LONDON: LondonMetric Property and LXi REIT have reached agreement on the terms of a recommended all-share merger.

The terms of a proposed all-share merger between LondonMetric Property and LXi REIT have been agreed upon. As per the agreement, LondonMetric Property will take over all the existing and future ordinary shares of LXi at a ratio of 0.55 LondonMetric shares for every LXi share.

Based on the unaffected closing price of LondonMetric share at 197.4 pence on 15 December 2023, the merger values LXi’s entire ordinary share capital at around £1.9 billion.

The boards of directors of each of LondonMetric and LXi believe that 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, with 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 merger would result in the creation of a new major UK REIT, with the Combined Group having a EPRA NTA of approximately £4.1 billion, becoming the fourth largest UK REIT, providing better access to capital and increasing share liquidity;

The establishment of a UK-focused triple net lease REIT of scale, with a highly efficient structure delivering reliable, repetitive and growing income through the cycle. The Combined Group will be structured to continue both companies’ long track records of dividend growth, with LondonMetric currently on track for a ninth consecutive year of dividend progression; and

The formation of a combined £6.2 billion portfolio aligned to structurally supported sectors, with 93 per cent. 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.

Andrew Jones, Chief Executive of LondonMetric, said: “This is a compelling transaction which creates the UK’s leading triple net lease REIT and underscores our ambitions to leverage our management platform and access exciting new opportunities across the UK real estate market. 

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.

The combined £6.2 billion portfolio will have no legacy assets, full occupancy, high occupier contentment and exceptional income longevity with a high certainty of growth – both organically and contractually.

In the world of income compounding, bigger is better and the deal will deliver economies of scale, substantial cost savings, better liquidity and improved terms in both debt and equity markets which will drive accelerated earnings and dividend progression. Increased scale will allow us to look at the widest possible range of opportunities and we will have more tools at our disposal to carry on our trade, which will allow further operating synergies.

Our team is strongly aligned to shareholders and has deep real estate experience with a strong track record for capital allocation, asset recycling and active management. This strategy will not change and our proactive culture will remain intact, and whilst we will undoubtedly look to reposition parts of the portfolio, this will be more of a tilt than a pivot with logistics remaining our strongest conviction call for organic growth.”   

Cyrus Ardalan, Chairman of LXi, said: “LXi has delivered strong growth and outperformance since its IPO in 2017 thanks to its high quality, resilient and actively managed long income portfolio. The Board of LXi would like to thank the LXi REIT Advisors team for the important contribution they have made to the company’s success.

The merger with LondonMetric will build on the strengths and track records of both LXi and LondonMetric. It will create the UK’s leading triple net lease REIT with an enlarged and more diversified portfolio aligned to structurally supported sectors, a robust and predominantly unsecured capital structure, broader appeal to investors and enhanced share liquidity, and a highly regarded internal management team.

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.”

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