LondonMetric and LXi REIT have agreed the terms of a recommended all-share merger to create a £4.1 billion UK real estate investment trust and the UK's fourth largest listed landlord by assets.
In a stock market announcement, the board of directors said LondonMetric will acquire the entire issued and to be issued ordinary share capital of LXi, with a merger taking place via a scheme of arrangement under Part 26 of the Companies Act.
Each LXi shareholder will be entitled to 0.55 new LondonMetric shares for each LXi share held. The merger values the share capital of LXi at £1.9 billion and represents a premium of 9% to the closing share price per LXi share of 99.5p.
Following completion of the merger, existing LondonMetric shareholders will hold 54% and LXi shareholders will hold approximately 46%.
The directors said the merger would build on the strengths and strong track records of both companies to create a new major UK REIT, aligned to "structurally supported sectors with high barriers to entry and income security". It said the REIT would have a low cost base, better access to capital through greater scale and "enhanced scope for capital recycling and asset management to drive compounding income growth and total returns for shareholders".
The combined group will have EPRA net tangible assets of approximately £4.1 billion, becoming the fourth largest UK REIT, providing better access to capital and increasing share liquidity.
It will be structured to continue both companies’ "long track records of dividend growth", with LondonMetric on track for a ninth consecutive year of dividend progression.
It will have a £6.2 billion portfolio, with 93% exposure to the logistics, healthcare, convenience, entertainment and leisure sectors, and with a strong exposure to key operating assets that are "mission critical to the occupiers’ businesses".
There will also be substantial cost and operating synergies, the directors said, "driving faster earnings growth" combined with dividend progression through economies of scale, the removal of duplicate costs and increased operating margins and efficiencies. It is targeting an EPRA cost ratio of 7 to 8% in the medium term.
Together it will be led by a "highly regarded management team with strong shareholder alignment".
The portfolio has a weighted average unexpired lease termof 19 years on full repair and insuring leases and 99% occupancy.
The company flagged "wel- staggered debt maturities" and a loan to value of approximately 31% on a pro forma basis taking into account LXi’s recent £210 million disposal of Travelodge assets.
In the group's half year results for the six months ended 30 September 2023, LondonMetric, which is led by chief executive Andrew Jones and has recently focused on retail warehouses and logistics, swung back to a £81 million pre-tax profit and increased its net rental income to £76.8 million from £72.1 million in the first half of 2023.
In May 2022, the boards of FTSE 250-listed LXi REIT and AIM-listed Secure Income REIT announced a merger to create a company with a portfolio of 346 properties with a combined value of £3.9 billion. The group is a specialist inflation-protected very long-income REIT.