LXi REITLXi Annual 2020 Report

Annual Report For the year ended 31 March 2020 Contents

Overview 1 Financial Statements 61 LXi REIT plc 1 Consolidated statement of comprehensive income 62 Highlights 2 Consolidated statement of financial position 63 Post year end update 4 Consolidated statement of changes in equity 64 Consolidated cash flow statement 65 Strategic Report 5 Notes to the consolidated financial statements 66 Chairman’s statement 6 Company statement of financial position 88 Investment Advisor’s report 10 Company statement of changes in equity 89 The Investment Advisor 20 Notes to the Company financial statements 90 Investment objective and policy 22 Key performance indicators 25 Additional Information 95 EPRA performance measures 26 Notes to the EPRA and alternative performance measures 96 Section 172 statement 27 Glossary 99 Principal risks and uncertainties 30 Company information 100 Going concern and viability statement 32

Governance 35 Directors’ report 36 Corporate governance statement 40 Report of the Audit Committee 46 Report of the Management Engagement Committee 49 Depositary statement 50 Directors’ remuneration report 51 Statement of Directors’ responsibilities 54 Independent Auditor’s report 55

Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 1

TheCompany is a constituentof the FTSE 250 Index, EPRA/NAREITFTSE GlobalReal Estate Index Series and MSCI index. in February 2017. in February 2017. Financial Conduct Authority and was admitted trading to on the main market for listed securities the of London Stock Exchange The Company, a real TheestateCompany, investment trust is (“REIT”), listed on the premium listing segmentof the Official ofList the any direct development activity nor assume direct development risk. and full planning permission is in place. along The doeswithCompany, itsnot “Group”), undertake thesubsidiaries (together, We alsoWe carefully invest in fixed-pricedforward funded developments, provided they are pre-letto an acceptabletenant leases institutional-qualityto tenants across a diverse range property of sectors. We selectivelyWe invest in UK commercial property assets let on very long (typically 30 to years 20 first to break), inflation-linked through upward-only inflation-protectedlong-term lease agreements, and provide capital growthover the medium-term. shareholders with attractive regular, income. Our investment objective sustainably is to growthe dividend in absolute terms LXi the “Company”), specialist plc REIT (the inflation-protectedlong income real estate investment trust, aimsto provide Overview – – – (1) +9.7p +0.25p Change -900 bps +£41.1m +130 bps +200 bps +£324.5m

12 32% 29% 5.6p 6.3p 5.50p 12.1% 2.94% 114.6p £37.3m £589.5m Year ended Year 31 March31 2019

11 34% 20% 5.6p 6.3p 5.75p TheCompany was made a constituentof the FTSE 250 index in December 2019 During the year, theDuring Group selectively the year, sold seven assets. Disposals date to generated have an average 32% pa) March 2019: geared IRR pa 34% of (31 20% of Loan March at value 31 to 2020 (“LTV”) with 29%), pro-forma 30% of March following 2019: LTV (31 reflectingfull drawing headroom the of RCF, to both our medium term maximum covenant 50% of and LTV 35% of (31 March2019: Low average all-in cost fixed of debtof 2.94% across drawn debt facilities2.94%) March at 31 2020 A long average debt maturity term on the Group’s loan facilities 12 years) March 11 of 2019: years (31 underpinning our strategy grow to investor returns through inflation-linkedreviewsrent Gross equity proceeds raised £200m of via a significantly oversubscribed equity raise and the proceeds the of raise were carefully and efficiently deployed within four weeks into an existing pipeline accretive of assets, largely through forward funding structures 13.4% 2.94% 124.3p

£78.4m • • • • • • £914.0m Year ended Year 31 March 2020

1 2 for the year was of 5.6p (31 March 2019: March 2019: 5.6p of (31 1 1 1 1 1 2,3 1 per share increased in the year as at 31 March 2020 (31 March 2019: £589.5m) March 2019: (31 March as at 31 2020 1 3,4

5.6p) which excludes5.6p) developer licence fees 13.4% (31 March 2019: 12.1%), significantly 12.1%), March 2019: aheadof(31 13.4% our medium term annual target at of least 8% Portfolio independently valued by Knight Frank LLP at LLP Portfolio Frank Knight by valued independently £914.0m Operating profit of £78.4m (31 March 2019: £37.3m) Operating £37.3m) profit(31 March2019: of £78.4m propertycomprising income from the Group’s portfolio and changes in fair value investment of property net administrative of and other expenses Dividends were fully (1.1x) covered Adjusted by earnings by 9.7p (31 March 2019: 6.9p) to 124.3p to at 6.9p) March 2019: (31 9.7p by 114.6p) March 2019: (31 March31 2020 Dividends per share paid and proposed in respect March the of 2019: year 5.75p of (31 met annual5.50p) the target Company’s EPRA NAV Total net assetTotal value return (“NAV”) per share (“Adjusted EPS”) of 6.3p (31 March 2019: 6.3p) 6.3p) March 6.3p of 2019: EPS”) (31 per share (“Adjusted which includes developer licence fees and the Group generated EPRA earnings per share

Total NAV return NAV Total Dividendper share Weighted average geared IRR pa on disposals date to Operating profit NAV (and EPRA NAV) per EPRA share NAV) (and NAV EPRA earnings per share Loan value to Adjusted earnings per share Portfolio valuation Average fixed/capped cost Average fixed/capped of debt Average debt maturity (years) Financial Highlights

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• Highlights

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – – – – – +14 Change LXi REIT plc Annual Report 2020 3

9 22 38 96% 5.8% 100% Year ended Year 31 March31 2019

9 22 52 96% 5.8% 100% Portfolio and 100%) 100% let March orpre-let 2019: (31 fixed income (i.e. producingnot related to turnover or trading) during the separate year 52 to institutional- quality across a diverse 38) tenants March 2019: (31 range nine of property sectors March 2019: (31 full on repairing and insuring leasesnine) A long weighted average unexpired lease term (“WAULT”) firstto 22 break(31 March2019: over yearsof 22 maintained deployment through accretive years), newof and recycled capital and providing security and significant income visibilityto the Group’s

• • Year ended Year 31 March 2020

The valuation includes forward funded commitments outstanding. A reconciliation to the IFRS fair value as per the consolidated statement of financial position is included in Note 9 to These are targets only and not a profit forecast and there can be no assurance that they will be met The valuation includes the standard form Covid-19‘material uncertainty’ clause and detail is given in Note9. However, the valuer has expressly taken into account the impact or Further details on Alternative Performance Measures can be found in the Chairman’s Statement and definitions given in the Key performance indicators and the EPRA performance the consolidated financial statements financial consolidated the potential impact of Covid-19 on the Company’s assets in deriving these valuation figures measures sections or otherwise included in the Glossary included in the Additional Information Additional the Glossary in the included in otherwise included sections or measures 96% of the Group’s rental income either the of 96% Group’s contains index-linked rent reviews or fixed rental uplifts underpinning 96%) March the Company’s 2019: (31 ability grow to returns in line with inflation Average acquisition net initial yield (“NIY”) across the portfolio 5.8%) March 2019: 5.8% of (31 March 31 to 2020 net acquisition of costs, representing a 286 bps spread to andall-in capped 286 bps) March cost 2019: debt of (31 demonstrating the impact positive conservative of gearing

Average acquisition NIY date to Rents containing index-linked or fixed upliftsRents fixed or containing index-linked WAULT to first break to (years) WAULT Portfolio pre-let or let Property sectors Separate tenants 4 3 2 1 •

• Operating Highlights £0.3m hasbeen £0.3m received in cash; £1.2m is now due be to paid within three months; is now due be to paid£0.2m between three and twelve months; and less has than been £0.1m given as a rent concession - - - - £1.6m remains the subject detailed of discussions with the tenant, which represents contracted 3.2% the of Group’s annual rent roll. The Investment Advisor expects the majority this of be to received within 12 months £1.7m is now subject agreed to terms with the tenant, contractedwhich represents annual the of Group’s 3.6% rent roll. Of this amount: ------TheCompany notes the reopening of gardencentres on and13 the Government’s May 2020 current planning assumptions for the reopening hotels of and pubs, from that will support4 July 2020, our tenants in those sectors managementfee is calculatedThe Group’s based on market cap, which has materially reduced since the beginning of March, significantlytotal expense reducing the Group’s ratio the over quarter This endingdemonstrates June 2020. interests shareholder’s of alignment the of benefit the management with management through the Company’s structurefee robust debt metrics,The Group’s described in detail in the financial highlights sectionLTV20%,of on 2, page show which expect we rise to 30% to following full drawing the of and weighted average maturity RCF, on the term Group’s loans 11 of years Construction works are progressing again at all the of forward fundingGroup’s sites The Investment Advisor has been in negotiations with those tenants that had not paid their quarter’s rent and provides the following update, which demonstrates good progress towards recovery the of vast majority the of unpaid rents: - -

• • • • • . This dividend is in respectof the quarter ending 2

Although the majority tenants continue the to of Group’s pay their rent as normal, £3.3m the of quarterly rent roll was unpaid as at the quarter date in March, representing 6.8% of £48.3m annual contractedthe Group’s rent roll The portfolio is highly diversified, as described in the operational highlights on page 3, with exposure both to sectors that continue be to largely unaffectedby the crisis as well as some to that are experiencing unprecedented short- term disruption The Group’s businesscontinuity The Group’s planworking is well, andwe are prioritising the health and safety our of people as well as those its of tenants and other counterparties The Group has exchanged unconditionally on the disposalof two assets for proceeds £2.1m, of representing an upliftof 15.1% on purchase price, a premium 2.8% of on current book value and generating a geared IRR 15.1% of pa TheCompany willcontinue to monitor the improving visibility on its future rent collection as the UK moves out of lockdown and is keeping its dividend guidance under careful review on a quarterly basis The Board believes this is an appropriatelevelfor the period which it expects be to the by covered rents collected for the quarter in the March ending (i.e. 2020 30 June 2020 rents) advance The Boardconfirms that it expects to approve thepayment first theof Company’s quarterly dividendfor the financial year ending at the March 31 rate 2021 1.30 of pence per share Proposed final dividend in respectof theyear ended 1.4375p of per March share31 bringing 2020 the total dividend paid and proposed in respect the of year 5.75p to per share, in line with target 30 June 2020 and is scheduled30 June 2020 be to declared and paid in 2020 September

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• • Dividends • Post year end update Highlights (continued)

Covid-19 Disposals

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 5

6 10 20 22 25 26 27 30 32

The Investment Advisor policy and objective Investment performanceKey indicators performanceEPRA measures Section 172 statement Principal risks uncertainties and Going concern and viability statement Chairman’s statement Chairman’s Investment report Advisor’s Strategic Report Strategic ReportStrategic

STEPHEN HUBBARD Chairman

the value achieved at the point purchase of through the discount built to asset values when acquiring through the capitalisation index-linked of and fixed rent reviews accretive investment new of equity predominantly on an market’ basis; ‘off forward funding structures; and during the year.

Financial results for the year ended March 31 2020 The Groupcontinued to performwell The during theyear. Investment sourcing Advisor’s suitable of assets has allowed the Groupcontinue to deliver to good returns shareholders. to theDuring Group achieved the return year, a total NAV of 13.4%, outperforming our annual target NAV 8%. of Total return comprises growth EPRA NAV and dividends paid during the year. EPRA per was share 31 at March2020 NAV 124.3p, The Group’s representing prior an 8.5% increase compared the to Group’s The growth March at 31 was 2019). delivered (114.6p year NAV primarily through: (i) (ii) (iii) The Company’s dividendsTheCompany’s per share paid and proposed in respect the of total year ended March 5.75p, 31 meeting 2020 our progressive dividend per share target fully for the year, our by covered Adjusted EPS despite the material growth in capitalthe Company’s base. This demonstrates the efficiency with which capital was deployed into an existing pipeline of accretive assets. dividendTheCompany’s Adjusted is underpinned by the Group’s EPS that comprise EPRA earnings from the standing portfolio with the developer licence fees received during construction of the pre-let forward funded assets and the amortisation cash of backed rent free and topped up periods. The Group generatedhas AdjustedEPSfor theyear of 6.3p, reflecting full (1.1x)dividend cover on thetotal dividend per share. The Boardconsiders thisto be a robust performance during what has been a transformational year growth, of in which the Company saw an increase in its ordinary share capital 48% of subsequent and the Company’s entry into the FTSE 250 index.

further strengthens our Board. further our strengthens corporate governance, risk and performance management organisations. This,together expertisewith Patricia’s in and operations roles at large private and publicly listed years senior of executive board level experience in finance Board Directors of Patricia during the brings year. 25 over 6 LXi REIT plc Annual Report 2020 I was pleased welcome to Patricia Dimond the to Company’s 250 index in December 2019. December in index 250 that also resulted in the Company being promoted the to FTSE the investment capital of from another successful equity raise and increased scale. TheCompany has achieved this through strengthening the Group’s position with further diversification strengthening the Group’s We continued to implement our investment strategy, strategy, investment our implement to continued We by theby crisis. year ended 31 March 2020, whichyear ended was March largely 31 2020, unaffected purpose statement my of report is to on the results for the and post the year end principal events date. to However, Later statement in my I comment outlook on the Company’s shareholders in these uncertain times. these in shareholders to do, to protect to do, to the value the of Company for our fellow the Board, forthe work that they done have and will continue continuing operations the of Group. I thank them, along with to mitigateto which the underpin impact the Covid-19, of We have put have in placeWe stringent plans for our business partners partners as well as those our of tenants. health and safety the of staff andcolleagues of key ourbusiness continuity plan is working well, and are prioritising we the confinesof the UK Government’s guidance. Our business As a Group, continue we operate to effectively within the companies come into sharp into focus. come companies that the role, values, social purpose and longer term viability of in the UK and around the world. It is during these difficult times the economic and social continues impact unfold to Covid-19 of I write you this to year at a time unprecedented of upheaval as Dear shareholder Chairman’s statement Chairman’s

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 7

Our portfolio and tenants Our total returnperformance has been balanced between dividends, from our portfolio’s secure income, and capital growth from value gains across our portfolio. Acquisitions in predominantly Advisor, the Investment by sourced the year, through forward fundings market’ and onbasis, an ‘off have been underpinning to key this growth. portfolio wasThe independently 31 Group’s at March2020, representingvalued at £914.0m, a like for like increase of across1% the assets valued at the previous year end, and an average upliftof 13% on purchase(excluding pricepurchase acrosscosts) the portfolio. The valuation includes ‘materialthe standard form Covid-19 uncertainty’ disclosure. The full detailsof the disclosure are given in Note the 9 to consolidated financial statements. portfolioThe Group’s is fullylet longon term inflation linked separate 50 institutional-quality over leases to tenants, well diversified acrossof nine property sectorswell as byas geography within the UK. Acquisitions financed duringby the the£200m year, equity provided have further RCF, diversificationraise and the Group’s and security portfolio, the to Group’s whilst improving the overall tenant covenant strength.Group’s The portfolio’sweighted average unexpiredlease term to first break is 22 years our of and rents 96% are index-linked or an andattractive shareholders our uplifts, giving fixed contain performance. future base for secure Since inception, the average acquisition yield is 5.8% across the portfolio. valuation Thiscompares yieldwell to the Group’s which 5.0% of demonstrates Marchat 31 2020 a disciplined approach acquisitions to and the benefitforwardof funding. Dividends TheCompany hastoday proposed a final dividend in respect of the year taking the total dividends per share paid and proposed in respect the of year 5.75p, to in line with the Company’s dividend target. per share increased 2019/20

option the of Group. three years, which may be extended up two by to years at the attractive margin 1.55% of pa Libor over for an initial term of the Group’s sources finance of and debtthe maturity Group’s profile,at an The RCF has been providedby Lloyds Bank plc, diversifying significantlyLTV covenant.below the 50% below our maximum level aggregate of borrowings and 35% of LTV ratioLTV at c.30%, in line with our medium-term target and Once fully drawn, the is expected RCF maintain to the Group’s passing interest rate payable on the drawn facility. funding yield received on developments against the all in to dateto and a 350 bps arbitrage between the c.5.5% average facility gives cost efficiency in the period of non-utilisation commitment profile, which it covers.fully The nature of the The is RCF being drawn in orderto match ourforward funding 31 March 2020 had yet be to March drawn.31 2020 gear the net proceeds equity the of Company’s raise which as at Group agreed a new £100m revolving credit facility to (“RCF”) conservatively gear returns investors. to the During the year, TheCompany maintainsleverage a low in orderto Debt financing to investors. scale will support the Company in continuing grow to returns ongoing charges ratio. The Board believes that increased a larger number shares, of thereby reducing the Group’s low, transparentlow, and largely fixed operatingcosts over Growing capital the Company’s base has also spread our their support. continuing we welcomewe our new investors and thank existing investors for enhanced the size and liquidity of the Company’s shares, and liquidity and theenhanced the Company’s size of The raise has broadened investor thebaseCompany’s and capital raise. identifiedby the Investment Advisor in the build to up the accretive assets, largely through forward funding structures, deployed within four weeks into an existing pipeline of The proceedsof the raisewere carefully and efficiently appetite to continue. to appetite across diversified property sectors andwe expect this let a wide to range institutional-quality of tenant covenants datedinflation protected income secured against a portfolio Thelevel of demand reflects the attractioninvestors of to long- a total £200m of newof equity. to increaseto the issue beyond the targeted £100m and raise to Board exercise to its option, approved existing by shareholders, subscribed equity raise, with the level demand of allowing the During the year, theDuring Company closed the a significantly year, over- Share issuance Raising capital during the year

Theaverage unexpired portfoliolease term of the Group’s is 22 years first to break. 96% of our leases by passing our leases contain rent of by indexed-linked 96% or fixed uplifts; portfolioThe containsGroup’s an inflation 61%hedge with theof portfolio containing either collared or fixed uplifts averaging 2% pa; Our income profile is underpinnedby a diverse groupof assets institutional-quality to let tenants; and

After theyear end, the Board hasformed a new Risk Committee, in order carefully to evaluate specific real estate portfoliorisks in the Group’s and I am grateful that John Cartwright has taken on Chairmanship this of committee. We believe that this additional process will assist in identifying, alleviating and managingrisks and potential risks within the portfolio. The RiskCommittee will report through the Audit Committee who will continue manage to the financial and other risks the of Company. Whilst clearly are in we uncertain times, with open market and performance-linked rents likely come to under significant pressure, I take comfort in the defensive key attributes the of portfolio, are: which • • • • We are not currentlyWe exposed development to risk through our forward funding projects. Some funding projects may well take longer deliver to than originally anticipated given Covid-19’s impact on working practices, but do not we expect a material financial impact from these potential delays. I would like thank to Finally, the Investment the Board Advisor, and all our other advisers in supporting the Company in these challenging times. remain We focussed on managing the risks that arisen have as a result the of crisis, but I am comforted by the strength the of platform and its ability maintain to ongoing returns our to shareholders. Hubbard Stephen Chairman the of Board Directors of 15 May 2020

some progress towards the recovery the of unpaid rents. Highlights section this of report on page 4, which demonstrates A detailed update those to negotiations is provided in the as soon as possible. soon as as 8 LXi REIT plc Annual Report 2020 time and are hoping we that they resume trading satisfactorily working with these tenants support to them at this difficult are unable trade to within the government guidelines. are We broadly from our tenants in the hotels and leisure sectors who not received all the of rents that fell due. The shortfall was At the March 2020 quarter theAt March 2020 announced date, we that had we comparatively less affectedby the crisis. from their premises, and their business models been have portfolio. Many our of tenants are continuing operate to reviewed the additional risks that now have arisen in our unforeseen risk in the corporate world. The Board has carefully The extentof this crisis has been widely recognised as an uncertainties that currently exist. the length and depthwhich of is still unfold to given all the the UK and economies globally willenter a deep recession, on the UK and Global economy. However, it is now clearon that the UK and Global However, economy. to howto the crisis will develop and on the full economic impact We are in unprecedentedWe times and there is still uncertainty as Outlookand post balance sheet update included in the Additional Information. the Additional in included measures sections or otherwise included in the Glossary in the performance Key indicators and EPRA performance Definitions of alternative performance alternative Definitionsof given are measures be found in Notes 25 and and 26 in the Additional Information. performance measures and the IFRS financial statements can Reconciliations between EPRA and other alternative in the sector. the in transparency, comparabilitytransparency, published of results relevance and real estate companies and investors and seek improve to TheEPRA measures are widely recognised and usedby public underlying performance property the of Group’s portfolio. and Financial Statements the best understanding the of considers that these measures give users the of Annual Report Recommendations supplement to (“BPR”) IFRS as the Board the European Public Best Real Estate Practice (“EPRA”) The Group uses alternative performance measures including Alternative performanceAlternative measures Chairman’s statement (continued) Chairman’s

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 9

The assets are valued individually netof full purchasecosts, portfolio no and been has added. premium This value has predominantly been achieved at the point purchaseof through our focus on forward funding pre-let developments in smaller lot sizes, which the larger institutions who are otherwise willing forward to fund, tended have to avoid. The limitedcompetition means that there remains a wide discount on this type deal. of Our forward 32-separate funded developments averaged have less than and £10m in lot size contributed growth. NAV significantlyto the Group’s Market conditions the over 12 months helped have us to transact opportunistically at attractive pricing in forward fundings a more of material than lot size historically we had, as many investors withdrew their capital. These largerforward fundings significantly have contributed to the returns achieved. Further detail the of implementation our of forward funding strategy is given later in this report. also have We acquired the vast majority our of portfolio on an relationship-driven through basis transactions.‘off-market’ Whilst upholding the highest standard capital of discipline and due diligence, achieved have we a reputation for speed and certainty transacting, of that is attractive vendors to and positions us as a counterparty choice. of In the final quarter weof thebegan tofinancial see theyear, onset deep of disruption some to the of sub-sectors which to are exposed,we in particular hotels and leisure, as a result of GovernmentUK social distancing the and eventual guidance state ‘lock of in down’ late March 2020. property commercial for guidance Government tenants was also updated in response this, to supporting tenants who chose not pay rents to that were contractually due suspending by the right forfeiture of on lease agreements. Unsurprisingly, and wishing protect to their own short term cash flows, a numberof ourtenants opted to not pay their quarterly rent due in respect the of quarter ending are in detailed We 30 discussions June 2020. regarding repayment plans.

portfolio 80 of bps against our average acquisition yield date. to (excluding purchase(excluding and costs) yield compression across the represents an average upliftof 13% above acquisition price £914.0m reflecting£914.0m a valuation yieldof 5.0%. The valuation The portfolio was 31 independently at March2020 valued at property market. is comparatively well protected against an outward moving and the average valuation yield means that investors’ capital means that valuation investors’ yield theand average The spread between averageour net initial yield on acquisition 10 LXi REIT plc Annual Report 2020 at an average net initial yield on acquisition 5.8%. of profitable disposalsto build a portfolioof 137 separate assets new capitalnew capital recycled and generated through selective Since the Company’s IPO in February 2017, we have invested have we IPOSince in February the Company’s 2017, Portfolio overview in spite the of onset market of volatility. and materially to outperform our medium-term return targets successfully, continuing to deliver inflation-protected to continuing successfully, income the current crisis, executed we on our investment strategy During thewhich financialwas year, largely unaffected by assistance unique to each tenant’s circumstances. tenant’s assistance each to unique that arebeing materially impacted, providing by proportionate flows. We are workingWe are flows. with the Boardto actively assist those experiencingunprecedented short-termdisruption their to cash Unsurprisingly,some customers the of Company’s are deploying new capital into forward fundings during the year. and tenants, and the significant discount thatwe achievedby long-let and index-linked property index-linked and assets, sub-sectorslong-let across characteristics a broadly of diversified portfolioof secure, The resilienceof our valuationa reflection is of the defensive those of the Group’s tenantsthose and other the of counterparties. Group’s it is prioritising the health and safety our of people as well as Group’s business continuityGroup’s plan which is working well, and The Investment Advisorcontinues to operate within the nature and the robust balance sheet the of Group. remains relatively well placed given its defensive, diversified placed its well given relatively remains defensive, for most areas economic of and social life, but the portfolio As write we this report, continues bring to Covid-19 uncertainty Investment Advisor’s reportInvestment Advisor’s

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 11

61% of the Group’s income including collared fixed the of uplift) Group’s 61% (or reviews with an average guaranteed upliftof 2% andpa; income including72% capped fixed theuplift) of Group’s (or reviews at an average pa. rate 4% of

Our wide-ranging, diverse tenant group and the increase in scale during the year meansthat are not we over-exposed to singleany tenant, with our largest exposure contributing under annual rent roll. the of 10% Group’s reviewRent profile There remains a real market opportunityto capitalise further between the forecast spread on inflationindex performances opento market rental growth. With 57% the of rent roll linked theto Retail Prices Index 20% linked (“RPI”), Consumer to Price and 19%Index including (“CPI”) fixed rental uplifts, we are well placed capitalise to on this. reviews, rent five-yearly contain generally leases Commercial but our focus has been achieve to a balance between five-yearly uplifts. annual leases containing and reviews the Of portfolio’s annual passing rent, 40% is reviewed annually and 60% is reviewed five-yearly. regulargeneration The Group’s and deploymentof new capital since IPO has meant that the rent review profileof the assets is well staggeredwhich allows for smoother rental and capital growth across the portfolio passing and 48% the of Group’s rent will undergo a rent review in the March year 31 to 2021. focussed have We on acquiring a portfolio that delivers predictability and volatility low in rental growth support to our ability sustainably to grow investor returns the over medium and longer term. One the of ways that manage we this is through the inclusion caps of and collars on rental uplifts within our lease arrangements. Inflation performance is hedged across the portfolio rent reviews, ensuring that our income continues grow to in times a slowingof growth in the wider such saw as we economy, portfolio The Group’s at thealso end 2019. of ensures that rental levels do not grow unsustainable to levels and avoids properties becoming in materially times high of over-rented inflation. This is achieved by: • • Long-dated income Long-dated The portfolio provides someof thelongest dated income in 22 of years first to the break, market withproviding a WAULT the further strengthening certainty security and and predictability annual our of rent income. roll, Of the Group’s 97% 15 have years ormore remaining first to break 1%and only a termhave certain under years, 10 demonstrating the absence barbell any of lease effect expiry on the profile.Group’s

our properties.our teams better to understand their business and the uses of and to further to and relationships with management develop regularly review the financial performanceof allof ourtenants 50 separate institutional-quality groups. continue We to strengthened our tenant group, which now consists over of The deploymentof capital raised during theyear has further underlying income. foreseeable structural change would impact the security our of rental growth would not support our return targets, or where where limited or negative forecast yield compression and compression forecast yield negative or limited where This multi-sector strategy gives the flexibilityavoid to sectors such as and industrial healthcare (14%). (28%) sectors with more favourable market and structural outlooks as budget hotels (24%) and discount as well as foodstoresas budget hotels (9%), (24%) historically outperformedhistorically downturn such economic times of in We have strategically have We sought exposure sectors to that have with multiple underlying uses. underlying multiple with portfolio is well balanced across nine separate property sectors properties across a wide universe assets of and our diversified Our strategy for diversification allows to us cherry pick Diversification strategic importance. to freeholdto ownership these of assets which are high of in some cases that they historically have been accustomed that the tenants are committed these to properties or indeed inflation linked rent reviews since inception. It also means not widened in spread market to rental levels through multiple set very that are and low recently, sustainable, and that have It means that all those of leases reflect rentallevels thatwere there is a need negotiate to with our tenants in these times. leasebacks and has re-gears) also positioned us well where with the benefit(forwardof newleases fundings, sale and Our strategies for acquiring the majority our of properties and Aldi in the foodstore sector). counter-correlated or are currently outperforming (such as Lidl as outperforming currently are or (such counter-correlated Premier Inn and Greene King) and tenants to in sectors that are freehold and as such rental a lower have burden as (such exposures tenants to that hold the majority their of property of ourof portfolio hedge our exposure those to worst hit through the emerging risks than others. The defensive characteristics particular tenants within sub-sectors exposed less that are to As with downturn any or crisis, there are those sub-sectors and satisfactory agreements with all tenants in due course. rent deferrals and it is our expectation that will we reach proportionate assistance to those tenants that have sought sought have that tenants those to assistance proportionate benefitsEveryof cash recovery. effort is being made to provide the protection their of covenant is balanced with the short term The importancelong-termof relationships with ourtenants and

Forward funding pre-let developments provide significant provide developments Forward pre-let funding discounts built to values, generating capital growth at the point purchaseof but also a very level purchase of low costs which average c.2% vs standard purchase date, costs this 6.8%. of To strategy has been the to key 13% cushion across the portfolio potential any to softeningof valuation yields, through the discount builtto values. only raiseWe capital for the Group against an existing pipeline in advanced legals and due diligence. The previous two capital raises were fully deployed within four weeks gross (£200m Speed respectively. equity), gross (£175m weeks six and equity) deploymentof means that invest we 100% new of capital to generate returns, and not underpin to the payment dividends of newto investors. Our distributions date to always have been fully the by covered net adjusted income yielded from portfolio.our Our tenants the relationshipGiven between counterpartyfinancial strength and the security and valuation long-dated of income streams, are highlywe selective with our tenant group. We perform stringent due diligence on all potential new tenants prior puttingto forward acquisitions, all which of require full Board approval. always look ensure to We the main trading groupcompany a tenant’s of or the parent/plc entity provides a guarantee arrangement strengthen to the covenant. Our due diligence includes reviews credit of ratings (where available from the main corporate bond rating financial houses), results, strategic business plans asset (at and corporate level), management interviews, press and broker coverage and strategies. corporate alsoWe continuously review the financial performance and viability our of tenant group ensure to that are aware we any of potential threats income the to stream Company’s and can take the impact the Group. on mitigate to action appropriately portfolioThe Group’s offers a highly diversifiedincome stream separate 50 institutional-quality over from covenants. tenant are acutely awareWe that with slowing growth in the UK the riskeconomy, commercial of failure rises. TheCompany is less exposed risk to through broad diversificationof our tenant group.

optionality in the unlikely event a tenant of default. asset. This provides an extra of protectionlayer by ensuring transport/amenities, and level specialisation of a low each to use, demand for residential development good access to and/or count’/dense local population, neighbouring land with differingcount’/dense assessed location by characteristics such as a ‘high chimney always consider alternative uses fora property. This is normally Despite our portfolio being 100% let on long-term leases, we income stream. income 12 LXi REIT plc Annual Report 2020 ensures that enterprise value underpins our investment in the to a varietyto occupiers of in addition the to existing tenant and long lease. This characteristic makes our properties attractive valuable operating unit when viewed independently of the of independently viewed when unit operating valuable our rents. low This means that each property is a viable and at an asset level, with cash generation that underwrites demonstrate the characteristics well-performing of businesses The alternative sectorsto which we sought have exposure, also price and vacant and price values. use possession, alternative or residual on acquisition which reduces the spread between investment industrial locations. Lower rents provide capital for a low cost properties with tenant low specific specialisation, in quality similar uses, such as budget hotels, discount foodstores and sectors and properties that rent a lower have compared with We achieve this capital this protection achieve through a particularWe on focus characteristics strong of residual land value. assets provide to secure income, but also demonstrate to the a secure income stream. Our investment policy requires our quality an of asset just for the benefitof deployment or fundamentals. are not willing We overlook to the underlying We only acquire assetsWe that demonstrate strong property of otherof techniques protect to our investors’ capital. qualities that are described in detail employ above, we a variety investment provide to capital protection. Aside from these assets with institutional-quality tenant covenants is a prudent A defensively managed, well diversified portfoliolong-letof Capital protection going forward. us in maintaining in us and lengthening our unexpired lease term performance our of assets our to tenant group, will support from tenants as well as the importance and trading fundings from developers and sale and lease back opportunities back lease and sale and developers from fundings accretive assets, our ability market’ source to forward ‘off Our track record for deploying and recycling capital into lease extensions/re-gears. lease term through the deployment new of andrecycled capital and We maintainWe and average lengthenunexpired lease the Group’s Investment Advisor’s report (continued) Investment Advisor’s

