LondonMetric Property Plc

Great morning, ladies and gentlemen, and welcome to London Metrics' half-year results presentation. It's very rare that we're in such salubrious accommodation as this. I hope it's rent-free. It's an office building, it must be. sorry cheap shot okay that's the tick tick derwent off right go down the list in a minute right so normal line up this morning I'm going to give you a quick overview I'm going to hog all the good numbers pass over to Martin he'll do a deep dive for you then I'll come back to talk about our activity and the make up of the portfolio and our outlook for the periods ahead and then we'll open it up to Q&A. And we have our team in the front row, which actually now includes Carl, which is good. So any really difficult questions are going his way. And then hopefully we'll be all wrapped up by about 11. So... OK. So... We retain our position, in our opinion, as the UK's triple... or leading triple net income REIT. Our objective is to continue to own mission critical assets across the winning sectors of real estate. I'll come on to talk about this a little bit later because it is a theme throughout the presentation. We want to make the right macro calls. Logistics is our strongest exposure, partly because it gives us the best rental growth. So that's back up at 54%. And then we have our hospitality entertainment, which is dominated by our hotels and our theme parks at just under 50%. 18%, and then our convenience retail assets at 14%. So those are our three key areas, with healthcare making up the fourth. As a result, our objective must be to grow our income. That's what we are. We are a triple net income compounding business. And our net rental income, as you can see in front of you, is up 15%. Again, we'll come on to talk about that in a little bit more detail. And that has obviously allowed us to progress our dividend. We announced this morning a Q2 dividend of 3.05 pence, which gives us 6.1 for the period, which is up 7% on where it was last year. And obviously, we expect that to continue. We are well on track for our 11th year of dividend growth. We also operate the lowest cost platform in the sector, with the sector leading at per cost ratio down from, I think, 7.8 at the full year to 7.7. And despite Martin's objections, we obviously think that that should fall lower in the coming periods. The portfolio is focused on reliable, repetitive and growing income. It's a strapline that we've now used for many, many years. It doesn't need to change. And that is supported by, again, 5.2% light flag annualised rental growth, and that's largely been driven by two things. Uplifts on rent review, you can see there 18% is our average uplift. Open market was at 24%. Our open market logistics was 27%. And then our leasing and re-gears delivered another 24% above previous passing. So that's what, you put all those together, that's how we deliver that 5.2% annualised income growth. In the period, this translated into 10 million of additional rental income. And again, we'll come on and talk about, we've got a good slide on this later on in the presentation. We have a further 28 million. million that we expect to collect over the next 18 months from rent reviews and lease renewals. We expect that and hope that will be higher because it doesn't include asset management initiatives and it doesn't include the leasing up of vacant space that we currently have in the portfolio. The total property return, you see it there at 3.3%. We come on to talk about that in a little bit more detail later on in my second stint. So turning then to the financial highlights, EPRA earnings were up at 148.6 million. That's driven by a 15% increase in our net rental income. You see there on the right-hand side. That has driven an increase in our earnings per share at 6.7 pence, up slightly on where it was this time last year. But equally important, it's 28% higher than where it was in September 23. So we've seen a 28% increase over the last two years in our EPRA earnings. And that has allowed us, as I touched on on the earlier slide, to increase our half-year dividend to 6.1 pence. Again, that's up 7% in the year. It's actually up 27% over the two years. Total accounting return for the period, 4.1%. If I exclude the huge banking fees that we paid in our various M&A transactions, if you strip those out, it's at 3.3%. Portfolio value is up 22% to £7.4 billion. relatively flat at per NTA, up on where it was a year ago, flat on where it was in March at 199.5 pence. And our LTV is up marginally at 35%, and that reflects the £200 million cash component of the urban logistics acquisition that we completed on earlier in the summer. And we feel pretty comfortable with that. It may go up, it may go down. That will be dependent upon opportunities that we see by and large in the investment market. And then just, again, to steal one of Martin's slides, the dividend, I should say, you can see there, 111% covered with a full cash cover as well. So on that note, I'll pass over to Martin, and then I'll come back to take you through the portfolio.

