LondonMetric Property : sites/london metric/files/press release/rns hy results sept 2021.pdf

LONDONMETRIC PROPERTY PLC

("LondonMetric" or the "Group" or the "Company")

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2021

Conviction sector calls and income focus delivers strong returns and continued dividend growth

LondonMetric today announces its half year results for the six months ended 30 September 2021.

	EPRA1,2		IFRS
Income Statement	H1 2022		H1 2021	H1 2022		H1 2021
Net rental income (£m)	63.5		61.3	61.8		59.6
Earnings/Reported Profit (£m)	44.2		42.3	254.1		85.1
Earnings per share (p)	4.87		4.75	28.01		9.54
Dividend per share (p)	4.4		4.2	4.4		4.2
	EPRA1,2		IFRS
Balance Sheet	H1 2022		FY 2021	H1 2022		FY 2021
Net tangible assets (NTA) (£m)	1,947.9		1,731.9	1,947.6		1,731.3
NTA per share (p)	213.4		190.3	214.4		191.3
LTV (%)	31.1		32.3	31.1		32.3

1. Including share of joint ventures, excluding non-controlling interest
2. Further details on alternative performance measures can be found in the Financial Review and definitions can be found in the Glossary

Sector alignment and asset selection delivering strong portfolio performance

• Total Property Return of 10.4%, outperforming IPD All Property of 7.6%
• Capital return of 7.9% (IPD All Property: 5.4%), logistics delivered 9.7%
• EPRA NTA per share increased by 12.1% to 213.4p, driven by 22.9p valuation gain
• Total Accounting Return of 14.5%

Continued focus on reliable, repetitive and growing income drives earnings and dividend growth

• Net rental income up 3.6% to £63.5m, on an IFRS basis increased by 3.7%
• EPRA cost ratio down 50 bps to 13.2%
• EPRA earnings up 4.5% to £44.2m, +2.5% on a per share basis
• IFRS reported profit up 199% to £254.1m
• Dividend progression of 4.8% to 4.4p, 111% covered, including Q2 dividend declared today of 2.2p

Distribution weighting increased to 74%, including urban logistics at 42%, with grocery-led long income at 23%

• £161m of acquisitions, largely urban logistics, with a WAULT of 15 years and 72% of rent subject to contractual uplifts
• £168m of disposals, largely mature or non-core assets, with a WAULT of ten years
• Post period end, £144m acquired with a WAULT of 21 years, primarily two logistics warehouses acquired for £136m

76 asset management initiatives delivering £3.9m pa additional income and 3.0% like for like income growth

• Rent reviews +13% with urban open market reviews +25%
• Lettings signed with WAULT of 12 years
• Post period end, concluded letting of our last remaining 355,000 sq ft unit at Bedford Link adding £2.9m p.a. of rent

Portfolio value grown to £3.0bn and our activity has strengthened its long and strong income characteristics

• Occupancy increased to 98.9% and WAULT of 11.6 years with only 10.1% of income expiring in next three years
• Gross to net income ratio of 98.7% and contractual rental uplifts on 59.8% of income

Strong balance sheet with additional facilities

• LTV of 31.1% with weighted average debt maturity of 7.2 years and cost of debt at 2.5%
• Further £150 million debt facility post period end extends financing arrangements

Proposed equity placing, as announced separately

• Attractive opportunities to grow the portfolio
• Opportunities consist of deals committed or under offer, c.80% logistics

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Andrew Jones, Chief Executive of LondonMetric, commented:

"As we cautiously embrace a post-pandemic landscape, we believe that our conviction sector calls of logistics and long income will continue to maintain their wide margin of victory.

"Despite the challenging backdrop, we have enjoyed another very strong period. Our exceptionally high rent collection levels, continued rental growth and strong valuation uplifts reflect the strong tailwinds supporting our sector calls and the continued investor liquidity accessing these types of assets, alongside an active asset management approach.

"Our activity has placed the portfolio firmly on the right side of structural change and our disciplined capital allocation has grown its value to £3 billon. The e-commerce backdrop remains compelling, underpinned by insatiable consumer expectations and supply chain challenges that are forcing businesses of all shapes and sizes to improve their infrastructure and become more efficient. In a market already characterised by an acute shortage of high-quality warehouse space, all the ingredients are in place for the long-term and experienced investors to continue delivering outperformance.

"Generating reliable, repetitive and growing income remains central to our strategy. We will continue to buy right, build right and manage right knowing that we have built up a collection of great assets let on long leases to high quality occupiers in great geographies, which should support a progressive and covered dividend for many years to come."

