London Metric Property, the recently created hybrid REIT from the merger of London & Stamford and Metric Property, reported it's first FY results to the 31st March, a year in which it disposed of £1.028 million worth of property ( of which it's share was £489 million, the biggest transaction being it's stake in Meadowhall Shopping Centre) and acquired £522 million worth ( it's share was £397 million).
The more significant acquisitions were the Saturn out-of-town retail park portfolio, the Leatherhead offices of Unilever, a major office scheme at Globe Park, Marlow, and the Thrapston Primark distribution centre.
These acquisitions point to the new direction of travel for the hybrid firm, namely out of town shopping centres and distribution. The firm is presently undertaking due diligence on a pipeline of c.£100 million at average yields in excess of 7%.
Patrick Vaughan, the Chairman said they will also be divesting in their residential portfolio and in their City office investments, not because they are sector calls, but because the capital needs recycling to higher yielding opportunities.
The firm sees downward pressure on high street rents, due to increased vacancies as retailers are expected to allow leases to expire on poorly performing shop units, which will downsize their distribution requirements as retailers reconfigure supply chains to cater for multi-channel retailing.
Both businesses were profitable but the costs of the merger complicate any assessment; going forward the firm has Net Assets of £676.7 million equivalent to 108p per share. The LTV ratio was 43% with committed undrawn facilities of £53.6 million, their average cost of debt over the year was 3.62%.
Both the numbers of investors and the quantum of funds available for commercial property investment has increased in recent months, putting downward pressure on yields across the various sectors. This is partly owing to an increased appetite for risk across most sectors with more investors moving up the risk curve in search of higher income returns. As a result, the divergence between prime and good secondary assets is widely expected to contract, although conversely the yield gap to poorer secondary assets will continue to widen.
LMP believe that relative to the cost of debt, good opportunities exist to acquire assets with long and strong income.
The market however is not too impressed yet, the old chums have to deliver and the shares closed last night at 114.5p, valuing the REIT at £621 million.