LXI REIT and Secure Income REIT have agreed terms on a merger that would see LXI acquire the entire share capital of Secure Income.
Under the terms of the merger, each Secure Income shareholder will receive 3.32 new LXI shares per one Secure Income share.
The deal would see the combined company have net assets of £2.8bn and comes eight months after initial merger talks between the two long income property companies broke down.
The boards of both companies said they believe there to be “strong strategic, operational and financial rationale” for the merger.
It expects immediate accretion to cash earnings per share, creating the potential for higher dividends through material cost savings (estimated to be £8.6m per annum) and efficiencies together with the expectation of further capital growth opportunities to enhance returns.
It added that the combined group is expected to have one of the lowest total expense ratios in the UK listed real estate sector.
The combined portfolio would comprise 346 properties that are 100% occupied with a combined value at their 31 March 2022 external valuation of around £3.9bn, with contracted annual rental income of around £194m and a WAULT of around 26 years.
Around 98% of the combined group’s rental income will benefit from inflation-linked rent reviews or fixed rental uplifts, and the group’s loan to value (LTV) will be below 40% at the time of completion of the merger, with a medium term LTV target of 30%.
LXI REIT Advisors will continue as investment adviser to the combined group, with certain key members of the Prestbury Management team (investment adviser to Secure Income) continuing to have an ongoing role.
Nick Leslau (chairman of Prestbury) and Sandy Gumm (chief operating officer of Prestbury) will be appointed to the board of LXI as non-executive directors, while certain senior employees from the Prestbury property and finance teams will move to LXi REIT Advisors and certain senior members of the Prestbury management team will act as ongoing consultants for LXi REIT Advisors.
Amalfi (the entity financed by shareholders of LXi REIT Advisors) has agreed to acquire Prestbury Investment Partners Limited for £40m.
Following completion of the merger, the Prestbury management team will hold an investment of 5.8% of LXi’s issued share capital valued at £142m at the combined group’s adjusted EPRA NTA.
Following completion of the merger existing LXI shareholders will hold around 53% and Secure Income shareholders around 47% of the new company.
Comments on the merger
Cyrus Ardalan, chairman of LXI, said: “In today’s investment climate, more than ever, security and resilience of cash flows, scale and liquidity, underpinned by clear and compelling strategic direction and cost efficiency are essential components of successful REITs.
“We are delighted to be benefitting from the experience, talent and complementary investment strategies of the LXi REIT Advisors and Prestbury investment advisory teams. 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.
“Shareholders in the combined group will benefit from immediate accretion to cash earnings per share, creating increased scope to deliver higher dividends, through material cost savings and efficiencies, together with further opportunities to enhance the attractive inflation-protected income and capital growth. It will also, importantly, further strengthen our position to benefit from significant future growth opportunities to enhance total shareholder returns.”
Martin Moore, chairman of Secure Income, added: “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.
“SIR’s Investment Adviser is transferring a very substantial stake into LXI, worth more than £140m, and through the appointment of key senior Prestbury team members by the enlarged LXI business, it will continue to bring its considerable experience and skill set to the LXI board and its talented and ambitious management team, while remaining firmly aligned with shareholders.”
LXI : LXI REIT and Secure Income REIT to merge