For further information, please contact:
LONDONMETRIC PROPERTY PLC:	[phone]
Andrew Jones (Chief Executive)
Martin McGann (Finance Director)
Gareth Price (Investor Relations)
FTI CONSULTING:	[phone]
Dido Laurimore	[e-mail]
Richard Gotla
Andrew Davis

Meeting and audio webcast

An analysts meeting will be held at 10.00 am today and a live audio webcast will be available at: https://webcasting.brrmedia.co.uk/broadcast/615ca7544e29f55a94190928

An on demand recording will be available shortly after the meeting from the same link and from: https://www.londonmetric.com/investors/report-presentation/year/2021

Notes to editors

LondonMetric is a FTSE 250 REIT that owns one of the UK's leading listed logistics platforms alongside a grocery-led long income portfolio, with 16 million sq ft under management. It owns and manages desirable real estate that meets occupiers' demands, delivers reliable, repetitive and growing income-led returns and outperforms over the long term. Further information is available at www.londonmetric.com

Neither the content of LondonMetric's website nor any other website accessible by hyperlinks from its website are incorporated in, or form part of this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision to acquire, continue to hold, or dispose of shares in LondonMetric. This announcement may contain certain forward-looking statements with respect to LondonMetric's expectations and plans, strategy, management objectives, future developments and performance, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to future events and circumstances. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Certain statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Any forward-looking statements made by or on behalf of LondonMetric speak only as of the date they are made. LondonMetric does not undertake to update forward-looking statements to reflect any changes in LondonMetric's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast. Past share price performance cannot be relied on as a guide to future performance.

Alternative performance measures: The Group financial statements are prepared in accordance with IFRS where the Group's interests in joint ventures and non-controlling interests are shown as single line items on the income statement and balance sheet. Management reviews the performance of the business principally on a proportionately consolidated basis, which includes the Group's share of joint ventures and excludes non-controlling interests on a line by line basis. Alternative performance measures are financial measures which are not specified under IFRS but are used by management as they highlight the underlying performance of the Group's property rental business and are based on the EPRA Best Practice Recommendations (BPR) reporting framework which is widely recognised and used by public real estate companies.

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CEO Overview

Our very strong set of half year results reflects forward planning over a number of years that has seen us pivot into assets that benefit from the structural shifts and that deliver superior income growth.

Our portfolio is now firmly placed on the right side of structural change having redeployed significant capital into our chosen sectors. We were early in recognising these trends and have now tactically shifted away from the legacy real estate sectors of general merchandise retailing and offices into logistics and grocery-led long income assets which are aligned to technological advancement and changing consumer patterns. These sectors now account for 74% and 23% of our portfolio respectively.

Over the period, continued rental growth, outstanding levels of rent collection, strong occupier activity and further yield compression have resulted in a total property return of 10.4%, an increase in EPRA net tangible assets per share of 12.1% and a total accounting return of 14.5%.

Generating reliable, repetitive and growing income remains at the centre of our strategy and this is reflected in our continued income progression with EPRA earnings per share increasing by 2.5% to 4.87p. Over a seven year period, we have increased our half year earnings per share by 43%, a compounded 6% per annum. Our income progression has allowed us to further increase our half year dividend per share by 4.8% whilst maintaining a strong dividend cover at 111%.

The structural tailwinds favouring our logistics and grocery-led long income assets continue to provide a strong foundation for future income progression and capital performance. Our continued alignment to these sectors, as further evidenced by recent acquisitions and development activity, together with our highly talented team, gives us confidence for the future and in our ability to further progress our dividend for the seventh consecutive year.

Logistics continues to experience strong tailwinds from attractive demand/supply dynamics

Whilst the worst of Covid-19 is thankfully behind us and life has returned to greater normality, the legacy of the virus is very much evident.

Online shopping, which saw a quantum leap during the pandemic out of consumer necessity, now represents 26% of total UK retail sales. Whilst down from the 37% peak, this level is still significantly higher than pre- pandemic levels of 19%, representing an acceleration of online penetration by approximately five years and reflecting the adoption of new shopping habits and an appreciation by consumers of the convenience and price transparency that online offers.

These trends have been evident in recent retailer updates, with M&S reporting that 51% of its sales are now online compared with 27% pre-pandemic, whilst John Lewis has seen its online sales increase from 40% to 75%. The scale of the migration online is aptly demonstrated by the projected rise in Amazon's UK sales which are expected to reach £77 billion by 2025 compared to £36 billion in 2020 and would crown Amazon as the UK's largest retailer ahead of Tesco.

Unsurprisingly, the strong tailwinds for UK logistics have continued over the last six months. It has once again been the strongest performing property sector driven by further yield compression and most importantly strong income growth. Investment volumes of £9 billion for the nine months to September had already reached levels seen for the whole of 2020, again assisted by a rotation of capital out of legacy real estate and a further influx of overseas money.

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Including warehousing under offer, occupational take up in 2021 is set to surpass the record 43 million sq ft seen last year. The third quarter was particularly active with take up focused on new supply reflecting the need for quality accommodation. Demand has been strong across the board with traditional 3PLs and online retailer demand supplemented by other sources of take up, for example from a reinvigorated manufacturing sector, growing renewable energy requirements, ultrafast grocery and micro fulfilment.

As well as occupiers responding to ever growing online penetration, they are also responding to geopolitical issues such as Brexit and an increasing number of 'black swan' events such as Covid-19, the Suez Canal disruption, climate shocks and power shortages. These issues have increased occupier focus on their supply chains, with increased pressure being placed on the just in time strategies and more companies reverting to just in case ones by holding greater inventories within the island of Great Britain.

