LondonMetric Property Plc

All right, good to go. Okay, morning, ladies and gentlemen, and welcome to London Metrics half-year results for the period ending 30th of September 2024. Well-trodden path, this. I was just saying, I think this might be my, somewhere between my 38th and 40th time I've actually stood up to do these results, not always in wearing the London Metric colours. I'm going to start with a brief overview, highlights of the period, pass over to Martin, take you through the numbers in more detail. I'll come back and give you a view on the property performance, both on... the sectoral performances in our activity in the investment market and how we see the investment market and then finish with an outlook slide of what we think will come to pass over the course of the next six to 12 months and then we'll open up the floor to Q&A. Our activity over the last 18 months has cemented our position as the UK's leading triple net income REIT. The CTPT and NXI takeovers are delivering cost synergies, earnings progression and material dividend growth. We have exceptional income characteristics, both credit, occupancy, duration and growth, and that's underscored by the rent review and lease renewal re-year settlements that we've achieved in the period on an average of 17.5% above previous passing rents. And today we now have scale and efficiencies of operation that delivered an EPRA cost ratio at 7.6%. And Martin will go through that in more detail later on in the presentation. Our investment activity over the period, 437 of selling and buying, continues to reshape the portfolio for long-term outperformance. We remain exposed to the strongest thematics and those that we think will benefit most from evolving consumer behaviour. You can see there just over two, I think it's 234 million customers of assets that have been sold in the period, and 203 million that have been purchased. I'll talk about that in a little bit more detail as we go through. And our enlarged platform is delivering economies of scale and opportunities. We are seeing external growth opportunities at an asset, portfolio, corporate levels, which with our balance sheet strength and flexibility gives us the firepower to continue to strengthen our portfolio for the times ahead. So a quick dive into the financial highlights of the period. Our EPRA earnings at 135.4 million is up materially 155%, obviously reflecting the acquisition of both LXI and before that CTPT. That's largely driven by a material increase in our net contracted rents to £345 million. On a per share basis, we're up 26.5% at 6.64 pence per share. And this morning we announced our second quarterly dividend of 2.85 pence, which gives us a half-year dividend of 5.7p, which is in line with our full-year target of 12 pence a share. That's a nearly 19% increase from where we were this time last year. And we are 117% covered and 100% cover on a cash basis. Again, Martin will go through that in a bit more detail. This is, and I want to point this out, this is our 10th year of dividend progression. We are well on our way to becoming a dividend achiever. And after that, we start our path to dividend aristocracy. The portfolio at 6.2 billion, capital value is up 1.1%, it's driven by rental growth, as well as absorbing 16 basis points of outward yield. And again, I'll touch on where that happened later on in the presentation. And that helped drive a 2.1% increase in our EPRA NTA to 195.7 pence a share. Our pro forma LTV is largely flat on where it was this time last year, this time back in March, at the full year, at 33%, which again supports the comment I made before about balance sheet flexibility and firepower. And on that note, I will quickly pass on to Martin.

