LondonMetric rental income rises as it integrates Mucklow acquisition

LondonMetric announced its half-year results for the six months ended 30 September on Wednesday, reporting that its continued focus on income growth saw its net rental income rise 16.6% to £54.9m, including three months of income from the Mucklow acquisition.

The FTSE 250 company said contracted income rose 39% year-on-year for the six months ended 30 September, to £124.7m in the period, while EPRA earnings were 13.9% higher at £35.2m, or up 2.9% on a per share basis.

The board said it was raising the dividend by 5.3% to 4.0p, confirming it was 114% covered, including a second quarter interim dividend of 2.0p.

It described its focus on sector alignment and asset selection as delivering “resilient” portfolio performance, with total property return standing at 3.5% for the period, outperforming IPD All Property by 270 basis points.

Capital return was 1.0%, compared to a negative 1.4% movement for IPD All Property, with regional and urban logistics “strongly” outperforming.

The company’s EPRA net asset value per share remained stable at 174.9p - the same figure as reported in March - including 2.2p of revaluation surplus, but after 2.5p of costs incurred from the Mucklow acquisition.

On the investment front, LondonMetric said its activity increased the urban logistics weighting to 35%, and reduced its exposure to ‘big box’ assets to 18%.

The £454.7m Mucklow acquisition helped to increase its urban logistics portfolio value to £826m, from £504m in March, while the firm also reported £109.0m of other logistics and long income acquisitions, with a weighted average unexpired lease term of 17 years at a net initial yield of 6.6% .

A total of £14.1m of disposals was made at a net initial yield of 3.6%, including one Mucklow office and 22 flats, with nine flats remaining.

During the half-year, LondonMetric said it completed 52 asset management initiatives, including 14 relating to the Mucklow assets, with like-for-like income growth standing at 3.0%.

The company reported a £3.1m per annum income uplift from lettings, regears and rent reviews, while it signed or agreed 38 PPE deals, adding around £1.7m of income, with its last developed warehouse at Bedford under offer.

It described its portfolio as remaining “resilient”, focussing it on long income and operationally light assets that could deliver income growth, with the weighted average unexpired lease term standing at 11.3 years, or 12.5 years excluding the Mucklow portfolio, while occupancy increased by 40 basis points to 98.2%.

The company’s gross-to-net income ratio improved 50 basis points to 98.7%, and the firm said it saw contractual rental uplifts on 52.3% of its contracted income, or on 62.4% excluding the Mucklow portfolio.

LondonMetric also described “greater” income diversification and granularity, with its top 10 occupiers accounting for 39% of rent, down from 51%.

Looking at its financing, the company said its EPRA cost ratio reduced further to 14.3% from 15.0% in March, and added that the integration of the Mucklow acquisition was proceeding “well”.

Its loan-to-value ratio stood at 37.9%, and its weighted average debt maturity was 5.3 years.

“Against a backdrop of continued uncertainty and disruption, we have again delivered strong financial and operational outperformance, underpinned by a further realignment of our portfolio in response to macro trends that continue to impact direct real estate. We believe that these are profound and permanent shifts,” said chief executive officer Andrew Jones.

“The acquisition of A&J Mucklow was a significant milestone and accelerated our conviction call to increase our weighting to the urban logistics sector where rents are rising to reflect growing consumer demand for quicker and more efficient deliveries.

“We call it the Amazon race.”

Jones said the transaction, together with its other long income acquisitions, reflected the ongoing focus on improving the portfolio to benefit from the evolving consumer revolution, and a global search for yield.

“We will therefore look to allocate further capital into these sectors and assets where the income is reliable, repetitive and which we expect to grow over time.

“After all, we expect income and income growth to be the defining characteristics of the next decade's investment environment.

“We remain convinced that this strategy will allow us to continue to outperform and to deliver our shareholders an attractive, progressive and well covered dividend.”

At 0823 GMT, shares in LondonMetric were up 0.5% at 242.4p.