LondonMetric ends year strong as it buys three more warehouses

LondonMetric published its final results for the year to 31 March on Wednesday, reporting a 5% improvement in net rental income during the period to £82m.

The FTSE 250 company also claimed a £21m revaluation surplus, which contributed to a reported profit of £63m - although that was down from £82.7m year-on-year.

It still claimed EPRA earnings of £51m, or 8.2p per share - a 5% increase.

The property investment firm’s board declared a fourth quarterly interim dividend of 2.1p with a scrip alternative, taking the total dividend to 7.5p for the year - a 3% increase, with dividend cover at 109%.

At the same time, the company announced the acquisition of three separate urban logistics warehouses in Crawley, Coventry and Huyton for a combined £23.9m.

Firm on solid footing as developments and investments continue

LondonMetric’s EPRA net asset value improved to 149.8p from 147.7p, driven by its portfolio revaluation gain of £21m for the year, which itself was underpinned by a £44m revaluation surplus in the second half.

Its portfolio was now valued at £1.53bn, with a topped-up net initial yield of 5.4%.

Total property returns stood at 7.4%, outperforming the Investment Property Databank which returned 4.6% in the period.

During the year, the company sold £148m of retail, leisure and residential assets, with a further £42m sold post-period end, while it made £107m of distribution investments with a further £24m acquired since year-end, as separately announced on Wednesday.

It held an urban logistics portfolio of 26 assets as of Wednesday morning, valued at £185m, with what the board described as “strong terminal values”.

The board described “strong” income growth across the portfolio, with £5.8m per annum of additional income from 33 lettings during the year, at a weighted average unexpired lease term of 18.2 years.

It reported £1.3m per annum of additional income from 36 rent reviews at 4.6% above passing, and 4.3% above ERV, while the portfolio delivered 4.6% like-for-like income growth and 3.8% ERV growth, and 5.6% on distribution.

The company’s short cycle development activity included 1.1 million square feet delivered at yield on cost of 6.5%, adding £7.9m per annum of additional income.

Another 0.7 million square feet was under construction at yield on cost of 6.3%, adding an additional £4.9m per annum additional income.

Occupancy stood at 99.6%, with a weighted average unexpired lease term of 12.8 years and 1% of income expiring within three years.

The board confirmed 28% of its rental income was inflation-linked, with 24% subject to fixed uplifts.

On the financial front, LondonMetric held undrawn facilities of £300m and a loan-to-value ratio of 30%, compared to 38% a year earlier.

Its debt maturity was 5.2 years, with an average cost of debt of 3.5% and marginal cost at 1.5%, as 95% of placing proceeds were now said to be allocated.

“On top of political and economic uncertainty, the world continues to be transformed by technological innovation and continuing social change,” said chief executive Andrew Jones.

“This is having a profound impact on real estate.

“The tectonic plates in retail are shifting and the industry is experiencing radical disruption driven by these trends.”

Jones said retailers were closing marginal stores and investing in 'flagship' destinations and new supply chains to service ever-increasing online sales and consumer expectations.

“Retailers are prioritising distribution and fulfilment ahead of their stores, which is why we have repositioned LondonMetric's portfolio from retail into logistics.

“Logistics will soon represent more than 70% of our investments as our urban logistics portfolio grows further and our short cycle developments complete.”

In a low interest rate environment, Jones added that investors were increasingly searching for “reliable and repetitive” income streams.

“Compounding our income returns is central to our strategy as we embrace the very purpose of a REIT.

“Our logistics focus has enhanced our portfolio's income characteristics and we believe that it is these structural calls that will help define the real estate winners.”

Three urban warehouses added to the mix

In a separate announcement on Wednesday morning, LondonMetric confirmed the £23.9m purchase of three separate warehouses in Crawley, Coventry and Huyton.

The board said the purchase price reflected a blended yield of 6% and a reversionary yield of 6.8%, while the weighted average unexpired lease term was 11.7 years.

At Crawley, the company acquired a 51,000 sq ft warehouse located close to Gatwick Airport.

The warehouse was let for a further 6.4 years to TNT at a rent of £6.31 per square foot compared to an ERV of £9.00 psf.

There was a break clause and an open market rent review in 2018.

At Coventry, LondonMetric acquired a 90,000 sq ft warehouse located immediately adjacent to Coventry Airport and 0.5 miles from the A45/A46 junction

The warehouse was let to DHL on a new ten year lease at a rent of £4.75 psf, and there was a break clause and an open market rent review in five years.

At Huyton, the firm acquired a 120,000 sq ft warehouse located on the M62/M57 intersection.

The warehouse was let to Antolin Interiors - part of Grupo Antolin - on a new 15 year lease, at a “Over the last 12 months our urban logistics portfolio has grown substantially to £185m across 26 assets,” Andrew Jones commented.

“We will continue to build on this critical mass as the sector benefits from an increasingly favourable demand/supply imbalance.

“Following these purchases, the proceeds of our recent equity raise have now been fully committed in line with our strategy, into attractive real estate that offers high occupier appeal, in strong locations with good reversionary potential.”