LONDON, UK: The boards of LXi REIT plc has agreed to merge with Secure Income REIT plc (SIR). Under the terms of the merger, for each Secure Income REIT share, SIR shareholders will be entitled to receive 3.32 new LXi shares.
The boards of LXi and SIR believe there is a strong strategic, operational and financial rationale for the merger, bolstering the existing highly attractive investment case of each business to create a more compelling investment case for the combined group.
The exchange ratio is based on the adjusted and unaudited EPRA NTA per LXi Share as at 31 March 2022 of 143.4 pence and the adjusted and unaudited EPRA NTA per SIR Share as at 31 March 2022 of 475.5 pence.
A partial cash alternative will be made available under which SIR Shareholders can elect to receive cash instead of some, or potentially all, of the New LXi Shares to which they would otherwise be entitled under the Merger and a matching reduction in the proportion of New LXi Shares receivable.
The maximum aggregate amount of the partial cash alternative will not exceed 25 per cent of the total value of the consideration offered to SIR Shareholders (equating to a maximum aggregate cash consideration of £385 million) under the terms of the merger.
Conditional upon completion of the Merger, Amalfi (being an entity financed by shareholders of LXi REIT Advisors) has agreed to acquire Prestbury Investment Partners Limited, the Prestbury entity which is investment adviser to SIR, for a cash consideration of £40 million.
As part of these arrangements, the members of the Prestbury Management Team have each agreed to enter into non-compete arrangements that will remain in effect for a period of two years from the date of completion of the Prestbury Acquisition (subject to certain exceptions).
Following the Prestbury Acquisition, LXi REIT Advisors will continue as investment advisor to LXi and the Combined Group.
Following completion of the Merger, the Prestbury Management Team will hold an investment of 5.8 per cent. of LXi’s issued share capital assuming the Partial Cash Alternative is fully taken up, which would be valued at £142 million at the Combined Group’s adjusted EPRA NTA.
Benefitting from the significant synergies, the Combined Group is expected to have one of the lowest Total Expense Ratios in the UK listed real estate sector.
A portfolio of 346 properties that are 100 per cent. occupied with a combined value at their 31 March 2022 external valuation of approximately £3.9 billion, with contracted annual rental income of approximately £194 million and a WAULT of approximately 26 years, one of the longest in the UK listed real estate sector, establishing the Combined Group as the UK’s leading listed sector-diversified, long income REIT and a top 10 UK listed REIT by EPRA NTA.
· LXi is a UK REIT investing in UK commercial property assets let or pre-let on very long (typically 20 to 30 years to expiry or first break), inflation-linked leases to a wide range of strong tenant covenants across a diverse range of robust property sectors.
· At its 31 March 2022 external valuation, which is contained in Appendix 4 to this announcement, LXi had £1.6 billion of gross property assets and £1.3 billion of unaudited net assets resulting in an unaudited EPRA NTA per LXi Share of 142.9 pence.
Secure Income REIT is a UK REIT, investing in real estate assets that provide very long term rental income with upwards only inflation protection. It owns 160 Key Operating Assets in defensive sectors let on difficult to replicate very long leases with a weighted average term to expiry of 30 years, longer than any other major UK REIT.
· At its 31 March 2022 external valuation, which is contained in Appendix 4 to this announcement, SIR had £2.3 billion of gross property assets.
Commenting on the merger, Cyrus Ardalan, Chairman of LXi REIT said: “The planned merger of the strongly performing businesses of LXi and SIR will create a substantial, complementary portfolio of attractive operating assets let on long-term, index-linked leases to a diverse group of strong tenants across a diversified mix of robust property sectors”.
Commenting on the merger, Martin Moore, Chairman of SIR said: “The combination of these two proven, substantial, complementary inflation-protected portfolios, which will result in further diversification, significant growth opportunities, access to lower cost of capital, potentially increased share trading liquidity and lower management costs on a faster timescale than we would otherwise achieve, is a tremendous opportunity. Both boards share a common investment philosophy, where growth and a prudent approach to risk management are fundamental components”.