LondonMetric - Half-year Report

LondonMetric today announces its half yearly results for the six months ended 30 September 2018.

 

Income Statement

Six months to

30 Sept 2018

Six months to

30 Sept 2017

Net rental income (£m)1

47.1

44.5

EPRA Earnings (£m)

30.9

28.8

EPRA EPS (p)

4.4

4.2

IFRS EPS (p)

11.4

11.5

Reported Profit (£m)

79.3

79.6

Dividend per share (p)

3.8

3.7

Balance Sheet

30 Sept 2018

31 March 2018

IFRS net assets (£m)

1,198.6

1,149.5

IFRS NAV per share (p)

172.5

165.7

EPRA NAV per share (p)

172.1

165.2

LTV (%)1,2

37

35

1 Including share of Joint Ventures. Further details on Alternative Performance Measures and the presentation of financial information can be found in the Financial Review and definitions can be found in the Glossary.

2 Including deferred consideration payable and receivable on transactions that have exchanged in the period.

Continued income growth increases earnings and dividends

·       Net rental income up 5.8% to £47.1m1

·       Reported profit was £79.3m and EPRA earnings up 7.3% to £30.9m, 6.6% on a per share basis

·       Dividend increased 2.7% to 3.8p, 117% covered, including a second quarterly interim dividend declared of 1.9p

Sector alignment and asset selection delivers further valuation gains, contributing to total returns

·       EPRA NAV per share up 4.1% to 172.1p (March 2018: 165.2p)

·       Driven by a revaluation surplus of £51.0m1, reflecting a 2.7% uplift, with urban logistics increasing by 4.5%

·       Equivalent yield compression on portfolio of 9bps and ERV growth of 0.9%

·       Total Accounting Return of 6.7% and Total Property Return of 5.4%, outperforming IPD All Property by 210bps

Investment activity increases distribution weighting to 72% and further improves portfolio quality

·       £139.0m of acquisitions increase urban logistics portfolio to 54 assets, representing 25% of total portfolio

14 years' WAULT on acquisitions, with nearly 60% of income subject to contractual uplifts

·       £92.5m of disposals including shorter let distribution, convenience, retail parks and residential

10 years' WAULT on disposals, with retail assets sold at book, reflecting their strong income characteristics

·       £39.4m of disposals post period end reduce retail parks to 5% and residential to 1% of the portfolio

includes £17.4m of distribution disposals at book value with a WAULT of under 2 years

31 asset management initiatives 

·       £1.2m pa income uplift from lettings, signed with a WAULT of 12 years

·       £1.1m pa income uplift from rent reviews, 12% uplift above passing on a five yearly equivalent basis

·       Offsets loss of income from Poundworld vacancy, where we are in active discussions on re-letting

Short cycle developments creating future long income at attractive yields

·       Recently completed distribution developments are 68% let

·       0.9m sq ft in construction or pipeline at 6.5% yield on cost

·       At Bedford, construction of three warehouses totalling 180,000 sq ft will complete in Q2 2019 with terms agreed on over half the space. Discussions ongoing on the remaining 500,000 sq ft and construction is subject to pre-lets  

Portfolio metrics reflect our focus on long income, contractual uplifts and low operational requirements

·       WAULT of 12 years with only 6% of income expiring within three years

·       54% of income subject to contractual uplifts

·       98.3% gross to net income ratio

Conservative financing continues to enhance income

·       Average cost of debt at 2.9% and debt maturity of 4.5 years following new £75m facility with Wells Fargo

Andrew Jones, Chief Executive of LondonMetric, commented:

"Our alignment towards logistics and convenience assets together with the portfolio's sustainable and growing income has delivered another strong performance.

"As the real estate markets polarise further, we continue to refine the portfolio to ensure that it remains fit for purpose and outperforms. Our exposure to structurally supported sectors has grown further as we enthusiastically embrace the logistics market buoyed by the ongoing shift from bricks to clicks, constrained supply and rising occupier demand. In a yield tranquil environment, asset selection as well as sector calls are increasingly paramount to providing income certainty, income growth and capital enhancement.

"Looking ahead, the strength of our assets allows us to take a longer term investment horizon where we can collect, compound and grow our income and be a little less obsessed about predicting exact market movements or timing of cycles. This long term approach, combined with our beliefs in the merits of behaving as a 'true REIT' and our full shareholder alignment, will ensure that we continue to make rational decisions, grow our income and progress the dividend. After all, it is the consistency of compounding that produces a good performance and satisfied shareholders."

Outlook

We expect further polarisation of performance across real estate markets and continue to prepare ourselves to ensure that we remain fit for purpose.

Our exposure to structurally supported sectors has continued to grow as we enthusiastically embrace the logistics market buoyed by structural shifts from bricks to clicks, constrained supply and rising occupier demand. This will continue, as indeed will investor demand for these assets as they rebalance their portfolios away from traditional retail and office sectors.

We have a strong view on the disruption affecting retail property and a long history of experience to guide us. Whilst we remain attracted to the convenience sector, as a beneficiary of changing shopping patterns, we have continued to reduce our remaining exposure to the multi let general merchandise market which is facing increasing disruption. Whilst many will point to new opportunities for repositioning, or that pricing is close to the bottom, we believe there is still more value destruction to come as yields expand, more retailers fail and rents fall as the retail 'survivors' inherit almost unprecedented pricing power.

We know that the wider markets are uncertain, threats exist and a lot of the easy money has been made. However, we are not so pessimistic that we want to be defensive. We have made some sound decisions and are well positioned with a fit for purpose portfolio.  An income focus allows us to be a little less obsessed about predicting exact market movements or timing of cycles.

We are still moving forward, but we remain rational and increasingly selective. Our long term approach, combined with our beliefs in the merits of behaving as a 'true REIT' and our full shareholder alignment, will ensure that we continue to make rational decisions and progress the dividend. After all it is the consistency of compounding that produces a good performance and satisfied shareholders.