Annual Results Presentation for the Period from Incorporation to 31 March 2018 1 LXI REIT Plc Annual Results: the Company
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Annual results presentation for the period from incorporation to 31 March 2018 1 LXI REIT plc Annual results: The Company LXi REIT plc provides shareholders with regular, attractive income, with the potential to sustainably grow the dividend in absolute terms through upward-only inflation-protected long-term lease agreements, together with capital growth over the medium term. We selectively invest in UK commercial property assets let on very long (typically 20 to 30 years to first break), inflation-linked leases to a wide range of strong tenant covenants across a diverse range of robust property sectors. We also carefully invest in fixed-price forward funded developments, provided they are pre-let to an acceptable tenant and full planning permission is in place. The Company does not undertake any direct development activity nor assume direct development risk. The Company is a UK real estate investment trust (‘REIT’) listed on the premium listing segment of the Official List of the UK Listing Authority and was admitted to trading on the main market for listed securities of the London Stock Exchange in February 2017. 2 LXI REIT plc Company overview: Management team and Board of Directors Investment Manager and Investment Advisor Non-Executive Directors John White and Simon Lee are co-managers Governance structure strongly aligned with shareholder interests Over 50 years of experience and transacted £1bn+ of commercial and NEDs paid in locked-in shares residential properties Four highly experienced, independent non-executive directors Realised an average IRR of 20% Strong team of support - 150 people dedicated to Real Estate; part of LJ Partnership, multi-family office and asset manager with $14bn AUM John White Stephen Hubbard – Non-Executive Chairman 30 years’ property industry experience Currently Chairman of CBRE UK, having spent 40 years at the firm Previously Partner at Cushman & Wakefield. Qualified Chartered Chairman of the London Business Network, Chairman’s Advisory Surveyor, Fellow of RICS Board of Redevco Co-founded Osprey in 2011 and LXI in 2017 NED of Workspace Group plc Simon Lee Colin Smith OBE – Non-Executive Director 18 years’ property industry experience Chairman of Poundland for 10 years and two years as a NED Qualified and practised as a solicitor at City law firm, Slaughter and Previously at Safeway for 20 years in senior finance roles May including Finance Director and for the last 6 years as CEO Co-founded Osprey in 2011 and LXI in 2017 Currently Chairman of Hilton Food Group plc and previously NED of McBride plc Chairman of The Challenge Network Freddie Brooks Jan Etherden – Non-Executive Director Head of Finance Former Investment COO and Fund Manager at Newton IM Six years at BDO LLP Former Head of UK Equities at Confederation Life / Sun Life of Significant experience working as auditor for both REITs and Canada unlisted real estate funds NED of TwentyFour Income Ltd and Miton UK MicroCap Trust plc Previously NED of Ruffer Investment Company Limited Jamie Beale John Cartwright – Non-Executive Director Significant transaction management experience in long income and Previously, Head of Retail and Institutional Funds at M&G Real forward funding real estate space Estate (formally, PRUPIM) Previously, five years’ experience as City of London commercial Chief Executive of the Association of Real Estate Funds (AREF) property solicitor Non-Executive Member of the Investment Committee of Lothbury Property Trust 3 LXI REIT plc Financial highlights: As at 31 March 2018 11.91% 107.67p 5.50p 4.00p TOTAL RETURN EPRA NAV PER DIVIDEND TARGET DIVIDEND FOR Incorporating NAV growth SHARE 2018/19 2017/18 and dividends paid, 49% Increase of 9.87% Increase of 10% from IPO Increase of 33.3% from above 8%+ target from 98p at IPO target IPO target 5.12p 1.14% £278.9m £138.2m ADJUSTED EPS TOTAL EXPENSE PORTFOLIO FUNDS VALUATION RAISED AT 4.20p EPRA EPS, both RATIO IPO fully cover the 4.00p Supporting shareholder 9.18% increase against dividend returns acquisition price of £255.4m February 2017 £60.2m 30% 11.3 2.90% FUNDS LTV YEARS AVERAGE AVERAGE FIXED RAISED AT DEBT MATURITY Comfortably below both DEBT COST PA SECONDARY ISSUE 35% medium term Fixed low debt cost 313 bps below average October 2017 maximum and 50% LTV provides good visibility on acquisition yield covenant dividend growth 4 LXI REIT plc Operational highlights: As at 31 March 2018 6.03% 24.4 96% £16.98m 52% Annual rent TOTAL AVERAGE YEAR WAULT INDEX-LINKED/ reviews ACQUISITION TO FIRST BREAK FIXED UPLIFTS CONTRACTED NIY Contracted rental RENT ROLL Against average Long leases yielding income with 48% valuation yield secure and embedded