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 13 year lease to first break with CPI linked uplifts. linked CPI first with break to lease year year lease to first break with CPI linked uplifts; linked CPI first with break to lease year year lease first to break with RPI linked uplifts; and ‑ ‑ ‑ A discount foodstore let Lidl to in Cowdenbeath with a new uplifts; linked CPI first with break to lease 15-year A discount foodstore let Aldi to in with Evesham a new 15 in GosportA budget hotel let Travelodge to with a new 25 A budget hotel let to Travelodge in SwindonA budget with hotel a new let Travelodge to 25 A discount foodstore let Lidl to in Chard with a new 15-year uplifts; linked RPI first with break to lease

Asset management Our collaborative asset management approach is designed and implemented ensure to that our properties meet our tenants’ requirements, thereby strengthening our relationships with them and improving the quality our of income, to theenhance underlying capital include Initiatives value. agreeing new lettings, extending lease lengths, facilitating expenditure successfully and capitaltenants’ fit-out and negotiating rent reviews. theDuring investment the advisor year, agreed 71 index- linked or fixed rental uplifts with tenants providing a weighted average compounded upliftof 2.3% pa on the rents reviewed, which compares favourably the to average open market rental growth. The Group achieved practicalcompletion on thefollowing forward five funded assets tenantto built during theyear, specification andlet on new fully unexpiredleases rents: low at • • • A particular feature many of the of assets acquired during the year has been the sale and leaseback structure. Purchasing assets directly from tenants benefits us with a strong position building landlord/tenantfor relationships, depth including in an assets. and business tenant’s the of understanding • • 7.5% 7.2% 2.1% 1.9% 3.5% 2.9% 3.9% 5.4% 6.6% 4.8% 10.4%

sectors with more positive economic outlook, such as outlook, such economic sectors positive more with industrial; and sectors experiencing a demographic shift, such healthcare. as the very best operators with a strong market position in their particular sub-sector; sub-sectors that tend outperform to in times economic of foodstores; discount as downturn, such

CAR PARKS DISCOUNT FOODSTORES FOODSTORES DISCOUNT LEISURE HEALTHCARE HEALTHCARE BUDGET HOTELS INDUSTRIAL controls, but also due our to focus on: in part the to effective operationof ourown due diligence • despite the prevailing economic conditions. This has due been has This conditions. economic the prevailing despite financial and operating performanceof of many ourtenants • This year we have Thisyearwe been have pleasedto witness thecontinued strong • •

Q-Park Aldi

Greene King BCA Marketplace Inn Premier BUPA Starbucks Lidl

Travelodge Bombardier Priory property sectors are: The Group’s keytenant exposures acrossThe its Group’s main a National Express bus storage facility at a 13% premium to, book value generating pa a geared and IRR 36% of a realised gain on disposal £1.2m; of and a portfolio six of assisted living assets at book value generated a geared IRR 19% of pa and a realised gain on disposal £2.9m. of

Capital recycling Our capital recycling strategy is conservative, and will we only dispose assets of where opportunities exist redeploy to capital into accretive assets, delivering value shareholders, to further diversification, income longer-dated and growing income returns arbitrage. through yield not have date, marketed we assets any To but the quality of our portfolio, coupled with the weight capital of seeking long- dated, inflation protected direct real estate exposure,generates regular unsolicited interest. where and approaches, unsolicited these Following opportunity accretive an identified immediate for we redeployment, we have negotiated exits that have generated a weighted average geared IRR pa 34% of date, to across 23 separate asset disposals. Every disposal date to has been at, or at a premium book to supports which value conservative the portfolio’s valuation yield and has also contributed materially growth NAV to and total returns date. to During the year the Group made two separate disposals: • • This strategy has also allowed to us defensively manage the portfolio’s exposures sectors, to tenants and rent review types with more favourable outlooks and upwardly to manage the portfolio’s unexpired lease terms. Selling assets has capitalise to also us opportunistic, on allowed relationship- pipelinedriven transactions without capital new issuing or policy. conservative our leverage on compromising

all construction cost drawdowns are paid the to developer monthly in arrears once approved the by Group’s surveyor. monitoring a full suite warranties of is provided the by main contractor and team; professional and the main contractor is always a reputable entity with a proven track record and provides a parent company bond; performance or guarantee any delayany practical to completion the of works is the risk of as theythe pay the developer, Group a cash-backed licence Adjustedfee, which earnings, is brought into the Group’s to completes; lease the that date the the developer only receives their profit when the asset practicalachieves completion; full planning consent is in place; a pre-let is in place with a suitable, institutional- grade tenant; a fixed-price is agreedfor theforward funded purchase, covering land,construction cost profit and developer’s – all cost overruns are the risk the of developer/contractor;

14 LXi REIT plc Annual Report 2020

• •

• •

and entering the funding agreement: • to developmentto risk ensuring by that prior land to completion On all forward funded acquisitions, the Group avoids exposure • forward structures. commitment • increase strategic importance, which are also benefits key of a full unexpired lease term and built tenant to specificationto • The approach also ensures the asset acquired is brand new with asset structures. lower thanlower the 6.8% standard purchaser’s costs for built funded structures are usually around 2%, significantly competition and entry low costs. Purchase costs forward of priced assets built with to values) (compared reduced This approach has enabled to us source high-quality,lower share growth date. to has been strategy a key contributing materially per our to NAV ordinarily forward the to fund associated (due deal workload), are below the threshold at which institutional which the threshold at would below investors are Forwardfunding pre-let developments in smaller lot sizes, that Forward funding strategy Investment Advisor’s report (continued) Investment Advisor’s

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 15 to facilitateto the provision electric of vehicle charging (EV) facilitate to the provision solar of photovoltaic (PV) the environment increasing by the reliance on and use of energy; ‘green’ our tenants providing by a cost saving on energy and overheads; boththe the by Company, provision an of income stream and increasingby the attractiveness our of properties tenants. to points at those properties that parking have panelling energy generate to ‘green’ for our tenants. 

We expectWe all new buildings Energy have to Performance Certificates rated at C or higher and that the design will energy efficiency advanced insulation, enhanced incorporate and a suitable features. range water-saving of see sustainabilityWe as an opportunity as well as a threat. Across our portfolio, begun have we a process identifying of opportunities bring to about a positive and sustainable environmental opportunities impact. Two that have we identifiedto date are: • • • 1) 1) 2) Our commitment conduct is to our business in a way that has a positive impact on the environment and indeed society as look a whole. forward We announcing to further ESG initiatives that are in the process being of agreed with announced be expected to are and counterparties potential in due course. EV Charging Points Our Aldi anchored scheme at Bradford has been the starting point for our wider roll out this of initiative. At this scheme we funded the installation thirteen of charging points for electric vehicles. These EV charging points letare to a new specialist attractive an and at Limited, InstaVolt counterparty, tenant accretive initial and yield on a new 6% of 25-year lease term. Solar PV Panelling careOur home BUPA in Solihull has been the first assetto implement solar PV panelling. are working We with third party specialists identify to opportunitiesacross our portfolio benefit: will that

< 1% of the Group’s portfolio the of < 1% Group’s has an EPC rating than lower D 27% of the Group’s portfolio27% theof Group’s has an EPC rating C of portfolio the of Group’s has14% an EPC rating D of 34%* of the Group’s portfolio the of Group’s 34%* EPC rated A portfolio the of Group’s has24% an EPC rating B of

summarised as follows: The resultsof thecontracted analysis(by rental are income) properties follow to in due course. majority the of portfolio, with the Scottish and Northern Irish properties in England and Wales, accounting for the vast within the ESG policy. The analysiscovers allof the Group’s • efficiency portfolio of the Group’s to establish performance • During the year ended undertook we a review the of energy • Group’s ownership. • plan in place improve to the rating during the period the of • with an EPC rating than lower D without having an affordable We would not ordinarilyWe acquire built assets,for example, environmental performance. a collaborative approach understanding to and improving and social responsibility requires that seek we implement to partners. That being said, our attitudegoodto governance environmental impact our of properties sits with our tenant of tripleof net leases, means that the legal responsibilities for the The natureof our investment activities, in particular the nature policy that has been adopted the by Company during the year. practices reflect our responsibilities, we have developed an an ESG developed have we responsibilities, practices reflect our same values. In recognition this of and in order ensure to our of ourof investors, tenants and other counterparties the have Company’s businessCompany’s in a socially responsible way and many We recogniseWe our responsibility manage to and conduct the Company on its major stakeholders in the s.172 Statement. year. There is alsoyear. further detail relatingto the impact of the implementation ESG and other ongoing initiatives during the Advisor. This sectionAdvisor. covers someof key theareas of Our full ESG policy is available on request from the Investment Environmental, Social and Governance (“ESG”) have a BREEAMhave rating at of least ‘Very Good’. planning policy. New commercial buildings acquired should acquired buildings commercial New planning policy. the minimum standards laid down building by regulations and environmental performance new of developments exceeds constructionof andbuildings. fit-out We ensure the to consider sustainability-related consider to matters the in design, influenceto encourage thetenant, developer andcontractors Where forward we fund new developments, use we our with the ESG policy. The resultsof the analysis demonstrate performance in line 6.3p 114.6p 31 March 2019 31 March 2019 6.3p 124.3p 31 March 2020 31 March 2020 EPRA per NAV share Adjusted earnings per share per earnings Adjusted Adjusted earnings Our commitment to timely and prudent deployment, whilst prudent deployment, and timely to Our commitment maintaining stringent capital to discipline, us has allowed maintain full dividend in every cover year since launching, The material capital share year. increasesdespite on in year £200m equity of raised during the year was fully committed or deployed within four weeks the of equity raise closing. are confidentWe that inflation-linked rent reviews and the completion forward of funding programmes and a low over largelycost fixed will support earnings growth in the medium- term and continue allow to us grow to the dividend on a like for like basis ahead or of in line with inflationgoing forward. EPRA NAV investment activityThe Group’s is financed principally through equity a lesser issues and extent, debt. To new capital has been generated through realised gains on disposals investmentof property ahead purchase of price following approaches. unsolicited theDuring Company successfully the year, raised £200m of capital equitynew over-subscribed through a significantly were We raise, contributing EPRA NAV. £195.66m the to Group’s delighted that once more our existing shareholders supported our growth plans and the raise also broadened the Company’s investor base. The new equity was issued at a price per shareof 118p which reflected a premiumper shareto of 2.6p, NAV netof costs ex-dividend. and The investmentof new capital and duringthe value theyear, achievedat the point purchase of primarily through forward funding assets at a discount built to values in off-market, relationship-driven transactions was contributor a key the to growth. NAV The change in fair Group’s valueof investment property in the the over or 9.3p weighted year totalled £45.4m capital share duringaverage the year. 12.1% 5.50p 31 March 2019 31 March 2019 5.75p 13.4% 31 March 2020 31 March 2020 : inter alia

a low anda low largelycost fixed base and the benefits of the and scale achieved; of economies arbitrageyield generated through the accretive recycling capital. of inflation-linked portfolio; rent reviews on the Group’s the positive impact conservative of gearing; a disciplined NIY on acquisitions date to 5.8%; of a 13% growth in our annual dividend rate since inception, and year on year; well4.6% ahead UK of inflation indices, whilst maintaining full dividend cover. consistent return total NAV outperformance averaging 12%over pa, compared with stated the Company’s target minimum 8%; and of

Dividend per share Total NAV return NAV Total 16 LXi REIT plc Annual Report 2020 * Assumes all forward funded properties to be completed in due course and achieve EPC rating A • • underpinned by underpinned by • • The growth of the Group’s dividendThe growth returnsof the has Group’s been • income returns ahead of inflation. returns of ahead income of 4.6% year on year, demonstrating ability year on year, grow to 4.6% of the Group’s dividends. The dividend per share reflects for like growthlike dividends totalling 5.75pper share, as four equal quarterly In respect the Companyhas the of paid year, and approved Dividend per share growth is given below. A detailed description the of dividend per share and EPRA NAV growth, through changes during in EPRA NAV the year. through dividends paid to shareholders,through dividends to paid portfolio and capital The Group’s total NAV returntotal comprisesNAV Theboth incomeGroup’s returns, • February we have delivered: 2017, our peer group and targets. Since the launch the of company in • which has demonstrated consistent outperformance demonstrated has which consistent against portfolio that built have the over we three years since IPO We are pleasedWe with the strong financial performanceof the Financial results

Investment Advisor’s report (continued) Investment Advisor’s Total NAV return NAV Total

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 17 the immediate repayment the of facility when new equity is issued or with capital strategy generated from the of Group’s selectively disposing assets of and prior the to reinvestment capital;of and the matching debt of drawdowns reflect to developers’ cash requirements on forward funding projects, ensuring that interest is only sufferedto the extent that a greater return is being generated on those drawdowns through licence fee arrangements.

The RCF was entered into during theyear with Lloyds Bank plc at an attractive rate 1.55%of above three-month LIBOR and provides the Group with significant further operational flexibility and reduced interest expenseby allowingfor: • • The RCF has given the Group a new sourceof debt finance, in Lloyds Bank plc. Its shorter dated maturity provides the Group with flexibilityto refinance, should this represent value, to a more mature debt structure in the medium-term as the Group grows in scale and builds track record. In order hedge to uncertainty the over exposure the to floating whilstof rate interest retainingunder theRCF, the upside reducing of interest rates the over medium-term, the Group traded an interest rate cap at the notional value the of maximum facility the of £100m. of RCF This gives theCompany certainty its over maximum cost debt of for the entire term of the at 2.95%. RCF Inflation performance Despite a slowdown in growth the of UK economy towards the inflationcontinuedend 2019, of to outpace open market rent reviews with the spread widening launch. since the Company’s continued have We implement to investment the Company’s strategy and benefited have from this economic realityby linking the vast majority our of rental upliftsto inflation. TheCompany launchedFebruary in with 2017 the objectiveof taking strategically of and returns inflation-protected providing advantage our of expectation that inflationwouldcontinue outpaceto the slowing rates commercial of property rental growth and allow the Company deliver to superior returns its to peer group with levels lower portfolio of inflation linkage. February theFrom average monthly March to 2020, 2017 published growth RPI rate has been pa, 3.1% significantly outpacing open market rent reviews that averaged have 1.0% pa. Over that period the spread between and RPI open market rental growth has also widened from 150 bps 290 to bps. As the portfolio continues realise to its rent review cycles, the advantage this of is expected be to realised through capital and income growth for the Group. 1 29% 1.1% Expiry Jul 2029 Jul 2029 Jul Dec 2033 Aug 2024 31 March 2019 31 March 2019 20% 1.1% 2.93% fixed Interest rate 2.85% fixed 2.99% fixed 2.99% 1.55% margin 31 March 2020 31 March 2020 Size £55m £75m £40m £100m . 2 Lloyds Bank Scottish Widows Scottish Widows Scottish Widows Lender Lender

RCF Term loan Term loan Term loan Facility Loan to value Total expense ratio expense Total

maturity 11 of years average fixed interest pa2 andaveragecost an of 2.94% interest rate environment. Theterm loans a weighted have of theirof long-dated maturity, take to advantage the of very low The threeterm loan facilitieswere strategically chosen because as the loan value to financialcovenant that is 50%. medium term target maximum loan value to ratio as well 35% of drawing of the Group’s RCF, with headroom to the Group’s with headroom the to Group’s RCF, drawing the of Group’s leverage is expected be to maintained at 30% following full poolassets of with no cross collateralisation. Conservative loans and each an RCF which of is self-contained a specific to Loan value to debt poolcomprises The threeGroup’s separatelong-term a reducing total expense ratio and a growing dividend rate. expect further efficiencies tobe gained that will be reflected in As continue we grow to our capital base and passing rents, we ensure that income is passed on our to shareholders. costs, whilst focussing on the best quality counterparties, to We operateWe stringent capital discipline on all the of Group’s a low 65 bps market of 65 a low cap. management £500m fees (above market of are charged cap) at Group has achieved significantGroupincremental hasthat achieved meaning scale, Through successful equity raises andconservative leverage, the Total expense ratio Total

effects ofconservative leverage. collared index-linked and fixed rental uplifts, and the positive positive uplifts, rental the and fixed and index-linked collared growth in the generation free of cash flows as a resultof largely long-term certainty its over ability generate to significant Fixing the rate interest of on these facilities has given the Group

y 2020 EIT AdvisorsEIT derick Brooks derick ector Dir LXi R 15 Ma Fre

Simon Lee Simon Director LXi Advisors REIT 15 May 2020 We will continueWe work to with our tenantsconstructively to liquiditymaintainmutual prioritise short-term to and the health and safety their of own employees. In doing so, we will contribute positively prospects the to longer-term our of tenants’ operations and demonstrate an ethosthat will, in prospects Company our of turn, support longer-term those investors. and are thereforeWe assisting those tenants that are being proportionate assistance. providing impacted, materially by are in theWe process negotiating of repayment plans with the for due rent the paid yet not have that tenants those current and quarter, are targeting we cash collection and periods rent of deferral that will allow the Company continue to pay satisfactoryto returns shareholders. to The strong financial performance of the Group in yearthe us confidence gave endedto recommend March 31 2020 that the Board propose the final quarterly dividend in respectof that dividend annual target. meet will which the Company’s year, As with downturn, any the sharpening pricing of for secure inflation-protected income brings increasedwith an it interest high qualityin the portfolio Group’s and remain we abreast of unsolicited interest and will look crystallise to gains through disposals ahead book of value where opportunities exist to that defensively acquisitions capitalrecycle accretive into exposures.manage the Group’s favourably compare to continues inflation UK forecastfor The thoseto for open market rental growth the over medium-term. passing our leases containing rent of by index-linked With96% or fixed uplifts we are positioned well to benefit from this going forward. The realityof this spread IPO since willtheCompany’s continue be to capitalised as the fullyear five rent review cycle is realised across the portfolio. portfolioThe Group’s alsocontains an attractive inflation hedge through embedded rental growth regardless inflation of performance the of with portfolio 61% containing either collared or fixed rental uplifts,averaging 2% pa, regardless of a slowdown in UK inflationwe as at saw the end2019. of andFor on behalf the of Investment Advisor letting risk.

‑ Assumes extension options are exercised Weighted by drawn value as at 31 March 2020 Low and sustainable rental levels; and to exposure alleviate that terms unexpired lease Long re Competitive tenant markets with levels low property of specification, meaning that alternative users exist and level capex of a lower is required replace to existing tenants; Institutional-quality tenants their market leaders in that are navigate to placed well are that sub-sectors, respective periods uncertainty; of Leases that generate a fixedlevel of rent, contractuallynot linked underlying to property performance, with regular inflationary uplifts; capital growth through the capitalisation rental of increases reviews. rent following enhanced dividend yield due to substantial to enhanced dividend due yield free cash flows generated via the 286 bps spread between triple net rental income average NIY) (5.8% and all-in low cost fixed of debt and pa); (2.94% higher income growth vs open market rent reviews;

18 LXi REIT plc Annual Report 2020 2 1 • • •

• •

• • continue to produce: to continue • the Group’s low and low largelycost fixed base,the is expected Group’s to Collared, fixed and index-linked rent reviews, together with together reviews, rent index-linked and fixed Collared,

Investment Advisor’s report (continued) Investment Advisor’s characteristics that include: characteristics that volatility in times economic of dislocation are those with demonstrate robust performance and levels lower of In the longer-term, theIn the properties longer-term, that tend to over theover short and medium term. is still unknown but will be globally significant in thevery least resulting from the the full impact extent Covid-19, of which of in anticipation and as a reaction of, the to economic slowdown, 2020 has seen2020 unprecedented volatility in global stock markets Outlookand post balance sheet update strength our of tenant covenants. doing so unlock further value in the portfolio and the financial opportunities lengthen to lease terms with tenants and in active asset management programme that allows us identify to allowing us to upwardly manage the portfolio WAULT, andallowing our us upwardly to manage the portfolio WAULT, through our regular recycling capital, of following disposals, We are well protectedWe against a widening this of spread valuation yields as lease lengths reduce. This means that our portfolio is also resilientto the reversionof through forward funding and sale and leaseback transactions. that reflect(and in many low cases below market) initial rents This has been achieved through a focus on acquiring properties rental levels remain broadly in line with current market levels. inflation linkages over the past threeyears since inception, our Although the portfolio has delivered strong returns through

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic ReportReport Governance Financial StatementsStatements Additional InformationInformation LXi REIT plc Annual Report 2020 19

Frederick Brooks FinancialChief Officer a chartered as qualified and trained Frederick accountant in BDO’s Real Estate and Construction significantsector, the gaining experiencein team, private similar vehicles, listed with working property funds, developers and a number of the topUK’s contractors. Frederick is also a qualified (propertychartered surveyor and finance investment pathway) and a member of the RICS. strategic historical and all covers role Frederick and financial matters annual including reporting, interim forecasting, and budgeting of treasury monitoring the and management internal controls. Frederick is also responsible for the Investment Advisor’s reporting to the Company’s Board of Directors.

Simon LeeSimon Manager Fund Joint Simon trained and practised as a solicitor at City law firm, Slaughter and fromMay, 1999 to 2006, following which he spent the next years 10 in private equity real estate, co-founding Osprey Equity Partners in 2011 and LXi REIT Advisors Limited in 2016. Simon’s role covers a wide range of areas, and strategies investment formulating including asset finance, products, debt equity and raising implementing and negotiating and selection, transactions purchasers, developers, vendors, with investors, lenders and joint venture partners.

20 LXi REIT plc Annual Report 2020 in 2011 and LXi REIT Advisors Limited in 2016. 2007 and co-founded Osprey Equity Partners John moved into private equity real estate in and regional cities), logistics, alternatives. and cities), regional and and out of town), offices (London, Thames Valley range of real estate sub-sectors including retail (in UK acquisitions and disposals across the full disposals the and across acquisitions UK a range of institutional investor clients on their a partner and spent the next 18 years advising team at Cushman & Wakefield. There he became surveyor at Allsops moved to the investment in 1987 and after qualifying as a chartered John entered the commercial real estate market Joint Fund Manager Fund Joint John White investment strategy are: investment compliance professionals and administrative support staff. The key individuals responsible for executing the Company’s Company’s the executing for individualskey responsible support administrative professionalsThe and compliance staff. Thecore management(whose detailsteam are is setsupported out below) by a team of other finance, legal, property and on accessing secure, long-let and index-linked UK commercial real estate through forward funding and built asset structures. described Theteam below. has capitalised and transacted over £1.5 billioncommercialof property assets with a particularfocus The Investment Advisorcomprises property,legal and finance professionals with significant experience in long-let real estate, as reflects the relationship between the Board and the Investment Advisor. Investment Advisory Agreement. The Investment Advisory Agreement is reviewed and amended when necessaryto ensure it The Board has delegated the day-to-day runningof theCompany to LXi Advisors REIT Limited pursuantto theterms of the The Investment Advisor

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 21

Simon Haarer Simon Head Asset of Management In order to continue to deliver strong performance and to increase the focus on unlocking further value in the portfolio, the Head as Simon appointed Advisor Investment of Asset Management in December 2019. Having qualified as a chartered surveyor at Knight Frank Simon spent the first10 years of his career in CBRE, latterly Advisory Lease at roles, Commercial before moving into Asset Management roles. Since making the move he has managed a variety of asset classes industrial offices, including foodstores, and across the UK. Simon’s role at LXi REIT Advisors is to oversee all asset management matters. Nick Barker Nick Officer Compliance Nick is Chief Compliance Officer for the Investment Advisor’s group. He has 30 years’ experience having compliance, regulation financial and of US the Treasury; HM at worked previously Dealers Securities of Association National Regulatory Management Investment the (NASD); advisory compliance the in Organisation (IMRO); teams at Deloitte & Touche and Ernst & Young; adviser. compliance independent an as and

Charlotte Fletcher Transactions of Head Charlotte is a qualified solicitor with responsibility transactions. implementing and managing for Charlotte Advisor, Investment the joining to Prior trained and practised as a solicitor at City lawTravers firm, Smith, where she advised developers, lenders and property funds on a range of commercial real estate matters, including and development residential and commercial forward disposal, funding, and acquisitions work. tenant and and landlord re-financing Sophie Rowney Sophie Sophie is a Partner and General Counsel of the the overseeing group, Advisor’s Investment service activities all legal lines. across group’s Sophie trained and practiced as a solicitor within the finance team at Slaughter and advisingMay, clients on a range of corporate and financing transactions. Sophie studied law at BPP Law School in London and holds a degree in English Literature from the University of Bristol. General Counsel

to a range of FTSE 350 and small-cap companies. private entities as well as providing IR consultancy also worked as a Corporate Broker for public and closed at £400m. Over the last 12 years, Alex has assisting with raising their second fund which opportunistic real estate manager, primarily opportunistic estate manager, real Alex worked at Clearbell Property Partners, a UK estate manager with €3.5bn AUM. Before that, INTERNOS Global Investors, a pan-European real previously an Investor Relations Manager for for Relations Manager Investor an previously for the Investment Advisor’s group. Alex was Alex is responsible for managing investor relations Head of Investor Relations Investor of Head Alex Mattey substantial commercial propertysubstantial commercial transactions. from large scale residential developments to to developments residential scale large from property funds on a variety of deals, ranging where he acted for leading developers and spent five years in the city as a real estate lawyer Prior to joining the Investment Advisor, Jamie Jamie Advisor, Investment the joining to Prior and forward funding real estate space. management experience in the long income Jamie has significant has transactionJamie Jamie Beale Jamie Director the Company will not acquire the land until full planning consent and tenant pre-lets are in place; the Company will pay a fixed pricefor theforward and land, cost construction covering purchase, funded profit;developer’s all cost overruns will be the responsibility the of developer/ contractor; and if there is a delay completion to the of works, this will be as they willa risk pay the for the developer/contractor, Company a return on the agreed acquisition price until practical occurs. completion

in assets with leases containing regular upward-only rental reviews. These reviews will typically link the growth in rents anto inflation index(with such as,potentially RPI, RPIX CPI or a minimum and maximum or level) alternatively may have a fixed annual growth rate. neither undertake will direct Company development The any activity nor assume direct development risk. However, the Company may invest in fixed-priceforward funded developments, provided they are pre-let an to acceptable tenant and full planning permission is in place. In such circumstances, the Company will seek negotiate to the receipt immediateof income from the asset, such that the developer is paying the Company a return on its investment during the construction phase and prior the to tenant commencing rental payments under the terms the of lease. Where the Company invests in forward funded developments: • • • • TheCompany utilisemay derivative instrumentsfor efficient portfolio management. TheCompany may engage in full or partial interest rate hedging or otherwise seek mitigate to the risk interest of rate increases as part the of Company’s portfolio management. TheCompany will not invest in other investment funds.

rent reviews be to inflation-linkedcontain or fixed uplifts; and each property should demonstrate strong residual land characteristics.value very long unexpired lease terms (typically 30 to years 20 to expiry or first break); the properties will be let or pre-let institutional to grade tenants, with strong financials and a proven operating track record;

22 LXi REIT plc Annual Report 2020

• investment considerations: • high quality properties, taking into account the following key • holdings in special purpose vehicles and will seek acquire to TheCompany will invest in these assets directly or through • covenants on very long and index-linked leases. index-linked very and on long covenants assets, let or pre-let a broad to range tenants of with strong returns through acquiring a diversified portfolioof UK property TheCompany will target inflation-protected income and capital Investment policy institutional-grade tenants. property that benefits fromlong-term index-linkedleases with shareholders through investing in a diversified portfolioof UK protected income and capital growth the over medium term for The investment objectiveof theCompany to is deliver inflation Investment objective Investment objective and policy income and cost low debt. of TheCompany will only invest linked or fixed rental uplifts, in order to provide security of (typically 30 to years 20 expiry to or first break), with index- tenants with strong financialcovenants and longon leases TheCompany will seekto only acquire assetslet or pre-letto online retail. hotel operators and ‘last distribution mile’ units fuelled by growth sub-sector areas such as discount retailers, budget housing and student accommodation. It will also focus on alternatives – including hotels, serviced apartments, affordable not limited office, to, retail, leisure, industrial, distribution and TheCompany will target a wide of range sectors, including, but

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 23 The Directors intend at all timesconduct to the affairs of the Company so as enable to it qualify to as for the a REIT purposes the Part of regulations (and 12 2010 the of CTA thereunder). made TheCompany will at all times invest and manage its assets in a way that is consistent with its objective spreading of investmentrisk and in accordance with its published investmentpolicy and will not at time any conduct any trading activity which is significant in thecontext of the business the of Company as a whole. Borrowing policy TheCompany will seekto utilise borrowingsto enhance equity returns. Thelevel of borrowing will be on a prudent basis for the asset class, and will seek achieve to cost a low of funds, whilst maintaining flexibility in the underlying security requirements and thestructure The the of Directors Company. intend that the Company will maintain a conservative level of aggregate borrowings with a medium-term target 30% of of grossthe assets Company’s and a maximum level aggregate of borrowings gross the of assets 35% Company’s of at the time of drawdown the of relevant borrowings. Debt will be secured at the asset level and potentially at the Company or SPV level, depending on the optimal structure for the Company and having consideration metrics key to including lender diversity, debt type and maturity profiles. In the event a breach of the of investment policy and upon Directors the above, restrictions out set investment becoming aware such of breach will consider whether the breach is material, and if it is, notification will be madeto a Regulatory Information Service. No material change will be made the to investment policy without the approval shareholders of ordinary by resolution at general any meeting, which will also be notifiedby an announcement.RNS

the Company will invest in no fewer than two sectors at time. any the aggregate maximum exposure one any to tenant, at the time acquisition of the of relevant investment, will be 30% of Grossthe where higher Asset the Company of: or (i) (ii) Value; has not yet become fully geared, Gross Asset adjusted Value on the assumption that property the Company’s portfolio is geared at 30% loan value; to and the value no of single property, at the time acquisition of of the relevant investment, will represent more than 30% of Grossthe where higher Asset the Company of: or (i) (ii) Value; has not yet become fully geared, Gross Asset adjusted Value on the assumption that property the Company’s portfolio is geared at 30% loan value; to

•

• investment restrictions: investment • objective spreading of risk and will the have following TheCompany will invest and manage its assets with the Investment restrictions

instruments and money market instruments. sterling only and invested in cash, cash equivalents, near cash Company pending reinvestment or distribution will be held in Cash held for working capital purposes or received the by from time time. to in a tax efficient manner as determined by the Directors to returnto those proceeds or part proceeds shareholders to 12 months receipt of the of net proceeds, the Directors intend invest the proceeds or part proceeds fromdisposal any within investment policy. However, shouldinvestment the Company policy. fail However, re- to potential future disposals in accordancewith the Company’s the medium term and intend reinvest to proceeds from any The Directors focusedare on delivering capital growthover a result a change of in the respective valuations its of assets. to disposeto investment any of or rebalance to its portfolio as Proceeds are fully invested. TheCompany will not be required The investment limits detailed above apply once the Gross Issue 24 LXi REIT plc Annual Report 2020

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

Result Below our medium term maximum target of 35% and LTV covenant of 50%. times 1.1 Reflecting cover. dividend In line with our target. In line with our investment objective. In line with our investment objective. 540bps ahead of our medium medium our of 540bps ahead term minimum target. In line with our annual target. NAV EPRA Increased per share by 9.7p. LXi REIT plc Annual Report 2020 25 2019 29% 6.3p 1.1% 22 years 96% 12.1% 5.50p 114.6p 1 Performance 2020 20% 6.3p 1.1% years 22 96% 13.4% 5.75p 124.3p

Relevance to strategy This measures the extent to which we are investing in line with our investment returns. inflation-linked provide to objective, The total expense ratio is a key measure of our operational excellence. Maintaining a low cost dividends. pay supports abilitybase to our is a keyTheWAULT measure of the portfolio. lease our Long quality of terms underpin the security and stream. income predictability our of The LTV measures the prudence of our our of prudence the LTV measures The additional balancing the strategy, financing portfolio and returns diversification that come with using debt against the risk. manage successfully to need The Adjusted earnings per share reflects our ability to generate income from our our underpins portfolio, ultimately which dividend payments. A reconciliation of Adjusted earnings is included in Note 25 to statements. financial consolidated the The dividend reflects our ability to deliver a low-risk but growing income stream from our portfolio and is a key element of our total NAV return. The reflectsNAV our ability to grow the portfolio and to add value to it throughout the life cycle of our assets. Total NAV return measures the ultimate outcome of our strategy, which is to deliver portfolio our through shareholders our to value and to deliver a secure and growing income stream. A reconciliation of total NAV return is section. Information Additional the in provided

and definition and  Loan to value  index-linked or fixed or index-linked Percentage of contracted rents Total expenseTotal ratio  Dividend per share  EPRA per NAV share Adjusted earningsAdjusted per share  Total NAV return NAV Total Weighted average unexpired  lease term lease

Assuming full drawing of the Group’s RCF to settle commitments on the Group’s forward funding projects pro-forma LTV is 30%

KPI 8. This takes the total value of contracted linked reviews rent contain rents that to inflation or fixed uplifts. 7. The average unexpired lease term of the property portfolio weighted by annual passing rents. Our target is a minimumWAULT of 20 years. The ratio of total operating expenses, as expressed fees management including a percentage of the average net asset value. 6. 5. share per earnings Adjusted Post-tax attributable shareholders, which to includes the licence fee receivable on assets development forward funded our treated under IFRS as discounts to propertyinvestment acquisitions. 4. assetstotal our proportionof The that is funded by borrowings. Our target maximum LTV is 35%. 3. The value of our assets (based on an independent valuation) less the book value shareholders liabilities, attributable our to of EPRA with accordance in calculated and guidelines. At the current and comparative differences no were there end period between EPRA NAV and IFRS NAV. Dividends paid to shareholders and and shareholders to paid Dividends proposed in relation to a period. 2. 1. Total NAV return measures the change in the EPRA NAV and dividends during the period as a percentage of EPRA NAV at the start of the period. are We targeting a minimum of 8% per annum over the medium term.