All right. OK, so morning. So there's nothing here he hasn't covered. So I'm going to do it anyway. So following an intense period of M&A activity and asset recycling, we've delivered very significant earnings growth and dividend progression. Pleased to report net rental income is £221.2 million, an increase of 14.6% over last year. The acquisitions of Highcroft and Urban Logistics, which contributed only for four and three months respectively, and other acquisitions during the period have added £27.6 million of additional rent. We've also added £6.6 million of additional rent from our existing properties and developments. We lost £12.2 million of rent from asset disposals during the period. Our rent collection remains exceptionally strong. We've collected 99.5% of rents due. Our gross to net income leakage remains very low at 1.5%. Our administrative overhead for the period is £14.6 million. And our EPRA cost ratio continues to be sector-leading at 7.7%, I think reflecting operational synergies and the culture of cost control. The increase in overheads in the period... is almost exclusively headcount and remuneration costs. Our headcount is now 54, up from 48 at the year end. That's a combination of former urban logistics employees, but also new recruits that we've made to ensure that we have the right level of resource and the right skills for the enlarged business. Our net finance costs have increased to £59.7 million compared to £45.4 million last year. That's an increase of 31.5%. This was due to the additional £484 million of debt from our corporate acquisitions. That came in at an average cost of 4.26%, which compared to LNP's cost of debt at that time of 4%. We've also run a higher drawn debt balance during the period. So despite the increase in financing costs, that tight cost control on top of revenue growth, income growth, has driven our EPRA earnings to £148.6 million. was 6.7 pence per share, an increase of 9.7% over last year, and supports the increase to the dividend, which I think Andrew only mentioned actually three times, for the period to 6.1 pence per share, providing very strong 100% dividend cover and, importantly, full cash cover. So our trading performance has been strong, with the portfolio valuations increasing by £29.1 million, allowing us to report IFRS profits of £130.3 million. This actually reflects a reduction on IFRS profits compared to last year, but it does include the full impact of M&A acquisition costs and goodwill impairment in the period. So there's been further significant change to the balance sheet this period, as it reflects our most recent M&A. The acquisition of Highcroft added £81 million of investment property to the balance sheet, and the acquisition of Urban Logistics a further £1.14 billion. to bring the total value of the portfolio to £7.4 billion. In addition to our M&A activity, our active asset recycling has delivered £125 million of other acquisition, development and capital expenditure, partly offsetting the divestment of £155 million of non-core assets. This, together with our revaluation uplift of £29.1 million, has contributed to the increased portfolio value. Gross debt, which I'll come on to in a moment, is £2.8 billion and the cash balance is £206 million. The other net liability position at the period is £116 million. Rents paid in advance accounting for £78 million worth of that amount. In summary, therefore, our EPRA net tangible assets at the year end were £4.67 billion, or £199.5 per share, producing a 4.1% total accounting return after adjusting for those M&A costs and goodwill impairment. So, as I've said, our gross debt balance is now £2.8 billion. The increase is partly the result of our M&A activity through which we acquired £484 million of new secured debt balance facilities and also other new facilities entered into during the period, which I'll come on to on the next slide. Our debt maturity now stands at 4.2 years compared with 4.7 years at the year end. We expect to maintain that level of debt maturity by the year end despite the passing of a further six months as we launch into our public bond programme. Our average cost of debt is 4.1% compared to 4% at the year end, and we do not expect our finance costs to increase materially as we manage debt maturities over the next three years. Our net debt to EBITDA stands at 6.9 times, which is trending downwards as our earnings increase and is comfortably within our upper limit of 8.5 times. Our policy continues to be to limit our exposure to interest rate volatility and by entering into hedging and fixed rate arrangements. We acquired 140 million of interest rate swaps through the urban logistics acquisition at an average cost of 3.2%. We continue to be well protected against adverse movements in interest rates, and at the period end, our drawn debt was 94% hedged. As a result of the £205 million cash component to the acquisition of urban logistics, our LTV is now at 35.1% compared to 32.7% at the year end. Looking further forward, we'll continue to manage our debt arrangements to ensure that refinancing risk is mitigated and that we're able to take advantage of our increased scale and credit rating to diversify our funding sources. We strengthened our financial position in the period by completing two new unsecured revolving credit facilities totaling £350 million with new lenders at margins below our existing comparable facilities. We completed a new three-year unsecured term loan of £180 million at an even tighter margin and we entered into a new £150 million US private placement as a credit spread