UK real estate company LondonMetric Property Plc is in talks to acquire rival LXI REIT Plc in a transaction that would create the UK’s fourth-largest listed landlord by assets.
A combination would create a business with a combined £6.4 billion ($8.1 billion) real estate portfolio, the companies said Monday in a statement, confirming a Bloomberg News report that they were in negotiations. The talks are ongoing and there’s no certainty a deal will be agreed to, the companies said.
LondonMetric shares are up 14% this year, valuing the company at £2.1 billion, while LXI is down 7.8%, giving it a market value of £1.8 billion. LXI gained 4.3% at 2:52 p.m. in London, while LondonMetric dropped 0.6%.
Public UK landlords have been trading at persistent discounts to the value of their assets as investors anticipate that higher interest rates will weigh on property valuations. That’s prompted several landlords to explore deals. While so-called take-private transactions have been challenging for private equity firms due to boards’ unwillingness to sell their companies at a discount to reported asset values, mergers have become a viable alternative for companies seeking to gain scale and cost efficiencies.
LondonMetric has been a serial deal maker under long-standing Chief Executive Officer Andrew Jones, who has repositioned the company to focus on warehouse properties and capitalize on the ecommerce boom. The company has grown rapidly and now has a portfolio valued at £3.2 billion after its early call to exit retail properties and focus instead on logistics assets, particularly those in urban locations that are essential for rapid deliveries.
LXI, which merged last year with Secure Income REIT, owns buildings with long-term leases, including theme parks and hospitals, designed to offer investors secure returns. The company is externally managed by an entity owned by Alvarium Fund Managers. Secure Income REIT’s management, led by Nick Leslau, retained a stake in the combined business following the merger and the entrepreneur remains LXI’s largest holder.
While relatively common in UK real estate, external management structures where an outside team is paid fees to manage a portfolio have come under scrutiny due to the the potential for a lack of alignment between managers and shareholders’ interests. Alvarium also previously managed Home REIT Plc, a landlord specializing in affordable housing that was the subject of a critical report by short seller Viceroy Research. Alvarium has since been replaced as that company’s manager.
