LondonMetric Property Plc

Right, morning ladies and gentlemen. I see so many of you here. Actually, there's one, two spare seats. That's pretty impressive. I don't need a bigger room next year. I said as long as it's free. So, welcome to London Metrics full year results for the period ending 31st of March 2024. As usual, I'll start with a couple of slides, highlights over the period. I'll pass over to Martin and give you a run through the financial review, going into numbers that I haven't covered in more detail. I'll then come back and talk about the portfolio, its evolution, opportunities, and also then talk about the outlook of how we see the period ahead, both from a market perspective and also from a company perspective. I thought I'd start actually by, I read something last night that obviously caught my attention, which I thought summed up my thoughts about the last 12 months. And actually it was a quote from the Real Madrid manager, following Saturday's win in the Champions League. We suffered a bit in the first half, but in the second we were better. And overall, we ended up as the winners and we are happy. Some of it applies to us, but it grabbed my attention. So, overview of what's happened for us over the last 12 months. It's been a transformational year following our various M&A transactions with both LXI and CTPT deals. And that has helped us create what we think we have today is a wonderful company with a portfolio of, as you can see there, of around about £6 billion. And so whilst the company has got bigger, I should just mention that we still think that our approach will remain the same, and that is to pivot the portfolio to the strongest thematics, and that will be something we'll touch on regularly throughout this presentation. Our focus is on triple net and growing our income stream, both contractually and organically, on the basis that we believe that income and income growth is the bedrock of all successful investments. Therefore, we are pleased to announce this morning that over the period, our light flag income growth at 5.5% would be at the upper end of what our expectations would have been for the period. And I'll come on to talk about how that was made up through the various sectors' exposures, but also through rent reviews and leasing activity. Also pleased to see our ERV again growing 5.7% over the period. And that has helped offset a 26 basis point outward yield expansion that the portfolio experienced over the year. Valuations were largely flat and therefore total property return of 4.7%, which is a 570 basis point outperformance against the MSCI or property indexed. And again, in line with our thematics, the portfolio enjoys an embedded reversion where we will see around about £23 million worth of further rental growth being captured over the next two years through a combination of rent reviews, asset management and leasing activity. Our ownership culture ensures a disciplined and rational approach to capital allocation. So on top of the M&A activity, we've also made further disposals in the year and a further 75 million that's been sold post-period end. We announced some sales last week and again a few more this morning. And that will be a theme over the coming weeks as we look to prune the portfolio. This business and this portfolio is never run simply about growing assets under management. So a quick view of the financial highlights before Martin dives into these in greater detail. EPRA earnings are up 20%, £121.6 million. That's helped drive our EPRA earnings per share up to 10.9 pence, an increase of 5.4% on this time last year. And we announced this morning a Q4 dividend of 3 pence a share to give a final dividend for the year of 10.2 pence. That is up 7.4% on a year ago and is our ninth year of dividend progression. We also announced this morning our intention to pay a Q125 dividend of 2.85 pence and that is an increase of 18.8% on where we were a year ago with a targeted full year dividend for FY25 of 12 pence a share. Turning down to the balance sheet. portfolio valuation I've already touched on at 6 billion, relatively flat, 0.3% drop in values, and I'll come on to talk about that. Again, outward yield shift offset by ERV growth. Our EPR NTA at 191.7 pence per share is down 3.6%, but as we announced this morning, that's largely due to the costs incurred in the various M&A activity over the period. An awful lot of investment, banking fees, I'm afraid to say. And so, to move to a lot of people in this room. So on that note, if I just pass it over to Martin and he can take you through some of those numbers in a little bit more detail. Thanks.

