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LondonMetric's takeover of CT Property offers growth

The warehouse landlord plans to buy out its rival in what could prove to be a very wise move
May 24, 2023
  • Takeover offer at 34.3 per cent premium
  • Vacancy at 0.9 per cent

LondonMetric’s (LMP) results were somewhat overshadowed by its plan to snap up rival CT Property Trust (CTPT) in a £199mn deal announced on results day. Either because they didn’t like the deal or because they didn’t like its results for the year to 31 March, the market devalued LMP by over 8 per cent in early trading, although the price had recovered somewhat by the afternoon.

On the one hand, LondonMetric arguably offered too much. The price represents a 34.3 per cent premium to CTPT's share value as of close yesterday, so it’s fair to ask why LondonMetric didn’t push for a better deal considering the wider real estate downturn.

The Reit’s response is that it made a 6.3 per cent saving on a net tangible asset value basis and adds that the merger would allow it to grow through acquisition rather than development, which it sees as risky, especially in the current rate environment. LondonMetric also says that bringing CTPT into its portfolio will lower its loan-to-value position, grow its warehouse portfolio, and give it more exposure to retail parks. It plans to sell CTPT’s residential and office assets.

As for its own results, LondonMetric recorded a pre-tax loss due to higher interest rates, but net rental income is up and occupancy climbed to 99.1 per cent. LMP is trading at a discount to net asset value (NAV), so now would be a good time to buy into the growth offered by its CTPT deal. And the continued increase in its dividend payments, which are fully covered by earnings, shows that it is putting its money where its mouth is on this growth narrative. Despite the negative market sentiment, we think there is an opportunity here. Buy.

Last IC view: Hold, 187p, 23 Nov 2022

LONDONMETRIC (LMP)   
ORD PRICE:178pMARKET VALUE:£1,750mn
TOUCH:178-179p12-MONTH HIGH:265pLOW: 158p
DIVIDEND YIELD:5.3%TRADING PROP:£1.1mn
DISCOUNT TO NAV:12.7%NET DEBT:49.3%
INVESTMENT PROP:£2.94bn   
    Year to 31 MarNet asset value (p)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201917512017.28.20
2020171-6.70-0.708.30
202119125828.68.65
202226273878.89.25
2023204-508-51.89.50
% change-22--+3
Ex-div:*01 Jun   
Payment:*12 Jul   
*Dividend dates refer to fourth quarterly interim dividend for 2023 of 2.6p per share, of which 1.5p is payable as a Property Income Distribution