The boards of LondonMetric Propery (LMP) and LXi Reit (LXI ) have hammered out a deal which values the latter below its current share price.

Under the terms LXi shareholders will receive 0.55 new LondonMetric shares for every LXi share held, which values the the company at £1.9bn, a 4% discount based on pro-forma EPRA net tangible assets.

LondonMetric, a £2.1bn logistics fund led that snapped up CT Property last year, saw its shares rise 1% to 186p at the news, while LXi, a £1.9bn long-lease commercial property portfolio whose tenants include theme parks Thorpe Park and Alton Towers, edged higher to 103.7p.

‘The key to the transaction is likely to be the shareholder votes, which will both need to pass in order for the deal to finalise. The only material issue we foresee is that the LXi share price (103p) is trading marginally above the implied offer value (101.2p),’ explained Oli Creasey, property analyst at Quilter Cheviot. ‘LXi shareholders may take some convincing to accept the offer on this basis, and given a 75% approval rate is required, the hurdle is relatively high.’

Along with both Reits’ directors, the deal has the support of Artemis Investment Management, which holds 7.5% of LXi shares. This means LondonMetric has received irrevocable undertakings and a letter of intent from 13.1% of overall shareholders. The companies hope to complete the transaction by the end of March.

Other top holders of LXi include BlackRock with 6.5%, Columbia Threadneedle with 4.8% and Vanguard with 4.7%.

Nick Leslau, a non-executive director of LXI who is the third largest shareholder after its 2022 merger with Secure Income, will join the enlarged board if the deal is successful and he has agreed not to dispose of his new LondonMetric shares for 12 months after the deal completes. 

Top LondonMetric shareholders include BlackRock, Norges Bank, Vanguard and Rathbones with 11%, 5.6%, 5.2% and 4.9% of shares respectively.

If the merger is successful LondonMetric shareholders will own 54% of the enlarged company, while LXi shareholders will hold the remainder.

The deal would make LondonMetric the fourth-largest landlord on the London Stock Exchange with a gross asset value of £6.2bn and a market capitalisation of £4.1bn. The combined group will have a loan to value ratio of 31%, a weighted average cost of debt of 3.9% with an average maturity of 5.6 years, and £740m in undrawn headroom.

The deal will also see LondonMetric acquire LXi’s external investment manager LRA at a cost of £26m along with a performance fee of up to £4m.

Andrew Jones, chief executive of LondonMetric, said that ‘in the world of income compounding, bigger is better and the deal with will deliver economies of scale, substantial cost savings, better liquidity and improved terms in both debt and equity markets which will drive accelerated earnings and dividend progression’.

‘Increased scale will allow us to look at the widest possible range of opportunities and we will have more tools at our disposal to carry on our trade, which will allow further operating synergies,’ he added.