Morning. So when Andrew was worrying about football last night, I was doing a note to myself saying, do not do a merger that doubles your size three weeks before the end of the financial year. Well, that was probably a note from my team, actually, who've just put in a phenomenal effort to get us here today. So as Andrew said... We've delivered significant earnings growth and dividend progression, helped by the transformational merger with LXI. I'm pleased to report that our net rental income is £177.1 million, an increase of 20.6% over last year, and is again supported by extraordinarily strong rent collection statistics in the year. We've collected 99.9% of rents during the year. That's up from last year, where it was only 99.8%. Our gross net income leakage has fallen again this year to only 1%. Our administrative overhead for the year has increased to £19.7 million, but our EPRA cost ratio has reduced in the year to 11.6%, which is one of the leading performances in the sector. We expect that EPRA cost ratio to fall significantly next year to around 8%, driven by the cost synergies that will arise out of the LXI and CTPT mergers. Our net finance costs are £36.8 million this year, an increase of £6.9 million over last year. We've held higher average debt balances in the year, and there was a small average interest rate increase, but also the proceeds of asset disposals have reduced our drawn debt balances, therefore our commitment fees have increased, and we've capitalised less interest into our development of forward funding programmes. Despite these increases in financing costs, our focus on cost control on top of our rental income growth has driven our EPRA profit to 121.6 million or 10.9 pence per share. This supports the increase to our dividend for the year to 10.2 pence, providing very strong 107% dividend cover. Dividend cover would have been higher but for mismatch in accounting. We account for a full fourth quarter of dividend to the LXI shareholders but it's only matched by having three weeks worth of earnings from LXI being the date of the merger to the year end. So there's a slight mismatch. The trading performance has been strong and the portfolio valuations have fallen by only £11.1 million in the year allowing us to report IFRS profits of £118.7 million compared with an IFRS loss of £506.3 million last year. Turning to the balance sheet, the net value of the portfolio has increased significantly in the year with the addition of £285 million of assets from the CTPT acquisition and £2.9 billion of assets from the merger with LXI. The valuation is now £6 billion. Gross debt is £2.09 billion, incorporating £90 million of CTPT debt but £1.1 billion of LXI debt. The net liability position at the year-end is £121.2 million. Rents paid in advance account for £72.5 million of that amount. In summary, therefore, our EPRA net tangible assets for the year at the year end were £3.91 billion, or £191.7 pence per share. The fall in EPRA NTA is driven by the reduction in the value of the property portfolio, but more materially by merger transaction costs of £30 million and the costs of the buyout of the LXI management contract of £27 million. In the light of the continued volatility in financial markets during the year where elevated interest rates and higher borrowing costs have persisted for longer than expected, we have sought to ensure that our debt provides long-term certainty with flexibility and that our exposure to elevated interest rates is mitigated. Our gross debt balance is £2.09 billion, up from £1 billion last year, and this year has been one of intense activity in our debt arrangements. The LXI merger added £1.1 billion of debt to our balance sheet. This additional debt was shorter dated and more expensive than the existing LNP debt, but more significantly, the debt stack was wholly secured. As a result, immediately post-acquisition, we cancelled £625 million of LXI's secured debt and replaced it with £700 million of new unsecured arrangements. which were both cheaper and longer than the debt being replaced. We are very pleased that the refinance introduced a new Tier 1 lender to our banking group. We have ensured through the merger that the enlarged group, as was previously the case for LNP, is not subject to any material refinancing ahead of FY26. It's also important to recognise that debt maturity will not necessarily be met through refinancing but may be dealt with through a mixture of available headroom of almost £800 million, further non-course sales or even new equity. Also, we lengthen the maturity by one year on £675 million of our debt facilities. We further mitigated our exposure to interest rate movements during the year by retaining all of LXI's hedging and fixed rate arrangements. We continued our non-core asset disposal programme in the year. £185 million of disposals helped to reduce our LTV and to eliminate our exposure to floating rate debt. In total, all of our drawn debt at the year end was hedged. Our debt maturity now stands at 5.4 years down from six years impacted by the passing of one year but shorter date debt acquired through our corporate acquisitions in the year. Our LTV is broadly the same this year at 33.2% compared to 32.8% last year. Our current cost of debt is 3.9% compared to 3.4% last year LXI's cost of debt was 5.3%, but the £700 million refinancing at lower rates than the £625 million that it replaced helped. Looking forward, we will continue to manage our debt arrangements to ensure that refinancing risk is mitigated and that we are able to take advantage of our increased scale to diversify our funding sources. We will consider whether a strong investment-grade credit rating will enhance our ability to access well-priced debt. Our contracted rent roll is now £340 million following the merger with LXI, which added £194 million of rent to the contracted rent roll. Alongside the CTPT acquisition, which added £17.7 million of rent to the rent roll, we have also added £11.4 million through a combination of new lettings and rent reviews and re-gears, which Andrew will talk about later. Outside of our corporate acquisitions, we have been a net seller, with a loss of income on disposals being largely offset by asset management upside. The travel lodge sale completed immediately prior to the merger eliminated £16.5 million of rent from the rent roll. Looking forward, there is an embedded reversion within the portfolio of £22.5 million. a combination of open market and contractual rent reviews, which will increase the rent roll over the period to March 2026. By this time, the rent roll will have increased, taking the forecast position to over £360 million. This will generate significant earnings growth, and that supports our confidence that we will continue to be able to grow our dividend, which has increased by 7.4% this year, and we expect to increase to 12 pence this a 17.6% increase in the financial year 2025. And finally, a brief look back, which puts the increase in rent roll into context and clearly demonstrates that in the year since our merger in 2013, we have been able to increase our earnings per share by 2.5 times, and we are in the ninth year of dividend progression. Our total property return and our total shareholder return driven by both by share price appreciation but significantly by dividends, equates to a compound annual growth rate in excess of 10%. And on that note, I'll hand back to Andrew.