1 Our objective deliver is to attractive, low-risk returns shareholders, to executing by our investment policy.

Key performance indicators performance Key Set out below are the performance key indicators use we track to our (“KPIs”) performance.

6.0% 6.0% 0.00% 16.4% vacancy direct (no costs incurred) £403.8m / 114.6p share per £14.9m / 5.6p per share £405.0m/ 115.0p per share 5.1% 2019 5.1% 6.3% 0.00% 17.1% direct(no vacancy costs incurred) £648.1m / 124.3p per share / 5.6p £27.1m per share / 121.2p£632.1m per share Performance 2020 A ‘pure’ measure (%) of investment property space that is vacant, based on ERV. meaningful measurement enable to measure key A of the changes in a company's operating costs. This measure should make it easier for for easier it make should measure This investors to judge for themselves how the valuations of two portfolios compare. for easier it make should measure This investors to judge for themselves how the valuations of two portfolios compare. Adjusts NAV under IFRSto provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company, with a long term investment strategy. A key measure of a company's underlying operating current which extent to the of indication an and results earnings. supported payments by are dividend AdjustsEPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and liabilities within a real estate company. Purpose

EPRA NIY EPRA Vacancy deferred taxes. deferred debt; and financial instruments;financial EPRA Earnings EPRA NNNAV EPRA NIY ‘Topped-Up’  EPRA NAV EPRA Cost Ratio 

7. operatingAdministrative costs (including and and excluding costs of direct vacancy) divided by gross rental income. 6. Estimated market rental value (“ERV”) of vacant space divided by the ERV of the whole portfolio. This measure incorporates an adjustment to the EPRA NIY in respect of the expiration of rent-free periods other (or unexpired lease incentives, such as discounted rent periods and step rents). 5. (iii) 4. Annualised rental income based on the cash rents passing at the reporting date, less non-recoverable property operating expenses, divided by the market value of the costs. purchasers’ (estimated) with increased property, EPRA NAV adjusted to include the fair values of: (i) (ii) 3. 2. operational activities from Earnings (which excludes the licence fees receivable on our assets). development forward funded 1. properties include to adjusted value asset Net and other investment interests at fair value and to exclude certain items not expected to crystallise in a long term investment property business. KPI and definition and KPI 26 LXi REIT plc Annual Report 2020

Reconciliations other of EPRA performance measures in the Notes the to EPRA and alternative performance measures on page 96. Reconciliations EPRA of Earnings are included and NAV in Notes 25 the and to 26 consolidated financial statements respectively. EPRA. provide these We measures aid to comparison with other European real estate businesses. The table below shows additional performance measures, calculated in accordance with the Best PracticesRecommendations of EPRA performance measures EPRA

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 27 A list of the Company’s key service A list key the of Company’s

The Investment Advisor performs extensive due

providers can be found in the Management Engagement Committee Report. As an externally managed investment trust, the Company conducts all its business through its key service providers. Before the engagement a service of provider, the Board ensures that business the Company’s outlook as well as values The are similar. Board performs an annual evaluation all of its of service key providers ensure to inter alia that values the remain Company’s aligned. The Board has regular interaction with the Investment AIFM, Broker, Advisor, Secretary,Company Administrator Depositary and receives and reports on the performance the of rest the of service key providers the by Investment Advisor and Company Secretary. Tenants: diligence beforea tenant is selected, and during the tenancy agreement they maintain a constructive relationship through engagement.ongoing TheInvestment Advisor into takes account the tenants’ changing needs and uses their expertise to assist them in way any within their ability. acquisition strategyThe Group’s generally is focussed towards new leases being agreed with tenants and seeks avoid to landlord’‘passive status with tenants. The Group acquires the majority its of properties through forward funding or forward structurescommitment leasebacks, and corporate sale or meaning that close access is achieved the to tenant and their business plans, and direct input negotiating in the commercial terms the of lease. This puts us in a stronger positionto generate and foster relationships with our tenants than landlords who focus on purchasing ready made products with a significant portionof a lease term already having expired. alsoWe focus on asset management initiatives assist to our tenant partners in achieving the maximum value from the sites importance strategic their increasing thereby, and own we that theto tenants and in doing so increasing the security of our own income. Service Providers: As a public company listed on the London

Company updates and foster to regular dialogue. regularly meets with shareholders the Company’s provide to Investment Advisor along with corporate the Company’s broker the Company is managed the by Investment The Advisor. To a great extent,To shareholder engagement on behalf of information on shareholder engagement. shareholder on information Governance section this of report which contains further For information on shareholder engagement please see the please engagement shareholder on information For the Listing Rules at all times. counsel, secretary and the corporate Board abides broker, by discussions with and the formal legal advice the of Company’s rights attaching such to shares. With the assistance regular of shares that are in the same position equally in respect the of must ensure that it treats all holders the of same class of Listing Rules include a listing principle that a listed company Shareholders: and the Disclosure Guidance and Transparency Rules. The stakeholders identified. Stock Exchange, the Company is subject the to Listing Rules it makes in respect the of Company upon those major monitors both potential and actual impacts the of decisions Company’s business.Company’s On an ongoing basis the Board The Board has identified the major stakeholders in the Stakeholder identification and management and identification Stakeholder needs account. into term and how the Board has taken wider stakeholders’ consequences the of decisions the of Board in thelonger This statement includesconsideration of the likely of the Company for the benefitof members as a whole. s.172(1) of the of s.172(1) Companies Act 2006, in promoting the success considerations and activities in discharging their duties under under duties their discharging activities in and considerations This sectionof the AnnualReport covers the Board’s Section 172 statement 172 Section

34% of the Group’s portfolio the of 34% Group’s EPC rated A* portfolio the of Group’s has24% an EPC rating B of portfolio27% theof Group’s has an EPC rating C of portfolio the of Group’s has14% an EPC rating D of portfolio the of < 1% Group’s has an EPC rating than lower D

We expectWe all new buildings Energy have to Performance Certificates rated at C or higher and that the design will energy efficiency advanced insulation, enhanced incorporate and a suitable features. range water-saving of Aside from managing assets in an environmentally responsible see we sustainability manner, as both a threat and an opportunity. There is a risk that the future value someof properties may be adversely affectedissuesby sustainabilityof and that potential tenants that share our values would be minded against the occupation a building of with a comparatively negative impact on the environment. systems have We in place enable to us monitor to and then manage these emerging risks as part our of overall approach to risk management. believe we Conversely, that some assets may experience positive change in value as a result the of towards move carbona lower economy and the increased habit among our tenants potential (or tenants) value to buildings that a comparativelyhave positive impact on the environment. As such, prioritise we assets that already demonstrate strong performanceenvironmental opportunities where or improve to identified. are it During the at the year ended instruction March 31 2020, of the Board, the Investment Advisor undertook a review of the energy efficiency portfolio of the Group’s to establish performance within the ESG policy. The analysiscovered propertiesall the of in Group’s England date), and (to Wales accounting with for 91%, the Scottish and Northern Irish properties, the remaining 9%, follow to in due course. The resultsof the properties analysedcontracted (by rental are summarisedincome) as follows: • • • • • The resultsof the analysis demonstrate performance in line the ESG policy. As a real estate investmenttrust, the Company

have a BREEAMhave rating at of least ‘Very Good’. planning policy. New commercial buildings acquired should acquired buildings commercial New planning policy. the minimum standards laid down building by regulations and environmental performance new of developments do exceed constructionof andbuildings. fit-out We ensure the to consider sustainability-related consider to matters the in design, 28 LXi REIT plc Annual Report 2020 influenceto encourage thetenant, developer andcontractors * Assumes all forward funded properties to be completed in due course and achieve EPC rating A Where forward we fund new developments, use we our during ownership. the period the of Group’s without having an affordable plan in placeto improve the rating an Energy Performance Certificate (“EPC”) rating lower than D We would not ordinarilyWe acquire built assets, for example, with able to exert. acquisitions due the to difference in influence we arethat standard varies between built and forward-fundednew asset that affordable improvements can be made. Our minimum our minimum standards unless are able we demonstrate to We will notWe ordinarily acquire buildings that fall short of other service providers do to the same. coming under its ownership and encourage our tenants and the Company seeks reduce to the carbon footprint assets of Where consistent with the fiduciary Board’s responsibilities, available on request from the Company Secretary. report and the Company also has an ESG Policy which is environmental initiatives are given in the Investment Advisor’s Company’s level environmental of Company’s performance. Details of responsible manner and seek continuously improve to the Company’s environmentalCompany’s impact in the most effective and and the Investment Advisor are committed managing to the directly and indirectly impact the environment. The Board The Board recognises that the Company’s investment activities investment Company’s the that recognises Board The The Company’s impactTheCompany’s on the environment recruitment processes will reflect this. centre of the Company’s recruitmentcentre the of Company’s policy and future director of threeof male directors and two female. Diversity is at the seminars where required. Boardcomprised The is Company’s Investment Broker and Company Advisor, Secretary and attend regulatory updates from its professional advisors such as the environment. Board The receive Company’s regular market and taking which could potentially a harmful have impact on the approved the by Board, they remain insulant excessive to risk feeremuneration. Since all investment decisions be to have Employees: a Board Directors of who are non-executive and receive fixed out third by party service the providers. Company has However, does not employees any have as all its of functions are carried Section (continued) statement 172

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 29

Key decisionsKey made during the year Equity raise during the year During the year the Board approved a £200m capital raise that is described in detail in the statement Chairman’s and the Directors Report. The Boardconsidered that the deployment new of capital would benefit the shareholders theof Group through increased diversification and a reduced ratio. cost ongoing Debt issue during the year During the year the Companyagreed a new £100m credit facility with Lloyds Bank, described in detail in the Investment Advisors report. The Boardconsiders that the new facility would conservatively leverage the proceeds the of Company’s equity in line with raise the (above) prescribed borrowings policy the of Group. wouldThe RCF also support the efficient implantation of the strategies for forwardGroup’s funding and capital recycling as described in the Investment Advisors report. Investment Advisor Agreement extension During the year the Board approved the extension the of term Investment the of Company’s Advisory Agreement with LXi Advisors REIT Limited. The extension is described in the Committee Report. Engagement Management The Boardconsiders that the extensionof the Investment Advisor Agreement will benefit theCompany and its shareholders certainty providing by service. continuing of The Investment ability Advisor’s to source high quality assets, with a particular focus on pre-let forward fundings, and also maketo selective profitable disposals at disciplined and attractive pricing been have at the the of core Company’s outperformance.

potential equity raise is approved. and risks raising of new capital and at what price before any capital is raised. The Boardconsiders the respective merits position that will allow the timely execution deals of once new advance due diligence on a pre-identified pipelineto a defensive approved. It works closely with the Investment Advisor to the merits raising of new equity and debt capital before it is and As accretive such manner. the Board carefully considers shareholder value growing by the Company in a prudent Thelong-term Board’s strategicgoal has beento maximise approving each transaction. each approving values and operational excellence in its sub-sector before tenant’s robustness, financial viability, reputation, corporatereputation, robustness, viability, financial tenant’s The Board also particularly deliberates on the qualityof each validate the quality each of investment. transaction. In turn, the Board offers a robust challengeto conclusions which are presented the to Board before each relies on the Investment sourcing Advisor’s and due diligence due consideration its to wider stakeholder group. The Board property acquisition and disposal and in doing so is able give to The Board retains responsibilityfor the approvalof every quality reporting of stakeholders. the to Company’s with shareholders other and financiersregularity and the and portfolio, relationships of maintenance and the development management the of risks and exposures the of Company’s the sourcing high of quality assets at attractive pricing, the Advisor’s managementAdvisor’s team. In particular, this is reflected in performanceunderpinned is the by quality the of Investment and in all cases has exceeded or met its stated target. This Advisor. The Group’s performance The to date Group’s hasAdvisor. been strong The mainworkingBoard’s relationship is with the Investment Board activity stakeholder and considerations Impact Moderate High Moderate Moderate to High Probability Moderate Moderate Low to moderate High The Group undertakes thorough due diligence before acquisition and generally acquires assets let to strong tenants with proven operating track records who will be able to pay the rents as and when they are due. Tenant The basis. ongoing an on worthiness performance monitored credit and is Group has 52 strong tenants across nine property sectors and is not over exposed to any single tenant or industry thereby minimising exposure. The Board has set the overall investment objective and strategy of the Group. The Group has a wide range of available assets given the(i) multi sector approach and our (ii) ability to forward fund as well as invest in built assets. The Investment Advisor has long Investment The record. track extensive an standing and relationships an on returns and position financial Group’s the monitors Advisor ongoing basis. The Board reviews the performance of the Group against its investment objectives at quarterly Board meetings. The Group generally acquires properties with strong fundamentals that are of strategic importance to their tenants. The Group aims to hold assets for long-term income and embeds income growth into leases which contributes has Valuer Independent experienced An movements. valuation positive toward been appointed to carry out bi-annual property valuations. The performance of third party service providers is regularly reviewed by the Board. Mitigant The Board has moved to a Business Continuity Plan to business. the of operations continued support the The Board and the management engagement committee are closely monitoring the business continuity of each of our key service providers to ensure adequate controls are in place to limit the impact toon the Company. The Board, Investment Advisor and key members of the management team has have been working remotely since 16 March 2020.Communication between the Board, its advisors, tenants and key service providers is frequent and regular. The Board is closely monitoring the impact on our assets and on our tenant’s ability to meet rent obligations. Negotiations are ongoing to maximise the Group’s cash flow, to protect dividend distribution and viability of long-term balancing the satisfy while covenants, banking required. as assistance proportionate extended have We tenants. The Board is committed to providing all relevant information to the market on a timely basis to foster good communication stakeholders. other and shareholders our with Further detail of this is given in the going concern section of this report.

Tenant default risk default Tenant Dividends payable by the Group and its ability to service the Group’s debt will be dependent on the income from the properties it owns. Failure by one or more tenants to comply with their rental obligations could affect the ability of the Company to secure dividends. The Group considers that the probability of a tenant default has moved from low to moderate as a result of the uncertainty relating to Covid-19, which is referred to in detail under other risks below. Property valuation properties. Propertycommercial inherently is in invests Group The difficult to value due to the individual nature of each property. As a result, valuations are subject to uncertainty and therecan be no process valuation the from resulting estimates the that assurance will reflect actual sales prices that could be realised by the Group in future. Such investments are generally illiquid; they may be difficult for the Group to sell and the price achieved on any realisation may be a discount to the prevailing valuation of the relevant property. The Valuer Group’s has included a disclosure relating to material uncertainty in the property valuation as at 31 March 2020 (refer to Note 9 of the Consolidated Financial Statements). The Group considers that as a result of this the probability of an error in the estimation of the group’s property valuation has increased from low, to low to moderate. Property and real estate risks properties for Competition The Group will face competition from other property investors. Competitors may have greater financial resources than the Group and a greater ability to borrow funds to acquire properties. Competition in the property market may also lead either to an oversupply of properties in the target market through over development or the price of existing properties being driven purchasers. potential by bids competing through up Covid-19 globalCovid-19 pandemic governments caused has disease infectious of spread Rapid to implement a policy to restrict travel and take other measures to prevent its spread, resulting in a slow down changes volatility, price share significant economy, the to to the working habits for our key service providers, and unprecedented disruption to many of our tenant’s businesses. Risk

30 LXi REIT plc Annual Report 2020 Principal risksand uncertainties

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information Impact High High High Low Probability Low Low Moderate Moderate LXi REIT plc Annual Report 2020 31 The Investment Advisor monitors compliance with the REIT regime. The Group has appointed experienced third-party tax advisors to assist experience. relevant appropriate matters with tax compliance with Calculation of dividends is carried out by the Group’s Administrator before review by the AIFM and Investment Advisor. The performance of third party service providers is regularly reviewed by the Board. The Board has executed a long-term Investment Advisory Agreement securing the services of Investment Advisor until March 2025. The Board meets regularly with the Investment Advisor to promote a positive working relationship its performance is monitored by the Advisory Investment The Committee. Engagement Management fee is based on a sliding scale of market capitalisation to align the shareholders. the of those with interest Advisor’s Investment The Board recognises that the level of uncertainty makes the risk difficult to mitigate fully. The strength of the Company’s tenant and guarantor group reduces the risk of economic uncertainty impacting our income returns and our diverse portfolio is well positioned to withstand any economic downturn. The Group invests solely in UK property.We also note the flight to attractive secure long income which has emerged in the current climate of uncertainty, attracting many investors to the sector due to the positive yield gap to gilts. continueWe to monitor closely the potential impact of changes in the regulatory environment that may impact the Group. Mitigant The Group acquires property with a low loan to value ratio (“LTV”) and significant headroom for valuation movements. TheLTV Group’s at 31 March 2020 was 20%, and is expected to rise to 30% following full drawing of the Group’s RCF to settle forward funding commitments. This is below our maximum LTV of 35% and materially below our default covenant of 50%. The Group has embedded index linked of fixed income growth in 96% of its leases, by value, andfully fixed the rate of debt.We also maintain a long which WAULT makes covenant compliance more predictable. Political uncertainty Following the ratification of the UK’s exit from the European Union, and with ongoing negotiations as to the nature of the UK’s ongoing relationship with the European Union as well as other new trade deals uncertainty economic significant political and is there negotiated being in the UK. The extent of the potential impact on the Group is unknown but the impact on the economy could result in difficulty raising further capital in the European Union and/or a change in the regulatory compliance burden on the Group. Until the exact terms of the UK’s new relationship with Europe becomes clearer the exact outcome and potential impact for the business is difficult to predict. Failure to adhere to accounting, legal and regulatory requirements could result in material adverse consequences to the Group. If the Group fails to remain qualified as a REIT, the Group will be subject to UK corporation tax on some or all its property rental earnings the reduce would which gains, chargeable and income shareholders. to distribution for amounts available and Compliance Dependence on the Investment Advisor Investment the on Dependence The Group relies on the Investment Advisors services, market intelligence, relationships and expertise. a large To extent the Group’s performance is reliant on the continued service of the Investment Advisor. A termination of the Investment Advisory Agreement would have an adverse impact on the Group’s performance. Other risks Financial risks Operating banking within covenants The Group’s borrowing facilities contain certain financial covenants relating to loan to value ratio and interest cover ratio, a breach of which would lead to a default on the loan. The Group must continue to operate within these financial covenants to avoid default. The Group considers that in view of the lower rate of rent collection for the quarter ending June 2020 and the Government’s withdrawal of forfeiture rights in favour of commercial property tenants for that quarter, as well as the material uncertainty that exists in the Covid-19 environment in respect of propertyvaluations, the risk associated with a breach of banking covenants has moved from low to moderate. Risk , the valuation 1 versus the interest test cover 300% of 2 of theof property portfolio an would reduce to have 41%, by outward yield movement bps, 343 of in order for the Group breachto covenant its LTV Similarly, the Group’s forward lookingSimilarly, the Group’s interest ratio cover is c.600%(“ICR”) negotiations ongoing support to order the Group’s In with tenants in respect rent of the recovery, Group’s term-loan lender has suspended the ICR covenant until whenDecember normality 2020, widely is anticipated to returnedhave the to rent collection cycle The Group has no short or mediumterm refinancing risk given the average maturity 11-year its of long term debt facilities with Scottish Widows the firstof which expires which are fully fixed at an averagein Julyall-in 2029, pa rate 2.94% of TheCompany also has a committed £100 million revolving Bank, was which with Lloyds facilitycredit (“RCF”) completely undrawn and fully March covers at 31 2020 its commitments on forward fundings The is RCF being drawnto match the developer drawdowns they fallas generates and significant due arbitrage between the funding rate received on developments and the interest rate paid on the drawn element The Group’s loan to value (“LTV”) as at 31 March 2020 loan 31 to as at (“LTV”) March2020 value The Group’s was 20%, this provides significant headroomto the covenant 50% of portfolioThe Group’s is currently valued£914.0m at reflecting a valuation yieldof 5.0%. Assuming full drawing of the pro-forma RCF is 30% LTV pro-formaOn the LTV basis the of Group’s Whilst material uncertainty relating property to values exists and short-term fluctuations may be expected, factors contributing the to resilience the of property portfolio valuation are detailed The Board below. has reasonable comfort that no yield shift in the region noted above will occur The Investment Advisor is in regularcontact with the Group’s lenders who are supportive the of Group, take comfort in the valuations the by Standing Independent and Valuer not have instructed their own valuation test to covenant compliance

Low, long dated andLow, low-cost debt facilities, with headroomsignificant covenant • • • • • • • • • •

Assumes all rents are paid by tenants as they fall due Pro-forma LTV is calculated as the Group’s total bank borrowings, assuming the RCF is fully drawn (£270.0m), as a percentage of the Group’s investment property valuation as at 31 March 2020, which includes forward funded commitments outstanding at that date

32 LXi REIT plc Annual Report 2020 2 1 16 March 2020 and is operating March16 2020 well. and remote working policies that has been in effect since Response Plan in place which includes travel restrictions Business Continuity Procedures, the Company has a Pandemic advisers, tenants and service key providers and, as part its of The Group remainsconstant in communication with all its and is complying with these across its business. Public England, authorities Health other and relevant the NHS recommendations issued the by Health World Organisation, volatility and the Group is continuing monitor to closely the top priority, especially during this period uncertainty of and and wider stakeholders continues to remain the Company’s the Company’s remain to stakeholders wider and continues The health and safetycolleagues,of tenants, shareholders highly diversified by tenant, by sector diversified location.highly and index-linked leases a wide to range strong of tenant covenants commercial propertycommercial assets very term, on pre-let long or let Group’s robust balance sheetGroup’s and high-quality portfolio of mitigate the risks presented draw it. by comfort We from the navigate effectively a prolonged periodof uncertainty andto The Board believes that theCompany remainswell placedto of our tenants and assets. measures, the to operation and trading performance many of caused the by virus and necessary short-term Government it is having on the operations the of Group and the disruptions the Covid-19 global pandemic and the unprecedented impact unprecedented the and pandemic global Covid-19 the prevalent since inception This is the of as a resultof Company. concern is subject more to uncertainty than has previously been Assessment ability continue to the of as Group’s a going as at 31 Marchas at 31 2020. Group’s financial position, income streams and loan loan financial income and streams position, facilities Group’s a going concern. TheStrategic Report describes in detail the The Board regularly ability monitorscontinueto the as Group’s Going Concern Going concern and viability

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 33 £0.3m hasbeen £0.3m received in cash; £1.2m is now due be to paid within three months; is now due be to paid£0.2m between three and twelve months; and less has than been £0.1m given as a rent concession - - - - £1.6m remains the subject detailed of discussions with the tenant, which represents contracted 3.2% the of Group’s annual rent roll. The Investment Advisor expects the £1.7m is now subject agreed to terms with the tenant, contractedwhich represents annual the of Group’s 3.6% rent roll. Of this amount: - - - - majority this of be to received within twelve months - - The strong financial performance of the Group in yearthe andended the March current 31 2020 liquidity has given the Board confidenceto propose the final quarterly dividend in respect meeting annual that of the dividend Company’s year, target, which will be paid shareholders to on July 2020 17 The Boardconfirms that it expects to approve thepayment first theof Company’s quarterly dividendfor the financial year ending at the March 31 rate 2021 1.30 of pence per share. This dividendis in respectof the quarter ending and is scheduled30 June 2020 be to declared and paid in September 2020 The tenants majoritycontinue to of aspay the Group’s normal, or moved have monthly to payments forone quarter The Board notes that, like the vast majorityof large commercial property landlords, been have we impacted by the Government’s guidance in respect the of current quarter that non-payment rents of would not result in forfeiture, and as a result some our of tenants withheld have their rental payments in respect the of quarter ending 30 June 2020 £3.3m the of quarterly rent roll was unpaid as at the quarter date in March and subject deferral to negotiations, representing £48.3m annual 6.8% the of Group’s roll rent contracted The Investment Advisor has been in negotiations with those tenants that had not paid their quarter’s rent and provides the following update, which demonstrates good progress towards recovery the of vast majority the of unpaid rents: - -

dividends and recovery Rent • • • • • •

The Groupcouldcontinue to meet its ongoing operational and financingcost obligations at a recovery 17%of rate of rental income Disposal proceeds will be used in the short-term support to liquiditythe and in the Group’s medium-term expect we to redeploy the capital into our existing pipeline accretive of assets other opportunistic and/or purchases that may arise in the current crisis The Group has exchanged unconditionally on the disposal twoof assets for proceeds £2.1m, of representing an uplift 15.1%of on purchase price, 2.8% on current book value and generating a geared IRR 15.1% of pa At 31 March 2020 the Group March 31 At 2020 had net assets £648.0m of and available uncommitted £403.8m) March 2019: (31 cash reserves £19.4m) March £13.4m of 2019: (31 In the sectors has such spot-lit, as budget which Covid-19 hotels, pubs and drive-thru coffee shops, theCompany’s tenants Greene – Premier King, Inn, Travelodge, Costa Coffee and Starbucks – are market leading operators, with strong balance sheets material and cash holdings A number tenants, the of Company’s such as Aldi, Lidl and BUPA, are in sectors which are trading robustly in the current climate The Company’s portfolioTheCompany’s benefits sustainable fromlow, rents, making theassets highly profitable and valuableto our tenants. This is in part a consequenceof theCompany forward funding, ona pre-let basis, brand new buildings and carefully structuring sale and leasebacks Each property is let on a fixed(i.e. rentnot related basis to turnover or trading), with the of 96% income benefitting uplifts fixed or index-linked from The Company’s leases averageThe Company’s years22 to first break and each lease is drawn on a fully repairing and insuring basis – tenants are responsible maintenance for repair, and outgoings, so there is no cost leakage for the Company The Company’s portfolioTheCompany’s 100% is let or pre-letoverto 50 strong tenants, across nine sub-sectors. Further security is provided through the tenants and guarantors being the main trading or parentcompanies within the tenant groups

• •

• •

• •

• •

• on very long leases strong to tenant covenants • Defensive and diversified portfolio that100% is let or pre-let

Strong liquidityStrong The Group’s first significant The Group’s key assumptions including key The sensitivities performedwere designedto be severe but plausible; andtake to full account the of availability of mitigating actions that could be taken or avoid to reduce the impact or occurrence the of underlying risks: outlook: economic in Downturn tenant default, void periods, necessary rent free periods, capital expenditure, income growth and softening valuation yields were sensitised reflect to reasonably levels likely downturn. economic a longer-term with associated finance: of availability Restricted (assuming all extensionrefinancing options are event taken) policyto is arrange The Group’s alternativeis August 2024. finance in advanceof expected requirements and the Directors oran additional extension, that confidence reasonable have replacement debt facilities will be put in place prior the to ability the has Group the Furthermore, date. refinancing maketo disposals investment of properties meet to the future financing requirements and has demonstrated its ability do to so. Based on the work performed, the Board has a reasonable expectation that the Group will be able continue to in business over theyear five periodof its assessment. Approval TheStrategic Report was approvedby the Boardof Directors. Hubbard Stephen Chairman the of Board Directors of 15 May2020

TheCompany willcontinue to monitor the improving visibility on its future rent collection as the UK moves out of lockdown and is keeping its dividend guidance under careful review on a quarterly basis The Board believes this is an appropriatelevelfor the period which it expects be to the by covered rents collected for the quarter in the March ending (i.e. 2020 30 June 2020 rents) advance

34 LXi REIT plc Annual Report 2020 •

• Goingconcern and viability (continued) secured debt covenants. a range of assumptions key impacting compliance with considers the sensitivity the of financial projectionsto the Group’s longer term financialthe projections. Group’s The Board Five years was considered appropriate as it by is covered be renewed or an appropriate equivalent put in place. the Board has reasonable confidence that the agreement will will agreement the that confidence reasonable has Board the Agreement is renewed on consistent terms when itexpires as assumed within the projections that the Investment Advisory the Investment Advisory Agreement which expires It is in 2025. consider the Group’s viabilityconsider a period the cover Group’s that is longer than Thelonger term financial projections used by the Board to year period March to 2025. Concern’ provision. The Boardconducted this reviewfor a five a longer period than the 12 months required the by ‘Going the Board has assessed the prospects the of Group over In accordance with the AIC Code Corporate of Governance, Viability statement preparation of this financialpreparationinformation. this of and therefore adopted have the going concern basis in the months from the date approval of these of financial statements Group has the ability continue to in business at least twelve Based on the consideration above, the Board believes that the Going concern statement

Overview Strategic Report Governance Financial Statements Additional Information

Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 35

36 40 46 49 50 51 54 55

Governance Directors’ report Governance Corporate governance statement Report Committee the Audit of Report the of Management Engagement Committee Depositary statement Directors’ remuneration report Statement Directors’ of responsibilities report Auditor’s Independent

Principal professional advisors professional Principal and Investment Advisor AIFM LJ Administration Limited AIFM. (UK) is the Company’s The Company and appointed have the AIFM LXi Advisors REIT Limited provide to certain services in relation the to Company itsand portfolio.Committee TheEngagement Management report includes details the of remuneration and the of AIFM the Investment Advisor. is regulatedThe AIFM in theconduct of investment business theby FCA. is, Thefor AIFM the purposesof andthe AIFMD the rules the of FCA, a ‘full scope’ UK alternative investment fund manager with a Part 4A permission for managing such AIFs, the Company. as Depositary Langham Hall UK Depositary LLP has been appointed as Depositary provide to cash monitoring, safekeeping and asset verification andoversight functions as prescribedby The Depositarythe AIFMD. Statement is included in this Report.Annual SecretaryCompany PraxisIFM Services Fund Limited (UK) has been appointed as the Company Secretary the of Company and provides company secretarial services and a registered office to the Company. Administrator Langham Hall UK Services LLP has been appointed as Administrator The the to Administration Company. of the Company is delegated and in consultation with and the AIFM the Investment financial Advisor, informationof the Group prepared the by Administrator is reported the to Board. Share capital Capital structure rights and voting issued the shareAs Company’s capital March at 31 2020, ordinarycomprised 521,426,010 shares, each 1p of nominal value. Each ordinary share held entitles the holder one to vote and there are no restrictions on those voting rights. Voting deadlines are stated in the Notice and Form Proxy of and are in accordance with the Companies Act 2006.

