LXi REIT has sold two portfolios comprising social housing assets for a combined £10.7m, reflecting a 5.25% exit yield.
It is to use £7.5m from the sales to forward fund a 20,828 sq ft supermarket scheme prelet to Lidl in Barnard Castle, County Durham. The purchase reflects a 5.9% net initial yield.
Lidl has agreed to take a 20-year lease over the new store with a break in year 15. The lease has rental uplifts in line with RPI inflation.
An adjoining 15,000 sq ft unit has also been prelet as a discount store to Home Bargains on a 15-year lease, with upwards-only open-market rent reviews.
Both leases are guaranteed by the top trading companies of the tenant groups.
The two buildings are let on a low average rent of £13 per sq ft, resulting in a low capital cost of £209 per sq ft. The Lidl accounts for 70% of the total value.
LXi said the attractive pricing for the scheme reflected the “thinner market for forward funding prelet assets in smaller lot sizes in the current climate”.
The REIT added that it would receive an income from the developer during the construction period.
The sales of the two social housing portfolios were to two separate social infrastructure funds and represented a 14% premium on the purchase price LXi paid and are in line with the 31 March 2020 valuations. During the course of LXi’s three-year ownership the two portfolios generated a geared IRR of 14% per annum.
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