That's good, Mark. Well done. Excuse me. So a quick look at the investment activity over the period. I mean, some of these points we've already touched on already. It's obviously been dominated by the M&A activity, which has added £3 billion of net assets post the disposals there of £185 million. As well as the M&A, we've also acquired organically £31 million worth of assets in our chosen sectors, and I'll come on to talk about that in a minute, with £51 million post-period end. And in turn... We think that our activity over the period has helped us create the UK's leading triple net REIT with the right structure. We are internally managed. We have strong shareholder alignment. And this new scale gives us opportunities to, both in terms of running the enlarged portfolio harder, but also access to bigger opportunities, a bigger pool of opportunities that otherwise might have been outside of our reach. And actually, that's part of the excitement of this project. transformation the fact of the matter is you know we are seeing opportunities coming through and again you know into the market as a result of whether or not it's fund wind-ups whether or not it's debt refinancing redemptions sale and lease backs and obviously it wouldn't be right if i didn't talk about whether or not we about some the possibility obviously further m&a activity if those opportunities arise so looking at the portfolio um so this has obviously changed dramatically from um when I stood up here even six months ago. It continues to be dominated by our investments in logistics, and for good reason. Now accounts, as of today... just over 43.5% of the overall portfolio, and our target would be to exceed 50% over the coming 12 months. We've obviously added new sectorial exposures. These will undoubtedly change over time. There will be some pruning in some of those areas, but we feel very comfortable with our investments in healthcare, entertainment, convenience in particular, and again, I'll come on to talk about those in more detail. The strength of the portfolio metrics on the right-hand side here, you know, we have very, very long leases. That's great. But full occupancy, which, you know, for a triple net read is absolutely paramount. We have very efficient gross to net income ratio. As Martin says, you know, we've only got leakage of 1%. And importantly, we have the certainty of growth. We have 79% with contractual uplifts. But the open market reviews are also in sectors that are growing. And again, I'll come on to talk about our activity in the rent review and re-gearing later on in the presentation. introduced into the portfolio a much larger exposure to annual rent reviews. Whilst we capture uplifts on a five-yearly basis, the great thing about the annual review is it gives us more control over the timing of asset recycling. We don't have to wait maybe three, four or five years till the next review. It allows us just much tighter pricing tension. And there's a pie chart there that shows how arguably... virtually equally our exposures to open market, fixed uplifts, CPIs and RPIs across the portfolio. So the investment strategy, you know, we want to own key operating assets in the winning sectors that are important to our customers. And they're important because they're mission critical or they're incredibly profitable. That is the aim. If you have a happy tenant, they want to stay longer, they invest more money in your building, and over time you have more chance of extracting higher rents from them. It's relatively basic. So our strategy will focus on the triple net thematics in the structurally supported sectors and robust assets with high occupier contentment. That is what will deliver us not only security of income, but income growth. As I've already said, and Martin's mentioned it already as well, logistics remains our leading sector and our strongest conviction core where we enjoy the highest exposure to organic rental growth. Entertainment and leisure is supported by consumer preferences for experience with mission critical assets offering guaranteed income growth. The convenience sector, we've been invested in this for a number of years now. And we believe that convenience, essentials and value will continue to win out over discretion and experience. And our health care investments are delivering fit for purpose, modern real estate with annual rental growth. And whilst we undoubtedly will trim some of this exposure, portfolio exposure, we don't believe it requires any major surgery. So a bit further breakdown into those four key areas. Logistics, 168 assets delivering £126 million worth of rent per annum. Average rent of £7.60 a foot, but with an ERV 25% higher at £9.50. We'll talk about the rent reviews in a minute, but as you can see there, ERV growth of 6%, which has helped absorb the 20 or so basis points of yield expansion. It is very much the sector that keeps on giving. Our entertainment and leisure, 130 assets, £83 million worth of rent, and let on incredibly long leases. I mean, an average lease length of 36 years. I mean, you can't find that anywhere else in the real estate sector in the United Kingdom. It enjoys a An attractive net initial yield of over 6%, which has helped generate a total property return of 7.75% in the period. In convenience, we remain highly attracted to this sector. As I said, UK consumers continue their pivoting on spending on essentials. But it is a sector that we actively manage. And