insurance cover, at its expense,insurance cover, on the Directors’ behalf. TheCompany maintains Directors’ and Officers’ liability during the period. the during Therewere no other changesDirectorsto theCompany’s director from 1 January 2020. the Company appointed Patricia Dimond as a non-executive a non-executive Dimond Patricia as appointed the Company 36 LXi REIT plc Annual Report 2020 biographical details other and information. During the year, of Directorsof section this of report, together with their The namesof the current Directors are given in the Board Directors Distribution (“PID”). dividend target. The dividend will be paid as a Property Income of theof year 5.75p to per share, in line with the Company’s 25 June 2020. This will 25 June take thetotal 2020. dividends paid in respect on the The register ex-dividend June at 26 2020. date will be 1.4375p per share, shareholders to payable on July 2020 17 dividend in respect the of of year ended March 31 2020 On 15 May 2020 TheOn 15Board May 2020 approved a fourth quarterly 27 March 2020. 31 March 2020 of 1.4375p of per March share31 which 2020 was paid on The third quarterly dividend in respectof theyear ended 20 December 2019. December 20 31 March 2020 of 1.4375p of per March share31 which 2020 was paid on The second quarterly dividend in respectof theyear ended 23 September 2019. September 23 31 March 2020 of 1.4375p of per March share31 which 2020 was paid on The first quarterly dividend in respect of yearthe ended of 1.375p per share was paid shareholders to on 3 July 2019. The final dividend in respect of yearthe 2019ended 31 March dividends were paid during the year: In line with dividend the Company’s policy, four quarterly Dividends 31 March31 2020. The Directors present their reportfor theyear ended Directors’ report

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 37 at a price stipulated the by regulatory technical standards 5 per cent. above the average the of mid-market values of theof ordinary shares for the five Days before the or made; is purchase adopted the by pursuant EU the to Market Abuse Regulation from time time. to

Treasury shares management discount & Treasury shares hold to companies Companies Act The 2006 allows acquired way market of by purchase as treasury shares, rather than having cancel to them. Thiswould give theCompany the ability ordinary effectively re-issue cost and to quickly shares thereby improving liquidity and providing the Company with additional flexibility its of the in management capital base. No ordinary shares will be sold from treasury ata price less than the net asset valueper existing ordinary share at the time their of sale unless they are first offered pro rata to existing shareholders. No ordinary shareswere bought back during the year. TheCompany may seekto address significantany discount to net asset value at which its ordinary shares may be trading purchasingby its own ordinary shares in the market on an ad hoc basis. The Directors currently thehave authorityto make market purchases up of 52,811,999 to ordinary shares. The maximum expenses) of price which (exclusive may be paid for an ordinary share must not be more than the higher of: (ii) (i) Ordinary shares will only be repurchased at prices below the prevailing net asset per value ordinary should which share, thehave effectto increasing the net asset value per ordinary shareholders. other for share It is intended that a renewal the of authority make to market purchases will be sought from shareholders at each the of AGM PurchasesCompany. ordinary of shares will be made within guidelines established from time time to the by Board. Any purchase ordinary of shares would be made only out the of available uncommitted cash resources the of Group. Ordinary shares purchased the by Company may be held in treasury cancelled. or The Directors will regardREIT statushave to theCompany’s when making repurchase, any and purchases ordinary of shares may be made only in accordance with Companies Act 2006, the Listing Rules and the Disclosure Guidance and Rules. Transparency shares ordinary of repurchase the that note should Investors is entirely at the discretion the of Board and no expectation or reliance should be placed on such discretion being exercised on oneany or more occasions or as the to proportion ordinary of repurchased. be may that shares A resolution renew to authority the Company’s purchase to its own shares will be put forward for approval at the Company’s forthcoming AGM. Number 5,727,872 64,937,733 18,544,733 79,900,800 352,314,872 521,426,010

New ordinary shares issued under the the under issued shares ordinary New Open Offer on 17 June 2019 the under issued shares ordinary New the under issued shares ordinary New Intermediary Offer on 17 June 2019 New Ordinary Shares under the Offer for Subscription on 17 June 2019 Balance at the end of the year Balance at the start of the year Ordinary Shares Placing on 17 June 2019 forthcoming Annual General Meeting (“AGM”). rights will be put forward for approval at the Company’s together with a special resolution disapply to pre-emption seeking shareholders’ authority issue to new ordinary shares having the ability issue to new shares. An ordinary resolution The Board believes that there are benefits in the Company (ex income) net income) asset(ex value. Any new ordinary share issues will be issued at a premium to of the shares. the of on a rolling previous 12 month basis at the time admission of publication a prospectus of is 20% the of ordinary share capital admitted to trading on the London Stock Exchange without the Exchange Stock admitted the London trading on to The maximum numberof ordinary shares which can be more occasions. more be placed on such discretion being exercised on one any or discretion the of Board, and no expectation or reliance should The issuanceof new ordinary shares is entirely at the General authority issue shares to £175.25 million. shares were issued, raising total gross proceeds of programme the new Company ordinary issued 155,433,165 In the previous theCompany financial underyear, a separate of approximately £200 million shares under the programme, raising gross proceeds option issue to a total 169,111,138 of new ordinary the target, the Company took advantage the of upsize On 17 June 2019, due the to level take of On up June 17 exceeding 2019, on 12 allot to 169,111,138 June 2019 new ordinary shares. at 118p per new ordinary share. Shareholders granted authority programme had a target new 84,555,569 of ordinary size shares Subscription and Intermediaries“programme”).(the Offer The 20 May 2019 in respect May20 2019 a Placing, of OpenOffer for Offer, A prospectus and Circular was issued the by Company on Premium management and share issuance assistance acquire shares any on behalf the of Company. the year, nor did nominee any the year, or third-party with the Company’s TheCompany did not purchaseof itsany ordinary shares during ordinary shares. are there limitations any or special rights associated with the There are no restrictions on the transfer of ordinary shares, nor

the Director has taken all steps that he ought have to so far as the Director is aware, there is no relevant audit taken as Director make to himself aware relevant any of information and establish to that the Company’s Independent Auditor are aware that of information. information of which the Company’s Independent Auditor Auditor Independent the Company’s which of information and unaware; are

Shareholders are strongly encouraged proxy. by vote to detailsFull the of Annual General Meeting, the resolutions proposed and information proxy on by how vote to are described in the Notice Meeting of and supporting explanatory notes. The Board ask that shareholders who questionshave that they would otherwise have raised at the Annual General Meeting, should submit email them the to 25 Company’s by June 2020 address, [email protected]. published be Answers will website followingon the the Company’s meeting. Independent Auditor BDO LLP has expressed its willingness continue to in office as Independent Auditor and a resolution re-appoint to them will be put shareholders to at the AGM. informationDisclosure of the Independent to Auditor Each the of Directors at the date the of approval this of report confirms that: (ii) (i) This confirmationThis is given and should be interpreted in accordance with the provisions Section of the of 418 ActCompanies 2006. In accordance with Section 489 the of Companies Act 2006, a resolution re-appoint to BDO LLP as the IndependentCompany’s Auditor will be put forward at the forthcoming AGM. orderBy the of Board Brian Smith PraxisIFM Services Fund Limited (UK) SecretaryCompany 15 May 2020 7.61% 4.16% 3.86% 4.62% 4.58% 3.09% 4.40% Percentage Holding 24,114,797 21,677,508 16,102,989 20,139,799 22,953,402 23,864,219 39,686,582

BlackRock Inc JM Finn & Co Name Plc Quilter Charles Stanley Bank of Montreal of Bank Baillie Gifford & Co EFG International EFG the Investment Advisor. the will AGM be refused entry. There will be no presentationby unable attend to in person. Shareholders attempting attend to that the will AGM be a closed meeting and shareholders will be in order best to protect the health and safety shareholders of Chartered Governance Institute, the Company has decided that that decided has Company the Institute, Governance Chartered view guidance of issued the by Investment Association and the As a result current of emergency measures in the UK, and in 38 LXi REIT plc Annual Report 2020 30 June 2020 at 2.00 pm.30 June 2020 to considerto the resolutions laid out in the Notice Meeting of on Company will hold an Annual General Meeting shareholders of In line with the requirements the of Companies Act 2006, the Annual General Meeting General Annual financial statements. policies are included in Note 22 the to consolidated The Group’s financial risk managementThe Group’s objectives and to interest rate risks on its variable rate borrowings. The Group uses financial derivatives to hedge its exposure Financial instruments Streamlined Energy & Carbon Reporting framework. therefore the Group is exempt from reporting under the The Group’s energy useThe during Group’s theyear is below 40MWh, Streamlined Energy & Carbon Reporting framework Criminal Financed Act 2017. in keeping with the provisions the of Bribery and Act 2010 the Modern Slavery Act and 2015 maintain adequate safeguards Principal Professional Advisors, comply with the provisions of the Company’s principalthe Company’s suppliers, as listed above under The Directors are satisfied that, to the best of their knowledge, Financed Act 2017 Financed Modern Slavery Act Bribery 2015, and Act Criminal 2010 TheCompany has no employees and no share schemes. Employees

or more the of issued share capital the of Company: 31 March 2020, the following March shareholdings31 2020, comprising 3% The Directors beenhave notifiedof, or have identified as at Significant shareholders settlement system. transactions in the Company are settledthe by CREST share Settlement ordinary of transactions share ordinary Share Directors’ report (continued)

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic ReportReport Governance Financial StatementsStatements Additional InformationInformation LXi REIT plc Annual Report 2020 39

LEADERSHIP The Boardof Directors The Board is responsiblefor the effectivestewardship of policystrategyand Investment affairs. Company’s the are determined the by Board. It is also responsible for the borrowing policy, dividend policy, public documents such as the reports and financial statements andcorporate governance matters. In order enable to them discharge to their responsibilities, the Board has full and timely access relevant to information. No formal schedule matters of reserved the to Board has been adopted, since the board effectively supervises all aspects operations. the of Company’s Colin Smith is the Senior Director. Independent Composition of the Board theAt date this of report, the Board consists five of non- executive Directors including the Chairman, whom of three are male and two female. Patricia Dimond was appointed an additional Board member on 1 January All other Directors 2020. servedhave since their appointment on January 27 2017. The Board believes that during theyear ended 31 March2020 company investment an for appropriate was its composition nature theof and All Company’s size. the of Directors are independent the of Investment Advisor and AIFM. All the of Directors are able allocate to sufficient time to the Company to theirdischarge responsibilities effectively. The Directors a broad have of rangerelevant experienceto requirements their and biographies are meet the Company’s given in The Boardof Directors sectionof this AnnualReport. The Board recognises the benefits to the Company ofhaving longer serving Directors together with progressive refreshment theof Board in line with corporate governance best practice. There is no fixed policy regarding tenure of directorships. The Board are mindful thatfour of the five Board members their anniversary ninth reach will onsimultaneously January27 In order ensure to 2026. continuity, the Board adoptedhave a succession plan that allows for a gradual refreshment. the Board Accordingly, may decide recommend to a director with more than nine service years’ for re-election arise. need the should All the of Directors will retire and offer themselvesfor election or re-election at the the of AGM Company be to held The Boardon 30 recommends June 2020. all the Directors for election for the reasons highlighted above and in the performance appraisal section this of report. The Directors appointmenthave letters which do not provide for specific any term. In accordance with the AICCode the Board are subject annual to re-election. Copies the of Directors’ appointment letters are available on request from the Company Secretary. Upon joining the Board, new any Director receives an induction and relevant training is available Directors to on an basis.ongoing As an externally managed investment company, executive any include not does Board the Directors. As such, the UK principles Code’s in remuneration Directors’ executive of respect therefore Board the and applicable not are does not have a Remuneration Committee. investment managed externally an As company, the Board does not include any executive Directors. As such, the UK Corporate the of respect in principles Code’s Governance role of the chief executive are not applicable. As explained in the Report of the Audit to considered not is this Committee, be appropriate given the nature and Audit The Company. the of circumstances internal an for needs the keeps Committee function periodic review. under Explanation

UK Code provision Code UK of Remuneration Directors executive The role of the executive chief The need for an internal functionaudit

therefore comply with them. with comply therefore 40 LXi REIT plc Annual Report 2020 managed investment company and the Company does not relevant the to position being the of an Company, externally the AIC Guide, the Board considers these provisions are not explained in the Directors’ Report. the For reasons set out in administrative functions are outsourced third to parties, as company. All of the Company’s day-to-day All management the of Company’s company. and TheCompany is an externally managed investment provisions relating to: The CorporateUK GovernanceCode includes except as set out below. the AIC Code and the relevant provisions the of UK Code, The Company has complied with the recommendations of recommendations complied the with has Company The UK Code make to them relevant for investment companies. AIC Code adapts the Principles and Provisions set out in the (www.theaic.co.uk). It includes(www.theaic.co.uk). an explanation how of the The AICCode available is on the websiteAIC of theof AIC Code. Thecompany compliedhas with the Principles and Provisions information shareholders. to by theby Financial Reporting Council, provides more relevant and Provisions the of AIC Code, which has been endorsed The Boardconsiders that reporting against the Principles relevance the to Company. setting out additional Provisions on issues that are specific of Corporate Governance ‘UK as Code’), well as (the Code 2018 Code addresses the Principles and Provisions set out in the UK AIC Code Corporate of The Code’). AIC Governance ‘AIC (the The Board consideredhas the Principles and Provisionsof the Statement of compliance of Statement corporate governance. The Boardcommitted is to high standardsof Directors’ Report.Directors’ TheCorporate GovernanceStatement forms partof the Corporate governance statement

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – 4 4 4 4 4 Committee Nomination Nomination 2 2 2 2 2 – LXi REIT plc Annual Report 2020 41 Committee Engagement Engagement Management

1 4 4 4 4 4 Audit Audit Committee 1 1 1 1 1 – Advisory Agreement. The ManagementEngagement Committee reviews the performanceand fees payable the to other key recommendations makes and the Company, service to providers theto Board regarding those fees. During the year two held. were meetings Committee Engagement Management establishedCommitteehas Company a Nomination The which is chaired Stephen by Hubbard and consists all of the Directors.Committee TheNomination been establishedhas for the purpose reviewing of succession the plan Company’s and identifying and putting forward candidates for the office Committee The Nomination the Company. director of of will meet The Nomination at least onceCommittee a year. whether candidates assesses and specifications job considers thehave necessary skills and time available the to devote to job. In considering these matters the Committee takes into account the desirability achieving of diversity the to extent Committee Nomination three During the year, possible. meetings held. were reference, formal of terms Each Committee adopted has which are reviewed at least and copies annually, these of are available website or on on the request Company’s from the Secretary.Company Meeting attendance theDuring Directors the year, attended have the meetings.following meeting Annual strategyAnnual

1 4 4 4 4 4 Board Quarterly 1 2

Appointed to the Board on 1 January 2020 In addition to those listed above, the Company held five Board, one Audit Committee and one Nomination Committee sub-committee meetings. These meetings were held to facilitate the approval of transactions and other matters requiring recommendation and approval on behalf of the Audit Committee and approval on behalf of the Board

Patricia Dimond Colin Smith OBE Smith Colin Jan Etherden Jan John CartwrightJohn Stephen Hubbard Stephen Number of formal meetings held meetings formal of Number 2

1 Investment Management Agreement and the Investment Investment the and Agreement Management Investment reviews those appointments and the main terms the of of theof Investment Advisor and and the it annually AIFM principal duties are consider to the terms appointment of all the Directors. The ManagementEngagement Committee’s Committee which is chaired Jan by Etherden and consists of TheCompany has established a ManagementEngagement Independent Auditor. Independent cost effectiveness independence and objectivity the and of independence effectiveness cost and the Annual Report. It also reviews the scope, results, and internal control systems and reviews the Interim Report examine the effectiveness of the Company’s risk management management risk Company’s the of effectiveness the examine responsibilities of the Audit Committee. The Audit Committee Audit Committee. The the Audit of responsibilities Committee the have requisite skills and experience fulfil to the Report. The Boardconsiders that the membersof the Audit A report the of Audit Committee is included in this Annual chaired John by Cartwright and consists all of the Directors. TheCompany has established an AuditCommittee which is Board committees maintained the by Company. A policy insurance of against Directors’ and officers’ liabilities is of theof Company Secretary on an ongoing basis. expense All the of Directors Company. access have the to advice of theirof duties, take to independent professionaladvice at the A procedure has been adopted for Directors, in the furtherance Three years, four months 27 January 2017 27 Audit Committee Audit Committee Engagement Management Committee Nomination

• • • Colin Smith OBE Director Non-Executive Appointed: service:Length of Colin Smith OBE served for ten years as Chairman of Poundland Group Holdings, Europe’s largest single price discount retailer. Prior to this, he was Chief Executive and FinanceDirector of Safeway plc, the national supermarket retailer. Colin previously served as Chairman of Hilton Food Group plc having served as non- executive director since 2010. Hilton is a specialist retail meat packing business and countries thirteen European in retailers food international major supplying Australia. He also has experience in the not for profit sector having previously served as Chairman of The Challenge Network, as a trustee of Save the Children and as Chairman of the food industry sponsored Red Tractor assurance scheme. Director. Independent Senior Company’s the as appointed been has Colin membership Committee Three years, four months 1 January 2020 1 27 January 2017 27

Audit Audit Committee Committee Engagement Management Nomination Committee Nomination Committee (Chair) Committee Nomination Audit Committee Audit Committee Engagement Management

THE BOARD OF DIRECTORS 42 LXi REIT plc Annual Report 2020 • • • Non-Executive Director Non-Executive Appointed: membership Committee Patricia Dimond has had an International career with over 30 years in consumer and financial markets. As an Executive or Strategic Advisor, she has worked with FSTE 100, Private Equity and owner managed companies. She is an investor in early stage technology ventures, with an expertise in Fintech. Patricia is an alumnae of McKinsey, 1994-1999 and a Chartered Financial Analyst 2006. (CFA), She qualified, with Deloitte, as a Chartered Accountant (CA) in 1985, and holds an MBA from IMD Switzerland, 1993. Patricia currently serves as a Non-Executive Director for the English National Opera where she is Senior Independent Director (SID) and Chair of Audit and Risk. Patricia Dimond Patricia Length of service: months Three • • • Committee membership Committee Stephen Hubbard previously served as Executive Chairman of UK CBRE Group, the world’s largest property advisory firm. Before that Stephen served as Co-Head of CBRE Capital Markets Europe. He joined Richard Ellis in 1976 and served as Head of EMEA and UK Capital Markets from 1998 to 2012. He is also a member of the Advisory Board for Redevco which is a pan-European property holding company. Stephen has been a director of Workspace Group plc since July 2014 and will serve as Chairman from July 2020. Length of service:Length of Non-Executive Chairman Appointed: Stephen Hubbard Stephen Company’s serviceCompany’s providers. All the of Directors are non-executive and are independent and the of the AIFM Investment Advisor. the Company’s activities,the Company’s including the review investment of activity and performance and the control and supervision the of The Directors are responsiblefor the determination investmentof theCompany’s policy overalland have responsibilityfor Corporate governance statement (continued)

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 43 27 January 2017 27 Audit Committee (Chair) Committee Audit Committee Engagement Management Committee Nomination

• • • John Cartwright Director Non-Executive Appointed: Length of service: Three years, four months John Cartwright was formerly Chief Executive of AREF from 2009 to 2019 and remains on the Board. His responsibilities as Chief Executive of AREF were to represent and promote the interests of members, promote best practice in fund governance and ensure the smooth running of the association.Prior to this, John was with M&G Real Estate (formerly PRUPIM) for nearly 35 years in a variety of roles; latterly as Head of Institutional and Retail Funds and a member of PRUPIM’s Board and Investment Committee. He has more than 20 years’ experience of managing pooled and segregated accounts for both retail and institutional investors. John is also a member of the Investment Committee of Lothbury Property Trust. membership Committee 27 January 2017 27

Audit Committee Audit Committee (Chair) Engagement Management Committee Nomination

No external appointments active during the year were considered be to significantfor the relevant directors, taking into account the expected time commitment and nature these of roles. • • • Committee membership Committee Jan Etherden has over 35 years’ experience in the investment industry, as an analyst, fund manager, then a non-executive director. Previously head of UK equities for Confederation Life/Sun Life of Canada, she joined Newton in 1996 as a director specialising in multi-asset segregated portfolios and also was their Investment COO from 1999 to 2001. Subsequently she worked with Olympus Capital Management as business development manager for specialist hedge fund products. She is a director of Miton UK MicroCap Trust plc and has previously served on the Boards of Ruffer Investment Company TwentyFourLtd and IncomeFund Ltd. Length of service: Three years, four months Non-Executive Director Non-Executive Appointed: Jan Etherden Jan

ACCOUNTABILITY Internal control The AICCode requires the Boardto review the effectiveness system theof Company’s internal of controls. The Board recognises its ultimate responsibility system for the Company’s internalof controls and for monitoring its effectiveness. The systemof internalcontrols is designedto manage rather than eliminate the risk failure of achieve to business objectives. material against assurance reasonable only can provide It misstatement or loss. The Board has undertaken a review internal theof Company’s controls framework. The Board believes that the existing arrangements present an appropriate framework meet to the internal control requirements. By these procedures the Directors under kept have review the the throughout system control internal the of effectiveness year and up the to date this of report. managementRisk The risk management framework establishedby the Board has been designed identify, to evaluate and mitigate the significant risks faced A risk the by management Company. framework The assurance. absolute, not reasonable, provide can only Board has contractually delegated the management the of services, portfolio, administrative registration the investment services and other services third to party service providers and reliance is therefore placed on the internal controls those of service providers. A formal risk assessment is performed on at least an annual basis which includes the use a detailed of risk assessment programme. The principal risks identified and the mitigation those of risks are disclosed in the Strategic Report in this Annual Report. appetiteRisk The risk Board’s appetiteThis is alignedlow. is with the Board the which policy for and objective investment Company’s and objective investment full The responsibility. ultimate has policy is included in the Strategic Report in this Annual Report. The Group selectively investscommercial in UK property assets let a wide to range strong of tenant covenants across a diverse range property of sectors. The Group also invests in fixed price forward whilst funded developments undertaking not any activitydirect development direct assuming nor development risk and does not undertake speculative developments.

EFFECTIVENESS

44 LXi REIT plc Annual Report 2020 male Directors. The Board currentlycomprises female two and three of theof AIC Code and other guidance on boardroom diversity. range skills. of Consideration is given the to recommendations The Company’s policyTheCompany’s is that the Board should a broad have Board diversity of theirof duties. the necessary commitment and expertise for the fulfilment were positive and demonstrated that the Directors showed to theto Chairman. The resultsof the performance evaluation the results reportedback the by Senior Independent Director has been carried out the by other members the of Board and discussed with the Board. A separate appraisal the of Chairman the Chairman Committee the Management and of Engagement reviewed the by Chairman the of Nomination Committee and was used as the basis for the appraisal. The resultswere A programme consisting open of and closed ended questions Company’s main service main providers. Company’s on the Board, the committees, the individualDirectors and the A formal annual performance appraisal process is performed Performance appraisal Corporate governance statement (continued)

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 45

RELATIONS WITH SHAREHOLDERS SHAREHOLDERS WITH RELATIONS AND STAKEHOLDERS Shareholder relations relations Shareholder The Board and the Investment Advisorcontinues to develop relationships with shareholders through regular to updates the market, including the publication quarterly of fact sheets. At Board meetings, regular investor feedback is provided the by Investment Advisor and the Broker and the views existing of or discussed. are Company the about shareholders potential The Board was pleasedto speak to face face with shareholders attending Annual last General year’s Meeting. shareholder any If wishes contact to the Chairman directly they should contact the Company Secretary whose details are given in the Information. Company Meeting General Annual leastAt twenty-one notice shall days’ be given all to the members and the to Independent All other general Auditor. meetings shall also be convened not by less than twenty-one notice all to days’ those members and the to Independent Auditor unless the Company offers members an electronic voting facility and a special resolution reducing the period of notice not to less than fourteendays has been passed, in which case a general meeting may be convened not by less than fourteen notice in days’ writing. A special resolution will be proposed at the reduce to AGM the period notice of for general meetings other than the Annual General Meeting not to less than fourteen days. The Notice sets out the businessof AGMthe and any item not anof entirely routine nature is explained in this Annual Report. Separate resolutions are proposed for each substantive issue. AGM will be TheheldCompany’s on 30 June2020. Relations with other stakeholders are described in the s.172 statement on page 27.

they develop and recorded in the risk matrix. emerging risks ensure to that they are effectively managed as Report. As part its of risk process, the Board seeks identify to risks and how they are being managed is set out in the Strategic model, future performance, solvency or liquidity. The principal Company, including those that would threaten its business its business threaten would that those including Company, assessment the of principal and emerging risks facing the The Directorsconfirm that theyhave carried out a robust Principal and emerging risks findingsto report from the review. Registrar’s internal controls report. There are no significant This has includedconsideration of the Administrator’s and the a detailed risk assessment programme has been completed. controls systems is monitored and a formal utilising review, effectiveness riskof themanagementCompany’s and internal and encompasses an analysis the of risks involved. The to monitorto progress the Company’s towards its objectives This contactThis with key theservice providers enables the Board the Board for ensuring that Board procedures are followed. of theof Corporate Company Secretary, which is responsible to and Directors access have at all times the to advice and services Company. AdditionalCompany. ad hoc reports are received as required which enables the Board to assess the financial position of the of position financial the assess to Board the enables which The Administrator provides management accountsto the Board, the quarterly Board meetings. Depositary provide reports the to Board, which are reviewed at on operational and compliance issues. and The theAIFM The Company’s key service TheCompany’s providers reportto the Board The Board has agreed policieskey operationalon issues. and the Administrator. with the AIFM, the Investment the Company Secretary Advisor, as required. Between these meetings there is regular contact The Board holds quarterly meetings, plus additional meetings Other aspects of internal control adherence to physical and computer security computer and physical to adherence procedures. management, maintenance of appropriate insurance and appropriate management, of maintenance segregation the of administrative function from investment monitoring performance of at quarterly Board meetings, The keyThe procedures include reviewof management accounts, effectiveness of internal financial controls. financial internal of effectiveness Company’s Depositary to provide reasonable assurance on the on Depositary assurance reasonable provide to Company’s the AIFM, the Investment the Administrator Advisor, and the informed the of internal control framework established by agencies the services the Company requires, but it is fully above, the Board has contractually delegated external to and that the assets the of Company are safeguarded. As stated business decisions are made and which is used for publication records, the reliability the of financial information upon which These aimto ensure the maintenanceof proper accounting systems the of Company and for reviewing their effectiveness. The Directors are responsiblefor the internal financial control Financial aspects of internal control TheCompany complies with the AICCode. The following points the particular to apply circumstances the Company: of The AuditCommittee consideredhas the needfor an internal audit function and considers that this is not appropriate given the nature and circumstances The the of Audit Company. Committee keeps the needs for an internal audit function under periodic review. The chairmanof theCompany is a memberof the Audit Committee (but not its Chairman) enable to his greater understanding the of issues facing The the Board Company. and the Audit Committee believe that this is appropriate as he has recent and relevant financial experience and he is independent. Composition All the of Directors the of Company are members the of Audit Committee. The Chairmanof theCommittee is John Cartwright. skillsRelevant and experience The membersof the AuditCommittee recent have and relevant financial Committeeexperience. Audit The membership individualsincludes with substantial experience the financial of matters listed of companies and substantial experience the of property sector as described in detail in the Board Directors of section. This blendof skills and experience enables the Audit its responsibilities fulfil effectively. Committee to Meetings There beenhave four AuditCommittee meetings in theyear sub-committee one Committee.and the Audit meeting of Attendance is included in the Directors’ Report.

To report the to To Board on how it has discharged its responsibilities. To consider the integrityTo the of Company’s financial statements; report the to To Board, identifying matters any in respect of which it considers that action or improvement is needed and making recommendations as steps to be to taken; and

46 LXi REIT plc Annual Report 2020 • The main rolesof the AuditCommittee are: • reference are available from the Company Secretary. matters described in the AIC Code. Copies the of terms of • set out in formal, written terms reference of covering certain The main roles and responsibilitiesof the AuditCommittee are has recent and relevant experience. relevant and recent has The Board is requiredto satisfy itself that the AuditCommittee smaller companies, two independent non-executive directors. non-executive independent two companies, smaller Committees consisting at of least three, or in the case of The AICCode recommends that Boards should establish Audit Role of the Audit Committee Report of the Audit Committee

does not consider that this compromises its independence. compromises this that consider does not non-audit work the of Independent Auditor during the year and before proceeding. The Audit Committee has considered the considered Committee Audit The has proceeding. before Auditor arising from such any engagement are considered other implications on the independence the of Independent Independent Auditor, full consideration of the financial and the financial of consideration full Auditor, Independent systems. Where non-audit services are provided the by financialcontrols and its internalcontrol and risk management The Audit Committee also reviews the Company’s internal Committee The Audit alsoCompany’s the reviews and half-yearly financialreport. half-yearly and of theof Independent Auditor and review to the annual accounts appointment, independence and objectivity, and remuneration remuneration and objectivity, and independence appointment, the purpose performing of its main roles and considering of the The AuditCommittee meetsformally leastat twice a yearfor

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 47 Financial statements and significant matters accounting Committee The Audit monitors integrity the the of financial information published inthe Interim and Annual Report and judgments whether appropriate suitable in and considers respect areas of which could a material have impact on the financial statements, beenhave made. It actively engages with judgments significant these assess to Auditor Independent the and the systems and processes in place form to these judgments.significant the Committee considered Audit The following be to the significant areasof judgment whichcould materially impact the financial statementsfor theyear ended March31 2020: propertyInvestment valuation The evaluationof investment property is the most material matter in the production the of financial statements. Knight property the Company’s value to been has appointed LLP Frank investments in accordance with the RICS requirements on a bi-annual basis. The AuditCommittee reviewedof a copy the valuation once it had been completed and has received a detailed report from the The Independent Audit Valuer. the underlying the assumptions Committee reviewed has property valuations and concluded that the valuation at the appropriate. is end year Company’s Independent Auditor Auditor Independent selected was BDO LLP the Company’s as at the time launch the of Company’s following a formal tender process and review the of Independent credentials. Auditor’s The appointmentof the Independent Auditor is reviewed annually the by Audit Committee and the Board and is subject approvalto shareholders. by In accordance with the FRC guidance, the audit will be put out tender to within ten years of the initial appointment BDO of LLP.

reviewed the Investment detection Advisor’s fraud of and whistleblowing arrangements. monitored the Company’s procedures for ensuring for procedures the Company’s monitored regulatory with reportingcompliance financial and requirements its and relationship with the relevant regulatory authorities; and monitored the Company’s accounting and financial and accounting the Company’s monitored internal control systems, and those the of Investment AdministratorAdvisor, and Depositary in order make to recommendations on improvements any such to systems; continued monitor to and review whether an internal audit function is required and reasons for the absence are explained above;

Committee has: • With regard monitoring to internal control, the Audit Internal Control financial statements. • full year valuation described in Note the 9 of Consolidated the reference the by valuer material to uncertainty in the valuation policies methods. and Committee The Audit notes • Committee has monitored the effectiveness of the Company’s Company’s the effectiveness the Committeeof monitored has both the Interim and Annual Report. In doing so, the Audit • recommended the to Board the valuations be to included in full year valuation reports from Knight Frank LLP and The AuditCommittee has reviewed both the interim and Valuations significant matters accounting included are below. Committee’s monitoring of the financial the financial statements of monitoring and Committee’s the Annual Report the to Board. Further details the of Audit The Audit Committee has recommended the approval of approval Committee the recommended has The Audit the Company’s performance, business model and strategy. strategy. and model business performance, Company’s the provides the information necessary for shareholders to assess assess to shareholders necessary for information the provides the Board that taken as a whole, it is fair and balanced and on the contents, in particular the Audit Committee has advised and reviewed the Annual Report in order advise to the Board The Audit Committee IndependentAuditor the with met Audit The has Financial statements the yearwere: Details the activities of the Committee Audit of during responsibilities in accordance with the terms reference. of During the year, theDuring Audit Committee the year, has carried out its Activities of the Audit CommitteeActivities Audit the of Fee £25,000 £62,000 Rationale for using the Auditor Independent Non-recurring service. The work was performedby a team independent of the audit team and the audit team place no services the of output the on reliance provided. understanding and knowledge Detailed adequately to required is business the of perform an interim review of the half-yearly report. It is standard market Auditor Independent the use practice to for this service.