Thanks, Andrew. So the bad news is you've only got 31 of these to go before you become a dividend aristocrat. Keep going. So this period is the first period where we have the full effect of the transformational takeover of LXI. And I'd just like to acknowledge at this point the huge efforts that have gone into the integration of the two businesses so effectively and so quickly. We've delivered very significant earnings growth and dividend progression. I'm pleased to report that our net rental income is £193.1 million. an increase of 154% over last year. In addition to 111.1 million of additional rent from LXI, we've included 6.6 million of additional rent from the CTPT acquisition in August and 4.1 million from other acquisition. Rent collections remain exceptionally strong. We've collected 99.7% of the rent during the period in line with last year. Our gross to net income leakage remains very low, at 1.1%, and although our administrative overhead for the period is £12.9 million, our EPRA cost ratio is reduced in the period to only 7.6%, which is the leading performance in the sector. This reflects the significant economies we've taken out of the LXI and CTPT businesses, which will continue as up to £0.6 million of current year overheads can be expected to be non-recurring for the enlarged group going forward. Our net finance costs are £45.4 million in the period compared to £16.3 million for the comparative period last year. We acquired an additional £1.2 billion of debt from LXI at an average rate of 5.2% compared to LNP's finance cost at that time of 3.3%. So this together with the cost attributed to the income strip liability are the main contributory factors to the increase in finance costs. Despite this increase in financing costs, our focus on cost control on top of our rental income growth has driven our EPRA earnings to 135.4 million or 6.64 pence per share. This supports the increase to our dividend for the period to 5.7 pence per share, providing very strong 117% dividend cover and importantly full cash cover. The trading performance has been strong, with the portfolio valuation increasing by £41 million in the period, allowing us to report IFRS profits of £163.8 million compared with £81 million last year. The net value of the portfolio has increased since the year end, whilst much of our focus has been on the disposal of non-core assets, particularly from the CTPT and LXI acquisitions. The combination of acquisitions, development expenditure and accretive capital expenditure has actually exceeded disposals by over £100 million. This, together with our revaluation uplift of £41 million, has increased the portfolio value to £6.16 billion. gross debt is £2.15 billion and the cash balance is £85.5 million. The net liability position at the period end is £85 million, with rents paid in advance accounting for £63.4 million of that amount. This number excludes the income strip liability, which has also been excluded from the portfolio value shown above. In summary, therefore, our EPRA net tangible assets at the comprising surplus earnings and revaluation surplus to provide a 4.9% total accounting return. As I said, our gross debt balance is now £2.15 billion, the LXI merger adding that £1.2 billion of debt to our balance sheet. This additional debt was shorter dated and more expensive than the LNP debt. However, the £700 million refinancing undertaken as acquisition was on more favourable terms, being both of longer maturity and cheaper. Consequently, and with the passing of time, our debt maturity now stands at 4.8 years and our average cost of debt is 4%, compared with 3.3% this time last year and 3.9% at the year end. Our policy continues to be to limit our exposure to interest rate volatility by entering into hedging and fixed rate arrangements. We retained all of LXI's hedging on acquisition and have acquired £296.5 million of additional current and forward starting derivatives in the period at an average rate of 3%. Our drawn debt is fully hedged at the period end and until April 2027 and we expect floating rate debt to remain substantially covered until its maturity. Our LTV is broadly the same as at the year end at 33.8% compared to 33.2% last year and that will fall to 33% as we complete post-period end sales. Looking forward, we will continue to manage our debt arrangements to ensure that the refinancing risk is mitigated and that we are able to take advantage of our increased scale to diversify our funding sources. To ensure increased liquidity, we are in active discussions on a new RCF facility for five years with two plus one extensions for an amount of £175 million. We have ensured through the merger that the enlarged group, as was previously the case for LNP, is not subject to any material refinancings for the remainder of this financial year. But it's important to recognise that debt which matures at the end of next summer, if interest rates remain elevated, will not necessarily be met through refinancings, but may be dealt with through a mixture of available headroom at £661 million, new debt facilities I've just mentioned, or further non-core asset sales. Our focus is to ensure that we retain full optionality around these debt maturities and hence we are considering a credit rating towards the end of this financial year to allow us to potentially access the public bond markets. Our contracted rent roll following the acquisition of LXI and CPTP was £339.7 million. Since the year end, we've added a further £7.7 million through a combination of new lettings and rent reviews and regears, which Andrew will come on to later. And although much of our focus has been on non-core disposals, we've actually been a net investor. The loss of income of £12.3 million on the disposal of high-yielding assets has been compensated by new income from lower-yielding but higher-growth assets of £10.5 million. our contracted rent roll now stands at £345.6 million. Looking forward, there is short-term reversion within the portfolio of £26 million, a combination of open markets and contractual rent reviews, which will increase the rent roll over the period to March 2026, more than offsetting the loss of income from post-period end disposals of £7.4 million. Therefore, by March 2026, the rent roll will have increased, taking the forecast position to over £364 million. This will generate further earnings growth, which supports our confidence that we will continue to be able to grow the dividend. We have already increased our quarterly dividend payments in H1 of this year to 285 pence per share, which has generated a half-year dividend increase of 18.8%. in anticipation of reaching 12 pence for the full year and then continuing to grow the dividend in the following years. And finally, a brief look back, which puts the increase in the rent roll into context and clearly demonstrates that in the last 10 years, we've been able to increase earnings per share more than threefold. And we're in the 10th year of dividend progression, as Andrew says, with excellent dividend cover. Our total property return and our total shareholder return, driven both by share price appreciation but significantly most recently by dividends, equates to compound annual growth rates at 10% and better. And on that note, I'll hand back to Andrew.

