2013 Half Year Results Company: LondonMetric Property Plc - PDF document

2013 Half Year Results Company: LondonMetric Property Plc Conference Title: 2013 Half Year Results Presenter: Patrick Vaughan, Andrew Jones, Valentine Beresford, Martin McGann Thursday 28 th November 2013 Date: Patrick Vaughan: Ladies and gentlemen, good morning and welcome to the half year results of LondonMetric. The highlights first, which is the bit I’m allowed to do. The merger of LondonMetric has been a great success in my view. It’s been a tremendous effort by all concerned since the merger. We have generated turnover of £813 million in purchase and sales towards rebalancing the portfolio, as we have stated. The profit was £50.9 million against 12.5 at March 13 th , an improvement of 307%. Valuation gains contributed £35.6 million of that total compared to £3.4 million last March. Contracted rental income today is £67.4 million against 62.5 and that is despite the huge turnover, and obviously when you're making large sales you are losing the income. And so it’s been a balancing act, sale and purchase. There is a gap but we’ve still managed to drive the total rental receipts forward. Sales in the period were £384 million and post the period, a further £44 million. So actually in the half year and since, total sales have been £428 million, which I am sure you all realise is pretty hard work. I think Andrew is going to get a knighthood for the stamp duty that we’ve been dealing with. Purchases were £135 million in that period and post the period end, a further £93 million which you will have read about, mostly with Odeon, and that's a total of £228 million. Today, the annualised run rate of secure long-term income to cover our dividend represents 86% of the cover of the 7p dividend and is on track to achieve or to exceed full cover by the end of the coming year, which we said would be our first target. Our LTV in the period was 30%. It has now risen to 40% since the acquisition of Odeon, and given the added business achieved we find that quite satisfactory. We’ve also been able to extend the loan maturity from what we said at the last year end, a little tight at 3 years, to 4.1 years which is a 36% improvement. We promised at the merger that we would seek overhead savings of £2.5 million and we are on track to deliver £3 million of savings in the cost of the combined Group. I’d take this opportunity, if I may, to thank the LondonMetric team for a great effort for the half year and also to thank our advisors who helped us with the merger, our financiers who have Ref 9716682 Page | 1 28 November 2013

2013 Half Year Results helped us with the volume of our business and the customers, most importantly, who occupy our space for all that they have contributed to the success of the first half. And now, if I may, I will hand over to Andrew Jones. Andrew Jones: Thanks, Patrick, good morning. Just giving you a bit more colour on the operational highlights over the last six months, as Patrick said, it’s been a very active period with £135 million acquisitions during that period and then a subsequent £92 million post period end. I think the important numbers there are probably the average entry yields, as you can see, averaging roughly 7.75%. Disposals exceeded acquisitions, which is obviously a metric that we expect to reverse in the second half, but interestingly the exit yields have been significantly lower. You're looking at 310 basis points during the period and even more post period end, particularly as we look to exit the vast majority of our wholly owned residential assets, more of which I’ll come on to talk about in a minute. Mark and his team have been active in terms of leasing up our vacant space, surrenders and re-lettings: 15 new lettings, £4.3 million of additional income and importantly, off average weighted lease terms of over 16 years, and that compares to an IPD average lease length index of just under 6 years today. I think it dropped below 6 years a couple of months ago. And the capital recycling within our wholly owned portfolio gives us a further £200 million to invest, absent any further sales that we may execute over the next six months. Then looking at the portfolio metrics, valuation up, as Patrick said, £35 million and outperforming the IPD for property return by just under 200 basis points. I’ll come in to talk about the breakdown of that further on in the presentation. Topped up initial yield has risen over the period despite 25 basis point inward yield compression at the September valuation, and again I’ll come on to go through that in a bit more detail later; and occupancy now up at 99% and the gain following on from an earlier theme, a weighted average unexpired lease term of over 12 years, which must be one of the best in the sector. Like-for-like rental growth underscoring the occupier desirability of our buildings at 1.6% for the six-month period. Just to give you an update on the strategy, we set this out at the time we announced our full year results post merger, very much focused around the out-of-town retail and the retail distribution markets where we think we have competitive advantages as a result of our strong retailer and occupier relationships. So that portfolio reposition is going on. As Patrick said, £812 million of activity and what you see there in the two boxes that we've highlighted is the yield Ref 9716682 Page | 2 28 November 2013

2013 Half Year Results arbitrage between the acquisitions and the disposals but importantly, that hasn’t been at the expense of the weighted average lease length which, as you can see, having increased. We continue to extract synergies from the merger. Patrick touched on the cost savings; that's one side of it. I think the really exciting part of the synergy is very much being able to use our occupier relationships both obviously in our retail business but also now in our distribution business, to be able to execute asset management initiatives with them. And again, I’ll touch on one or two examples later. And the emphasis is obviously on delivering recurring income that covers the dividend but as you can see, at 86%, we’re well on the way to doing that. And what that does is it gives us much greater flexibility and freedom to look at other assets, assets where we can deliver real alpha and NAV progression. So this, just to remind you of the investment strategy, we tend to look at real estate through these three lenses: income, asset management, short cycle development and quite frankly, all of our acquisitions need to sit in one of those columns otherwise we’re going to struggle to justify why we might be buying something. And we’ve been active in all three of those over the last six months: long let income which came with the Odeon portfolio, asset management opportunities that come both in terms of our retail park portfolio but also in the distribution space like WHSmith’s distribution centre there in Birmingham, we’ve bought it with 11 years weighted average unexpired lease term and simultaneously on acquisition extended that to 21 years and we are hopeful of doing something similar on the Argos distribution centre in Bedford. And in London, we continue to be opportunistic. Marlow we’re going through a major lease re-gear with our main tenant. Carter Lane is well on the way to complete its refurbishment by the end of March next year. We’re 58% pre-let and we’ve now agreed to let the lower ground floor, which will give us another 11%, and continue negotiations on the ground and the first. So that's progressing well and we’ve just, in line I suppose with what the Qataris are doing down at Chelsea Barracks, we’ve just started to release a handful of flats at Moore House and we’ll look to accelerate that disposals as we see more activity on site down at Chelsea Barracks as we hopefully close the gap between our valuation and no doubt their appraisal. Just looking at what that investment strategy has done to our rental income, Martin will take you through what it means to the dividend but just looking at it from a rental income perspective, you know, not surprisingly when you're active in disposals as well as purchases, Ref 9716682 Page | 3 28 November 2013