Non-audit Non-audit service provided Reporting accountant the on services Company’s Prospectus review Interim BDO LLP was paid fees in respect the of following non-audit services in the year: The independence of the Independent Auditor was considered considered was IndependentAuditor the of independence The prior the to provision these of services. The AuditCommittee do not believe that the provisionof the above services affects the independenceof BDO LLP, particularly as the reporting accountant in relation the to non-recurring. are and Prospectus Company’s statements financial understandable and balanced Fair, Report the Annual that concluded Committee Audit The has for the taken year ended as a whole, March 31 is fair, 2020, information the provides and understandable and balanced business Company’s the assess to shareholders necessary for model, strategy and performance. The AuditCommittee has reported its conclusions the to Board Directors. of The Audit Committee reached this conclusion through a process review of theof document and enquiries the to various parties in involved the production the of Annual Report. John Cartwright Chairman the Committee Audit of 15 May 2020

48 LXi REIT plc Annual Report 2020 objective and independent. independent. and objective which would prevent the Independent Auditor from remaining constitute a conflictof interest or potentialconflict of interest services is at a reasonable and competitive cost and does not may only be provided the to Company if the provision such of Such services are considered on a case-by-case basis and any non-audit services provided by the Independent Auditor. Auditor. the Independent services by non-audit provided any The AuditCommittee has put a policy in place on the supplyof Provision of non-audit services as its cost effectiveness. partner, discuss to issues any arising from the audit as well The Audit Committee The Audit regularlyliaises audit lead with the its independence, as part the of annual reporting process. of theof senior audit team and BDO LLP formally confirmed During the year, theDuring Audit Committee the year, met members key of the of Company. should be recommended the to Board and the shareholders agreed that the re-appointment the of Independent Auditor Following the the above review, Audit Committee has and the ability the of Independent Auditor fulfil to its role. audit. The review included a discussionof the audit process Auditor following the presentation the of results the of The AuditCommittee performed a reviewof the Independent of theof main audit testing. a presentation the of results the of audit following completion Independent Auditor in respect the of year under review and Committee received a presentation the of audit plan from the effectivenessof the external audit process. The Audit The AuditCommittee is responsiblefor reviewing the Effectiveness of Independent Auditor Auditor Independent of Effectiveness Report Committee (continued) Audit the of

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information 0.75% 0.65% One twelfth of relevant percentage relevant LXi REIT plc Annual Report 2020 49

Above £500 million £500 Above Up to or equal to £500 million Market CapitalisationMarket The Investment Advisor has diligently investedavailable funds in line during with investment the the year, Company’s policy, build to a diverse portfolio high-quality of assets that should provide growing and secure returns the to Company’s activity and Advisor’s Investment Details the of shareholders. performancethe Company’s in the been year have included in Report. Strategic the Thecollective skillsetof the Investmentteam contains Advisor’s all the necessary skills and experience best to serve the interests performing the shareholders in of responsibilities. its delegated are satisfiedWe that the Investment Advisor and have the AIFM the suitable skills experience and the Company’s manage to investments and believe that the appointment continuing of the Investment Advisor and is in the the AIFM best interests of shareholders as a whole. In addition, following our review and analysis, agreed we with the Investment Advisor that the performance all of the Company’s advisors, describedas the Directors’ in current professional Report, was satisfactory and with the Investment Advisor’s recommendation, that each be retained until the next review. Investment Management and Investment Advisory fees Under the Investment Management Agreement, the AIFM receives per a fee £24,000 of annum. No performance fee is payable the to AIFM. Under the terms the of Investment Advisory Agreement, the Investment Advisor is entitled a fee to payable monthly in arrears calculated below: as No performance fee is payable the to Investment Advisor. Committee TheEngagement the reviews Management performancecontinuing and appointment principal of professional advisors and the Investment Advisor of and AIFM the Company on an annual basis ensure to that their continuing appointments are in the best interest the of shareholders. Etherden Jan Chairman Committee the Management of Engagement 15 May 2020

Company’s borrowing facilities. borrowing Company’s Company’s portfolioCompany’s and negotiation and supervision the of Investment the Policy, monitoring and management the of sourcing investment opportunities in line with the Company’s Investment amongst Advisor, other things, is responsible for Under the terms the of Investment Advisory Agreement, the in the Investment Advisory Agreement. fees and no material changes the to contractual arrangements 31 March 2025 from March March There31 31 2025 2022. are no changesto the the terms the of Investment Advisory Agreements and AIFM to On 13 February the Board announced 2020, the extension of Investment Advisor. Advisor. Investment ensure it reflects the relationship between the Board and the Agreementis reviewed and amended when necessary to the Investment Advisory Agreement. The Investment Advisory Company the to Investment Advisor pursuant the to terms of The Board has delegated the day-to-day runningof the Review in relation the to Company and its portfolio. Limited “Investment (the Advisor”) provide to certain services TheCompany and appointed have the AIFM LXIAdvisors REIT as the Alternative Investment Manager “AIFM”). Fund (the The Company has appointed LJ Administration (UK) Limited (UK) Administration LJ appointed has Company The AIFM and Investment Advisor AIFM Directors’ Report.Directors’ meetings Attendance in the is included year. in the There beenhave two ManagementEngagement Committee Meetings the fees paid for the provision such of services. has included an assessment the of services provided as well as Advisor other and service the key Company’s providers. This a comprehensive review the of performance the of Investment The Management Engagement Committee has conductedCommittee has Engagement The Management Professional Advisors. Professional Committee are those listed in the Directors’ Report as Principal performance is reviewed the by Management Engagement For theFor purposes this of report, the service key providers whose Chairman the of Committee is Jan Etherden. and make to appropriate recommendations the to Board. The and the Company’s otherand service the key Company’s providers the over year reviewing the performance the of Investment the AIFM Advisor, least once a year for the purpose, amongst other things, of The ManagementEngagement Committee meetsformally at Role of the Management Engagement Committee Report of the Management Engagement Committee We work withWe the Manager in discharging our duties, holding formal meetings with senior staff on a quarterly basis and submit quarterly reports the to Manager and the Company, which are then presented the to Board Directors, of setting our work performed and the corresponding findingsfor the period. In the our year ended work March included 31 2020 the review oneof equity share issue, 21 investment property acquisitions, 7 investment property disposals, one third-party financing arrangement, and 4 property income distributions. Based on the work performed during this period, confirm we that no issues came our to attention indicate to that controls are not operating appropriately. Joe Hime Head Depositary of andFor on behalf Langham of Hall UK UK London, Depositary LLP, 15 May2020 Langham Hall UK Depositary LLP is a limited partnership registered in England registered and (with Wales OC388007). number

50 LXi REIT plc Annual Report 2020 Company’s and its subsidiaries’ decision papers decision its and minutes. and subsidiaries’ Company’s environment This includes the of Manager. a reviewof the in line with prospectus, the Company’s and the internal control ongoing basis the Company is being operated the by Manager purpose vehicles beneath test whether We the Company. on an all properties held and the by shareholding Company, special of verification processto is perform a reviewof thelegal titleof appropriately authorised The and objective timely. of our asset party financing.We review whether cash transactions are distributions via dividend payments, acquisitions and third- transactions triggered share by issues, property income Company held bank accounts with specifictesting of bank Our cash monitoring activity provides oversight all of the Investment Fund Managers Directive (AIFMD). (AIFMD). Directive Managers Fund Investment the Company, in linethe Company, with the requirements the of Alternative primarily oversight involves the of control environment of across various jurisdictions worldwide. Our role as depositary deploy our services 90 over to alternative investment funds the entity represents net assets billion $50 US of and we qualified and traineespecialists, accountants alternative and the Company act to as depositary. Consisting exclusively of regulated firm thatworks conjunction in with the Manager and Established in 2013, Langham Hall UK Depositary LLP is an FCA Depositary Statement

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

Operation Determined by by Determined Board the by Determined Board the by Determined Board the by Determined Board the of Submission appropriate supporting documentation LXi REIT plc Annual Report 2020 51 Purpose reward of For services as Chairman of a plc For services as non-executive Directors of a plc additional For responsibility and commitment time additional For responsibility and commitment time of Reimbursement expenses incurred in of performance the duties

Director Chairman of the the of Chairman Board Directors Other the of Chairman Committee Audit the of Chairman Management Engagement Committee Directors All Annual fee Annual Additional fee Additional fee Expenses Component fee Annual Current and future policy Statement of consideration of conditions elsewhere in the Company TheCompany has no employees. Therefore, the process of consulting with employees on the setting the of remuneration policy is not applicable. Reviewof the remuneration policy The Directors’ remuneration will be reviewed on an annual basis the by Board and changes any are subject approval to theby Board. The remuneration payableto the Directors will intotake account a number factors, of inter alia, the experience of the Directors, the complexity the of Company and prevailing market rates for the real estate investment trust sector. Effective date ThisRemuneration Policy was approvedby the shareholders at the Annual General Meeting and held was June on 26 2019 effective from that date.

Board in the search and selection Directors. of Board may, however, pay fees external to however, Board agencies may, assist to the to encourageto them become to a Director The the of Company. office. The Board will not any pay incentive any to fees person The Directors are not entitledcompensationto for loss of Company and cease on date of termination of appointment. of termination of date on cease and Company payable from the date appointment of as a Director the of expenses are unlikely be to a significant of amount.Fees are expenses incurred in performance their of duties. These The Directors shall also be entitledto be reimbursedfor all Articles of Association. Articles of aggregate fee limit £500,000 of set out in the Company’s rates as determined the by Board subject the to maximum The non-executive Directors shall be entitled to fees at such such at fees to entitled be shall Directors non-executive The extra or special services on behalf the of Company. Director or Directors are requested the by Board perform to time time, to one any to or more Directors in the event such may determine that additional remuneration may be paid, from have any variable any have or performance related elements. The Board The Directors’fees are paid at fixed annual rates and do not long-term incentive schemes or other benefits. other or schemes incentive long-term for bonuses, pension benefits share benefits share options, the Company’s Articlesthe Company’s Association of and they are not eligible The Directors’fees are determined within the limits set out in Fees its implementation. approval will be sought for the proposed new policy prior to of any proposed any of material variation the to policy, shareholder forward for shareholder approval will be in In 2021. the event three years. The next time the remuneration policy will be put forward for shareholder approval at a maximum interval of shareholder approval. The remuneration policy must be put set out in this policy apply until they are next put forward for shareholders The provisions at the held AGM June on 26 2019. The remuneration policy was putforward for approvalby Directors’ remuneration policy remuneration Directors’ Directors’ remunerationreport Directors’

£ FEB 20 5,000 3,000 75,000 40,000 Remuneration AUG 19 FTSE EPRA/NAREIT UK FEB 19 AUG 18 FTSE ALL SHARE AUG 17 FEB 18 LXi REIT

FEB 17 70 90 80 Chairman’s fee Chairman’s Director’s fee fee additional Chair Committee Audit fee additional Chair Committee Engagement Management Role 110 170 120 150 130 160 TOTAL SHAREHOLDER RETURN SHAREHOLDER TOTAL Carmichael Fisher were engaged undertake to a review the of fees.Board’s Carmichael Fisher recommended, and the Board agreed,have an to increase in Directors Remuneration. The Board has also determined that with effect from 1 January the Directors’ 2020 remuneration will be paid the to Directors in cash. Thefollowing new ratesof Directors’ remunerationwere effective from 1 January2020: The Board believes that thisfee structure appropriately reflects the prevailing market rates complexity for the Company’s and and willsize, also enable the Company attract to appropriately experienced Directors additional the future. in Carmichael Fisher are independent the of Board and the Company and were paid fees for their services relating Board to amounting £35,000, to which also included the fees in relation newto Director search, detailed below. Director search and selection fees During the year Carmichael Fisher were also engaged to undertake a search for an additional Board Carmichael Member. Fisher are independent the of Board and the Company and the fees for this service were included in the total fee noted above. Performance Thefollowing graphcompares, since IPO, thetotal shareholder return ordinary the of Company’s shares relative a return to on a hypothetical holding the over same period in the FTSE EPRA/ NAREIT UK Index and the FTSE All share Index. These indices beenhave chosen the by Board as the most appropriate to performance. the Company’s compare 140 100

advice in doing so. doing in advice the Company’s IPO in 2017 and taken have IPO in independent 2017 the Company’s remuneration arrangements that were put in place before Executive Directors, the Board have reviewed the Directors’ Directors’ the reviewed have Board the Directors, Executive continually attract the most qualified candidates as Non- the level time of commitment the by Board and in order to Given the significant growthof theCompany since its IPO, of £2,560 per annum. Engagement Committee was entitled to an additional fee additional an to Committee entitled was Engagement £5,120 per annum and the Chairman the of Management the Committee additional of Audit an fee was to entitled fees The were payable Chairman at the rate £40,960. of of per annum for each Director other than the Chairman, whose Directors’ fees were previously payable at the rate £28,160 of The Company currently has five non-executive Directors. non-executive five has currently Company The Remuneration 52 LXi REIT plc Annual Report 2020 put forward at the forthcoming AGM. An ordinary resolution for the approval this of report will be of pay madeof the by Management Engagement Committee. pay awards for the Directors with recommendations on level remuneration committee. The Board as a wholeconsider the it does not consider it necessary establish to a separate As the Board consists only five of non-executive Directors, Annual statement on policy implementation approval at the be to AGM held on 30 June 2020. remuneration policy)will be put forward for shareholder The Directors’ remuneration report(excluding the Directors’ remuneration report. vote andvote will detail resulting any actions in the next Directors’ remuneration, the Company will seek the reasons for such any substantial votes against resolutions in relation to Directors’ Directors’ to relation in resolutions against votes substantial and takes an active interest in voting outcomes. there If are The Company is committed to ongoing Shareholder dialogue Shareholder committed ongoing to is Company The Statement of consideration of shareholders’ views There are no special rights attachedto such shares. after the of date acquisitionof the relevant ordinary shares. of the Company) priorof the Company) the to date which is eighteen months termination their of appointment as a non-executive Director or (ii) pursuant an to interveningor (ii) court following order; or (iii) offer madefor the entire issued share capitalof theCompany; certain circumstances, in acceptance including: a general of (i) in satisfaction their of entitlement Directors’ to in fees (save dispose interest any of in Ordinary any shares acquired them by agreed that they will not sell, grant options or over otherwise and the Peel Hunt Directors dated 6 February have 2017, By wayBy a deed of between each the of Directors, the Company Lock-in deed Lock-in Code, they are subject annual to re-election. for specific any in accordance withterm. the AIC However, The Directors appointmenthave letters which do not provide The Directors are not entitledcompensationto losson of office. The Directors do not servicehave contracts with theCompany. Directors’ service contracts Directors’ remuneration report (continued)

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – 54,958 44,242 173,812 120,156 Ordinary shares at March 31 2019 – 57,274 66,687 169,389 222,909 LXi REIT plc Annual Report 2020 53 Ordinary shares at March 31 2020 2 1 the major decisions on Directors’ remuneration; Directors’ on decisions the major substantialany changes relating Directors’ to remuneration the context in which the changes occurred and decisions made during the financial and 31 year to March 2020; have been taken.

Colin Smith OBE Smith Colin Patricia Dimond Stephen Hubbard CartwrightJohn Etherden Jan Director a) b) c) Directors’ shareholdings (audited) The directors had thefollowing shareholdings in theCompany all which of are beneficiallyowned. The shareholdingsof the Directors are not significant and non- as independence their compromise not do therefore Directors. executive The requireslaw Independent theCompany’s Auditorto audit certain disclosures provided in the annual report on indicatedremuneration. they are audited are Where disclosures as such. The Independent opinion Auditor’s is given in the Report. Auditor’s Independent Statement On behalf the of Board and in accordance with Part 2 of and Companies the LargeSchedule of 8 Medium-sized and Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm that the Report above Remunerationon Policy and Remuneration Implementation summarises, for applicable, as the financial31 year to March 2020: Stephen Hubbard Stephen Chairman the of Board Directors of 15 May 2020 – £31,000 £41,000 £33,000 £28,000 £133,000 £133,000 Year ended Year Year ended Year £2,337,000 £15,100,000 31 March 2019 31 March 2019 10,000 £37,000 £35,000 £32,000 £50,000 £164,000 £164,000 Year ended Year Year ended Year £4,547,000 £27,550,000 31 March 2020 31 March 2020

Appointed on 1 January 2020 Includes Directors and persons closely associated (as defined by the EU Market Abuse Regulation) shareholdings

Director Investment Advisor’s Fee Advisor’s Investment Directors’ fees Directors’ Stephen Hubbard CartwrightJohn Etherden Jan Dividends paid and proposed and paid Dividends Colin Smith OBE Smith Colin Patricia Dimond Total 2 1 following fees as remuneration for qualifying services. for remuneration as fees following The Directors who served during theyear received the Directors’ emoluments for the year (audited) and assumingreinvestment dividends. of a company shareholders to reflecting share price movements Total shareholderTotal return the is measure returns of provided by

expenses incurred the by Company. by way dividends, of by and the management fees and other remuneration compared to the distributions to shareholders the distributions to to remuneration compared Thefollowing table sets out thetotal level of Directors’ Relative importance of spend on pay 99.99% of the of shares99.99% voted being in favour the of resolution. the AGM held on 26 June 2019. The resolutionthe held AGM June on 26 2019. was passed with The Directors’Remuneration Policy was last putforward at voted being in favour the of resolution. in 2019. The resolutionin 2019. was passedof thewith shares 99.99% period ended was March put 31 forward 2019 at the held AGM Remuneration Report contained in the Annual Report for the A non-binding ordinary resolution approve to the Directors’ Company’s AGM to be to AGM held on 30 JuneCompany’s 2020. 31 March 2020 will March be put31 2020 forward for approval at the Policy) contained in the Annual Report for the year ended Remuneration Report (excluding the Remuneration Remuneration Report (excluding A non-binding ordinary resolution approve to the Directors’ taxable. None the of above fees was paid third to parties. other than certain expenses which may be deemed be to There are no other taxable benefitspayable by the Company the Strategic Report includes a fair review the of the and business the of performance and development undertakingsthe and Company the of position financial included in the consolidation taken as a whole, together with a description the of principal risks and uncertainties that they face; and the Annual Report and accounts taken as a whole is fair, information the provides and understandable and balanced Company’s the assess to Shareholders necessary for strategy. and model business performance, the financial statements beenhave prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted the by European Union and Article the 4 of IAS Regulation and, give a true and fair view the of assets, liabilities, financial position and profit or loss theof Company and the undertakings included in the consolidation as a whole;

They a general have responsibilityfor taking such steps as are reasonably open them to safeguard to the assets the of Group and hence for taking reasonable steps for the prevention and detection fraud of other and irregularities. publicationWebsite The Directors are responsiblefor ensuring the AnnualReport and the financial statements are madeavailable on a website. Financial statements are published website on the Company’s in accordance with legislation in the United Kingdom governing the preparation and dissemination financial of statements, which may vary from legislation in other jurisdictions. The maintenance and integrity website is the the of Company’s responsibility the Directors. of The Directors’responsibility also extends the to ongoing integrity the of financial statements therein. contained Directors’ responsibility statement confirmWe thatto the bestof our knowledge: • • • Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken balancedas a whole are fair, and understandable and provides the assess to shareholders necessary for information the performance,Company’s business model and strategy. Approval This Directors’ responsibilities statement was approvedby the Board Directors of and signed on its behalf Hubbard Stephen Chairman the of Board Directors of 15 May 2020

prepare a Strategic Report, Directors’ Report, Directors’ Remuneration Report Corporate Governance and Statement that complies with the requirements the of ActCompanies 2006. prepare financial statements concernon a going basis unless it is inappropriate presume to that the Group will business; in continue and for the Parent Company financial statements, state whether statements, state financial Company Parent the for applicable they been have prepared in accordance with Financial Reporting Reduced Standard Disclosure 101 subjectFramework material any to 101”), (“FRS departures disclosed and explained in the Parent Company financial statements; make judgments and estimates that are reasonable, relevant, reliable and prudent; they whether statements, state financial Group the for beenhave prepared in accordance with IFRSs as adopted theby subject EU material any to departures disclosed and statements; financial the in explained select suitable accounting policies and then apply apply then and policies accounting select suitable them consistently;

54 LXi REIT plc Annual Report 2020

• • • financial statements, the Directors are requiredto: period. In preparing each the of Group and Parent Company Parent Company and of the Group’s profit lossor Parentfor that Company and the of Group’s • a true and fair view the of state affairs of of the Group and financial statements unless they are satisfied that they give give they that satisfied are they unless statements financial • Under company law the Directors must not approve the • Disclosure Framework. Accepted Accounting Practice), including FRS 101 Reduced including FRS Practice), 101 Accounting Accepted Kingdom Accounting Standards (United Kingdom Generally Kingdom Standards (United Accounting Kingdom statements in accordance with applicable law and United have electedhave prepare to the Parent Company financial Union and adopted applicable (IFRS as the by EU) law and Financial Reporting Standards as adopted the by European financial statements in accordance with International year. Under that law theyyear. are required prepare to the Group Parent Company financial financial statements financial each for Company Parent Company law requires the Directors prepare to Group and accordance with applicable law regulations. and accordance and the Group and Parent Company financial statements in The Directors are responsiblefor preparing the AnnualReport

Statement of Directors’ responsibilities responsibilities Directors’ of Statement financial statements, Articleof 4 the IAS regulation. with the Companies Act 2006 and, as regards the to Group enable them ensure to that its financial statementscomply at time any the financial positionof the ParentCompany and Company’s transactionsCompany’s and disclose with reasonable accuracy recordsthat are sufficient into show and explain the Parent The Directorskeeping adequate responsible accounting for are

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 55 the Directors’ explanation set out on page 34 in the annual the of prospects the assessed have they how to report as Group, what over period they done have so and why they consider that period be to appropriate, and their statement the expectation that a reasonable have they whether to as Group will be able continue to in operation and meet its liabilities as they fall due the over period their of assessment, including related any disclosures drawing attention any to necessary qualifications assumptions. or the Directors’ confirmation set 45 outin theon page annual report that they carried have out a robust assessment the of emerging and principalGroup’s risks and the disclosures in the annual report that describe the principal risks and the procedures in place identify to emerging risks and explain how they are being managed or mitigated; the Directors’ statement set out on page 34 in the financial statements about whether the Directors considered it accounting of basis concern the going adopt to appropriate in preparing the financial statements and the Directors’ identification of any material uncertaintiesto the Group and the ability Parent Company’s continue to do to so over a period at of least twelve months from the date approval of statements; financial the of whether the Directors’ statement relating going to concern required under the Listing Rules in accordance with Listing is materially inconsistentRule 9.8.6R(3) with our knowledge obtained in the audit; or

Conclusions relating principal to risks, concern and going viability statement nothing have reportWe to in respect the of following information in the annual report, in relation which to the ISAs require us report to (UK) you whether to anything have we material add to or draw attention to: • • • • Emphasis of matter: of PropertyEmphasis valuations draw attentionWe the to disclosures made in the Investment property As note described 9. in the note, due the to factthat the valuers attached less weight previous to market evidence purposes, comparison propertyfor therefore are valuations reported on the basis valuation ‘material of uncertainty’ per VPGA the of 10 RICS Valuation – Global Standards. Consequently, less certainty should be attached the to valuation the of investment properties than would normally be the case. Investment property fair value March as at 31 2020 determined valuers by Our opinion was £914.0m. is not modified in respectof this matter.

the financial statements beenhave prepared in accordance with the requirements the of Companies Act 2006; and, as regards the Group financial statements, Articleof 4 the IAS Regulation. the Parent Company financial statements beenhave properly prepared in accordance with United Kingdom and Standards; Accounting the Group financial statements beenhave properly prepared in accordance with IFRSs as adopted the by European Union; the financial statements a truegive and fair viewof the and the of affairs Parentstate Company’s the of Group’s profitfor the and the of Marchas Group’s at 31 2020 year then ended;

• In our opinion: our In Accounting Practice). Accounting • and Republic Ireland of Kingdom (United Generally Accepted 101 The Financial101 Reporting Standard applicable in the UK • Accounting Standards,Accounting including Financial Reporting Standard financial statements is applicable andlaw United Kingdom has been applied in the preparation the of Parent Company • by theby European Union. The financial reporting framework that International Financial Reporting as adopted Standards (IFRSs) of theof Group financial statements is applicable andlaw reporting framework that has been applied in the preparation a summary policies. significant of accounting The financial flow flow statement and notesto the financial statements, including company statement changes of in equity, the consolidated cash company statement financial of position, theconsolidated and statement comprehensive of income, the consolidated and year ended 31 March 2020 whichyear ended March comprise 31 2020 the consolidated “Parent Company”) and its for the subsidiaries “Group”) (the We have audited have theWe financial statementsof (theLXi REIT plc Opinion of LXi REIT plc LXiof REIT Independent Auditor’s report to the members members the to report Auditor’s Independent

for our opinion. our for have obtainedhave is sufficient and appropriate to provide a basis these requirements. believe We that the audit evidence we fulfilled our other ethical responsibilities in accordance with as applied listed to public interest entities, and have we statements in the UK, Ethical including Standard the FRC’s requirements that are relevant our to audit the of financial Group and the Parent Company in accordance with the ethical statements section our of report. are independent We the of in the Auditor’s responsibilities for the audit of the financial of responsibilities the audit for the Auditor’s in responsibilities under those standards are further standards those under responsibilities are described Standards on Auditing (UK) (ISAs (UK)) andStandards applicable on Our Auditing (ISAs (UK)) law. (UK) We conductedWe our audit in accordance with International Basis for opinion for Basis We developedWe yield expectations on each property using available independent industry data, reports and comparable transactions in the market around the period end. in movement valuation the and used assumptions the discussed We the period with both the Manager and the independent valuer. Where the valuation was outside of our expected range we challenged the yields the for reasoning and assumptions specific on valuer independent including relevant, where explanations their corroborated and applied party third valuer the also to agreeing challenged documentation. We regarding their views on the expected impact of Covid-19 and Brexit on appropriateness the challenged we Further, assets. these of valuation the of the discounts rates applied to the valuations with the valuer and the since transactions comparable of evidence obtained possible where pandemic. Covid-19 declaration the of and project costs properties assessed the construction under we For progress of development and verified the forecast costs to complete party information. third to valuations the in included examinedWe all forward funding agreements entered into during the accounting the that assets construction confirmed under and for year was income fee license the and recognition asset the of treatment standards. accounting under appropriate the by adopted assumptions the that concur we work our Based on applied methodology the and reasonable were valuation the in Directors was appropriate. The emphasis of matter paragraph on page55 gives details of the material valuation uncertainty highlighted by the valuer in relation to the property valuations. We obtainedWe the valuation report prepared by the independent valuer that confirmed We them. with valuations the of basis the and discussed the basis of the valuations was in accordance with the requirements of standards.accounting qualifications, valuer’s external the confirmed and assessed We independence and basis of valuation. obtainedWe a copy of the instructions provided to the independent valuer and reviewed for any limitations in scope or for evidence of bias. Management validatedWe the underlying data provided to the valuer by the Manager. This data included inputs such as current rent and lease term, which we agreed to a sample of the executed lease agreements as part of our work. audit

Assumptions• and estimates used by the valuer • • Accounting for• assets under construction Key observations• Experience of• valuer and relevance of its work • • Data provided• to the valuer How the scope of our audit addressed the key audit matter the allocation resources of in the audit; and directing the efforts theof engagement team. These matterswere addressed in the context our of audit the of financial statements as a whole, and in forming our opinion thereon, and do not we provide a separate opinion on these matters.

The valuation of investment property requires significant judgement and therefore is and valuer independent the and Directors the by estimates considered a key audit matter due to the subjective nature of certain valuation. each in inherent assumptions Any input inaccuracies or unreasonable bases used in the valuation judgements (such as in respect of estimated rental value and yield profile applied) could result in a material misstatement of the income statement and balance sheet. There is also a risk of fraud in relation to the valuation of the property portfolio in estimates and judgements significant the influence may Directors the where respect of property valuations in order to achieve property valuation and other expectations. market meet to targets performance income fee license properties construction under involve Additionally, construction Accounting the phase. during developer the from receivable for such assets is typically more complex than for standing assets. Key audit matter audit Key Investment propertyRefer to notes valuations 2 and 3 in relation to significant estimates and Refer to note 9 in relation to investment property. accounting policies.