Right, so a run through the property portfolio. As I touched on earlier, we have created the UK's leading triple net REIT. The focus is... On investing in the winning sectors, as I said earlier, as macro trends continue to influence consumer behavior, and that impacts on our capital allocation decisions. We want to own the strongest assets. We want to own assets that our customers love to be in. They stay longer, they invest more in our buildings, and they eventually will pay us more rent. We want them to be mission critical. This helps our exceptional income metrics. I've talked about it before, occupancy, longevity, limited leakage, and that will also translate into growth. As Martin said, we have 26 million short-term reversion to collect over the next 18 months, and that's a combination of contractual uplifts but also open market reviews. Whilst many of our peers talk about building or developing their rental growth, we will just collect it. And we now have an efficient and scalable platform that is both low cost and internally managed with strong shareholder alignment. This is a common slide that we put up for probably the last 23 of these. Our triple net thematic creates the umbrella under which we allocate capital. And we want to focus on those sectors that are benefiting from the structural tailwind. As you can see there, logistics now is up at 45%. That remains our strongest conviction call. But we continue to look at growing our investments in convenience retail as well as selective entertainment hospitality opportunities as they present themselves. We have to remember that one of the things, as far as the consumer is concerned, time is increasingly becoming a rare commodity. Our sector investments have all delivered. Our logistics have shown ERV growth of 2.6%, relatively flat growth. capitalisation rates that helped deliver total property return at 3.4%. Convenience retail delivered a 3.4% increase in ERV and with a higher starting yield, 3.8% total property return. Our healthcare investments delivered a total property return of 5%, helped courtesy of an annual rent review that fell in the period, which increased the capital value by 2.1%. And entertainment and leisure delivered a total property return of 4.1%. So you put all those together. The others effectively are non-core, and those will be assets that we will look to exit over the coming periods. But overall, the portfolio delivered a 4% total property return, supported by a net initial yield of 5.3% and the reversionary potential highlighted by the equivalent yield there of 6.4%. It's been an active period for disposals. Will and Valentine and their team have had a busy time. 55 disposals. I mean, actually, when you put the 55 into the 234, you get to an average lots over about 4 point something million. I mean, there's a lot of work here. Now, I think that actually has been a positive for us. I mean, I think the investment market is much more liquid at the smaller end than at the bigger end, largely down to the fact that debt costs are more elevated today than they have been over the recent past. So we're very, very pleased with our £234 million of sales, and we will continue that process. And they have been, as you can see there on both the right and the left, they have been non-core sectors where we are not going to build a market-leading position in, whether or not it's care homes, offices, where my thoughts are well written, training centres, large groceries formats, leisure assets, car showrooms. some pubs, some smaller hotel assets. So the market's actually been pretty good for us. And actually, Matthew asked me earlier, what's your highlight of these results? Actually, I think the progress we've made in selling non-core has been excellent. And we will continue that process. We have another 80 or so million in the pipeline that we hope to exchange before we finish for Christmas. And therefore, the average lot size of the non-core is very, very helpful in today's markets. Acquisitions. We continue to see opportunities from various vendors, and it is a much less crowded pitch. whether or not it's defined benefit pension funds coming out of direct real estate, whether or not it's occupiers looking to raise money more cheaply out of sale and leasebacks as opposed to from bank debt, whether or not it's institutions looking to fund investor redemptions and looking for a speed of sale and a certainty of sale, or whether or not it's developers turning to us for development finance because despite all the banks in this room, they will shy away from a number of these development fundings. And