LXi REIT agrees GBP9m forward funding investment in Reading garden centre

LXi REIT, a specialist inflation-protected long income REIT, has exchanged contracts on the forward funding acquisition of a 94,000 sq ft garden centre in Reading for a total cost of GBP19 million, reflecting an accretive 5.3 per cent net initial yield (net of acquisition costs).

The property is pre-let to Dobbies, the UK’s largest garden centre operator and an existing tenant of the Company, on a new 35-year lease, with no break right, and benefits from CPI plus 1 per cent pa rental uplifts, reviewed on an annual basis, with a collar of 1.5 per cent pa and a cap of 4 per cent pa.

The rent has been set at a low and sustainable level which is forecast to provide rent cover of at least two times (net income of twice the rental level) and the Property is underpinned by a strong residual value.

The substantial site, which extends to seven acres and will have 316 parking spaces, is well located in Shinfield, Reading, with a large and affluent catchment population of 1.1 million people within a 30-minute drive.

The Property will sell 3,000 items of Sainsbury’s grocery and household products, under the terms of a joint venture between Dobbies and Sainsbury’s, which has been rolled out recently across the Dobbies estate and is proving to be extremely successful. 

Dobbies provides online connectivity through both home delivery and click & collect.

The Company is working with Dobbies to ensure that the development, which will replace an existing small garden centre, is built with sustainable materials, and that the Property incorporates energy efficiency features such as solar panelling, rainwater harvesting, air/ground source heat pumps, recycling/waste management and EV charging points. 

Construction works are scheduled to complete in spring 2022 and the Company will earn an income during the construction period. The development will be funded through utilising the Company’s revolving credit facility.

The Company will now own four long-let garden centres. One of the key benefits of garden centres is their flexible planning consent, which permits the sale of a wide range of products, including food. Garden centres have been classified as essential retail and thus have continued to trade during the UK’s last two national lockdowns.

This latest acquisition takes the Company’s total funding deployed/committed to GBP170 million since its GBP125 million capital raise in March 2021, across 13 separate transactions in structurally supported sectors (foodstores, industrial, drive-thru coffee and garden centres), with a long weighted average unexpired lease term to first break of 22 years and with 100 per cent of the rent roll being inflation-linked (86 per cent to RPI, 11 per cent to CPI+1 and 3 per cent to CPI).

The Company has sold a small, ancillary retail parade acquired last year as part of the Co-op foodstore portfolio purchase.

The sale proceeds of GBP575,000 represent a 100 per cent premium to the purchase price paid by the Company and will be deployed into the Company's accretive forward funding pipeline.

The Company is pleased to report that it has proactively completed the extension of the occupational lease terms on six Greene King pubs (the “Re-geared Assets”) from 13 years to expiry to 20 years to expiry, without break, in return for a 10 per cent reduction in the passing rent.

The Re-geared Assets’ rent represents 43 per cent of the total rent of the Company’s pub assets.

Having discussed the matter with the Company’s Valuer in advance, it is anticipated that the re-gear will have a material positive impact on the value of the Re-geared Assets, along with providing the additional security of longer term cash flows with annual contractual fixed rental uplifts of 2.5 per cent pa.

The Company is pleased to announce that its Investment Advisor, LXI REIT Advisors Limited, has made two appointments to further strengthen its team.
 
Michael Maddox joins as Assistant Fund Manager and will work closely with co-Fund Managers Simon Lee and John White.  Michael brings a wealth of long income property experience, having held key roles at Aviva Investors and KFIM.
 
Charlotte Price joins as Financial Controller and will work closely with CFO, Freddie Brooks.  Charlotte trained and practised in the audit team at BDO, where she gained significant experience of UK REITs.