56 LXi REIT plc Annual Report 2020 which had the greatest effect on: theoverall audit strategy, (whether or not due to fraud) that we identified including those those including identified we that fraud) to due not or (whether most significant assessed risksof material misstatement financial statementsof the current period and include the judgment, were most of significance in our auditof the Key auditKey matters are those matters that, in our professional Key auditKey matters

ofLXi plc REIT Independent report Auditor’s the to members

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 57 We checked the financial covenants and the headroom on these these on headroom the and covenants financial the checked We stressed. were inputs key when covenants We haveWe examined the forecasting and viability model provided by the Manager. tested We the integrity of the model by checking the formulas, the assessed also have We coding. hard any and accuracy arithmetic the the for Directors the by used term the challenged and appropriateness viability. term long Enquiries were made as to any future events or conditions that may affect the ability Group’s to continue to act as a going concern in the and availability financing the of considered Furthermore we future. cash to the Group. haveWe considered the impact Covid-19 has had on the tenants. Group’s obtainedWe details of ongoing negotiations between the Group and tenants that had not paid their quarters rent and considered the risk un-negotiated amounts. remaining around consideredWe the risk of non-collection of future rental income from impact the assessed and Covid-19 by impacted been have that tenants this may have on the future Group’s cash flows. assessed and model the in sensitivities and testing stress the analysed We scenarios case worst including made been had that assumptions any

We consideredWe the nature of the group, its business model and related risks including the impact of Covid-19 pandemic. evaluated We the Directors’ assessment of the ability group’s to continue as a going concern, including challenging the underlying data and key assumptions used to make actions future for plans Directors’ the evaluated and assessment, the in relation to their going concern assessment. Our work included: • Key observationsOur key observations are set out in the conclusions relatedto principal risks, going concern and viability statement section of our audit report. • • • • • How the scope of our audit addressed the key audit matter financial statements. to influence the economic decisions of the users of the individually or in the aggregate, could reasonably be expected Materiality The magnitude of an omission or misstatement that, determinedWe materiality for the Group financial statements which wasas a whole 5,700,000), set be to £8,300,000 (2019: Group of at 1% total Group of 1% assets total assets). (2019: This provides a basisfor determining the nature and extentof our risk assessment procedures, identifying and assessing the risk material of misstatement and determining the nature and extent further of audit procedures. determinedWe that total assets would be the most appropriate basis for determining overall materiality consider as we it to be one the of principal considerations for users the of financial Group. the of performance financial the assessing in statements Specific £67,500 £810,000 £1,350,000 £166,000 £4,980,000 £8,300,000 Financial statement

Going ConcernRefer to the Going concernAs at March 31 the 2020 Group had external borrowings of £166.1mdisclosures (£167.3m March31 that 2019) are subject made to certain financial covenants and fall due in note for1. repayment on the dates disclosed in the Bank borrowings note with 14 cash and cash equivalents of £13.4m (£62.6m March 31 identified We 2019). a key audit matter in respect of going concern which relates to the ability of the Group to meet its financial borrowing covenants and its liabilities as they fall due for a period of at least 12 months from the day of approval of the financial statements, and how this may potentially be impacted by Covid-19. Whilst there is headroom in the loan to value covenant requirement a downwards movement in property valuations could adversely impact on this covenant. In the event of a fall in property valuations, should any of the lenders group’s call for a valuation under the terms of the loan agreement, the group may not meet its covenant. As a result of Covid-19 the valuations may be subject to further reductions. As a result of Covid-19 there may be a delay or fall in the rent Group’s collection during the period of one year fromthe date of approval of significant forecast Directors the Whilst statements. financial these headroom in relation to its interest cover covenants in this period a deterioration in rent collection could lead to a covenant breach. Key audit matter audit Key Performance materiality threshold Reporting Materiality Group qualitative grounds. opinion. Materiality is assessed on both quantitative and of misstatementsof on the audit and in forming our audit performing our audit, and in the evaluation the of effect We apply theWe concept materiality of both in planning and Our application materiality of

An overview of the scope of our audit Our auditthe of Group was scoped obtaining by an understanding the of Group and its environment, including system internal of the control, Group’s applicable legal and regulatory framework and the industry in which it operates, and assessing the risks material of misstatement at the Group and Parent Company level. This includedconsideration of the risk that the Group was acting contrary applicable to laws and regulations, including fraud. The Group operates solely in the United Kingdom and operates through one segment, investment property, structured through a number subsidiary of special purpose vehicle (“SPV”) companies. The Group auditteam performed all the work necessary issue to the Group and Parent Company audit opinions. At the planning phase identified we significantfive components, SPVs. The audit approach being of five the Group’s included undertaking audit work on the risks key material of misstatement identifiedfor the Group and auditing the five significantcomponents to a lower thresholdof materiality as outlined in the materiality section above. All the of work was carried out BDO LLP. undertookWe audit procedures respond to the to risk of those on focussing regulations, and laws with non-compliance that could give rise a material to misstatement in the Group and Parent Company financial statements, including, but not limited the to, Companies Act 2006, the UK Listing Rules, the regimeREIT requirements and legislation relevant the to rental properties.of made enquiries We management of obtain to further understanding risks of non-compliance. of used We a BDO tax specialist consider to compliance with the REIT regime requirements. There inherent are limitations in the audit procedures described above and the further removed non-compliance withlaws and regulations is from the events and transactions reflected in the financial statements, the less wouldlikely become we aware it. of addressedWe the risk management of override internal of controls, undertaking by procedures review to journal entries processed during and subsequent the to year end and evaluate whether there was evidence bias of that represented a risk of material misstatement due fraud. to identified We the valuation investmentof properties audit as a key matter related the to potential risk fraud. of Further details our of response this to fraud risk are given in the audit key matter section on page 56. consider thatWe the audit procedures planned we and performed in accordance with ISAs provided have us (UK) with reasonableassurance that irregularities, fraud, including would been have detected the to extent that they could have resulted in material misstatements in the financial statements. Our audit was not designed identify to misstatements or other irregularities that would not be considered be to material the to financial statements.

undetected misstatements exceeds materiality. low level the probability that the aggregate of uncorrected and

to the Audit Committee. balance level. It is set at an amount to reduce to an appropriately light other of relevant qualitative considerations. quantitative measures materiality of discussed above and in the 58 LXi REIT plc Annual Report 2020 We evaluateWe uncorrected any misstatements against both the would be £126,000 (2019: £80,000). £80,000). (2019: £126,000 be would We agreedWe that the reporting threshold for the Parent Company qualitative grounds. this threshold that, warranted in our view, reporting on of £166,000 (2019: £114,000) as well £114,000) as differences £166,000of below (2019: Reporting threshold the Committeein to excess differences individual all audit £240,000) respectively. £240,000) agreedWe with the Audit Committee that would report we were £3,780,000 and £162,000 (2019: £2,000,000 and and £2,000,000 (2019: £162,000 and £3,780,000 were materiality specific and performance materialityapplied An amount above which identified misstatements are reported appropriate for the Parent Company, and the performance and Company, the Parent for appropriate We determinedWe that the same measure as the Group was materiality was set at £810,000 (2019: £370,000). (2019: £810,000 at set was materiality £3,780,000 (2019: £2,850,000) and specific performance performance specific and £2,850,000) (2019: £3,780,000 Performance materiality performance financial statement materiality was set at ranged from £220,000 to £6,300,000. to £220,000 from ranged materiality. of Group 50%) should As such, be 60% (2019: used during the audit. Significantcomponent materiality judgementwas that overall performance materiality for the within the scope our of audit and the extent sample of sizes overallassessment control environment, the of Group’s our determine the financial statement areas that are included are determine that the financial statementareas On the basis our of risk assessment, together with our was audited level materiality of a lower to which is used to as outlined above, each significantcomponent of the Group Whilst materiality for the financial statements as a whole was The application of materiality at the individual account or (2019: £480,000) respectively. (2019: £480,000) were £6,300,000 (2019: £4,000,000) and £270,000 £270,000 and £4,000,000) (2019: were £6,300,000 for the and Parent the Company, materiality levels applied financial specificmateriality financial appropriate statementand were We determinedWe that the same measures as the Group for of disposalof investment of properties. net surpluson revaluation investment of properties and profit earnings (2019: 5%). EPRA earnings 5%). excludesearnings the impact (2019: the of at 5% of European of at 5% Public Real Estate Association (“EPRA”) areas should be £1,350,000 (2019: £740,000). This was setareas should £740,000). be £1,350,000 (2019: decisions users. of determined We that materiality for these financial statements as a wholecould influence theeconomic properties a misstatement less of than materiality for the of transactionsof anddisclosures not related investment to We determined that for other account balances, classes balances, account other for that determined We

ofLXi plc REIT Independent report Auditor’s the to members

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 59 adequate accounting records not have been the by kept orParent returns Company, adequate for our audit not have been received from branches not visited or us; by the Parent Company financial statements and the partof the Directors’ remuneration report be to audited are not in agreement with the accounting records and returns; or specified remuneration Directors’ of certain disclosures by law arenot made; or not have receivedwe all the information and explanations requirewe for our audit. the information given in the strategicreport and the Directors’ report for the financialyear for which the financial statements are prepared is consistent with the financial statements; and the strategic report and the Directors’ report been have requirements. legal applicable with accordance in prepared

Opinions on other matters prescribed the by Companies Act 2006 In our opinion, the part the of Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. undertaken the work based on opinion, the our in In course the of audit: • • • • • • Matters on which are we required report to exception by In the light the of knowledge and understanding the of Group and the Parent Company and its environment obtained in the course the of audit, not have identified we material misstatements in the strategic report or the Directors’ report nothing have reportWe to in respect the of following matters in relation which to the Companies Act 2006 requires us report to in our opinion: you if, to

Directors’ statement compliance of with the UK Corporate Governance Code as set out on page 40 – the parts of the Directors’ statement required under the Listing Rules relating compliance the to Company’s with the UK Corporate Governance Code containing provisions specifiedfor review theby auditor in accordance do with Listing Rule 9.8.10R(2) not properly disclose a departure from a relevant provision theof UK Corporate Governance Code. Audit committee reporting as set out on page 48 – the committee does notsection the audit of describing the work the to us matters by address communicated appropriately or committee; audit Fair, balanced and understandableFair, as set out on page 48 – the statement given the by Directors that they consider the annual report and financial statements taken as balanceda whole is fair, and understandable and provides the assess to shareholders necessary for information the position, performance,Group’s business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

• that those items meet the following conditions: following the meet items those that misstatements the of other information where conclude we the other information and report to as uncorrected material • responsibility specifically to address thefollowing items in In this context, also we nothing have report to in regard our to We have nothing have reportWe to in this regard. information, are required we report to that fact. conclude that there a material is misstatement the of other • information. based If, on thework performed, have we we financial statements or a material misstatementof the other determine whether there is a material misstatement in the or apparent material misstatements, are required we to misstated. identify we If such material inconsistencies obtained in the audit or otherwise appears be to materially inconsistent with the financial statements or our knowledge so, consider whether the other information is materially responsibility read is to the other information and, in doing In connection with our audit the of financial statements, our express any form of assurance conclusion thereon. conclusion assurance of form express any the extent otherwise explicitly stated in ourreport, do not we statements does the not cover other information and, except to our auditor’s report the financial on thereon. Our opinion auditor’s our the annual report, other than the financial statements and statements financial the than report, other annual the other information comprises the information included in included theinformation comprises information other The Directors are responsiblefor the other information. The Other information

Other matters which are required we address to Following the recommendation the of audit committee, we were appointed the by Directors December on audit 16 to 2016 the financial statementsfor theyear ending31 and March2018 subsequent financial periods. The period total of uninterrupted engagement is three years, covering the years ending March March 31 to 2020. 31 2018 StandardEthical Theservices non-audit FRC’s the by prohibited were not provided the to Group or the Parent Company and we remain independent the of Group and the Parent Company in conducting audit. our Our audit opinion is consistent with the additional report the to committee.audit Use of our report This report is made solelyto themembers, ParentCompany’s in accordanceas with a body, Chapter Part 3 of the of 16 Companies Act 2006. Our audit work has been undertaken so that might we state the to members Parent Company’s those matters are required we state to them to report in an auditor’s and for no other the fullest purpose. extent To permitted by do not we accept or assumelaw, responsibility anyone to other than the Parent Company and the members Parent Company’s for ouras a body, audit work, for this report, or for the opinions we have formed. Statutory (Senior Edward Goodworth Auditor) Thomas Statutory andFor on behalf Auditor BDO of LLP, London KingdomUnited 15 May2020 BDO LLP is a limited liability partnership registered in England registeredand (with Wales number OC305127).

60 LXi REIT plc Annual Report 2020

This descriptionforms part report.of our auditor’s Council’s website at: www.frc.org.uk/auditorsresponsibilities. www.frc.org.uk/auditorsresponsibilities. at: website Council’s the financial statementslocated is on the FinancialReporting A further description our of responsibilities for the audit of of users taken on the basis these of financial statements. reasonably be expected to influence the economic decisions decisions the economic expected be reasonably influence to material individually if, or in the aggregate, they could Misstatements can arise from fraud or error and are considered always detect a material misstatement when it exists. that an audit conducted in accordance with ISAs will (UK) assurance is a high level assurance, of but is not a guarantee issue an auditor’s report Reasonable opinion. our includes that auditor’s an issue material misstatement, whether due fraud to and to or error, whether the financial statements as a whole are free from Our objectives are to obtain reasonable assurance about assurance obtain reasonable Our objectives to are financial statements Auditor’s responsibilitiesAuditor’s for the audit of the operations, or no have realistic alternative but do to so. liquidate the Group or the Parent Company or cease to basis accounting of unless the Directors either intend to matters related going to concern and using the going concern ability continue to as a going concern, disclosing, as applicable, responsible and the for assessing Parent Company’s the Group’s In preparing the financial statements, the Directors are from material misstatement, whether due fraud to or error. to enableto the preparation financial of statements that are free such internal control as the Directors determine is necessary for being satisfied that they a truegive and andfor fair view, responsible for the preparation the of financial statements and responsibilities as set out on page 54,the Directors are As explainedmore fully in the statement Directors’ of ResponsibilitiesDirectors of

ofLXi plc REIT Independent report Auditor’s the to members

Overview Strategic Report Governance Financial Statements Additional Information

Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 61

62 63 64 65 66 88 89 90

Consolidated statement of financial position statement financial Consolidated of Consolidated statement changes of in equity Consolidated cash flow statement Notes the to consolidated financial statements statement financialCompany of position Company statement changes of in equity Notes the to Company financial statements Consolidated statement of comprehensive income statement comprehensive Consolidated of Financial Statements Financial Financial Statements

– – £m 0.1 3.3 (3.3) (3.5) 15.9 34.1 34.1 37.3 18.1 21.6 12.7p Year ended Year 31 March 2019 –

£m 0.2 1.2 (5.0) (0.1) (6.6) 45.4 73.6 73.6 78.4 31.9 38.5 15.2p Year ended Year 31 March 2020 8 7 6 9 9 5 4 25 Note

The notes on pages form87 to 66 partof theconsolidated financial statements.

Earnings per basic share and diluted – Profit and totalcomprehensive andProfit attributable income shareholdersto

Taxation Profit before tax

Finance costs Finance Finance income Finance

Operating profit Change in fair value financial of instruments

Gain on disposal investment of property Change in fair value investment of property

Operating profit before change in fair value and gain on disposal of investment property Administrative and other expenses 62 LXi REIT plc Annual Report 2020

Rental income Consolidated statement income of comprehensive

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – £m 3.5 9.0 1.2 4.8 9.0 55.1 19.4 43.2 68.6 115.9 229.3 167.3 511.5 403.8 403.8 176.3 167.3 580.1 511.5 114.6p 114.6p 31 March 2019 – £m 5.2 3.5 0.5 90.9 16.1 13.4 10.1 16.1 24.0 128.7 423.2 166.1 809.7 648.0 648.0 185.7 169.6 833.7 809.7 124.3p 124.3p LXi REIT plc Annual Report 2020 63 31 March 2020 9 26 26 16 15 13 14 13 12 12 11 Note

The notes on pages form87 to 66 partof theconsolidated financial statements. Chairman the of Board Directors of Stephen Hubbard Stephen

on its behalf by: Theconsolidated financial statements were approved and authorised for issue by the Board 2020 and on signed 15 May

EPRA net asset value per share Net asset value per share – basic and diluted

Total equity Total Retained earnings

Capital reduction reserve Share premium reserve Share capitalShare Equity Net assetsNet

Total liabilities Total

Total non-current liabilitiesTotal Trade and other payables other and Trade Bank borrowings Non-current liabilities Total current liabilities Total

Trade and other payables other and Trade Current liabilities

Total assets

Total current assets Total Cash cash and equivalents

Restricted cash Deferred acquisition costs acquisition Deferred Trade and other receivables receivables other and Trade Current assets Total non-current assets Total

Investment property Non-current assets

Company number: 10535081 Company Consolidated statement of financial position £m £m Total Total (3.4) (4.0) 34.1 73.6 equity equity (14.2) (25.0) 175.3 199.6 212.0 403.8 648.0 403.8 – – – – – – £m £m 34.1 73.6 21.0 55.1 55.1 128.7 earnings earnings Retained Retained – – – – – – £m £m 90.9 Capital (14.2) (25.0) Capital reserve reserve 130.1 115.9 115.9 reduction reduction – – – – £m £m (3.4) (4.0) Share Share Share 59.0 reserve reserve 173.7 197.9 229.3 423.2 229.3 premium premium premium premium – – – – – – £m £m 1.6 1.7 1.9 3.5 5.2 3.5 Share Share Share capital capital

17 17 16 16

Note Note 15,16 15,16

The notes on pages form87 to 66 partof theconsolidated financial statements. Balance March as at 31 2019

Balance March at 31 2020 Dividends paid in the year

Dividends paid in the year Share issue costs

Share issue costs in the year Issue ordinary of shares Transactions with owners with Transactions in the year Issue ordinary of shares Transactions with owners with Transactions shareholders income attributable to Profit and total comprehensive comprehensive total and Profit shareholders income attributable to Profit and total comprehensive comprehensive total and Profit Balance at 1 April 2018 Year endedYear 31 March 2019 64 LXi REIT plc Annual Report 2020

Year endedYear 31 March 2020 Balance at 1 April 2019 Consolidated statement of changes in equity in changes of statement Consolidated

Overview Strategic Report Governance Financial Statements Additional Information

Overview Strategic Report Governance Financial Statements Additional Information – – £m 3.3 0.8 3.6 0.1 (3.3) (3.0) (0.1) (3.7) (1.4) (3.4) 30.8 54.7 49.7 34.1

19.4 15.1 19.5 (15.9) (14.2) (11.4) 175.3 202.3 (288.0) (233.2) Year ended Year 31 March 2019 £m 5.0 0.2 4.4 0.2 (1.2) (5.4) (0.2) (4.7) (2.2) (6.0) (0.1) (4.9) (3.9) 20.9 43.2 73.6 19.4 13.4 26.3 25.8 (45.4) (25.0) 199.6 207.0 (260.1) (238.8) Year ended Year LXi REIT plc Annual Report 2020 65 31 March 2020 9 7 9 4 6 12 Note

Change in fair value investment of property

Purchase investment of properties The notes formon 87 pages to 66 partof consolidatedthe financial statements.

Cash and cash equivalents the at end the of year Net decrease in cash and cash equivalents Cash and cash equivalents the at beginning the of year Netgenerated cash flow from financing activities Drawdown of borrowings Loan arrangement paid fees Interest paid Share issue costs paid paid Dividend Proceeds from shares issued in the period the in issued shares from Proceeds Cash from flows financing activities Net cash used flow activities investing in Interest received Interest Proceeds from sale investment of property Purchase derivative of Cash fromactivities investing flows Increase in trade and other payables Netgenerated cash flow from operating activities (Increase)/decrease in trade in receivables other and (Increase)/decrease Accretion tenant of lease incentives Operating results before working capital changes Changein fair value derivative of Gain on disposal investment of property Finance costs Finance

Profit before tax Cash flows from operating activities Finance income Finance Adjustments for: Consolidated cash flow statement flow cash Consolidated

Definitionof a Business (Amendments (effective3) 1to IFRS January 2020); Amendments IAS to 1 Presentation Financial of Statements (effective 1 January2020);

this financial information, that will future or an may have effect financial on the Group’s statements: Thefollowing are new standards, interpretations and amendments, which are yetnot effective, andhave not been early adopted in Standards issued effective not yet no changes been have identified in respectof theseleases where the Group also acts as a lessor. because at the date initial of adoption, the Group had no material headlease obligations as lessee leasehold i.e. properties. Further, adoption the of standard did not a material have impact on the financial statements at the of date initial application. This is The Directors given have considerationdue to the impact on the financial statementsIFRS of 16 concludedandhave that the 66 LXi REIT plc Annual Report 2020 (Note 9) and are subsequently 9) (Note measured at fair value. leasehold properties meet the definitionof investment property, theassets right-of-use are presented within investment property Right use of assets are initially measured at the amount the of lease liability, reduced for tenant any lease incentives received. As Financial Position. • made. The Group presentslease liabilities as headlease liabilities within trade and other in (Note payablesStatementthe 13) of • liabilities increase as a result interest of charged at a constant rate on the balance outstanding and are reduced for lease payments case the Group’s incrementalcase borrowing the Group’s rate on commencement the of lease is used. Subsequent initial to measurement lease with the discount rate determined reference by the to rate inherent in the lease unless this is not readily determinable, in which Lease liabilities are measured at the present value the of lease payments ground of rents due the to lessor the over lease term, low valuelow assets and leases with a term 12 of months or less. All leases where the Group is a lessee are accounted recognising for by asset a right-of-use and a lease liability except for leases of The Group has purchased a numberleaseholdof properties accountingThe in thepolicyyear. adopted by the Groupis: IFRS is outlined 16 below. a lease under IFRSwas 16 applied only contracts to entered into or changed onThe orimpact after 1 April2019. of the adoption of intobefore the transition date that were notidentified leasesas under IAS17 andwere IFRIC 4 not reassessed. The definition of practical expedient not to reassess whether a contract a lease contains) at the date is (or initial of application. Contracts entered made on the date application of without April restatement (1 2019), comparative of figures. The Groupelected to apply the The Group adopted IFRS16 using the modified retrospective approach with recognitionany of transitional adjustments being obligationmake to lease payments. the Previously, Group was required classify to all leases as either operating or financeleases. to recogniseto asset a right-of-use representing its right use to the underlying leased asset and a lease liability representing its liabilities for all leases with a term more of than 12 months, unless the underlying asset value. low is of A lessee is required IFRS replaces 16 IAS Leases 17 and introduced a single lessee accounting model and requires a lessee recognise to assets and IFRS Leases 16 New standards impacting the Group that been have adopted for the first time in this setof financial statements are: Standards effective from1 April2019 rounded the to nearest hundred thousand except where indicated otherwise. Theconsolidated financial statements are presentedSterling, in functional which is also thecurrency, Group’s and values are comprehensive income. income. comprehensive and derivative financial instruments which beenhave measured at fair value with changes recognised through the statementof The Group’s financial statementsThe Group’s have been prepared on a historical costinvestment basis, as modified properties for the Group’s financial statements relatesto theyear ended31 March2019. The financial statementshave been prepared for The comparativeyearthe 2020. ended 31 March information included in the 2006 and Article the 4 of IAS Regulations. as issued the by International Accounting Standards as adopted Board the by (IASB) UK and in accordance with the Companies Act Theconsolidated financial statementshave been preparedaccordance in with International Financial Reporting (IFRS) Standards 1. Basis of preparation 1. Basis of Notes to the consolidated financial statements financial the consolidated to Notes of activitiesof and assets must include, at a minimum, an input and a substantive process that together significantlycontribute to financial statementsof the amendmentsto IFRS 3. Under the amendmentsof IFRS to 3, consideredbe a business, an acquired set The Directors are currently assessing the impactof these amendments and given have considerationdue to the impact on the

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 67 versus the interest test cover 300% of 2 , the valuation the of property portfolio an outward would reduce to have 41%, by 1

yield movement bps, 343 of in order for the Group breach to covenant its LTV Assumes all rents are paid by tenants as they fall due Pro-forma LTV is calculated as the Group’s total bank borrowings, assuming the RCF is fully drawn (£270.0m), as a percentage of the Group’s investment property valuation as at 31 March 2020, which includes forward funded commitments outstanding at that date The is RCF being drawnto match the developer drawdowns as they fall due andgenerates significant arbitrage between the funding rate received on developments and the interest ratepaid on the drawn element TheCompany also has a committed £100 million revolving credit facility with(“RCF”) Lloyds Bank, which completelywas undrawn and fully March covers its at 31 2020 commitments on forward fundings The Group has no short or mediumterm refinancing riskaverage given 11-year the maturity of its long term debt facilities with Scottish Widows the firstof whichwhich are expiresfully average atfixed 2029, an in July pa 2.94% all-in of rate Similarly, the Group’s forward lookingSimilarly, the Group’s interest ratio cover is c.600% (“ICR”) In order ongoing support to negotiations with the tenants Group’s term-loan in respect lender rent of the recovery, Group’s has suspended the ICR covenant until when December normality 2020, is widely anticipated returned have to the to rent cycle collection The Investment Advisor is in regularcontact lenders who withare supportive the Group’s of the Group, comfort take in the valuations the by Standing Independent and Valuer not have instructed their own valuation test to covenant compliance Whilst material uncertainty relating property to values exists and short-term fluctuations may be expected, factors contributing the to resilience the of property portfolio valuation are detailed The Board below. has reasonablecomfort that no yield shift in the region noted above will occur On the basis of the Group’s pro-formaOn the LTV basis the of Group’s The Group’s loan to value (“LTV”) as at 31 March 2020 20%,wasloan 31 to as at (“LTV”) March2020 value this provides significantThe Group’s headroom tocovenant the of 50% portfolioThe Group’s is currently reflecting valued£914.0m at a valuation 5.0%.yield of Assuming full drawing of RCF the pro- forma is 30% LTV

2 1 •

• • • • Low, long dated andLow, low-cost debt facilities, with significantcovenant headroom • working policies that has been in effect and is operating16 since March2020 well. Continuity Procedures, the Company has a Pandemic Response Plan in place which includes travel restrictions and remote • The Group remainsconstant in communication with all its advisers,tenants key andservice providers and, as partof its Business these across its business across these • issued the by Health World Organisation, Public Health England, the NHS and other relevant authorities and is complying with • especially during this period uncertainty of and volatility and the Group is continuing monitor to closely the recommendations • The health and safetycolleagues,of tenants, shareholders and wider stakeholderscontinues to remain top priority, theCompany’s by tenant,by sector and location. property assets let or pre-let on very long term, index-linked leases a wide to range strong of tenant covenants highly diversified the risks presented draw it. robust by comfort We balance from the sheet Group’s and high-quality portfolio commercial of The Board believes that theCompany remainswell placedto navigate effectively a prolonged period of uncertainty toand mitigate operation and trading performance many of our of tenants and assets. the operations the of Group and the disruptions caused the by virus and necessary short-term Government measures, the to since inception global This is the of as a result of pandemic Company. theCovid-19 and the unprecedented impact it is having on Assessment ability continue to the of as Group’s a going concern is subject more to uncertainty than has previously been prevalent Theconsolidated financial statementshave been prepared on a going concern basis. Going concern purchase subsidiaries any which incorporate anything other than an investment property. a business as there was not an integrated set activities of acquired in addition the to property. The Group does not intendto however, subsidiaries acquiredhowever, the by Group date to all have been treated as the acquisition a group of assets of rather than financial statements in the periodof initial application. This is because the amendment narrows the definition of a business, At presentAt they do not anticipate that the adoption the of amendment and interpretation will a material have impact on the activities and assets is a business has been added. the ability create to outputs. An optional concentration test that permits a simplified assessmentof whether an acquired setof

£0.2m is now due be to paid£0.2m between three and twelve months; and less has than been £0.1m given as a rent concession £0.3m has been£0.3m received in cash; £1.2m is now due be to paid within three months; - - - -

£1.6m remains the subject detailed of discussions with the tenant, which represents contracted 3.2% annual the of Group’s £1.7m is now subject agreed to terms with the tenant, contracted which represents annual the of Group’s 3.6% rent roll. Of this amount: rent roll. The Investment Advisor expects the majorityof thisto be received within monthstwelve - - - -

- -

- The strong financial performance of the Group in yearthe 2020 andended 31 the March current liquidity has given the Board confidenceto propose the final quarterly dividend in respect meeting annual of year, that the dividendCompany’s target, which will be paid shareholders to on July 17 - The Investment Advisor has been in negotiations with thosetenants that had not paid their quarter’s rent and provides the following update, which demonstrates good progress towards recovery the of vast majority the of unpaid rents: £3.3m the of quarterly rent roll was unpaid as at the quarter date in March and subject deferral to negotiations, representing £48.3m annual contracted6.8% the of Group’s rent roll The tenants majoritycontinue to of as pay thenormal, Group’s or to moved have monthly paymentsfor one quarter The Board notes that, like the vast majorityof largecommercial property landlords, we been have impactedby the Government’s guidance in respect the of current quarter that non-payment rents of would not result in forfeiture, and as a result some our of tenants withheld have their rental payments in respect the of quarter ending 30 June 2020 The Groupcouldcontinue to meet its ongoing operational and financing cost obligations at a recovery of rate 17% of rental income Disposal proceeds will be used in the short-term liquidity support to the and in the Group’s medium-term expect we redeploy to the capital into our existing pipeline accretive of assets other opportunistic and/or purchases that may arise in the current crisis The Group has exchanged unconditionally on the disposalof assetstwo for proceedsof £2.1m, representing an uplift of 15.1% on purchase price, 2.8% on current book value and generating a geared IRR 15.1% of pa At 31 March 2020 the Group March 31 At 2020 had and available net assets uncommitted £403.8m) March £648.0m of 2019: (31 cash reserves of £19.4m) March£13.4m 2019: (31 A number tenants, the of Company’s such as Aldi, Lidl and BUPA, are in sectors which are trading robustly in the current climate In the sectors has such spot-lit, as budget which hotels, Covid-19 pubs and drive-thru coffee shops,tenants theCompany’s – GreenePremier King, Inn, Travelodge, Costa Coffee Starbucksand – are marketleading operators, with strong balance sheets materialand cash holdings The Company’s portfolioTheCompany’s benefits sustainable fromlow, rents, making the assets highly profitable and valuable to our tenants. This is in part a consequenceof theCompany forward funding, on a pre-let basis, brand new buildings and carefully structuring sale and leasebacks Each property is let on a fixed(i.e. rentnot related basis to turnover or trading), of withthe income96% benefitting from index- uplifts fixed or linked The Company’s leases averageThe Company’s years22 to first break and each lease is drawna fully on repairing and insuring basis – tenants are responsible maintenance for repair, and outgoings, so there is no cost leakage for the Company The Company’s portfolioTheCompany’s 100% is let or pre-let over to 50 strongtenants, across nine sub-sectors.Further security is provided through the tenants and guarantors being the main trading or parent companies within the tenant groups

68 LXi REIT plc Annual Report 2020 •

• •

• •

• •

• • • • •

• • Defensive and diversified portfolio that100% is let or pre-letvery on long leasesto strongtenant covenants • 1. Basis preparation of (continued) Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Rent recovery and dividends and recovery Rent Strong liquidityStrong

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 69

TheCompany willcontinue to monitor the improving visibility on its future rentcollection as the UK moves outlockdownof and is keeping its dividend guidance under careful review on a quarterly basis The Board believes this is an appropriatelevelfor the period which it expectsto coveredby be the rentscollected for the quarter in the advance March ending rents) (i.e. 2020 30 June 2020 The Boardconfirms that it expects to approve thepayment offirst the Company’s quarterly dividend for the financial year ending at theMarch 31 rate 2021 1.30of pence per share. This dividend is in respectof the quarter ending and is 30 June2020 scheduled be to declared and paid in September 2020

may assert the to risks and rewards ownership of having been substantially retained or transferred. value compared with the fair value and associated costs acquiring of the asset as well as qualitative factors as indicators that economic life the of asset compared with the lease term and the present value the of minimum lease payments and residual any In considering the classificationleaseof arrangements, at inceptionof eachlease the Groupconsiders key factors, including the its investment property and accounts for the lease arrangements as operating leases. or transferred. Based on evaluation the Group has determined that it retains all the significant risks and rewardsownershipof of well as qualitative factors as indicators that may assert the to risks and rewards ownership of having been substantially retained the minimum lease payments and residual any value compared with the fair value and associated costs acquiring of the asset as inception each of lease the Group considers the economic life the of asset compared with the lease term and the present value of The Group has acquired investment property thatleased is tenants.to considering In the classification of lease arrangements, at Classification of lease arrangements – the Group as lessor(Note 18) Judgments: nature these of inputs and sensitivity analysis is provided in Note 9. bespoke nature of each of the Group’s investments,bespoke investment nature each of properties the of all Group’s the of Group’s are included in Level 3. Details the of in accordance with IFRS 13 which recognises a variety fair of value inputs depending upon the nature the of investment. Given the With respect the to consolidated financial statements, investment properties are valued at their fair value at each reporting date appropriate developer’s margin. developer’s appropriate as the capitalised income calculated the by less Independent costs any still Valuer, payable in order complete, to which include an assets are remeasured fair to value at each reporting date. The fair valueof investment properties underconstruction is estimated initially recognised at cost (including associated any investments which costs), reflect in thethe assets.Group’s Subsequently, the the Group enters into a fixed-price development agreement Investmentwith the developer. properties underconstruction are expose itself speculative any to development risk as the proposed building is pre-let a tenant to under an agreement for lease and of a pre-letof property under a funding agreement. All such contracts specify a fixed amountconsideration.of The Group does not Investment propertiesunder construction are financedby the Group where the Group enterscontracts into for the development The valuation report includes referenceto material uncertainty that existed at the valuation date. Details are included9. in Note (commonly known(commonly as the Book’). ‘Red by theby Royal Institute Chartered of Surveyors Valuation Global – Professional (“RICS”) and UK Editions Standards, July 2017, The Group’s propertiesThe beenhave Group’s independently valuedby its IndependentValuer in accordance with the definitions published Valuer makesValuer reference market to evidence transaction of prices for similar properties. The valuation is based upon assumptions including future rental income and the appropriate capitalisationappropriate Independentthe and The rental income rate. future including assumptions based upon is The valuation The Group uses the valuation carried outby (theFrank Knight“Independent LLP Valuer”) as the fair valueof its property portfolio. Valuation of investment properties 9) (Note Estimates: year are outlined below: have a significanthave riskof causing a material adjustmentto the carrying amountsof assets and liabilities within the next financial amounts assets of and liabilities that are not readily apparent from other sources.The estimates and associated assumptions that In the accounting application policies the of the Group’s Board is required make to estimates and assumptions about the carrying 2. Significant judgments, accounting estimate and assumptions

