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LXi posts strong results ahead of potential merger

LXi could merge with Secure Income, but has plenty going for it beyond that
June 7, 2022
  • Merger could close by July
  • LXi spent £558mn this year

It is rare when full-year results revealing threefold increase in pre-tax profits is not the main talking point for a company, but that is exactly the case with LXi Reit (LXI). It posted its best set of results since the pandemic and its best yearly dividend payout since it started trading, yet all shareholders will really want to know is whether or not this asset-agnostic long-income real estate investment trust (Reit) is going to merge with Secure Income Reit (SIR).

What is the probability that this will actually happen? Should people interested in buying shares in LXi Reit be thinking about what it would mean to own shares in this new, larger company?LXi’s fund manager Simon Lee says the merger is “highly likely” to go ahead. The deal currently has the backing of both companies’ boards and Lee says shareholder response to it has been “overwhelmingly positive”. If all goes to plan, the vote on the merger will take place on 22 June and will complete on 6 July.

Despite his confidence about the likelihood of the deal, Lee insists that LXi’s £558mn spending spree throughout the financial year was not in anticipation of the merger. Even if it was not, the acquisitions do give some insight into how deal-hungry the combined LXi/Secure Income could be in future. In pitching the deal to shareholders, the pair said the deal would give the new company an “enhanced ability to source investments”. According to Lee, the thinking is that a company with a bigger market cap will be able to buy “chunkier” assets such as £200mn buildings or portfolios without them being such a significant proportion of the portfolio.

This financial year LXi has shown itself this year to be a potent force even without the increased firepower from the potential Secure Income merger. Irrespective of the deal, this Reit is a strong investment. Buy.

Last IC view: Buy, 144p, 24 Nov 2021

LXI REIT (LXI)    
ORD PRICE:145pMARKET VALUE:£1.32bn
TOUCH:144-146p12-MONTH HIGH:155pLOW: 132p
DIVIDEND YIELD:4.1%TRADING PROP:NIL
PREMIUM TO NAV:1.1%NET DEBT:13%
INVESTMENT PROP:£1.48bn   
Year to 30 MarNet asset value (p)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2018*10821.015.14.00
201911534.112.85.50
202012473.615.25.75
202112639.97.605.55
202214316122.86.00
% change+13+304+200+8
Ex-div: 26 May**   
Payment: 24 Jun**   
*Period from incorporation in Feb 2017 **Most recent dividend declaration for quarterly dividend