- Combined company would own 346 properties
- Announcement follows stalled merger talks last year
LXi Reit (LXI) and Secure Income Reit (SIR) have agreed to merge in a deal which would create a real estate investment trust (Reit) with a £3.9bn property portfolio.
The two companies – which are both asset-class agnostic, long-income funds – had held preliminary talks about a merger in September last year, but the deal did not go through.
LXi said at the time it was “no longer reviewing this opportunity", but since then Stephen Hubbard has stepped down as chairman, to be replaced by Cyrus Ardalan.
Numis analyst Justin Bell said the parties were always likely to return to the negotiating table after the machinations last year. "The merger would seem to make strategic sense for all stakeholders and the ability to buy such a large portfolio of unique assets, free of stamp duty, is an incredible transformational opportunity for LXi Reit," he said.
The reverse takeover will see the larger Secure Income merge into LXi in order to take advantage of the latter’s premium market listing – meaning Secure Income shareholders would move up from the Aim market. LXi said the new company would be a top 10 UK Reit with a combined estimated Epra net tangible assets of £2.4bn. The new company will be owned 53 per cent by LXi shareholders and 47 per cent by Secure Income shareholders once the deal completes.
The two companies said the deal would result in an "immediate expected accretion to cash earnings per share" and potentially higher dividends. Annual cost savings through the tie-up are forecast at £8.6mn.
Following Wednesday’s announcement, shares in Secure Income leapt 10 per cent while LXi shares dropped 5 per cent. The deal values each LXi share at 143.4p and each Secure Income share at 475.5p. Secure Income shareholders will be offered 3.32 LXi shares for each share they own or a partial cash alternative of 118.88p per share, capped at 25 per cent of the total offer.
The new company will hold a portfolio of 346 properties valued at £3.9bn with a rent roll of £194mn a year and a weighted average unexpired lease term of 26 years. Its top three tenants are Merlin Entertainments, Ramsay Healthcare and Travelodge who comprise 18.4 per cent, 18 per cent and 17.8 per cent of rental income respectively.