LondonMetric premium races ahead

Half-year results for LondonMetric Property (LMP) provided further evidence that logistics remains the hottest property asset class right now. During the period, the landlord saw rental uplifts on 60 per cent of its portfolio, sparking a 3.6 per cent rise in net rental income. Occupancy and collection rates remained excellent.

LondonMetric is also engaged in lots of horse trading or efficient capital recycling, depending on your viewpoint. First half acquisitions totalled £161m and focused on urban logistics assets with an average unexpired lease time of 15 years and strong rent uplift clauses. Against this, £168m of “mature or non-core assets” were sold, including a mega distribution warehouse let to Primark.

The latter move was partly about re-weighting risk, given Primark remains LondonMetric’s largest tenant. More broadly, chief executive Andrew Jones is keen to move into “better buildings, with better geographies and longer leases, where the prospects for future rental growth are superior”. Often, these decisions hinge on small details; the first half sale of an Aldi and an M&S at a 4.5 per cent yield, and their replacement by an Aldi and a B&M, again at 4.5 per cent, was down to location.

Proceeds from a £175m equity placing, announced alongside these results, will target a £282m pipeline with a net initial yield of 4.3 per cent. Pricey? Jones argues talk of yield compression can be misleading, when rental growth prospects are this strong.

Consensus forecasts are for EPRA NAV of 217p per share by March 2022. Though exposure to assets in hot locales is a strong portent for rental growth, the premium is starting to look a little toppy next to smaller peers like Warehouse Reit (WHR) and Urban Logistics (SHED). Back to hold.

Last IC View: Buy, 231p, 27 May 2021