The team at LXi REIT is lining up big-ticket forward fundings as it prepares for a shareholder vote on its merger with Secure Income REIT, a deal it says will give it the firepower to tackle transactions on a scale it has not been able to before.
Shareholders will vote on the tie-up later this month. If it passes, the companies expect completion in early July, Simon Lee, fund manager at LXi REIT Advisors, told EG as the company announced a 37% rise in rental income over the past year.
The deal will create a combined group with assets valued at almost £3.9bn. “When you’re in a climate of rising interest rates [and] high inflation, if you can double the size of your vehicle and therefore give much more potential for cheaper equity and cheaper debt, then I think it’s good timing,” Lee said of the merger. “It’s not a defensive move, but it has defensive benefits in a difficult environment.”
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The team at LXi REIT is lining up big-ticket forward fundings as it prepares for a shareholder vote on its merger with Secure Income REIT, a deal it says will give it the firepower to tackle transactions on a scale it has not been able to before.
Shareholders will vote on the tie-up later this month. If it passes, the companies expect completion in early July, Simon Lee, fund manager at LXi REIT Advisors, told EG as the company announced a 37% rise in rental income over the past year.
The deal will create a combined group with assets valued at almost £3.9bn. “When you’re in a climate of rising interest rates [and] high inflation, if you can double the size of your vehicle and therefore give much more potential for cheaper equity and cheaper debt, then I think it’s good timing,” Lee said of the merger. “It’s not a defensive move, but it has defensive benefits in a difficult environment.”
The merger will also open up the potential for new deals, he said, and larger transactions are already in the team’s sights, including sale and leasebacks and forward fundings for existing tenants in the portfolio.
“We have done lots of small forward fundings because that’s where there is lots of value. But where we also see lots of value is in the really big forward fundings – £100m, £150m, £200m lot-size forward fundings… With a £1.3bn market cap [as standalone LXi REIT], that would have been quite large, but with £3.9bn of assets post-merger, those type of deals would be 3-5% of the portfolio. So we can afford to do them without busting our concentration or diversification requirements, and benefit from the upside of getting 5%-plus yield from something that, if it was £30m or £40m, would be 4%.”
Chief financial officer Freddie Brooks added that the refinancing opportunities that stem from the merger will also be significant – including the possibility of issuances in the corporate bond market.
“It brings forward the average maturity date from LXi’s – which was way out in the future in terms of our term loans expiring in December 2033 – to an average maturity of four years, with some pretty chunky refinancing opportunities over the next couple of years. It gives us a chance to capitalise on them in the near term – and the first step of that is looking to get an investment-grade rating.”
To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews
