Long-lease commercial property fund LXI Reit (LXI ) has sold 66 Travelodge hotels for £210m as it tidies up its portfolio ahead of a possible merger with LondonMetric Property (LMP).

The £1.7bn fund has confirmed the sale of the budget hotels to Travelodge, with the majority of the proceeds being used to pay down debt, reducing the group loan-to-value to 34% from 38%, and cutting the percentage of rent derived from the group from 18% to 11%.

Simon Lee, chief executive of fund manager LXI Reit Advisors, said the ‘landmark’ sale is in line with book value.

‘The sale and debt repayment are not expected to have a material impact on the company’s earnings,’ he said.

‘Travelodge operates a best-in-class hotels business and the firm commitment of its owners to the business is demonstrated by their support to enable the purchase of 66 of its assets.’

The news of the sale, which was first flagged in November, comes as LXI’s suitor LondonMetric has also been recycling capital. The logistics fund, which last month confirmed the two were in talks over an all-share offer to create a £3.9bn Reit, has made both a sale and a purchase.

It acquired a 264,000 square foot regional logistics warehouse let to retail giant Next (NXT) for a further 13 years at a rent of £1.42m a year.

The lease also benefited from annual fixed rental uplifts of 2.5%, which will increase the purchase net initial yield to 7.1% Within three years.

In a separate transaction, the fund sold a non-core 18,000 square foot office in Chiswick from £7.4m.

Shore Capital analyst Andrew Saunders said of the potential all-share deal: ‘The rationale is straightforward and the company well placed – acquiring a complementary portfolio of assets at a discount to market value with the opportunity to create value through scale and synergy benefits.’

LondonMetric was a top performer in 2023, with the shares up 11%, and Saunders said it has ‘some of the highest rated paper, which it has already used to acquire CT Property’.  The shares trade on a 10% discount to net asset value and offer a 5.4% dividend yield.

By contrast, LXI shares fell 6.9% last year but the shares trade on a slightly narrower 8% discount.