Londonmetric Property Plc

I'm delighted to be joined today by Andrew Jones, who's the CEO of London Metric. And today, their half-year results were announced. Andrew, thank you for joining us. So Andrew, you've delivered strong growth in net rental income and earnings in the half-year period. What have been the drivers of this growth and how is the business performing more widely?

We've had a great period. It's been a strong half year. We've successfully acquired two public companies, and so we've been integrating those. So that's helped drive our net rental income up, as you say, we're up 15% at just over £220 million. But also, as well as the external growth, we've also executed some internal growth through rent reviews, leasing, and lease renewals. Our rent reviews have delivered rental uplifts of about 18%, driven by open market rent reviews that were even higher. They were up at 24%. And then our leasing team have done a fantastic job in negotiating new lettings or indeed lease renewals. And again, they've secured rental uplifts across those various buildings of 24% higher than the previous passing rent. So it's been a combination of external and internal growth that's allowed us to print those numbers.

So, Andrew, with your increased scale, can you talk about how this is benefiting London Metric and how you're positioning the business for the future?

Yeah, I mean, we think about scaling in two ways. We think that it gives us increased access to new opportunities. I mean, there's a number of transactions that we've executed on over the last 12 months, which... I'm not sure would have made themselves available if we'd been a much smaller business. I mean, our portfolio has grown over the last two years from 3.2 billion to 7.4 billion. So that's a big increase. And it absolutely means that we can compete with some of the larger private equity players in the real estate market on much more equal footings. And so we've seen some transactions come through. We've done some sale and leaseback transactions. We've also done some development fundings. We've bought some portfolios, which I'm not convinced would have become available to us if we were much smaller. The other benefits of scale are cost. We operate a very efficient platform. I mean, I would argue that we are the most efficient REIT in the UK sector. Our upper cost ratio is sector leading at 7.7%. And that's down slightly on where it was at the start of this year. And we think it's probably got further to go. And also from a cost perspective is the cost of debt. I mean, without a doubt, the bigger you are, the more debt optionality you have. We're not beholden to bank debt. We have unsecured facilities rather than secured facilities, and unsecured is cheaper. We access the U.S. private placement market, which gives us debt duration that is longer than you get from UK lending banks. And we are actively pursuing the bond market for additional facilities, which we expect to work on over the next couple of months. So scale is giving us, we talk about the scale of opportunities, but also the economies of scale that come through being bigger.

So Andrew, in terms of the property market, what are your wider thoughts on the sector?

Well, I think interest rates is the yardstick by which all investments should be assessed. We've been in a difficult market over the last six months. The five-year swap is a key indicator for us, which is linked heavily to the 10-year gild. And that has moved around quite a lot. But it's operating at the moment at a level that makes liquidity tougher on bigger lot sizes. We're very, very fortunate that our average lot size is 11 million. And the assets that we've been looking to come out of average actually 6 million. So we've still found liquidity for what we're trying to exit, which has been good. I think that when bond rates come in and the five-year swap drops below 350 basis points, then I think we start to see a significant pickup in liquidity for some of the bigger lot sizes. If we look at the wider real estate market, then there's what's performing and what isn't. We absolutely, you know, our thematic is basically around being in sectors that are going to be a beneficiary of evolving consumer behavior. You know, the two key things we think about is time as a valuable commodity and experience over essentials. And so, you know, our investment in logistics is around the fact that retailers need efficient, you know, logistics infrastructure in order to deliver to a consumer who is increasingly demanding on delivery. You know, we talk about instant gratification quite a lot. So that is about, you know, we don't want to wait three or four days for the parcel to arrive. You know, there are things that we order now that we would expect to receive by the end of the day. And similarly, our investment in convenience retail is around convenience. And as its name suggests, that is, it's about maybe shopping for your weekly groceries and doing that in 30 minutes. And therefore, we want to be in convenience retail rather than experiential retail. And that's why our retail investments are focused around convenience. Grocers like Aldi, Lidl, Waitrose, Marks and Spencers, Home Barlins. Time is an important commodity. And then our investments in budget hotels and theme parks. is essentially predicated on an increasing divergence of spending from essentials to experiences, you know, and therefore, you know, whether or not I want, you know, I don't need to do the shopping centre. I'm not going in. I remember on a Saturday, I'd go in with my friends to the town centre and would wander up and down the shopping centres. People now want to spend time with their friends in a restaurant or a pub or at a concert or a sports match or a weekend break or whatever it might be. And so, you know, we lean into that. And so for us, it's about working out the macro trends and then which parts of the real estate market will play to those and making sure that we're out of the sectors that we think are most exposed to those evolving consumer habits.

Finally, as you look ahead to 2026, what are your aspirations for London Metric over the next year?

So for us, I mean, and I think I said it in my statement, you know, we want to run our winners and sell our losers. You know, we've done a lot of M&A activity over the last two years. We've inherited some wonderful assets that are delivering for us. But it's also included some assets that don't quite meet our requirements. And we've been busy trimming the portfolio to come out of some, you know, smaller assets, some asset classes that we don't want to be invested in or indeed some geographies that... don't meet our requirements. So we want to keep trimming the portfolio and we want to then reinvest that money into our existing assets or into new opportunities in our favoured sectors. So for us, I think it's going to be a bit more of what we did in the first half. Our earnings are looking great for the second half as well, so we're on track to meet consensus. and it's making sure that the opportunities in our favoured areas present themselves or we can uncover them with our excellent team of people. So I believe that we can only control the controllables. We would obviously like a more favourable macro environment and if that happens then that's great and the wind will blow even harder on our back. But in the meantime, we've got a lot of internal opportunities that we need to execute on.

Andrew, great set of results. Thank you for your time today.

You're very welcome. Thank you.