ahead of any other private placement by any European REIT in the last three years. That amount was drawn post-period end. And since that period end, we've entered into further facility for £50 million with a new lender at a margin of 125 basis points. Crucially, I think this new well-priced liquidity has allowed us to repay On maturity, facilities post-period end with AIG, LNG and Canada Life, which bore fixed rate pricing materially more expensive than our new debt facilities and was therefore earnings enhancing. Additionally, we repaid the most expensive tranche of our urban logistics debt of £57.3 million, which was costing us 6.17%. As I said in the summer, our successful credit rating now allows us to plan for possible future debt capital markets activity in the form of a public bond issue to cover debt maturities in finance years 2027, 2028 and 2029. We are preparing for such an issue and expect to be active imminently. Our contracted rent roll at the period end now stands at £421.1 million with the inclusion of rent on the Highcroft and Urban Logistics acquisitions. Additional rent of £9.8 million in the period was generated from active asset management, rent reviews and re-gears. Looking further forward, reversion within the LNP portfolio and the newly acquired Urban Logistics portfolio is expected to add £28 million of contracted rent. The rent roll will increase as a result to £450 million. This is, I think, a conservative view of growth post-period end, as it takes no account of that active asset management initiatives and initiatives not yet executed and the letting of vacant properties. This generation of significant earnings growth supports our confidence that we will continue to be able to grow our earnings and our well-covered dividend. With this in mind, we have increased our quarterly dividend payments, as Andrew said, for HY26 to 3.05 pence per quarter, an increase of 7% on HY25. And then finally, just that look back at the last 11 years now, during which we've been able to increase earnings per share more than threefold. We're in our 11th year of dividend progression with excellent dividend cover and significantly ahead of the growth in CPI. Our total property return is strong, an 11-year CAGR of 10%, a very material outperformance against the MSCI or Properties Index. Our total shareholder return, driven both by share price appreciation and dividend progression, equates to a compound annual growth rate of 10%. On that note, I'll hand back to Andrew.

Okay, thanks, Martin. Right. So this is a look at how the portfolio sits today. £7.4 billion split really against those four key sectors that I touched on in my opening remarks. Logistic now up from 46% to 54%. Our largest investment, as you can see there, at about £4 billion. And that is driving and delivering the strongest rental growth. And we see that continuing over the next few years through rent reviews and lease renewals. Hotels and leisure remain a key beneficiary of the shift in discretionary spending. And in the period, we've continued to add new premiering investments through a sale and lease back transaction with Whitbread. And hopefully we have more to come. Our convenience investments is very much around the grocery sector. We're Aldi, we're Lidl, we're M&S, we're Waitrose, we're Home Bargains, a bit of B&M sort of thing. We're not the big supermarkets. And that we see delivers great, great solid income with around about 3% rental growth to come. In healthcare, we're working with Ramsey on initiatives that will improve the profitability and the desirability of our private hospitals. And both from their perspective and for ours, and we're hopeful, that we'll be able to talk about that shortly. But overall, as you can see from the numbers there on the right-hand side, it remains reversionary and on track, as Martin showed you on his last but one slide, to deliver further increases in rent over the coming years. That 3.3% number that you see there at the bottom of the column is effectively the CAGR of the 18% on the rent reviews and the lease renewals that I touched on in our opening slide. We actually see that accelerating a little bit over the next couple of years. And that will be as much around reversions as around how many reviews are coming through and where they sit. So, investment activity, the macro environment remains uncertain. We still believe that interest rates are the yardstick by which all investments need to be assessed. Current swap rates, they move around. I mean, I think they peaked this year at 412. And I think about this time last week, they were down at 357, which was very exciting. And then all of a sudden, we're up about 15, I think we're 373 today. I mean, it just it creates uncertainty and that without a doubt impacts on liquidity, particularly on the larger lot sizes. I mean, we put in here, you know, 20 million is a number and we could bring it down a little bit. We could move it up a bit. But 20 million is what we think above that. We think that it gets more difficult because it does require. some debt buyers. However, we are enjoying much, much more success, greater liquidity in the smaller lot sizes. We've sold year to date 212 million pound of assets, average lot size of 6 million. So that's an awful lot of transactions. I think it's 36 transactions in the period. And we are dealing with a completely different array of buyers. There's a lot of owner-occupiers, family offices, small property companies, local authority pension funds. And we are transacting in a wide range of assets. Pubs, hotels, garden