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Londonmetric's choice of tenants makes it attractive

Fears of a warehouse bubble may have inadvertently helped the landlord
May 26, 2022
  • Londonmetric swings from discount to premium
  • Landlord consciously diversifies rent sources

For a short period on the morning of its full-year results, Londonmetric's (LMP) shares were trading at a significant discount to net asset value (NAV). That all changed after investors had a chance to digest the strength of the numbers – with the consequent share price rebound pushing the company briefly back into premium to NAV territory before settling back at a marginal discount.

Why were the shares down to begin with? That would be because of Amazon’s (US:AMZN) profit warning from early May when it admitted it had over expanded and was now looking to offload space. This hit Londonmetric as well as its peers due to the fact that Amazon represented around a quarter of newly signed leases in the UK over the last couple of years.

Worries about a bubble in warehouse real estate are justified, but not all warehouse landlords are the same. For one, Amazon represents a mere 3.4 per cent of Londonmetric's contracted rental income as it avoids being too reliant on the fortunes of any one company. Its biggest tenant was Primark, which made up 8.2 per cent of contracted rent, but it has consciously reduced that to around 4 per cent by selling a Primark-let warehouse.

Londonmetric also buys real estate alongside building it, and 96 per cent of the assets it is looking to acquire are already let for an average of 14 years. This means it is unaffected by the increase in construction costs and the dangers of some bullish warehouse developers building speculatively while hoping for rental increases.

In short, Amazon’s warning has done investors a favour by taking some of the froth off of Londonmetric’s share price. As such, it is once again looking like a good option. Buy.

Last IC View: Hold, 267p, 18 Nov 2021

LONDONMETRIC (LMP)   
ORD PRICE:258pMARKET VALUE:£2.53bn
TOUCH:257-258p12-MONTH HIGH:287pLOW: 226p
DIVIDEND YIELD:3.4%TRADING PROP:£1.1mn
DISCOUNT TO NAV:-1.2%NET DEBT:-38%
INVESTMENT PROP:£3.49bn   
Year to 31 MarNet asset value (p)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201816618626.97.90
201917512017.28.20
2020171-6.70-0.708.30
202119125828.68.65
202226173878.88.85
% change+37+186+176+2
Ex-div*: 9 Jun   
Payment: 13 Jul   
*Dividends are paid quarterly