LondonMetric joins 'rarefied club' as it increases dividend again

Many real estate investment trusts (Reits) say they are 'recycling capital' right now. This is industry talk for "selling stuff we don't like and buying stuff we do like". 

It is arguably a wise move in a downturn. After all, high interest rates have pushed Reit values down, and investors are choosier because they can buy government debt at a higher yield than Reits offer. As such, Reits have to chase better returns by acquiring new assets. But the cost of debt makes even attractive assets expensive, and they can't go to the equity market for money because many are trading at a discount to net asset value (NAV).

Considering all this, the fact that warehouse and retail Reit LondonMetric (LMP) has generated such a high return with its acquisition of CT Property Trust is no mean feat. It increased its dividend for the ninth consecutive year in its results for the six months to 30 September because the CT Property purchase, rent reviews and other transactions caused its rental income and valuation to rise. Doing so, it said, "puts us in a rarefied club".

The market does not appear to recognise this, pricing the stock at a discount to NAV. We believe this undervalues LMP's serious growth potential and overplays the possibility of its value falling. If you strip its dealmaking over the period out of its results, like-for-like rental income is still up 2.9 per cent.

Not that an investor should ignore a Reit making deals that grow the company. In this market, that is precisely the kind of company worthy of investment. We stick with our rating. Buy.

Last IC view: Buy, 178p, 24 May 2023