- Pair confirm press reports of merger talks
- Resulting company would own £6.4bn portfolio
LondonMetric (LMP) is considering an all-share buyout of its real estate investment trust (Reit) rival LXi (LXI) in a multi-billion deal that would create the UK's fourth largest trust of that type.
The pair confirmed they were discussing the creation of a £3.9bn market cap company after a Bloomberg report. The new company would be big enough to make it a FTSE 100 constituent, with £6.4bn worth of property. The company's portfolio of warehouses, supermarkets, hotels, retail parks, and other assets would make it the second largest generalist Reit after Landsec (LAND), beating British Land (BLND).
The pair said the takeover would create "an internally managed Reit delivering economies of scale and operating efficiencies, targeting sustainable earnings and dividend progression". They added that the deal is "expected to provide improved share liquidity and better access to capital".
Following the announcement of the discussions, LXI rose 5 per cent while LMP dropped 1 per cent. According to takeover regulations, LondonMetric must either make a firm offer or confirm it does not want to buy LXi by no later than 5 pm on 15 January. LondonMetric's shares are up a tenth this year after a strong few weeks, while LXi is down 9 per cent for the year. Both shares trade at a discount to their net asset value.
Reacting to the deal, property author Peter Bill said: "Andrew Jones [LondonMetric's chief executive] is a numbers guy. The reason for making a play for LXi is clear. He thinks property values have now troughed. That now is the time to buy. So why not take over a whole business at the low price the City puts on the shares?"
The news comes after a busy period of mergers and takeovers for both businesses. LondonMetric completed its £285mn buyout of CT Property Trust in August, and LXi completed its merger with Secure Income Reit in July 2022.
Property experts expect M&A activity to pick up as the property industry emerges from its downturn, with buyers looking to take advantage of a possible recovery following the end of the Federal Reserve's rate-hiking cycle. The extended period of high interest rates has increased many Reit's net debt-to-equity ratio. Meanwhile, falling valuations have made tapping the equity market for cash unappealing, leaving mergers and investment partnerships as one of the only avenues for growth.