centres, children's nurseries, food stores, DIY stores, warehouses, waste disposal facilities. I mean, we've got them all. We have got them all. So we are seeing an unbelievably wide church of buyers and probably as wide a type of buyer that I've witnessed in a long time. I mean, I meant I made a comment the other day in the board meeting. I think we we've done and transacted on more sales to owner occupiers in the last three years than I've done in my previous 30. OK, so it's a different market. And the small lot sizes that we have is a massive strength for us. On the acquisition side, obviously that £1.4 billion that we've done year to date has been in the winning sectors that are going to deliver us the best income growth. It's obviously been dominated, as Martin's touched on earlier, with the two M&A transactions. And not surprisingly, it is about reinforcing our logistics, our hotel, our convenience retail and roadside, which are continuing to offer up, we think, superior rental growth prospects. And then the opportunities are coming from really four or five. We cut this, you know, we changed how we cut this really. It is saying a lease backs. I referenced the Whitbread transaction that we did earlier in the year. Development fundings, you know, we enjoy development fundings. A lot of developers are short of money and we're only too happy to help them, providing it's in our winning sectors. And it's predominantly been logistics and grocery food as we continue to strengthen our partnership with some of our key operators like Marks & Spencers. And then the pension fund industry is going through a dramatic shift, moving from DB to DC. That is throwing up portfolios. A lot of corporate pension funds are coming out of direct real estate, and that is throwing up an awful lot. And it's not hardly a week goes by that you might read something in one of the papers or one of the sites, React or Coast or whoever, suggesting that so-and-so is selling their properties either in whole or a or in part. I mean, Santander recently has been in the news. St. James's Place has been in the news. And we're seeing opportunities from that. I mean, we announced on Tuesday the acquisition of two assets from a Columbia Threadneedle portfolio that was probably sparked either through expiry or redemptions. And so we hunt there pretty aggressively. And obviously, The fourth one, which obviously I can't talk about, is other opportunities that we might see in the listed sector through additional M&A. So our M&A activity, so we've done four public takeovers over the last two years. That has added £4.4 billion worth of assets. But more importantly, it's added £267 million worth of new rental income. And it's been a source... It's obviously given us great scale, but it's also given us a great improvement to our earnings. We have, as we regularly update the market on, successfully exited a lot of the non-core and some of the weaker assets. I mean, over those two years, we've sold £372 million worth of these assets. That's 8% of the assets that we've actually acquired by value, largely in line with our acquisition prices. Some are up, some are down, but I think we're virtually bang on at the moment and I'd like to say that that was an incredible skill. I suspect there's a bit of luck in there as well. As you can see, out of the 465 assets that we've acquired, we've actually sold the smaller ones, which we sold out of 89 of those. I mean, I'm not going to go through the individual companies that we've acquired and the progress we made because it's there for you to read just as well. But, you know, the fact of the matter is the core assets that attracted us to these businesses in the first place are delivering for us. You know, rental uplift is 12 million since acquisition. And again... This goes into that £28 million I talked about over the next 18 months. 17 of it is arguably going to come through from some of the acquisitions that we've made over the last two years. So that's the rub of why we like these companies. We see them being pregnant with rental growth and maybe the property market or indeed the equity market hasn't valued that potential growth maybe as accurately as maybe we think we might have done. So we run an occupier-led business model. It helps frame our buy, hold and sell decisions. But as well as buying, choosing the right sectors and buying the best assets in those sectors, we also actively manage our income granularity. Over the last... six months, our top 10 occupiers are down from 38% to 33%. Our top three occupiers are down from 27% to 22%. We obviously want to own the right space and we want it let on the right terms in the right location. But one of our key things under this occupier-led business model is occupier contentment. We're very close to our customers. We want to do more deals with them. We want them to be happy. Our test is that we, particularly at the operational side of the businesses, so things like the theme parks, the hospitals and the hotels, we are targeting a rent EBITDA ratio of 2x. OK, that's a magic number because that then ensures not only contentment, but it also gives us much better asset liquidity. And we see that I should say pub market, the pubs as well, by the way, would fall into that as well. And that gives us the comfort of income durability. So, you know, we look at something like that 2x test and we expect all of our investments to hit that. And if they don't hit that, we will have looked or have executed or are looking at exits. So, you know, if I look around there, if I take Merlin as an example, that's