so that has provided us a rich vein of opportunities, and we see that continuing. As Martin touched on earlier, some of these acquisitions have been made at yields lower than what we've been selling, but the growth trajectory is so much better. And therefore, you can see there roughly a 6% net initial on the way in, with a reversion to 6.75%. And we expect further announcements to be made over the next couple of weeks with deals that we have in Solista's hands. Asset management, again, our asset management team have also had an incredible period as they have embraced the larger portfolio and our higher intensity approach to sweating our assets. And this has yielded some excellent results. I touched on it in my opening slide. You combine the average uplifts across the rent reviews, both the contracted and the open market, with the re-gears, the 28% that we've been getting on average uplifts at re-gears, it comes out at just under 18% average uplift. When you look at some of the brands there across the screen, we're dealing some best-in-class customers here. We have got some fantastic tenants, and we're very, very proud of that. And that's why we don't have a rent recovery problem. We don't actually have a vacancy issue. There'll be parts of our portfolio where we wish sometimes the vacancy might be a little bit higher. But we enjoy full occupancy. We enjoy strong life-like income growth. And as Martin and I have already touched on, we have that reversion to collect over the next 18 months for a combination of market rent reviews, leasing, and contractual uplifts. Like I said, our rent's going to grow. We don't have to build or develop to do that. It's going to grow. I could say whether or not I'm here or not. That's probably right. And as always, and it's very much part of our DNA, we're always looking to improve the quality of our portfolio and the assets that we hold within it, whether or not it's by acquiring new buildings or whether or not it's actually spending money to improve the buildings that we already have that will improve the occupier desirability, but also our ESG performances. We want to ensure that our portfolio is always fit for purpose and that we continue to own desirable real estate. Our Occupy-led approach ensures that we want to be the partner of choice, and that, over the period, has actually been incredibly helpful. We've worked very, very closely with Marks & Spencers on a number of opportunities, and we continue to work closely with them as part of their store opening programme. You can see that we've got Weymouth, we've got somewhere I'm not allowed to tell you where it is, and also... We're always looking to improve, I'd say, the EPC and ESG credentials of our buildings. Three solar projects carried out in the period. I think we're 10 in the pipeline. And that will continue to lift our EPC ratings. We're up 85 to 87, A to B up to 52. And we will continue to make progress on it. For us, it is part of our DNA. It's what we do. It's not a big ask. So final slide on the outlook. The macro events continue to influence investors' sentiment towards the sector with elevated five-year swap and 10-year gilts, up trading very close to 400 basis point. I think a smidgen under 400 this morning, but only just. However, we will see continued interest rate cuts and decelerating inflation will hopefully bring more stability and confidence. But we have to remember the UK consumer remains resilient with full employment and real wage growth. At a real estate level, we think that structural cracks across the various sectors will continue to widen. We see sectors with the strongest fundamentals winning out. We call it, this is a take-off from Mike, beds, sheds and breads. The disputed sectors are seeing CapEx and OpEx rising quicker than net rents. And we will continue to seek opportunities for external growth as small cap external REIT structures continue to get exposed. We want to cement our position as the UK's leading triple net income REIT. Our raw weather portfolio continues to be underpinned by our investment in the structurally supported sectors. Today we have a scalable platform which is driving operating efficiencies and will give us access to bigger opportunities in the coming periods. And our exceptional income characteristics offers the certainty, longevity and that growth will support our journey for continued dividend growth. So that's all from us from the formal part of this morning. We're very happy and welcome any questions in the room and then we'll turn to the screen to see if there's anything on the phone. So thank you for your time.