LXi REIT has acquired a portfolio of 23 nursery schools in England for £34 million, in a sale and lease back transaction, reflecting an accretive 5.5% net initial yield (versus a current portfolio value of 4.7%).
The nursery schools have been acquired from and leased back to KidsFoundation.
LXi REIT said each property benefits from a new, unbroken 30-year lease to the top entity within the KidsFoundation group.
“We are delighted to have made this first, substantial sale and leaseback acquisition for the company in the robust nursery school sector. The portfolio provides LXI with highly secure, inflation-linked and diversified 30-year cashflows, supported by sustainable rents and strong residual values,” said John White, Partner, LXI REIT Advisors.
”The rent increases on an annual basis in line with RPI inflation until 2030, from which date the reviews convert to CPIH inflation plus 0.83% pa (to reflect the change in RPI from that date). The reviews contain a collar of 1% pa and a cap of 4% pa,” said the company in a statement.
”The schools are well located across England, with strong and affluent catchment populations and the rent has been set at a sustainable level to produce a high rent cover of 2.75X (EBITDAR of 2.75 times the rent) on an individual asset basis. This ensures the rent remains affordable for the tenant whilst the investment is also underpinned by vacant possession value.”
LXi REIT said this acquisition represents the company’s first transaction in the nursery school sector, the attractions of which include:
· Income supported by a significant element of Government funding: 15 hours per week for all and 30 hours per week for lower income households;
· A robust performance during the pandemic: all of the Nurseries remained open, aside from at the start of the first lockdown;
· Demographic and societal changes resulting in more single parent households, fewer multi-generational households and a greater number of households where both parents work full time; and
· Small individual lot sizes providing liquidity and optionality on potential exit on an individual asset or portfolio basis.
”The acquisition deploys the balance of the equity proceeds of the company’s £100 million placing in July this year. The company is also in solicitors’ hands on a range of pre-let forward fundings, which will be funded through the Company’s revolving credit facility,” the company said.