a business that will hit our targets in the UK. It's a business that has strong sponsor support. It was a take private, for those of you old enough to remember it, for about £6 billion by the Lego family, or Kirkby, which is its name, the Christensen family. Blackstone, CPPIB of Canada, and the Wellcome Trust. It's also a business that has significant freehold properties. I think 50% of their earnings that Merlin report worldwide comes from freehold assets. And so, therefore, it is what we consider to be an asset-backed business model. They recently sold 29 of their Lego Discovery Centers back to the Christensen family for $200 million. So they have these various levers when they need to raise money. UK profitability in 2025 is running ahead of 2024. And we have the added comfort in this business that we have the top operating company. And let's remember, we are talking here about a worldwide business that is the second largest entertainment firm in the world after Disney, I think. There might be other people who claim to be that, but we think they're the second largest. So asset management, I think I've probably touched on most of these key numbers, like flag income growth, high occupancy. 67% of the income enjoys contractual rental growth, which gives us great comfort to support the numbers that Martin had in his slide, the 28 million that we've already touched on. And then interesting, I think in some ways, if you said to me, you've got one slide to take away, this is my favorite slide. because this is what it's all about. This is what proves whether or not we've made the right investments in the right sectors and bought the right buildings. Rent reviews over the period gave us an uplift of 18%. Our urban... Reviews are up 22. Urban open market was up 27, which is what I referred to before. And then lettings and re-gears, you know, again, this is the ultimate test of the desirability of your buildings. You know, the fact you're able, you know, tenant can occupy contentment. People don't re-gear buildings if they don't want to be in them or if they're not happy. And on average, those re-gears have been struck at 24% above previous passing rent. We have some vacancy. We inherited a little bit of vacancy under the urban logistics acquisition. and we're working through that, either through leasing or through disposals. But that obviously – we're at 98.1. Personally, I think that's a little bit low. We need to be targeting 99-plus. Ideally, I'd have 100, quite frankly, or maybe just that. So the asset management team have certainly contributed and helped drive that annualised like-for-like income growth of over 5%. So when I think about the outlook – I'm not actually sure, but I'm pretty confident that this slide actually might have been exactly the same six months ago, so it just shows. Well, I'm really moved on, is it? So macro events will continue to dominate investor sentiment. You know, I've talked about the gilt and the swap rates always influencing the property investor markets. I say always. It wasn't always the case, but it certainly feels like it's been the case for the last few years. However, we do think the consumer is in good shape. Savings ratios are good. Employment is good. Wage growth is good. And, you know, interest rate cuts and a decelerating rate of inflation that we got yesterday, was it, I think? Maybe the day before. We'll continue to improve confidence. We just be nice if we got a little bit more confidence coming out of number 11 Downing Street. And I think but we are in quite good shape. You know, there are times when I probably stood up here and I've taken questions on credit card debt or unemployment rates or low wage growth. I don't think those apply here today. And by the way, I think we're in a very different situation to America today. I'll expand on that later if anybody's interested. In the real estate sector, I think there are structural cracks between the winners and losers. I think for us, we're looking for organic rental growth, contractual rental growth without capex. There are lots of sectors that are talking about high headline rents, but those have been bought through improved building qualities and facilities. tenant incentives. I'm talking about organic rental growth here. That's what you get in a rent review. That's what's great about a rent review. Lots of people talk about ERVs, but ERV doesn't pay the dividend. Cash does. Rental growth does. And we're seeing why we want to be in logistics, because we're still collecting that inbuilt reversions. It's coming through. It's like a helicopter chucking cash at you. I mean, it's just a wonderful, wonderful feeling. And we think that our scale, as Martin and I have already touched on, continues to improve our efficiencies and supports our triple net income strategy. We expect to see further consolidation in listed markets, with or without us. We think it will take place. Without a doubt, the structural shifts in the institutional pension fund market is throwing up opportunities, and we would be disappointed if we weren't a beneficiary of that over the coming period. And that we expect, as a result of all of that, we expect further income growth, we expect further earnings growth, and we expect further dividend progression. We are well on our way to our objective for dividend aristocracy. Only another 14 years, okay? And I expect to be here for it. So on that note, thank you very much for the last 33 minutes of listening to us. And obviously, questions either in the room or on the phones would be very welcome. Ladies first. Vanessa.