• •

• this financialinformation. this from the date approval of these of financial statements and therefore adoptedhave thegoingconcern basis in the preparationof Based on the consideration above, the Board believes that the Group has the ability continue to in business at least twelve months Going concern statement

The Group’s accounting policyThefor financialGroup’s assets classified as amortised cost is as follows: the asset was acquired and based on the business model test. There are no financial assets held at fair value through profit or loss. The Group classifies its financial assets as fair value through profitor loss or amortised cost, depending on the purpose for which a. Financial assets Financial instruments described in Note 3. Significant accounting judgments, estimates and assumptions made in the valuationof investment properties are subsequently be capitalised.subsequently Deferred acquisition costs represent costs incurred on investment properties which completed after the period end and will in which the property is derecognised. 70 LXi REIT plc Annual Report 2020 as the difference between the net disposal proceeds and the carrying amountof the asset) is incurred in profit or lossin the period no future economic benefits are expected from the disposal. Any gain lossor arising on derecognitionof the property(calculated An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and Ongoing repairsOngoing and maintenance expensed are incurred. as Subsequent expenditure is capitalised only when it is probable that future economic benefits are associated with the expenditure. appropriately reflected within investment property reflectedinvestment within appropriately construction. under investment property at the fair value at the date practical of completion so that economic any benefitof the licencefee is When development completion is reached, thecompleted investment property is transferred the to appropriate class of property. Any economic benefitof the licencefee is recognised through the change in fair valueof investment property. the developer. Licencethe fees receivable developer. the by Group in respect the of period are treated as discounts the to cost investment of During the period between initial investment and the rent commencement date, the Group receives licence fee income from developer’s margin. developer’s estimated as the fair value the of completed asset less costs any still payable in order complete, to which include an appropriate the assets are remeasured fair to value at each reporting date. The fair valueof investment properties underconstruction is are initially recognised at cost (including associated any investment which costs), reflect in the assets. the Group’s Subsequently, and the Group enters into a fixed price development agreement Investmentwith the developer. properties underconstruction expose itself speculative any to development risk as the proposed building is pre-let a tenant to under an agreement for lease of a pre-letof property under a funding agreement. All such contracts specify a fixed amountconsideration.of The Group does not Investment propertiesunder construction are financedby the Group where the Group enterscontracts into for the development investment property are included in the period in which they arise in the statement comprehensive of income. investment property is stated at its fair value at the reporting date. Gains and losses arising from changes in the fair value of including expenditure that directly is attributable the to acquisition the of investment property. After initial recognition, where conditions the to purchase are substantially met and measured at cost, being the fair value the of consideration given, Investment property, which is property held earn to rentals for capital and/or appreciation, is initially recognised at the point Investment property Accounting policies the of subsidiaries are consistent with the policies adopted the by Company. commences until the date that control ceases. The financial statements of the subsidiaries are included in consolidatedthe financial statements from thedate that control direct the activities of the entity. All intra-group transactions, balances, income and expenses are eliminated on consolidation. consolidation. on eliminated are expenses and transactions, income intra-group balances, All entity. the activities of the direct rights variable to, returns fromits involvement with the entity and has the ability affect to those returns through its to power Subsidiaries are all entities which over the Group has control. The Groupcontrols an entity when the Group is exposed or to, has Theconsolidated financial statements comprise the financial statements of the Group as at the year enddate. Basis of consolidation have beenhave consistently applied. The principal accounting policies applied in the preparationof theconsolidated financial statements are Theset out policiesbelow. 3. Summary of significant accounting policies accounting significant 3. Summary of Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 71

leases are classified operatingleases. are as leases Sub-leases leasehold of properties are classified with referenceto the rightof use asset arising from the headlease. All other position. Rental income from operating leases is recognised on a straight line basis the over expected term the of relevant leases. Properties leased out under operating leases are included in investment property in the consolidated statement financial of contracts operating as leases. The Group has determined that it retains all the significant risks and rewards of ownership of the properties accountsand for the ownership the to lessee. All other leases are classified as operatingleases. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of Leases – the Group as lessor transfers occurred have between levels in the hierarchy reassessing by categorisation at the end each of reporting period. For assetsFor and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether Level 3: ValuationLevel 3: techniques for which the lowest level input that is significantto the fair value measurement is unobservable. indirectly observable. indirectly Level Valuation 2: techniques for which the lowest level input that is significantto the fair value measurement is directly or Level 1: Quoted market (unadjusted) prices in active markets for identical assets or liabilities. Fair value hierarchy Fair amortised using the effective interest rate method. Shortterm financial liabilities are carried at their expected settlement value. identified in respectlongof term payables the fair value is calculated with referenceto an imputed interest rate and subsequently through profit or loss. The Group’s accounting through profitpolicy loss.or forThe financial Group’s liabilities classified as other financial liabilities is asfollows: and other payablesTrade that are financial liabilities are initially recognised at fair value. Where a financing component is for which the liability was acquired and based on the businessmodel test. There are no financial liabilities held at fair value costs and premium any payable on redemption, as well as interest any or coupon payment while the liability is outstanding. The Group classifies its financial liabilities as fair value through profitor loss or other financial liabilities, depending on the purpose the Group Statement Financial of Position. the For purposes each of financial liability, interest expense includes initial transaction b. Financial liabilitiesb. Financial which ensure that interest any expense the over period repayment to is at a constant rate on the balance the of liability carried in the reporting date. instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, security is provided release to the funds and in consequence does not form an integral cash part management the as of at Group’s Bank borrowings which are initially recognised at fair value net transaction any of costs directly attributable the to issue the of Restricted cash represents cash withheld the by lender on drawdowns borrowings of referred until in to Note 14 the certain Other financial liabilities cash held by lawyers completions. subsequent by cash held for Cash and cash equivalents comprise cash in hand and deposits held at call with banks. Cash and cash equivalents also includes the consolidated statement of financial position. financial of statement consolidated the The Group’s financial assetsThe Group’s measured at amortised cost comprise rent receivable, restricted cash and cash and cash equivalents in associated provision. provision. associated On confirmation that the receivable will not collectable,be the gross carrying valueof the asset is written off against the recorded in a separate provision account with the loss being recognised in the consolidated statement comprehensive of income. the lifetime expectedcredit lossfor the rent receivables. rent For receivables, which are reported net, such provisions are receivables is assessed. This probability is then multipliedby the amountof the expectedloss arising from defaultto determine in the determination the of lifetime expected credit losses. During this process the probability the of non-payment the of rent Impairment provisions for receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix method, less provision for impairment. directly attributable their to acquisition or issue and are subsequently carried at amortised cost being the effective interest rate cash flows are solely paymentsof principal and interest. They are initially recognised at fair value plus transaction costs that are other types financial of assets where the objective to is hold these assets in ordercollectto contractual cash flows contractualand These assets arise principally from the provisiongoodsof and servicesto customers rent(e.g. receivables), but also incorporate Amortised cost – £m £m 0.1 0.1 0.1 0.2 0.3 3.0 0.4 2.3 3.5 18.6 21.6 Year ended Year ended Year 31 March 2019 31 March 2019 £m £m 0.3 0.1 0.2 0.2 0.3 0.4 5.4 0.6 4.5 6.6 33.1 38.5

Year ended Year ended Year

31 March 2020 31 March 2020

Expected loss credit Advertising Marketing &

Directors’ fees (Note 20) (Note fees Directors’ Fees paid to the Company’s Independent Auditor Independent the Company’s to paid Fees

Corporate administration fees Other administrative costs

Accretion tenant of lease incentives 9) (Note Legal and professional fees

72 LXi REIT plc Annual Report 2020 Investment advisory 20) fees (Note

5. Administrative and other expenses other and 5. Administrative Thecosts of issuing equity instruments are accountedfor as a deduction from equity. Equity issue costs takes a period time of complete to are capitalised as part the of cost the of asset. Rental income from investment property Any financecosts that are separately identifiable and directly attributable to the development ofinvestment an property that the Group incurs in connection with bank and other borrowingswhich are expensed in the period in which they occur. loan arrangement fees which are expensed using the effective interest rate methodover theterm of theloan and othercosts that income 4. Rental Finance incomeis recognised as interest accrues on cash balances held the by Group. Finance costs consist interest of payable and Finance income and finance costs finance and income Finance date they are paid and the date they are approved at the AGM. Dividends shareholders the to Company’s are recognised as a reduction in equity in the financial statements at the earlierof the Dividends payable to shareholders to payable Dividends enacted at the reporting date. manner realisation of or settlement the of carrying amount assets of and liabilities, using tax rates enacted or substantively purposes and the amounts used for taxation purposes. The amountof deferred tax that is provided is based on the expected Deferred tax is provided on temporary differences between the carrying amountsof assets and liabilitiesfor financial reporting any adjustmentany tax to payable in respect previous of periods. payable on non-REIT any taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and recognised as direct movement in equity, in which case itis recognised as a direct movement in equity. Current tax is expected tax tax. Tax is recognisedtax. in the Tax consolidated statement comprehensive of income except the to extent that it relates items to Taxation on the profitTaxation lossor for the period not exempt under regulationsUK REIT or otherwise,comprises current and deferred Taxation The accounting policyfor leases where the Group is a lessee can foundbe on Note 1. Leases – the Group as lessee 3. Summary of significant(continued) policies accounting Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – – – – – £m £m £m 0.2 0.1 3.1 3.3 0.1 Year ended Year Year ended Year ended Year 31 March 2019 31 March 2019 31 March 2019 – – – – – £m £m £m 0.6 0.2 4.4 5.0 0.2 Year ended Year Year ended Year ended Year LXi REIT plc Annual Report 2020 73 31 March 2020 31 March 2020 31 March 2020

the amortisation loan of arrangement fees totalling which of £nil was capitalised £0.6m which of £nil £0.2m March 2019: (31 the interest payable on bank borrowings totalling £5.4m which of £1.0m was capitalised £3.4m which of March £0.3m 2019: (31 was capitalised). was capitalised); and



Tax charge

Total deferredTotal tax Origination temporary reversal and of differences carried at amortised cost comprised: Capitalised financecosts are included within property acquisitions9. totalThe in Note interestpayable on financial liabilities Total current tax Total

Amortisation loan of arrangement fees Current tax

tax losses, are subject corporation to tax at the main rate 19% of for the year. Profits arising from residualany activities trading(e.g. activities and interest after income), the utilisation any of available residual business are exempt from UK corporation tax provided the Group meets certain conditions as set out in the regulations. UK REIT The Group is a real estate investment trust and(“REIT”) as a result the profit propertyand gains arising from the Group’s rental 8. Taxation 8. Taxation

(ii) (i)

Interest payable on bank borrowings 7. Finance costs 7. Finance

Interest on cash held at bank 6. Finance income 6. Finance Report Committee section. the Audit of services in the year which been have recognised directly in equity Refer the to million). as share £0.1 issue March costs 2019: (31 The millionCompany £0.1 paidof additional Independentfees to theCompany’s Auditor in respectof reporting accountant the audit of the financial statements of the Company’s subsidiaries. the financial of the audit statementsCompany’s the of Fees paid to the Company’s IndependentFees paid the to Company’s Auditor comprise the review the of Interim Report, the audit the of Annual Report and The capitalisation rate usedto determine the amountof borrowingcosts eligiblefor capitalisationPA. during theyear was 2.94% – – – £m £m £m 3.0 5.4 6.5 Total Total (3.0) (1.5) (3.5) (2.1) 15.9 45.4 34.1 (51.2) (19.7) 290.1 269.2 255.2 511.5 511.5 809.7 Year ended Year 31 March 2019

– – – – – £m £m £m 3.5 (8.6) (1.5) (5.4) (2.1) 34.4 39.7 14.0 92.2 26.6 73.6 27.1 27.1 (41.2) (41.5) 110.1 course of course of Year ended Year property in Investment property in Investment construction construction 31 March 2020

– – £m £m 9.2 2.8 4.9 41.2 41.5 10.6 (49.9) (19.7) 230.5 105.2 216.0 451.2 451.2 592.3 freehold freehold property property Investment Investment

– – – – – £m £m 1.8 1.8 0.2 0.5 (1.3) 19.9 71.8 12.6 33.2 33.2

107.3 leasehold leasehold

Investment Investment Investment Investment property long property long

capital commitments on forward funded assets and assets that had exchanged but not completed. The IndependentValuer valued the entire property including £589.5m) (31 March2019: portfolio 31 at March2020 £914.0m at investment property being valued. The valuations are the ultimate responsibilityof the Board. external valuer with recognised and relevant professional qualifications and recent experienceof thelocation and categoryof the The investment property has been independently valuedthe an Independentaccredited at fair Valuer, valueby Frank Knight LLP, BalanceMarch at 31 2019

Balance March at 31 2020 Transfers of completedTransfers property

Transfers of completedTransfers property Change in fair in value Change

Part 12 2010. CTA of UK REIT exemptUK REIT income includes property rental income that is exempt from UK Corporation in accordance with Tax fair in value Change

Property disposals Property disposals

Tax charge Tenant lease incentives 4) (Note Tenant

Revaluation of investment properties investment of Revaluation lease incentives 4) (Note Tenant Licence fee receivable 25) (Note REIT exempt income Effects of: Licence fee receivable 25) (Note

Property acquisitions Tax at the standardTax rate UK of corporation tax 19% of Property acquisitions Year endedYear 31 March 2019 Balance at 1 April 2018 74 LXi REIT plc Annual Report 2020 Year endedYear 31 March 2020 Balance at 1 April 2019

9. Investment property 9. Investment Profit before tax

in the consolidated statement comprehensive of income is as follows: The reconciliationof profit before tax multiplied by the standard corporation of rate tax for yearthe of to19% totalthe tax charge Reconciliation of the total tax charge 8. Taxation (continued) 8. Taxation Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – £m £m 0.7 2.6 Total 22.4 52.3 511.5 511.5 809.7 589.5 537.2 31 March 2019 – £m £m 1.9 4.7 (3.5) 101.2 511.5 809.7 809.7 914.0 914.0 (Level 3) Significant LXi REIT plc Annual Report 2020 75 31 March 2020 unobservable inputs inputs unobservable – – £m (Level 2) Significant observable inputsobservable – – £m (Level 1)

active marketsactive Quoted prices in

Investment property at fair value this income in the valuation. end. The valuation assumes the propertyto be incomegenerating throughout the periodof development and therefore includes Licence fee receivable represent amounts due from developers under funding agreements that not have been settled at the period up rent during the unexpired period next to rent review and therefore includes this income in the valuation. valuation assumes the property be to income generating during the unexpired periods rent-free and passing rent be to the topped- vendor on acquisitions periods future cover to rent-free or periods the to next rent review under the lease. Thetotal portfolio Vendor discountsVendor in respect periods rent-free of and top-ups represent amounts which by a purchase price was reduced the by which includes margin. a developer’s Thesecosts are not providedfor in the statementof financial position. Capital commitments represent the costs bring to the asset completion to under the funding agreements with the developers Total portfolio valuation Total

Valuation of property that has exchanged but not completed Total completed portfolioTotal valuation

Leasehold liability (Note 13) Leasehold liability(Note Licence fee receivable

Vendor discountVendor in respect periods rent-free of and top-ups environmental matters and the overall repair and condition the of property) and discount rates applicable those to assets. (such as lettings,(such tenants’ profiles, future revenue streams, capital valuesof fixtures and fittings, plant and machinery, any The determinationof the fair valueof investment property requires the useof estimates such as future cash flows from assets International Valuation Standards). International Valuation The valuations beenhave prepared in accordance with the RICSValuation – ProfessionalStandards (incorporating the There beenhave no transfers betweenlevels during theyear. Capital 23) commitments forward on funded assets (Note March31 2019 31 March31 2020 Valuation Reconciliation of fair value total to portfolio valuation considered be to acquisitions property of rather than a business. All corporate acquisitions during the been year have treated as asset purchases rather than business combinations as they are Investment property at fair value be the case. The material uncertainty clauseto is serve as a precaution and does not invalidate the valuation. manner that – in the current extraordinary circumstances – less certainty can be attached the to valuation than would otherwise valuation cannot be relied the upon. phrase Rather, is used in order be to clear and transparent with all parties, in a professional For theFor avoidance doubt, of the inclusion the of valuation ‘material uncertainty’ declaration above does not mean that the Covid-19 might on have the realCovid-19 estate market, recommend we that you keep the valuation under frequent review. degree caution of – should be attached our to valuation than would normallybe the case. Given the unknown future impact that ‘material valuation‘material uncertainty’ per VPGA the of 10 RICS Valuation – Global Standards. Consequently, less certainty – and a higher unprecedented set circumstances of on which base to a judgement. Our are is / therefore valuation(s) reported on the basis of comparisonpurposes, inform to opinions value. of Indeed,the current means response that are faced we Covid-19 to with an impacted in all sectors. As at the valuation consider date, we that can we attach less weight previous to market evidence for global financialTravel restrictionsmarkets. beenhave implemented by countries. many In the UK, market activity is being The outbreak of Covid-19, declaredTheWorld outbreakby the HealthCovid-19, of Organisation as a “Global Pandemic” hason impacted11 March2020, The IndependentValuer has included thefollowing disclosure relatingto material uncertainty as at the valuation date: % % range range 4.2 – 6.4 3.9 – 4.9 4.5 – 6.3 4.5 – 6.4 4.8 – 5.7 4.8 – 6.1 4.5 – 5.9 5.2 – 6.5 5.2 – 6.3 4.2 – 6.5 4.7 – 6.0 3.8 – 5.8 4.2 – 6.5 3.8 – 6.5 4.2 – 6.5 Valuation yield Valuation Valuation yieldValuation

£m £m 38.7 76.2 59.6 81.9 45.9 54.1 105.7 119.9 116.3 213.8 150.7 277.8 162.9 914.0 589.5 Valuation Valuation 31 March 2019 31 March 2020 £m £m

pa range pa pa range pa 0.4 – 1.4 0.2 – 1.0 0.4 – 1.3 0.3 – 1.5 0.1 – 0.9 0.1 – 0.9 0.3 – 0.7 0.0 – 1.0 0.0 – 0.9 0.2 – 1.8 0.2 – 3.2 0.3 – 1.2 0.2 – 3.5 0.0 – 3.5 0.0 – 3.2 Passing rent Passing Passing rent Passing £m £m 2.2 3.7 3.2 4.5 2.5 5.9 3.0 7.2 6.8 8.0 8.7 11.5 13.4 48.4 32.2 31 March 2019 31 March 2020 Passing rent pa Passing rent pa pa rent Passing

Portfolio

Other Portfolio Car parks Other

Discount foodstores Discount Leisure Leisure foodstores Discount

Healthcare Healthcare Budget hotel Budget Industrial 76 LXi REIT plc Annual Report 2020

Budget hotel Budget plus standard costs purchase. of The net initial yield is defined as the initial gross income as a percentage of the (ormarket purchase value price as appropriate) Industrial Unobservable input: net initial yield Sector has been provided for estimated rental growth as a reasonable range would not result in a significant movement in fair value. an inflationof the estimated future rental growthwould lead to an increase in the fair value. No quantitative sensitivity analysis estimated future rental growth in the valuation model would lead a decrease to in the fair value the of investment property and The estimatedaverage increase in rent based on both market estimations andcontractual arrangements. A reductionof the Unobservable input: rental growth growth rental Unobservable input: relation to the Group’s property.relation These the to include Group’s propertylocation, use, size, tenant covenant strength andterms of thelease. The prevailing rent at which spacelet is at the of date valuation. Passing rents are dependent upon a numberof variables in Observable input: passing rent include an appropriate developer’s margin. developer’s appropriate an include the income capitalisation technique less estimated costs completion to under fixed price developer funding agreements which other material factors. material other propertyFor in the course construction of the fair value is calculated estimating by the fair value the of completed property using property and properties of a similar of nature. The yield applied takes into account location, the size, terms, covenant strength and Investment property in the course of construction comparable investments, rental and sale transactions, together with evidence demand of within thevicinity the of subject is divided an appropriate by yield with a deduction standard of purchaser’s costs. The method uses analysisof appropriate Standing assets valued are the using investment valuation method. the investment Using valuation method the passing rent Valuation techniques Valuation Standing assets The descriptions and definitions relating to valuation techniques key inputsand made in determining fair values are as follows: 9. Investment property (continued) 9. Investment Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes Sector

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information £m £m £m £m 3.1 0.4 3.5 0.6 0.3 6.4 4.8 3.3 (0.1) 26.8 48.1 54.7 (51.3) 166.1 186.3

Fair value initial yield initial yield –25bps in net 31 March 2019 31 March 2019 – £m £m £m £m 2.9 0.3 7.5 1.1 1.2 4.1 1.2 20.9 10.1 (26.1) (19.7) (43.5) 167.3 166.1 Book value initial yield initial yield LXi REIT plc Annual Report 2020 77 +25bps in net 31 March 2020 31 March 2020

£m 25.8 45.7 +5% in+5% passing rent passing

£m –5% in (27.8) (45.7) passing rent passing

Realised gain on disposal of investment property

similar ageing. risk and credit provision for trade measure receivables. expected To credit losses on a collective basis, trade receivables are grouped based on The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss The carrying valueof trade and other receivables classified at amortised cost approximates fair value. All amounts were due for receipt within one year.

Change in fair value recognised in previous periods Add:

Prepayments and other receivables other and Prepayments Gain on disposal of investment property

Rent receivable Rent year which includes changes in fair value the of investment property recognised inprevious periods. recognised on disposal through the consolidated statement comprehensive of income and the realised gain on disposals in the During the year, theDuring Group disposed the year, certain of its of investment property. The table below shows a reconciliationof the gain Realised gain on disposal of investment property

Selling costs Licence fee receivable

Carrying value 31 March31 2019 Less: March31 2019

Recoverable VAT 11. Trade and other receivables other and 11. Trade

31 March31 2020 Consideration received Consideration 31 March31 2020 Valuation investmentproperty certain to inputs: to judgmentsto and is inherently subjective nature. by The table below shows the sensitivities of measurementof the Group’s As set out within significant accounting estimates and judgmentsproperty above, the Group’s portfolio valuation is open Sensitivities measurement of significant of inputs Bank borrowings The fair valueof financial instruments not included in comparisonthe is equal to book value. Set out below is a comparison the of book value financial and fair instruments value the of Group’s where a difference exists. 10. Financial instruments – – – – – £m £m 1.8 0.4 0.2 4.6 4.1 1.2 1.0 4.1 9.0 £000 43.2 19.2 62.6 19.4 31 March 2019 31 March 2019 31 March 2019 – – – – £m £m 5.0 0.7 3.5 0.2 7.3 8.6 2.2 0.9 8.6 3.5 £000 13.2 13.4 13.4 16.1 31 March 2020 31 March 2020 31 March 2020 1

Corporation tax payable are liabilities of the Company’s subsidiaries that accrued prior to acquisition and entry to the REIT regime. No tax liabilities have arisen within the Group and the tax charge for the year disclosed in Note 8 is £Nil March (31 2019: £Nil)

completion. These funds are available immediately on demand. on availableimmediately Theseare funds completion. Cash held lawyers by is money held in escrow for expenses expected be to incurred in relationinvestment to properties pending

Total cash at bank Total Corporation tax payable

investment property costs, accruals, trade and other payables and the leasehold liability. Trade and other payablesTrade that are financial liabilities amount £3.3to £11.4m(31 March 2019: million) whichcomprises accrued

91 days or more91 Restricted cash Trade and other payables other and Trade

Amounts due in more than one year 61 to 90 to days61 Cash and cash equivalents

Accruals Leasehold liability (Note 9) Leasehold liability (Note

Cash held lawyers by 31 to 60 to days31

Deferred rental income rental Deferred Amounts due within one year 78 LXi REIT plc Annual Report 2020

1 Cash at bank

Thefollowing table sets out the ageingof trade and other receivables that are financial assets: 30 days or fewer receivable and rent receivable. rent and receivable Trade and other receivablesTrade that are financial whichcomprises assets£4.1m) licencefee amount(31 March2019: £8.6mto (31 March 2019: £Nil). March 2019: (31 affecting the Group’s customers.affecting Thethe expectedGroup’s credit loss provision and the £0.3mincurred loss is 2020 provision 31 asat March 31 March 2020. The historical March31 2020. loss rates are then adjustedfor current andforward-looking information on macroeconomic factors The expectedloss historicalrates are based credit on thelosses Group’s experiencedover the period from incorporationto 11. Trade and other receivables (continued) receivables other and 11. Trade

Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes Accrued investment property costs

13. Trade and other payables other and 13. Trade 12. Cash reserves

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – – – – £m Total £000 (2.7) (3.9) 75.0 95.0 170.0 167.3 270.0 100.0 170.0 167.3 266.1 167.3 31 March 2019 – – – – – – – – – £m £000 75.0 (75.0) 166.1 100.0 100.0 100.0 166.1 Undrawn LXi REIT plc Annual Report 2020 79 31 March 2020 – – – £m (2.7) (3.9) 75.0 95.0 Drawn 170.0 170.0 170.0 167.3 166.1

A revolving credit facility with £100.0m of Lloyds at a 1.55% margin Liborover on a three-year term ending August with 2022, two one-year extension options. The Group has traded an interest rate derivativeto cap the interest on at a totalthe £100.0m for the three-year 2.95% of term. A fixed interestrate, loan only facilityof £75.0m. The facility has a fixedall-in rate payable2.99% of pa, for the duration of the loan term and is due for repayment in December 2033. A fixed interestrate, loan only facility£40.0m. Theof facility has an all-in of rate 2.85% pa, for the duration of the loan term and is due for repayment and in July 2029; A fixed interestrate, loan only facilityof £55.0m. The facility has anpa, 2.93% for all-in the of rate duration of the loan term and is due for repayment in July 2029;

Maturity bank borrowings of Less: unamortised loan arrangement fees arrangement unamortised loan Less:

Less: unamortised loan arrangement fees arrangement unamortised loan Less: Term Loans Facilities Term RCF withRCF Lloyds Bank plc: At 31 March 2020, the Group’s borrowings comprise the the Group’s following March 31 threeAt 2020, term loan facilities with Scottish Widows Limited and one At endAt of the year

At endAt of the year Repayable afteryears 5

Drawdowns Drawdowns

Repayable between 2 and 5 years New facilities New

New facilities New •

• •

• Repayable between 1 and 2 years

At beginningAt the of year Year ended March 31 2019 Year At beginningAt theof year Year endedMarch 31 2020 Year 14. Bank borrowings borrowings 14. Bank secured against respective investment pools property. the of Group’s The Group has remainedcompliant with thecovenants throughout the period to up the of date this report. The facilities are RCF £m £m £m 0.2 1.6 1.9 3.5 3.5 (1.4) (3.4) 25.3 49.7 59.0 93.5 173.7 167.3 229.3 Year endedYear

31 March 2019 31 March 2019 31 March 2019 £m £m 1.0 (4.0) (2.2) 43.2 (43.2) 197.9 155.4 229.3 167.3 196.9 Number 166.1 423.2 352.3 352.3 Year ended ended Year 31 March 2019 31 March 2020 31 March 2020

£m 1.7 3.5 5.2 5.2 31 March 2020 169.1 352.3 521.4 521.4 Number 31 March 2020

Bank borrowings at end of the years

(Decrease)/increase in restricted in cash (Decrease)/increase consideration of £200 million. £200 of consideration On 17 June 2019 theOn ordinary June 17 Company 2019 issued 169.1 shares at 118.0p per nominal share (1p value for and total a premium 117p) of for total consideration of £175.3 million. £175.3 of consideration total for On October 16 the Company 2018 issued 155.4 ordinary shares at 112.75p per nominal share (1p value and a premium 111.75p) of Amortisation loan of arrangement fees Non-cash movements theAt end of the year Issued and fully paid

Share issue costs Loan arrangementLoan paid fees

At theAt end of the year Premium on issue ordinary of shares Bank borrowings drawn Cash from financing flows activities Issued during the year 80 LXi REIT plc Annual Report 2020 At theAt beginning the of year Share premium reserve share issue costs. The share premium relatesto amounts subscribedfor share capital in of excess nominal value netof directly attributable 16. Share premium reserve reserve premium 16. Share At theAt beginning the of year Shares of each £0.01 15. Share capital Bank borrowings at start the of year Reconciliation liabilities of cash from financing flows to activities 14. Bank borrowings (continued) Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information

Overview Strategic Report Governance Financial Statements Additional Information £m £m 3.9 2.7 2.7 4.9 4.8 5.2 7.5 7.5 14.2 25.0 5.50p 5.75p 6.125p 5.6875p LXi REIT plc Annual Report 2020 81

Final dividend in respect period of ended March at 2.00p 31 per 2018 share Year ended March 31 2019 Year Dividends paid and declared and paid Dividends to shareholdersto on the register at the close business of May 2019. on 31 On 20 May 2019, the Company announcedOn May 20 2019, a final dividend in respectof theyear of ended31 1.375p March2019 per share, payable share which was paid on shareholders to 29 March 2019 on the register on 8 March 2019. On 14 February theOn 14 Company announced 2019, a third quarterly dividend in respect the of year ended 1.375p of March 31 2019 per share which was paid on 21 December shareholders to 2018 on the register on 12 October 2018. On 4 October the 2018, Company announced a second quarterly dividend in respect the of year ended 1.375p of March 31 2019 per share which was paid on September 28 shareholders to 2018 on theregister on 7 September 2018. On 6 August the 2018, Company announced a first quarterly dividend in respectof theyear of ended31 1.375p March2019 per First quarterly dividend in respect year of ended at 1.375p March 31 2019 per share Second quarterly dividend in respect year of ended at 1.375p March 31 2019 per share Third quarterly dividend in respectyearof at ended31 1.375pMarch2019 per share dividends paid Total dividend perTotal share paid in the year dividend perTotal share paid and proposed in respect of the year Dividends in respect of the year ending March 31 2019 First quarterly dividend in respect at year of 1.4375p ended per March share 31 2020 Second quarterly dividend in respect at year 1.4375p of ended per March share 31 2020 Third quarterly dividend in respectyear of at endedper31 share1.4375p March2020 dividends paid Total dividend perTotal share paid in the year

Final dividend in respect year of ended at 1.375p March 31 2019 per share Year endedMarch 31 2020 Year Dividends paid and declared and paid Dividends 17. Dividends Total dividend perTotal share paid and proposed in respect of the year payable shareholders to on the register at the close business of June on 26 2020. On 15 May 2020, theOn Board 15 proposed May 2020, a final dividend in respectof theyearof endedper31 1.4375p ordinary March2020 share, per share which was paid shareholders to on March 27 2020 on the register on 6 March 2020. On 13 February the Company announced 2020, a third quarterlydividend in respect the of 1.4375p of year ended March 31 2020 1.4375p per share which was paid December on 20 shareholders to 2019 on the register on 6 December 2019. On 26 November 2020, the CompanyOn November announced 26 2020, a second quarterly dividend in respect the of of year ended March 31 2020 which was paid on23 September shareholders to 2019 on the register June on 2019. 14 On 5 June 2019, theCompany announcedOn 5 June 2019, a first quarterly dividend in respectof theyearof endedper31 1.4375p share March2020 Dividends in respect of the year ending March 31 2020 – £m £m £m 1.9 Total Total 16.7 13.7 18.6 624.4 892.8 31 March 2019 – £m £m 90% 10% 13.3 491.4 694.4 100% > 5 years > 5 years – £m £m – 0.3 £m 107.1 159.7 33.1 33.1 2–5 years2–5 2–5 years2–5 31 March 2020 – £m £m

0.1 0% 25.9 38.7

< 1 year < 1 year 100% 100%

long leasehold investment property 9). (Note the Group’s normal leasing arrangementsthe Group’s tenants. to above) (see The Group carries its interest in these headlease arrangements as The Group’s leasing arrangementsThe Group’s withlessors are headlease arrangements on land and buildings that beenhave sub-let under ranges from 99 years 999 to years. The is above in respectleaseholdof properties heldby the Group. There 9) are 30held properties under leasehold(2019: with lease

Rental income from investment property 4) (Note reporting date: Thefollowing table sets out a maturity analysisleaseof payments, showing the undiscountedlease paymentsto be paid after the The Group as lessee An overview of the Group’s leasingAn activities overview the of Group’s is given in the Investment Advisors Report.

