly rental uplifts in line with annually-compounded retail prices index inflation, capped at 3% per annum and collared at 1% per annum.

It said the lease was guaranteed by the top trading company of the Lidl group, which has £10.5bn of net assets, with the foodstore having a low starting rent of £16 per square foot.

The company said it was also forward funding electric vehicle charging points at the property, pre-let on an unbroken 25-year, RPI-linked lease to a specialist electric vehicle operator.

It said the freehold site comprises just over four acres, with 180 car parking spaces.

LXi described West Bridgford as an "affluent town" in the Rushcliffe borough of Nottingham, 1.5 miles south of Nottingham city centre.

The immediate area was predominantly residential, with a number of schools and health facilities nearby.

It said the "attractive pricing" reflected 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.

The company was forward funding the property on a fixed-price, pre-let and fully planned basis, and thus not assuming direct development risk.

It said it would receive an income from the developer during the construction period, at a rate equivalent to the net initial yield.

LXi said it had also acquired, from an administrator, a foodstore in Lytham St Annes, which was purpose built for Aldi in 2014 and had a "strong" trading history.

The company said the property was fully let to Aldi Stores, which is the principal UK trading company of the Aldi group, with more than 18 years unexpired to first break, and five-yearly fixed uplifts of 2.5% per annum compounded.

It said the fixed uplifts would provide rental growth of over 13% in three years' time.

LXi described Aldi as "one of Europe's leading discount grocers" with more than 10,000 stores in 20 countries, and said Lytham St Annes is an "affluent coastal town", with a strong tourism industry.

"This capital recycling reflects the company's continuing, but selective, expansion into the foodstore sector, with a particular focus on right-sized stores acquired off-market at attractive yields and let or pre-let to strong tenants on low, sustainable rents," said LXi co-manager Simon Lee.

"The sales have crystallised attractive returns on assets from which we have extracted maximum value."

At 0901 BST, shares in LXi REIT were up 3.13% at 109.32p.
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