UK property tie-up has signs of a happy marriage

LXi REIT

11/01/2024 11:59

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       LONDON, Jan 11 (Reuters Breakingviews) - Britain's
property sector is getting the message on the weak UK economy.
LondonMetric Property’s  LMPL.L  all-share merger with similarly
sized LXi REIT  LXIL.L  creates a 4 billion pounds ($5 billion)
group that will constitute the country’s fourth largest
landlord. Both sides derive something from it.
    LondonMetric isn’t getting a bargain. The discount from the
deal implied on LXi’s net tangible assets (NTA) is just 4%,
while the market in general is around 15% and bigger players
like British Land  BLND.L  are more like 30%, based on the
latter’s September valuation, Breakingviews calculated. But it
does allow the buyer to diversify away from managing warehouses,
to other areas like hospitals and leisure facilities like Alton
Towers. 
    More importantly, both sides get a financial benefit. With
interest rates spiking over the past year, LXi would be able to
bring the average cost of debt down to 3.9% from over 5% on its
1.2 billion pounds in gross debt. And LXi boasts a lower
operating cost of 7% as a percentage of gross rental income,
which will reduce LondonMetric’s equivalent level when they
combine. With the UK set to grow only 0.6% in 2024, according to
the International Monetary Fund, that gives greater protection
against the duo’s tenants having a trickier time. (By Yawen
Chen)

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 (Editing by George Hay and Streisand Neto)