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UK-listed landlord LondonMetric is in talks to buy LXI, owner of Warwick Castle and Alton Towers, in a deal that would create a £6.4bn real estate group as UK property investors seek scale to weather the downturn.
If the transaction goes ahead, LondonMetric, a FTSE 250 landlord focused on logistics, will acquire all outstanding shares in LXI. The combined group would benefit from “economies of scale and operating efficiencies”, the two companies said in a joint statement on Monday.
The talks come at a time when listed property companies have been trading at substantial discounts to the value of their assets, as commercial property valuations take a hit from rising interest rates. The UK has had a spate of deals in recent years as smaller real estate investment trusts (Reits) are taken private or try to grow to a size that will appeal to more investors.
The LondonMetric LXI deal would create one of the UK’s largest listed landlords with a combined market capitalisation of £3.9bn.
“One of the biggest challenges for the UK-listed property [sector] is lack of scale,” said Colm Lauder, principal at consultancy Lingard Capital Advisers. He said the deal would create “another vehicle with scale out of two vehicles that are subscale”.
LondonMetric, led by chief executive Andrew Jones, has in recent years shifted away from retail parks, offices and residential property to focus on warehouses. Shares in LondonMetric fell 1 per cent while LXI rallied around 5 per cent after news of the potential deal came out on Monday.
If the transaction goes ahead, the combined company will be internally managed, meaning an end to LXI’s relationship with Alvarium Fund Managers, which currently hold the contract to manage the Reit.
Alvarium previously managed Home Reit, an affordable housing group that came under attack by short seller Viceroy Capital. An internal investigation flagged “undeclared potential conflicts of interest” and inaccurate disclosures related to Home Reit’s annual impact report.
LXI’s portfolio, valued at about £3bn, ranges from garden centres to a collection of theme parks — run by Merlin Entertainments — which were formerly owned by property investor Nick Leslau’s Secure Income Reit, which merged with LXI last year. It also owns budget hotels operated by Travelodge.
Lauder said there was “a logical combination here between the portfolios” of LXI and LondonMetric because both companies focus on long-term income and have a substantial number of inflation-linked leases. The companies said their joint portfolio was 93 per cent concentrated within the “logistics, healthcare, convenience, entertainment and leisure sectors . . . with income longevity and security”.
An offer from London Metric was contingent on several conditions including approvals from each company’s lenders and due diligence, the statement said. Bloomberg and React News first reported the talks.