31 March31 2019 Other tenants (each less than 10%) than less (each tenants Other

31 March31 2019 10% of the Group’s turnover. The Group’s turnover is allocatedto The major Group’s turnover. customers follows:as the of 10% Group’s During the year the Group one had March tenant) that no tenant 2019: is considered (31 a major contributing customer, more than Major customers segmental analysis. All of the Group’s propertiesAll the of are Group’s based in the UK and as such no geographical grouping is considered appropriate for reportable segment. Board considers that all the properties similar have economic characteristics. Therefore, in the viewof the Board, there is one The Group’s propertyThe Group’s portfoliocomprises investment property, diversified across nine different property sub-sectors. The disclosed in Notes 25 and and 26 the Additional Information. reports include the IFRS figures but also report the non-IFRS figures forEPRA the alternativeand performance measures as the results contained in these reports and the amounts reported in the consolidated financial statements. These internal financial The internal financial reports contain financialinformation at a Grouplevel as a whole and there are noreconciling items between and the Investment in Advisor) order allocate to resources the to segments and assess to their performance. reviewed the by chief operating case is the Board, decision in the comprising maker Group’s (which the non-executive Directors, Operating segments are identified on the basisof internal financial reports about components of the Group that are regularly 19. Segmental information 19. Segmental Lease receivables Lease March31 2020 82 LXi REIT plc Annual Report 2020 31 March31 2020 Lease receivables Lease The future minimumlease receivableby the Group under non-cancellable operatingleases are follows:as The Group as lessor 18. Leases Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information £ – – 5,000 3,000 Number 13,131 49,099 16,928 13,404 75,000 40,000 54,958 44,242 173,812 120,156 Remuneration 31 March 2019

– – Number 49,097 49,233 11,729 13,032 66,687 57,274 222,909 169,389 LXi REIT plc Annual Report 2020 83 31 March 2020 Purchased Held Purchased Held Purchased Held Purchased Purchased Held Held 1 2

One-twelfth 0.75% per of calendar monthof market capitalisation to up or equalto £500 million; and One-twelfth per 0.65% calendarof monthof market capitalisation above £500 million.

Appointed to the Board on 1 January 2020 During the year John Cartwright transferred 42,814 of his shares into Calvi Capital Limited, a company wholly owned by him and persons closely associated on 20 March 2020 Stephen Marchon Hubbard 20 2020 purchased 36,000 shares. on 19 March 2020 Colinon March Smith 19 2020 OBE purchased 40,000 shares; and (as defined by the EU Market Abuse Regulation) with him. These shares are still treated as being held by John Cartwright in the table above

John CartwrightJohn Colin Smith OBE

1 January which followed consultation 2020, the by Board with an independent expert: The increase feesin year year on has resulted in thefollowing new ratesof Directors’ remuneration also with effect from From 1 JanuaryFrom the Directors’ 2020 fees were settled in cash. None the of Directors sold shares any in the Company during the year. Jan Etherden Jan Dimond Patricia No performance fee is payable the to Investment Advisor. (b) (a)

capitalisation the of Company on the following basis: The investment advisoryfee is calculated in arrears in respectof each month, in each case based upon theaverage market £0.4 million was£0.4 due the to million). Investment £0.3 March Advisor 2019: (31 A fee of £4.5 millionA fee £4.5 of was payable the to Investment Advisor in respect March £2.3 March At 31 2020, million). 2019: the of year (31 Director’s fee Director’s CommitteeAudit additional Chair fee CommitteeManagement additional Chair Engagement fee with the Investment AdvisorTransactions Role fee Chairman’s 2 1

Stephen Hubbard Stephen during the year: • Outside the of Directors’ fee share purchases, the following purchases shares of in the Company Directors by took place • acquired the by Directors pursuant this to arrangement aresubject an to 18-month Deed. Lock-in Until December the31 Directors’ 2019 fees were settled way purchase of by shares of in the Company on the open market. Shares In respect the of were payable million). feesyear ended the to £0.2m of March Directors 31 2020 £0.1 March 2019: (31 Transactions with the Board of Directors 20. Related party20. Related transactions

purchases above, and the number ordinary of shares held March at 31 2020: Thefollowing table summarises the numberof ordinary shares purchased during theyear theyearby Directors, including the two 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Ownership UK UK UK UK UK UK UK UK UK UK UK UK UK UK Jersey Country of incorporation Isle of Man of Isle Luxembourg Property investment Principal activityPrincipal Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment Property Investment

Subsidiaries indirectly owned indirectly Subsidiaries

The registered office of ofIsle Man subsidiariesis First Names House, Victoria4DF. Road, Douglas, IM2 The registered office ofLuxembourgL-1536, Luxembourg. subsidiaries is 2Fosse, rue du The registered office of Jersey subsidiaries 26 is Street New St Helier JerseyJE2 3RA. The registered office for UK subsidiaries is Mermaid House, 2 Puddle Dock, London,EC4V England,3DB. LXi Spirit Limited 84 LXi REIT plc Annual Report 2020 *

with banks financial and institutions. to a financialto loss. The Group will be exposed to credit risk on both its leasing activities and financing activities, including deposits Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customercontract, leading Credit risk The Group has reduced the interest rate risk on its external borrowingby fixing the of rate interestpayable. market interest rates. Interest rate risk is the risk that the fair value or future cash flowsof a financial instrument will fluctuate because of changes in Interest rate risk oversees the management these of risks. The policiesof the Directorsfor managing eachof these risks are summarised below. The Group is exposedto interest rate risk, credit risk and liquidity risk in the current and future periods. The Board of Directors 22. Financial risk management

LXi Property Holdings 2 Limited* LXi Property Holdings 3 Limited LXi Property Holdings 4 Limited LXi Property Holdings 4a Limited* 1 Limited*Alco 219 Co Limited*FPI 222 Co FPI Limited* 223 Co FPI Limited* LXi Limited* Cowdenbeath SM Plymouth Hotel Limited* Corby (General Partner) Limited* Services Limited* Rail Corby Limited Partnership* Corby Unit Trust* Corby (No.2) Grove Asset 8 S.A R.L.* LXi Property Holdings 1 Limited control all over these entities and all these entities been have consolidated within this set financial of statements. Name of Entity respective Directors based on simple majority votes. Therefore, the Boardof theCompany concludedhas that theCompany has majority the of Board Directors of those of subsidiaries. The relevant activitiesof the below subsidiaries are determinedby the TheCompany 100%owns of the equity sharesof all subsidiaries listed below and has the to appointpower and remove the 21. Consolidated entities 21. Consolidated Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information £m £m 3.3 Total Total 11.4 56.1 59.0 170.0 170.0 237.5 232.3 – £m £m 1.9 31.2 34.7 170.0 170.0 203.1 204.7 > 5 years > 5 years LXi REIT plc Annual Report 2020 85 – – – £m £m 0.9 20.0 19.4 20.9 19.4 1–5 years1–5 1–5 years1–5 – – – – £m £m 3.7 3.7 3.7 3.7 3–12 months 3–12 3–12 months – – £m £m 8.6 3.3 1.2 1.2 9.8 4.5 < 3 months < 3 months

The Board intendsto maintain a conservativelevel of aggregate borrowings with a mediumterm maximum targetof the35% of total assets.Group’s Thelevel of borrowing will be on a prudent basisfor the asset class and will seekto costachieve a low of funds, whilst maintaining flexibility in the underlying security requirements and structureof the Group.

borrowing is as set out below: The Groupconsiders proceeds from share issuance, bank borrowings and retained earnings as capital.policy on The Group’s provide returns for shareholders and maintain to an optimal capital structure reduce to the cost capital. of The Group’s objectives whenThe managingGroup’s capital ability to are safeguardcontinueto the concern as a going Group’s in orderto Capital management

Trade and other payables 13) Trade (Note and other payables 13) Trade (Note Interest payable on bank borrowings Interest payable on bank borrowings • • Bank borrowings 14) (Note Financial liabilities 31 March 2019 Thefollowing table detailsliquidity analysisthe in respectGroup’s of its financial liabilities contractual on undiscountedpayments: cash is available. settle obligations within normal terms credit. of The Group ensures, throughforecasting of capital requirements, that adequate marketable securities, the availability financing of through appropriate and adequate credit lines, and the abilityof customersto Bank borrowings 14) (Note are held within the Group meet to future needs. Prudent liquidity risk management implies maintaining sufficient cash and Financial liabilities The Group manages its liquidity and funding risksconsideringby cash forecastsflow and ensuring sufficient cash balances 31 March 2020 Liquidity risk deferred is described in detail in the Going concern section Note of the 1 to financial statements. by tenants.by Outstanding rent receivables are regularly monitored. The status of rents due on the March quarter date thatwere rentals in advance. The Investment Advisor monitors the rentcollection in orderto anticipate and minimise the impactof defaults monitored on an ongoing basis. Credit risk is assisted the by vast majority occupational of leases requiring that tenants pay tenant covenant review scorecard prior acquisition to the of property. The assessmentof thetenant creditworthiness is also period where no rents are received and additional re-letting costs. The qualityof thetenant is assessed based on an extensive In respect occupational of leasing arrangements, in the event a default of a tenant, by the Group may suffer a period a void Credit risk related activities leasing to financial assets disclosed in Note 11. All financial assets are regularly monitored. The maximum exposureto creditrisk at the reporting is date the carrying value of counterparties being banks ratings. with credit high that the credit risk on short term deposits and current account cash balances is limited because counterparty low of risk, the One the of principal credit risks the of Group arises with the banks and financial institutions. The Board of Directors believes Credit risk related financial to instruments and cash deposits The Group has remainedcompliant with allof its bankingcovenants during and since theyear. 1 – £m 0.4 1.5 (3.3) 6.3p 5.6p 16.8 14.9 34.1 (15.9) 267.6 267.6 267.6 12.7p Year ended Year 31 March 2019 £m 1.3 2.1 0.1 (1.2) 6.3p 5.6p 30.5 27.1 73.6 (45.4) 485.4 485.4 485.4 15.2p Year ended Year 31 March 2020

Reported Adjusted EPS for the year ended 31 March 2019 did not include an amount in respect of cash backed rental top ups and rent free periods as they were not material at £0.4m. The Board considers the amortisation of these balances over the period to which they relate as key in ofassessing adjusted earningsthe level of dividend to include thesepayment amounts and has therefore as they are now updated material. its definition Comparative balances have been updated to reflect this change

dividend targets payment. and Board considers these returns an important performance component the of Group’s underpinning and to key the Company’s cash developers by covered receivable recognise is to them as a discount the to cost the of investment property, however the The Group’s accounting policyThefor licenceGroup’s fees, cash backed rentaltop ups received vendorsfrom periods and rent-free that are earnings include to licence fees receivable from developers. Adjusted EPS is a performance measure used the by Board assess to dividend the Company’s payments. The metric adjustsEPRA

Adjusted EPS Weighted average number ordinary of shares (million)

Adjusted earnings Amortisation cash of backed rental periods top ups and rent-free Licence fees receivable fees Licence Adjustments include: to EPRA EPS

Weighted average number ordinary of shares (million) EPRA earnings

Change in fair value interest of rate derivative Gain on disposal investment of property Change in fair value investment of property Adjustments remove: to Earnings per share (“EPS”) Earnings per share (“EPS”)

Weighted average number ordinary of shares (million) Earnings 86 LXi REIT plc Annual Report 2020

1 measures as there were no dilutive instruments in issue throughout the current or comparative periods. the weighted average number ordinary of shares in issue during the period. Amounts shown below are both basic and diluted Earnings per share is calculated dividing by profitfor the period attributableto ordinary equity holdersof theCompany by 25. Earnings per share The Group £49.0m). had contingentno liabilities(31 March2019: 31 at March2020 24. Contingent liabilities24. Contingent forward funded pre-let development assets. All commitments fall due for settlement within one year from the date this of report. At 31 March 2020 the Group March 31 At 2020 had capital commitments in relation £22.4m) March the to 2019: £101.2m of cost complete to (31 its 23. Capital commitments 23. Capital Notes to the consolidated financial statements (continued) statements financial consolidated the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – £m 352.3 352.3 403.8 403.8 114.6p 114.6p 31 March 2019 £m 0.1

521.4 521.4 648.1 648.0 124.3p 124.3p

LXi REIT plc Annual Report 2020 87 31 March 2020

EPRA NAV perEPRA share NAV Number ordinary of shares

EPRA NAV Adjustments calculate to EPRA NAV

NAV per share NAV Number ordinary of shares (million) There is no ultimatecontrolling partyof the Group. 28. Controlling parties payable shareholders to on the register at the close business of June on 26 2020. On 15 May 2020, theOn Board 15 proposed May 2020, a final dividend in respectof theyearof endedper31 1.4375p ordinary March2020 share, On 30 the April Group 2020 exchanged unconditionally on the disposal two of assets for proceeds £2.1m. of 27. Post balance sheet events sheet balance 27. Post

Net asset value (“NAV”) measures as there were no dilutive instruments in issue throughout the current or comparative periods. Company the by number ordinary of shares outstanding at the reporting date. Amounts shown below are both basic and diluted Net asset value per share is calculated dividing by the consolidated net assets attributable ordinary to equity holders the of 26. Net asset value per share share per value asset 26. Net £m 3.5 0.1 6.6 4.1 6.7 12.9 33.8 33.8 33.8 115.9 229.3 384.6 361.6 361.6 395.4 388.7 102.6p 31 March 2019 £m 7.4 5.2 2.8 4.1 90.9 25.7 28.5 423.2 103.6 597.7 526.7 526.7 103.6 103.6 630.3 601.8 101.0p 31 March 2020

8 7 6 5 4

12 11 10 Note

The notes on pages to 90 form94 partof theCompany financial statements. Chairman the of Board Directors of Stephen Hubbard Stephen its behalf by: TheCompany financial statements were approved and authorised for issue by the Board 2020 and on signed 15 May on shareholders the of parent Company for profit). the year amounted £10.0m March £5.5m to 2019: (31 presented its own profit andloss account in these financial statements. The loss and total comprehensiveincome attributable to TheCompany has taken advantageof the exemption allowed under Section 408of theCompanies Act2006 and has not Net asset value per share – basic and diluted

Total equity Total Retained earnings

Capital reduction reserve Share premium reserve Share capitalShare Equity Net assetsNet

Total liabilities Total Total current liabilities Total

Trade and other payables other and Trade Current liabilities

Total assets

Total current assets Total Cash cash and equivalents

Trade and other receivables receivables other and Trade Current assets

Total non-current assets Total Investment property 88 LXi REIT plc Annual Report 2020

Investment in subsidiaries in Investment Non-current assets

Company number: 10535081 Company Company statement of financial position financial of statement Company

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information £m £m Total Total (3.4) (4.0) (5.5) 10.0 equity equity (14.2) (25.0) 175.3 199.6 193.9 361.6 361.6 526.7 – – – – – – £m £m 2.9 7.4 (5.5) 10.0 12.9 12.9 earnings earnings Retained Retained LXi REIT plc Annual Report 2020 89 – – – – – – £m £m 90.9 Capital (14.2) (25.0) Capital reserve reserve 130.1 115.9 115.9 reduction reduction – – – – £m £m (3.4) (4.0) Share Share Share 59.0 reserve reserve 173.7 197.9 229.3 229.3 423.2 premium premium premium premium – – – – – – £m £m 1.6 1.7 1.9 3.5 3.5 5.2 Share Share Share capital capital

9 9 11 11

Note Note 10,11 10,11

The notes on pages to 90 form94 partof theCompany financial statements. Balance March at 31 2019

Balance March at 31 2020 Dividends paid in the year

Dividends paid in the year Share issue costs

Share issue costs in the year Issue ordinary of shares Transactions with owners with Transactions in the year Issue ordinary of shares Transactions with owners with Transactions shareholders for the year income attributable to Profit and total comprehensive comprehensive total and Profit shareholders income attributable to Loss and total comprehensive Balance at 1 April 2018 Year endedYear 31 March 2019

Year endedYear 31 March 2020 Balance at 1 April 2019 Company statementCompany of changes in equity

Fair valueFair measurement other than certain disclosures required as a result recording of financial instruments at fair value. Financial instruments; and Disclosure related of party transactions with other wholly owned members the of Company. A statement cash of flows; The effect of futureaccounting standards not yet adopted; The disclosureof the remunerationkey of management personnel; and Certain disclosures regarding the Company’s capital; Certain the Company’s regarding disclosures

90 LXi REIT plc Annual Report 2020

• •

• • • therefore these financial statements do not include: not do statements financial these therefore • In preparing these financial statements theCompany has taken advantageof disclosure exemptionsconferred andFRS101 by • Disclosure exemptions adopted Company is registered in England and under Wales company registration number 10535081. Reporting Requirements and 100”) Financial (“FRS Reporting The Reduced Standard Disclosure 101 Framework 101”). (“FRS The financial statementshave been preparedaccordance in with Financial Reporting Standard 100 Application of Financial 1. Basis of preparation 1. Basis of Notes to the Company financial statements financial Company the to Notes

changes been have identified in respectof theseleases where theCompany also acts as a lessor. because at the date initial of adoption, the Company had no headlease obligations as lessee leasehold i.e. properties. no Further, adoption the of standard did not a material have impact on the financial statements at the of date initial application. This is The Directors given have considerationdue to the impact on the financial statementsIFRS of 16 concludedandhave that the IFRS is outlined 16 below. a lease under IFRS was 16 applied only contracts to entered into or changed onThe orimpact after 1 April2019. of the adoption of into before the transition date that were not identified leasesas under IAS17 andwere IFRIC 4 not reassessed. The definition of practical expedient not to reassess whether a contract a lease contains) at the date is (or initial of application. Contracts entered made on the date application of without April restatement (1 2019), comparative of figures. The Companyelected to apply the TheCompany adopted IFRS16 using the modified retrospective approach with recognitionany of transitional adjustments being finance leases. finance its obligation make to lease payments. the Previously, Company was required classify to all leases as either operating or to recogniseto asset a right-of-use representing its right use to the underlying leased asset and a lease liability representing liabilities for all leases with a term more of than 12 months, unless the underlying asset value. low is of A lessee is required IFRS replaces 16 IAS Leases 17 and introduced a single lessee accounting model and requires a lessee recognise to assets and IFRS Leases 16 New standards impacting the Group that been have adopted for the first time in this setof financial statements are: Standards effective from1 April2019 The Company’s financialTheCompany’s statements are presentedSterling, in which is also functional the Company’s currency. The principal accounting policies applied in the preparationof the financial statements are set out below.

included in the Group Financial Statements. These financial statements do not include certain disclosures in respect of: In addition, and in accordance further with FRS 101 disclosure exemptions been have adopted because equivalent disclosures are

Overview Strategic Report Governance Financial Statements Additional Information

Overview Strategic Report Governance Financial Statements Additional Information £m 200.7 183.9 384.6 31 March 2019 £m 213.1 384.6 597.7 LXi REIT plc Annual Report 2020 91 31 March 2020

A list subsidiary the of Company’s undertakings is included in Note 21 the to consolidated financial statements.

At endAt of the year Additions in the year in Additions At beginningAt the of year interest income on a net basis are recognised. interest income are recognised. those For that are determined be to credit impaired, lifetime expected credit losses along with subsidiaries in 4. Investment are recognised. those For for which credit risk has increased significantly, lifetime expected creditlosses along with the gross in credit risk since initial recognition the of financial asset, monthtwelve expected creditlosses along with gross interest income loss model. The methodology usedto determine the amountof provision is based on whether there has been a significant increase Impairment provisions for receivables from and loans subsidiaries to are recognised based on a forward-looking expected credit Loans to subsidiaries Loans to Investment in subsidiaries is included in the statementfinancial of positioncost at less provisionfor impairment. Investment subsidiaries in financial statements that not included in theconsolidated financial statements are given below: given in the Note the 3 to consolidated financial statements. which are described in Note the 3 to consolidated financial statements.Policies adopted in the preparation of theCompany’s The Company’s judgmentsTheCompany’s in relationto its classification of lease arrangements consistent are with the Group for which details are The principal accounting policies adopted in the preparationof theCompany financial statements consistent are with the Group Classification of lease arrangements – theCompany as lessor policies accounting 3. Principal Judgments: Note the 3 to consolidated financial statements. The Company’s estimatesTheCompany’s in relation to its investment propertyconsistent are with the Groupfor which details are given in the Valuation of investment property Estimates: assets and liabilities within the next financialyear are outlined below: The estimates and associated assumptions that a significant have risk of causing a material adjustment to the carrying amounts of estimates and assumptions about the carrying amounts assets of and liabilities that are not readily apparent from other sources. In the application accounting the of policies, Company’s which aredescribed in Note 3, the Board is required make to judgments, 2. Significant judgments, accounting estimate and assumptions

£m £m £m £m 0.1 0.1 0.2 6.2 4.1 6.5 4.0 0.3 6.6 0.1 4.1 4.1 (6.7) Freehold Freehold 31 March 2019 31 March 2019 – £m £m 0.1 5.1 2.8 20.5 25.7 31 March 2020 31 March 2020

All amounts are due for receipt within one year.

Prepayments and other receivables other and Prepayments Rent receivable Rent completion. These funds are available immediately on demand. on availableimmediately Theseare funds completion. Cash held lawyers by is money held in escrow for expenses expected be to incurred in relation investment to properties pending Recoverable VAT 92 LXi REIT plc Annual Report 2020

Year endedYear 31 March 2020 5. Investment property 5. Investment

Notes to the Company financial statements (continued) financial statements Company the to Notes Balance March at 31 2020

Year endedYear 31 March 2019 Balance at 1 April 2019

Cash held at bank and with lawyers 7. Cash and cash equivalents cash and 7. Cash

Amounts subsidiaries from due 6. Trade and other receivables other and 6. Trade

Balance at 1 April 2018 Property acquisitions Property disposals fair in value Change Balance March at 31 2019 Detailed information about the valuation investment of property included is in Note the 9 to consolidated financial statements.

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information £m £m £m £m 0.1 0.4 3.5 33.3 33.8 14.2 229.3 31 March 2019 31 March 2019 31 March 2019 31 March 2019 £m £m £m £m 1.0 0.7 5.2 25.0

101.9 103.6 423.2

LXi REIT plc Annual Report 2020 93 31 March 2020 31 March 2020 31 March 2020 31 March 2020

All amounts are due for payment within one year. Other creditors

Detailed information about the dividends paid the by Company is included inNote the to 17 consolidated financial statements. Detailed information about the share capital the of Company is included in Note 15 the to consolidated financial statements. Detailed information about the share premium the of Company is included in the to Note 16 consolidated financial statements. Accruals and deferred income

Share premium 11. Share premium reserve reserve 11. Share premium

Share capital 10. Share capital10. Share

Dividends paid 9. Dividends

Amounts subsidiary to undertakings due 8. Trade and other payables other and 8. Trade £m 352.3 361.6 102.6p 31 March 2019 £m

521.4 526.7 101.0p

31 March 2020

NAV per share NAV Number ordinary of shares (million)

There is no ultimatecontrolling partyof theCompany. 15. Ultimate controlling party controlling 15. Ultimate

TheCompany has given a fullloan guaranteefacilitiesof to thethe lender. Group’s 14. Guarantees

and itsand subsidiaries. Note 20 to the to Note 20 consolidated financial statements includes detailsof other related party transactions undertakenby theCompany Company financial statements are presented together with the consolidated financial statements. financial consolidated the with together presented are statements financial Company TheCompany has taken advantageof the exemption to not disclose transactions with other membersof the Group as the 13. Related party transactions 94 LXi REIT plc Annual Report 2020 NAV dilutive equitydilutive instruments outstanding. to ordinaryto equity holders the of parent the by number ordinary of shares outstanding at the end the of period. There are no Net Asset per share (“NAV”) Value is calculated dividing by net assets in the company statement financial of position attributable 12. Net asset value per share share per 12. Net value asset Notes to the Company financial statements (continued) financial statements Company the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information

LXi REIT plc Annual Report 2020 95

96 99 100

Glossary information Company Notes the to EPRA and alternative performance measures Additional Information Additional Information – – £m £m £m 4.7 1.2 (4.7) 32.2 33.5 26.6 27.5 32.2 6.0% 5.1% 0.0% (88.4) 352.3 589.5 403.7 534.6 501.1 404.9 115.0p 31 March 2019 31 March 2019 31 March 2019 – – £m £m £m 9.3 (9.6) 48.3 48.3 46.2 38.7 48.0 6.3% 5.1% 0.0% (16.1) 521.4 914.0 648.1 709.9 632.0 758.2 (204.1) 121.2p 31 March 2020 31 March 2020 31 March 2020 2 3

1

Contractual increases for lease incentives Contractual lease for increases Annualised net rents (A)

Property outgoings Less: contracted rental income in respect development of properties

Annualised passing rental income Gross up completed property portfolio valuation (B)

Allowance for estimated purchasers’ costs purchasers’ estimated for Allowance EPRA Topped Up NIY (C/B) EPRA Topped

EPRA NNNAV perEPRA share NNNAV Completed propertyCompleted portfolio

EPRA NIY (A/B) Shares in issue (million)

Portfolio estimated rental value rental Portfolio estimated Less: development properties development Less: Fair value debtFair of Include: EPRA Vacancy Rate

Topped up annualisedTopped net rents (C) EPRA NNNAV

Annualised estimated rental value vacant of premises EPRA Vacancy Rate Vacancy EPRA

Investment property – wholly owned EPRA NIY and EPRA ‘Topped Up’ NIY Up’ ‘Topped EPRA and NIY EPRA 96 LXi REIT plc Annual Report 2020

EPRA net asset value EPRA NNNAV

(unaudited) Notes to the EPRA and alternative performance measures measures performance alternative and EPRA the to Notes

Overview Strategic Report Governance Financial Statements Additional Information Overview Strategic Report Governance Financial Statements Additional Information – – £m 3.5 6.9 3.5 pence 21.6 6.125 114.6 107.7 12.1% 16.4% 13.025 Year ended Year ended Year 31 March 2019 31 March 2019 – – £m 6.6 9.7 6.6 pence 38.6 124.3 114.6 13.4% 17.1% 5.6875 Year ended Year ended Year 15.3875 LXi REIT plc Annual Report 2020 97 31 March 2020 31 March 2020 ) 5 4

The Group has no vacant property costs Difference between interest bearing loans included in the EPRA net assets at amortised cost, and the fair value of interest bearingE.g. Step rents loans and expiry of rent free periods properties development on receivable rents contracted Excludes The Group does not have a policy of capitalising overheads and all administrative expenses are recognised in the P&L in the period to which they relate

Total NAV return NAV Total Total of change and in EPRA dividend NAV Total per share

Dividend per share paid in the period Administration expenses

Change per in EPRA share NAV in the period Total EPRA cost ratio (including and excluding vacant and excluding property EPRA ratio cost (including costs) Total

Vacant property costs EPRA NAV perEPRA share NAV at end the of period

Total gross rentalTotal income Total costs including vacant and excluding (both propertyTotal costs 5 4 2 3 1

EPRA NAV perEPRA share NAV at beginning the of period Total NAV return NAV Total

Property operating costs EPRA Cost Ratio Cost EPRA 98 LXi REIT plc Annual Report 2020

Overview Strategic Report Governance Financial StatementsStatements Additional InformationInformation Overview Strategic Report Governance Financial Statements Additional Information LXi REIT plc Annual Report 2020 99

The annualised rents at the of date acquisitionof the entire portfolio, netcosts,of expressed as a percentage the of acquisition investment price paid for the Group’s property, after adding purchasecosts paid The remaining periodto maturity debt facilities,of eachof the Group’s multipliedby the respective capital borrowed on each tranchedebt of divided the by sum the of results debtThe cost fixed facilities, of debt of each of the Group’s multiplied by the respective capital borrowed on each tranche debt of divided the by sum the of results The annualised rents at valuation of date the entire portfolio, netcosts,of expressed as a percentage the of independent investment valuation property, the of Group’s after costs purchase paid adding The point at whichownership of the propertylegally is transferredby dating the deed transfer Thetotal dividend paid and proposed in respectof a period dividedby the numberof ordinary shares eligible for the dividend on the record date The point on a property transaction at which thecontract to sell is exchanged and dated binding legally becomes and A property transaction in which contracts are exchanged subject the to completed development a pre-let of asset with. The risks and rewards are transferred at the point completionof after practicalcompletion of the development is reached A property transaction in which land is acquired subject a funding to agreement with the developer build to a pre-let asset with approved planning permission. The risks and rewards are transferred at land completion prior the to commencement development of A measure the of profitabilityof an investment property ignoring external factors being the discount rate at which all the associated cash flowsof the investment property, net relatedof borrowings and interest costs, are equal zero. to publicInitial offering The extentto which investments can be realised at short notice The carrying valueof bank borrowings as a percentageof the carrying valuetotalof assets The mid-market pricefor an ordinary shareof theCompany multipliedby the numberof ordinary shares in issue The current annualised rent, netcosts,of expressed as a percentageof capital value, after adding notionalcosts purchaser’s investmentThetotal property valueof the Group’s including capitalcommitments on forward funded assets determined the by independent valuer on an individual asset portfolio no assuming and basis premium The point at which a building projectcomplete, is for except minor defects that can be put right without undue interference or disturbance the to tenant The growth in valueof a shareholding over a specified period, assuming dividends are reinvested purchase to additional units stock of

Average debt maturity Averagecost fixed of debt valuation netyield initial Average Completion Dividendper share Exchange Forward commitment Forward funded Geared internal rate return of IPO Liquidity Loan value to Market capitalisation Net yield initial Portfolio valuation Practical completion shareholder returnTotal Average acquisition net yield initial acquisition Average Glossary

Depositary Langham Depositary Hall UK LLP 8th Floor 1 Fleet Place London EC4M 7RA Registrar Link Asset Services TheRegistry 34 Beckenham Road Kent BR3 4TU Administrator Langham Services Hall UK LLP 8th Floor 1 Fleet Place London EC4M 7RA Valuer Independent LLP Frank Knight 55 Baker Street LONDON W1U 8AN Independent Auditor BDO LLP 55 Baker Street London W1U 7EU Advisor Legal HarwoodStephenson LLP Finsbury1 Circus London EC2M 7SH

N1C 4AG London 3 Pancras3 Square Maitland/AMO 100 LXi REIT plc Annual Report 2020 Communications Adviser EC2Y 5ET London 120 London Wall London 120 Moor House Moor Peel Hunt LLP Hunt Peel Sponsor and Broker and Sponsor EC4V 3DB London 2 Puddle Dock Mermaid House PraxisIFM Services Fund Limited (UK) Company secretaryCompany W1S 3AG London 10 Old Burlington10 Street LXI Advisors REIT Limited Investment Advisor W1S 3AG London 10 Old Burlington10 Street LJ Administration Limited (UK) AIFM EC4V 3DB London 2 Puddle Dock Mermaid House Registered office John CartwrightJohn Jan Etherden Etherden Jan Colin Smith OBE Patricia Dimond Patricia Stephen Hubbard (Chairman) Stephen Non-Executive Directors Directors, Management and Advisors Country of incorporation: England and Wales and England incorporation: Country of Company number: 10535081 Company Company information Company

Overview Strategic Report Governance Financial Statements Additional Information

LXi REITLXi Annual 2020 Report

LXi REIT plc Mermaid House 2 Puddle Dock London EC4V 3DB www.lxireit.com