growth Five yearly rent of 5.37% predictable income potential reviews 100% 9 25 84% 34 OCCUPANCY PROPERTY STRONG ACQUISITIONS SEPARATE SECTORS TENANTS OFF MARKET ACQUISITIONS Fully let or pre let to Assets are broadly Yielding Reducing acquisition Granular, selective financially strong diversified across diversified income prices and providing acquisitions tenants defensive and robust and secure value growth on sectors returns purchase 5 LXI REIT plc Post balance sheet highlights: 2018/19 55% 3 2.00p OF RENTS TO INCREASE IN PROPERTY ACQUISITIONS FINAL DIVIDEND 2018/19 NOT INCLUDED IN VALUATION FOR 2017/18 As a result of fixed or Forward funding/commitment Declared in respect of the inflation linked uplifts properties costing £17.3m exchanged 2017/18 period but not completed at year end, providing further potential value growth 6 LXI REIT plc Investment Case Our secure, diversified, long-let and index-linked portfolio Financially strong and Multi-sector Very long, index-linked diversified tenant Strong residual value diversification leases covenants Tenant group Secure Lease Term Maturity Aldi Strong underlying trading 3% 2% B&M Lease Term to First Break performance Costa Coffee 6% 100% General Electric Strategic importance to tenant 23% 7% Greggs 90% Low starting rents Home Bargains 80% 7% KFC 70% Alternative use potential 9% Lidl 60% 22% Mears plc Motorpoint 50% 21% Premier Inn 40% Prime Life 30% Hotels - 23% Priory group 20% Care Homes - 22% Q Hotels Supported living - 21% Q-Park 10% Industrial - 9% Regulated Housing Associations Car Parks - 7% 0% 0-5 5-10 10-15 15-20 20 Student - 7% SIG Years Years Years Years Plus Discount Retail - 6% Starbucks Years Leisure - 3% Stobart Group Very long WAULT to first Automotive - 2% Subway break of 24.4 years Nine diverse and robust property sectors Travelodge 96% containing index-linked Cherry-pick assets to find value Rental income secured against or fixed uplift rent reviews 25 individually strong tenants Above pie chart shown by acquisition price Develop collaborative and long term relationships 7 LXI REIT plc Investment Case Delivering attractive, stable income and growth Free Cashflow Prudent Approach to Capital Growth Rental Growth Generation Investment Review Forward funding pre-let developments 313 bps spread between triple-net Over 96% income linked to RPI or Tenants at material discount to built values, rental income (6.03% average NIY) CPI inflation (or a fixed annual especially in smaller lot sizes and low fixed cost of debt (2.90% growth rate) providing embedded Developers Agents pa) income growth Multi-sector approach across large Spread rising to c. 521 bps by Inflation growth forecast materially universe to find value expiry of the 12-year loan facility higher than open market rental No property cost leakage – all growth forecast: leases triple net, full repairing and ▪ RPI growth to average 3.14% pa Acquire vast majority of assets off- insuring and CPI 2.18% pa from 2018 to market (84%) via extensive 2022 (source: HM Treasury relationships % Forecasts for the Economy – 9.00 8.11 Feb 2018) Sourced 7.35 (700) Yield compression in long-lease sector 8.00 ▪ Open market rental growth 6.66 7.00 6.03 average 1.24% pa from 2018 to 2024 (source: IPF 6.00 Screened UK Consensus Forecasts – (300) 5.00 Winter 2017/18) 313 bps 392 bps 482 bps 521 bps 4.00 4% spread spread spread spread 6% Detailed due Diligence 3.00 2.9 (100) 2.00 Scottish Widows 12-year loan fixed at an all-in rate of 2.90% pa 1.00 0.00 50% Executed Today Year 4 Year 8 Year 12 40% (37) *Assumes 2.5% pa rental growth CPI Inflation RPI Inflation Fixed Uplifts Open Market 8 There can be no guarantee that the Company’s portfolio will deliver the yield referred to in this slide. LXI REIT plc Forward Funding: Opportunities And Benefits Benefits of forward funding include: Risk mitigation: Discount to investment values (typically, 50 bps to 100 bps) Licence fee charged to developer during construction phase (cash-backed) protecting against development delays and voids ▪ Less competitive market for smaller developments No speculative developments – all pre-let Materially lower purchase costs - only pay stamp duty on land price, not construction costs Full planning consent in place prior to purchase ▪ c. 2%, rather than 6.8% Fixed price paid to the developer Full unexpired lease term Developer receives majority of profit when building achieves practical completion Ability to source brand new, high quality and state of art buildings Fixed Price Funding Agreement Suitable Developer Licence fee income means the property Licence fee income during development is income generating from the date of land completion, and protects the Group against void periods and delays in development The Group does not enter into developments without planning permission granted and a suitable