Consequently, warehouse availability has been driven to all-time lows with an acute shortage apparent around London and the South East as well as the Midlands. Latest estimates put warehouse availability at just two months' available supply and whilst speculative supply has increased in response, with 13 million sq ft under construction, pent up and new demand continues to absorb new product.

Logistics continues to generate attractive rental growth with UK prime logistics rents rising nearly 10% in 2021 and London and the South East again seeing very strong rental growth. But there has been a notable upward rebasing of rents in other geographies that are benefitting from the 'London ripple effect'. London is again expected to see the highest annual rental growth over the next five years, whilst many other locations such as Birmingham, Northampton and Milton Keynes are also expected to outperform.

In urban logistics, where warehouse demand continues to grow to meet ever rising consumer expectations of quicker and more accurate deliveries, the supply environment remains highly challenged due to competition from higher value alternative uses. These strong dynamics are continuing to create superior rental growth and a very attractive investment backdrop for urban logistics.

The pandemic is still having a far reaching impact on the real estate sector

Accelerated by the pandemic, large parts of physical retail has continued to suffer unprecedented disruption as retailers have sought to further right size their physical estate. Whilst the high street will continue to serve as a component of digital strategies, it will be undoubtedly different, smaller and cheaper. Next continues to show the pricing power that the survivors have inherited in lease negotiations. On the 73 lease events over the most recent six month period, it achieved a 52% reduction in rental liabilities and signed average lease lengths of just three years.

We continue to believe that most physical retail destinations remain over supplied and very exposed to continued growth in online penetration. This results in ongoing reductions in rental income and growing capex liabilities as destinations continue to age and are increasingly under pressure to meet modern ESG requirements. It appears to us that occupiers will continue to leverage their pricing power with a rental equilibrium driven by demand and supply rather than the quantum of falls or the affordability of rents, as some investors and commentators seem to suggest.

The demand and outlook for offices is facing structural disruption with demand subject to continued uncertainty. The home working experiment during the pandemic has not only caused employees to reassess traditional working practises but also made employers recognise the cost savings from a reduced office presence and operating efficiencies that technological advances have allowed. Therefore, whilst the outlook for the sector remains uncertain and the capex bill for creating green and desirable space is under-priced, we see the sector facing continued headwinds.

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Longer term, a return to normality is creating a new set of challenges. Prior to the pandemic, the global economy had never experienced a planned shut-down followed by a manufactured restart. With each stage of recovery, the inflationary pressures have grown as supply chains, energy providers and labour have struggled to respond to significantly greater levels of demand. The response of governments to eyewatering levels of sovereign debt built up during the pandemic and the climate change challenge are further factors that are adding to the uncertain outlook.

The impact of these events on the recovery, consumer demand and future interest rates will all have a bearing on the whole of the real estate sector. Certain property sectors are well set to navigate these challenges whilst many legacy sectors and assets will continue to see value erosion. After all, no matter how great the intelligence, or how high the energy, it is the macro trends that generally outpace the micro ones.

Our real estate strategy is underpinned by income and investing in high quality assets to deliver highly attractive returns.

We continue to believe that income will be the defining characteristic of this decade's investing environment and that real estate strategies focused on income-led total returns will deliver future outperformance.

Collecting income is the bedrock of successful long term investing and, whilst many will focus on short term riches with higher risk strategies, we appreciate the true benefit of compounding lower risk and longer term returns. Let's not forget that investing focuses on the quantity, quality and timing of when cash will be returned, whereas speculating is worrying about what someone else will pay for your assets.

Even with the prospect of higher interest rates, real estate can offer strong collateral backed and repetitive cash flows, still significantly higher than current bond yields and dividend payouts. Their inflation protection characteristics only add to their attractiveness, and we believe that certain sub sectors of the real estate market can prosper from a strengthening economy and a more inflationary environment.

However, for us, investing in real estate has to be properly considered:

Investing in structurally supported sectors is great. Most of our real estate decisions are influenced by macro trends that originate outside the property sector but that are fundamentally shaping its future. This allows us to sleep safe in the knowledge that something very extreme has to happen to knock us off course - after all, mega trends are generally not affected by short term or sporadic shocks, however profound. We believe that our conviction calls of logistics and grocery-led long income will remain the solid sector performers and maintain their wide margin of victory.

Even better is owning assets in the best geographies. It allows us to avoid the losers and the valuable thinking time that comes with owning 'cheap' assets. We want to own wonderful assets that occupy little of our time. After all, when you choose real estate for its location, tenants will need you. You can attract high quality occupiers, command longer leases, be more confident of future rental growth and safe in the knowledge that there is a high intrinsic value to your land. We believe that the importance of geography is wildly misunderstood by the markets, which fail to appreciate that great locations are more reliable when measuring investment lifecycles over longer investment periods.

Lastly, we pride ourselves on recognising new trends, identifying mis-pricing inefficiencies and acting quickly to create new opportunities or exit old ones. We believe that there is no substitute for being aware, open minded and being prepared to act.

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