there will be sales from this set of sales and there will be reinvestments over the course of the 12 months. And indeed, we expect to announce some activity in that space shortly. ERV growth of 5%, again, absorbed the 20 basis points of yield expansion. And finally, the healthcare, this is a new exposure for us. But these are very well-lit, as I said, mission-critical assets with annual rental growth. And they sit incredibly well within our triple net compounding model. Asset management activity was added across nearly 100 rent reviews, nearly £5 million of the bank income. And it's interesting there, the spread between the contractual uplifts, which give you the certainty, the sleep at night, and the open market reviews. So 17% average uplift across contractual reviews, which works out at just over 3% per annum. Open market reviews are doing double that, at 6% per annum. And obviously, the standout performer has been the open market reviews across our urban logistics assets, which delivered average uplifts of 40% over the five-year period. Mark and his team successfully re-let and re-geared 53 assets, delivering an additional £2.7 million worth of income. Our re-gears on urban logistics, you see, saw average rental growth then again rise by nearly 40%. And we expect, as I touched on in my first slide, we expect further rental growth over the coming few years with a minimum of £23 million to be captured through a combination of asset management, contractual rent reviews and open markets. There's a breakdown there on that slide on the bottom right corner. Asset management. remains very much part of our DNA. And so we're always continually looking to improve the quality and efficiency of our buildings to ensure that they remain fit for purpose. So in the year, we've added four megawatts of power through PV installations with a further three megawatts in the pipeline. We've also improved amenities on some of our locations, added 25 ultra-rapid EV charging stations facilities in partnership with both MFG and Instavolt. We've added new catering and F&B amenities in Birmingham, Bedford and Ipswich. And again, that's all part of keeping our customers longer in our locations. The longer the customer spends in some of your buildings, the more money they will get rid of. We've continued to improve our EPC ratings, as you can see there. Obviously, the LNP A to C at 91%, compared to where we were last year at 90%, but we've also absorbed the LXI, and we'll make some further progress on that in the coming periods. And we've seen our Grisby rating improve again to a company high of 76. So before I open up the lines and the room to Q&A, just a couple of slides on the outlook. We believe that the challenging macro investment environment is settling, but debt costs are still too high, and certainly for sectors and assets without organic rental growth. The UK consumer remains incredibly resilient with full employment, albeit there are some signs that discretionary spending is beginning to weak a little. The good news is inflation rates are falling, and that is hopefully creating an inflection point for interest rates. But the property market will require swap rates to fall much closer to 300 basis points than the 420 that they are today for full liquidity to come back into the investment market. But this market uncertainty creates opportunities. As I said, I touched on the four key areas for us, whether or not it's fund wind-up, whether or not it's debt refinancing, whether or not it's selling leasebacks, or whether or not it's redemptions. And that is a key focus for us. And those are not just areas I picked out. We have real-life examples in each of those. I would say debt refinancing would be the skinniest, simply because there's just not a lot of debt issue problems in the structural winning sectors. Obviously, if we wanted to buy some... offices and debt refinance opportunities are plentiful. And our triple net approach will only focus on the sectors with these strong fundamentals. Consumer behaviour will define real estate winners and losers. Income, income growth continue to deliver the attractive compounding returns, which is the bedrock of successful investing. And as Martin's already touched on, our balance sheet will give us not only strength but future optionality for the bigger deals that we previously had to shy away from. And our dividend is on track for a 10th year of progression. We hope we will be standing here in 12 months' time claiming the title of dividend achiever. Looking forward, the work in hand is to reshape and simplify the portfolio. The pruning is already underway. we will always pivot towards the strongest thematics with operationally strong assets in the very best geographies. We will continually prioritise income and income growth to drive the earnings and collect that embedded reversion of £23 million that we think is there over the next couple of years. And our triple net focus will allow us to deliver income-led returns with a progressive and covered dividend. And our confidence in that is obviously underpinned by our intention to announce a Q1 dividend for the FY25 up nearly 19% at 2.85 pence a share. My former chairman will be delighted with that. I know that for a fact. As I suspect, we want to buy new non-executive directors. So on that note, thank you very much for your time this morning. We can open up the room. to some Q&A, and then anybody who might be on the phone. Vanessa.