LondonMetric Full Year Results for the Year Ended 31 March 2014 Company: LondonMetric Conference Title: Full Year Results for the Year Ended 31 st March 2014 Moderator: Andrew Jones Tuesday 3 rd June 2014 Date: Patrick Vaughan: Good morning everybody, thank you very much for coming. A year ago I came to you and presented to you the case for our merger with a slightly complicated set of figures resulting from part year consolidations and we set out a number of objectives which were ambitious but needed to be achieved during our first year in the new business. I’m here to tell you that I’m delighted that we’re back a year later to say these objectives have been achieved. We have moved to new premises so the business is under one roof and that was achieved without a loss of momentum. There is a tremendous sense of can-do pervading the office and without a doubt the merger is working. I said to everybody last night that they’d done a fantastic job of working the year with a huge volume of sales and acquisitions that we’ve made and I said you’re going to have to do better this year. We have achieved the cost savings we promised and at the beginning of the year we set out an ambitious programme to reorganise the portfolio along very clear strategic lines in line with our customer strength and as you see in the coming presentation an enormous amount of work has been done to that end with nearly £1 billion of purchases and sales concluded. The average lease length has been extended despite the passing of a year; vacancies have fallen usefully; and yields have stood their ground despite the hardening in the market. We said we would look at a run rate of repetitive income that would cover our dividend and as we reached our year end we have achieved that target. We are not fixated on that target because we consider opportunity for purchase and disposals are made for the right reasons, but having achieved it, it is also our objective in the coming year to improve on the overall position and to move forward. I would like to thank my executive team that has worked so hard during the year and I will now hand over to our Chief Executive Andrew Jones and his team who will take you through our presentation. Thank you. Ref 2698699 Page | 1 3 June 2014
LondonMetric Full Year Results for the Year Ended 31 March 2014 Andrew Jones: Thanks Patrick and good morning to you all. To start off with the financial highlights, as you can see in front of you the EPRA NAV coming in at 121p, it’s up 12p from the 109p that we reported this time last year and that is largely driven by the £95 million increase in our valuation, up 8.5% on a capital return basis which has delivered a reported profit of £125 million which as you can see is a marked improvement on the numbers 12 months ago. EPRA profit has come in at £26.4 million, 20% higher than it was last year; earnings up at 4.2p which have obviously been affected by the intense portfolio activity that Patrick touched on earlier. We announced today a final dividend at 3.5p which gives us 7p for the year in line with where we were last year. The implications of not only the valuation but also the intense portfolio activity have been that the LTV has fallen to 32% and actually today post the activity in the period end has actually risen slightly to 34%. Turning now to the operational highlights, portfolio valuation coming in at £1.22 billion, that’s obviously reflecting the changes but also the valuation uplift. Interesting that 80% of this portfolio has been acquired in the last three years and over 92% in the last four years. Strong total property return at 17%, 360 basis points higher than our various IPD benchmarks. Mark will go through the details of that and the breakdown further in the presentation but we did outperform in our two core sectors of distribution and retail; and as Patrick has already mentioned the top yield is at 6.4%, 10bps higher than it was last year despite absorbing 60 basis points of yield compression which was a mixture of asset management activity but also market shift and that is effectively as a result of the attractive acquisitions and the low yielding disposals that we’ve made during the year. Annualised income is up £10.2 million to £72 million, a 16% increase that will continue to grow through baked-in contracted income that we’ve already signed particularly on the Islip development in Northamptonshire which again Mark will talk through later in the presentation. Our occupier transactions have helped deliver like-for-like rental growth at 3.4% and a marked increase in our development pipeline largely accounting for that million square foot development that we’ve pre-let in Islip. So just to remind you, this is a slide of our investment strategy, it’s a slide that you’ve seen certainly at the half year and also 12 months ago. The three silos that we continue to look at real Ref 2698699 Page | 2 3 June 2014
LondonMetric Full Year Results for the Year Ended 31 March 2014 estate at are income, asset management and short cycle development particularly in our two core subsectors of retail with a strong bias to out of town and distribution with a strong bias to our retail occupiers. The market as you know and as you’ve read has continued to strengthen which means making further accretive acquisitions in the income column will be more challenging than it would have a year ago and obviously more challenging than it would have been two years ago; and as a result if we look forward we will continue to focus on it but we believe we will see more activity in the asset management and the short cycle development silos and you will have read this morning that we successfully concluded the sale of our Marks & Spencers development at Berkhamsted which delivered us a profit on cost of over 60% over a 14 month timeframe and it’s pleasing to be able to put a picture in the middle far right box of the CGI of our proposed new million square foot development which we will start on site in Islip later in the summer. Portfolio highlights, we have already touched on the nearly £1 billion of investment activity that we executed over the year. Our share of that is £974 million, £406 million of acquisitions, 74% of these were off-market, 50% of them came from bank or motivated vendors and as you can see the yield arbitrage between what we’ve been buying and what we’ve been selling on a blended basis is 320 basis points. This has not come at the expense of shorter or indeed riskier income and we’ve managed to increase the weighted average lengths as a result of our portfolio repositioning by over three years. Our 48 occupier transactions – and again Mark will touch on it later – has allowed us to increase our occupancy by over 5% and the weighted average lease length across the portfolio has increased by over a year despite as Patrick says the passage of time. Looking at where we are in the cycle today we think income growth is going to become much more important to capital value progression over the coming few years and I will come on to talk about it in a bit more detail later, but just to show you where we’ve got to, this time last year we had a contracted rent role at £62.5 million. Our occupier transaction to that is £6.5 million and the portfolio repositioning of selling low yielding, buying higher yielding has added £3.7 million, so that gives us the £72.7 million that we refer to in the announcements this morning. The £5.3 million reflects the pre-let income on the Islip development where we expect to PC in the summer of next year. We announced this morning some further portfolio sales and Ref 2698699 Page | 3 3 June 2014
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