It will potentially create the fourth largest REIT in the country
LondonMetric and LXi, two real estate insurance trusts (REITs), have announced that the two firms will be transacting with each other through an all-share merger deal, if agreed.
With the merger, a new major UK REIT will be created with an EPRA NTA of approximately £4.1 billion. It is expected to become the fourth largest REIT in the country.
“The transaction will be an all-share deal with LXi shareholders receiving 0.55 LMP share per LXi share held,” said Oli Creasey, property analyst at Quilter Cheviot.
“The deal gives us access to a very well let triple net portfolio of key operating assets and brings together two highly complementary investment approaches that embrace the qualities of income compounding,” said LondonMetric CEO Andrew Jones.
“The merger will position the combined group for continued growth and outperformance and the delivery of reliable, sustainable and progressive dividends through the cycle, thereby underpinning superior total shareholder returns,” said Cyrus Ardalan, chairman of LXi.
What will the merger entail?
Creasy stated the transaction will make the company’s market cap larger than British Land’s, which was Jones’ previous employer. Jones was British Land’s former head of retail.
“The combined company may also be large enough to push for inclusion in large cap indices, although the combined market cap is not large enough to guarantee such a change,” Creasy said.
The merger will entail a combined £6.2 billion portfolio which is geared to structurally support sectors with 93% exposure to logistics, healthcare, convenience, entertainment, and leisure.
LondonMetric’s board and senior management will lead the combined company and will be pursuing opportunities within the combined portfolio for asset and investment management, recycling capital, and seizing growth opportunities.
“The combination will see LondonMetric buy out LXi’s external management team, and the expectation is that LMP’s existing management team will continue to run the larger group. Nick Leslau will join the board, currently a director of LXi,” said Creasy.
Creasy noted that while there was a reasonable amount of synergy in the merger since there were long leases on their property portfolios, the requirement for active asset management was limited.
“The size of the property team is unlikely to need to double, even if the portfolio does,” the analyst said.
In order for the deal to be finalised, shareholders of both firms need to vote in its favour. However, Creasy believes that there may be some who will not easily do so.
“The only material issue we foresee is that the LXi share price (103p) is trading marginally above the implied offer value (101.2p). LXi shareholders may take some convincing to accept the offer on this basis, and given a 75% approval rate is required, the hurdle is relatively high,” said Creasy.
