LondonMetric Property H2 Earnings Call Highlights

LondonMetric Property LON: LMP reported higher full-year earnings, rental income and dividends, with management pointing to acquisitions, asset management activity and refinancing as key drivers of the results.

Andrew, speaking for LondonMetric, said the company had continued its “triple net income compounding model” during the year, growing the portfolio by 23% and adding GBP 1.5 billion to portfolio value. Of that, GBP 1.2 billion came from the acquisitions of Urban Logistics and Highcroft.

Net rental income rose 17% in the year, while the company increased its dividend for the 11th consecutive year, Andrew said. He added that the dividend is up 78% since the creation of LondonMetric in 2013.

Earnings and dividend rise

Martin McGann, CFO of LondonMetric, said net rental income increased 16.6% to GBP 455.3 million. The company included GBP 60 million of additional rent from the Urban Logistics and Highcroft acquisitions, reflecting nine months of trading, and expects to benefit from the full-year impact in the current year. Other acquisitions contributed GBP 13 million of additional rent, offsetting GBP 23 million of rent lost through non-core disposals.

Rent collection remained strong at 99.7%, while gross-to-net income leakage was 1.4%. Administrative overhead was GBP 30.2 million, reflecting the larger scale of the business and higher headcount. McGann said headcount rose to 54 from 48, including former Urban Logistics employees and new hires. The EPRA cost ratio was 7.7%.

EPRA earnings rose 13.9% to GBP 305.3 million, or 13.45 pence per share, up 2.4%. The company’s dividend for the year increased to 12.45 pence per share, providing 108% dividend cover and full cash cover. LondonMetric also announced an intended first-quarter dividend for fiscal 2027 of 3.15 pence per share, up about 3% from the prior-year period.

IFRS profit was GBP 295.7 million after exceptional acquisition costs of GBP 16.3 million, debt and hedging early repayment costs of GBP 16.9 million, and a GBP 9.6 million goodwill impairment write-off. McGann said those items were not expected to recur.

Portfolio value reaches GBP 7.6 billion

The portfolio was valued at GBP 7.6 billion at year-end, including GBP 1.23 billion of property assets acquired through Urban Logistics and Highcroft. EPRA net tangible assets increased 15.4% to GBP 4.7 billion, or 200.6 pence per share. Total accounting return was 6.9%, or 7.7% excluding exceptional items.

Management said the portfolio remains focused on structurally supported sectors. Logistics accounts for GBP 4 billion of the portfolio, and Andrew said the sector is expected to deliver the highest rental growth, with forecast rental growth of just over 5% per year over the next few years.

LondonMetric also expanded in entertainment, leisure and convenience grocery. Andrew said the company acquired 17 Premier Inn hotels during the period, let on 30-year leases with guaranteed inflation-linked rent reviews between 1% and 4%. He also said the company continues to target convenience grocery assets, citing changing consumer behavior and demand for faster shopping trips.

Across the portfolio, LondonMetric reported a weighted average lease length of just under 17 years and a topped-up net initial yield of 5.3%, rising to more than 6.5%. The company forecast average rental growth of 4.3% per year over the next couple of years.

Asset management adds rent, disposals continue

LondonMetric added GBP 16.6 million of rent through asset management activity, representing 4.2% like-for-like income growth. Average uplifts on rent reviews and lease renewals were 19%, while open market rent reviews delivered 33%. The urban logistics portfolio was the standout, with open market rent reviews up 38%.

McGann said the contracted rent roll stood at GBP 432.1 million at year-end, including GBP 75.1 million from the annualized benefit of acquisitions and other net investments. He said GBP 38.3 million of short-term reversion is expected by 2028, and a further GBP 11 million could come from letting vacant assets, taking the rent roll to more than GBP 480 million.

Andrew said the company had about 1.2 million square feet of vacant space and was focused on reducing it. He described vacancy as a major risk for real estate owners because it leads to lost income and additional costs.

Disposals remained a key part of the strategy. LondonMetric completed 57 disposals during the year totaling GBP 318 million, with another 12 disposals totaling GBP 49 million completed after period-end. Andrew said 50 of the 57 sales were assets of less than GBP 10 million, where liquidity was strongest. He said 44% of sales went to high-net-worth individuals and owner-occupiers.

Balance sheet strengthened through refinancing

McGann said LondonMetric took steps to strengthen and diversify its financial position, raising GBP 1.2 billion of new debt facilities and repaying GBP 1.1 billion of existing debt. The new facilities included the company’s inaugural GBP 500 million public bond, rated A-, with a weighted average maturity of 5.5 years and a 4.69% coupon, as well as a GBP 150 million U.S. private placement.

The company also refinanced GBP 1.5 billion of unsecured revolving credit facilities and term loans in March, reducing the average margin by 49 basis points to 105 basis points. McGann said this removed any material refinancing risk until fiscal 2030.

Average cost of debt was 4% for the period. LondonMetric’s loan-to-value ratio was 36.7%, and net debt to EBITDA was 7.5 times, within the company’s upper target of 8.5 times. McGann said he would prefer net debt to EBITDA to have “a 6 in front of it” and expected both leverage measures to reduce as non-core disposals continue. Drawn debt was 99.8% hedged at year-end.

Management cites resilient model but notes rate volatility

Management repeatedly pointed to interest rates and swap rates as key factors affecting real estate pricing and liquidity. Andrew said recent volatility in the five-year swap rate made asset valuations difficult to predict, adding that the company’s focus on income reflected the view that “valuations can be vanity, but income is sanity.”

In response to an analyst question on whether rent increases in logistics could become unaffordable for tenants, Andrew said the picture varies by region. He identified London as the weakest area because tenants may be able to move farther out and reduce rent, but said rent is a smaller proportion of logistics occupiers’ overheads than transport and wages. He added that the company was not yet seeing the issue significantly through vacancy.

Management said market uncertainty could create opportunities, including in sale-and-leaseback transactions, development fundings, potential consolidation and assets held by pension funds. Andrew said scale should continue to give LondonMetric access to deals and to “cheaper and more diverse pools of debt.”

About LondonMetric Property LON: LMP

LondonMetric is a FTSE 100 REIT that owns and manages desirable real estate that meets occupiers demands and delivers reliable, repetitive and growing income-led returns and outperforms over the long term. As a real estate owner, we look to help occupiers, communities and stakeholders grow, thrive and revitalise in an evolving and complex world.

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