LondonMetric Property plc (LON:LMP), today announced a placing to raise gross proceeds of approximately £100 million through the issue of approximately 56 million new Ordinary Shares representing approximately 6.7 per cent. of the Company’s issued share capital. The Company intends to use the net proceeds of the Placing to fund further distribution and long income acquisitions.
Highlights
· Proposed Placing to raise approximately £100 million of gross proceeds
· The macro backdrop and the global search for income is creating an environment that is highly supportive for the right real estate that can generate long and strong income. The Company continues to actively execute on attractive long term investment opportunities alongside a high expectation of finding additional and compelling opportunities in the near term
· The Placing will enable the Company to:
o take advantage of these opportunities by funding its current deal pipeline within structurally supported sectors of urban logistics and long income, offering greater exposure to attractive returns from these sectors whilst maintaining a strong balance sheet; and
o further improve the length, strength, quality and granularity of its income
· The Company intends that the Net Proceeds will be used to fund existing deals which are set out below (“Investments”), as well as other potential pipeline opportunities:
· Approximately £60 million used to acquire a long income portfolio comprising five assets:
o In legals on a sale and leaseback with a convenience/online operator, on a “principal to principal” basis with exclusivity
o New 20 year lease with CPIH indexation
o Excellent real estate in strong locations with extremely high occupier contentment
· Approximately £10 million used to acquire a London focussed sale and leaseback portfolio which is in legals
· Approximately £30 million for the purchase of an identified pipeline of opportunities which are in discussions and comprise an urban logistics warehouse in London and a sale and leaseback portfolio. Furthermore, the Company has very recently completed the acquisition of a £3.2 million London urban logistics property let to a parcel operator
· With this strong programme of Investments and opportunities in place, the Company expects to substantially deploy the Net Proceeds within three months
· The Company’s progressive dividend policy remains unchanged and it expects to pay a fourth quarterly dividend to shareholders of 2.3 pence per share to be declared at the time of the Company’s results for the year to 31 March 2020 and paid in July 2020. This increases the dividend for Full Year 2020 to 8.3 pence (2019: 8.2 pence). Investors participating in the Placing will be eligible for the fourth quarterly dividend
· Investors should read this announcement in conjunction with the trading update released on 5 May 2020
Andrew Jones, Chief Executive Officer of LondonMetric, commented:
“We are continuing to operate against an unprecedented economic and social backdrop which is accelerating a number of trends that were already disrupting established practices. This is having a profound effect on real estate as performances across the sectors continue to polarise. The structural trends towards online and convenience that have underpinned our conviction calls into logistics and long income are set to accelerate, as many temporary shopping behaviours become more permanent with changes that were expected to take years now occurring within months.
“Against this backdrop, our portfolio remains well positioned and has continued to perform strongly as borne out by our high rent collection and continued dividend payments. These uncertain times are starting to give rise to quality investment opportunities that are seldom available in a normalised market. Through our occupier relationships we have identified some excellent assets, at attractive pricing, which would further strengthen our portfolio’s long term income characteristics. Not only do we expect to see further opportunities arise but also we expect the pitch to be much less crowded than before.”
Introduction
The Placing is being conducted, subject to the satisfaction of certain conditions, through an accelerated bookbuild which will be launched immediately following this placing announcement (the “Announcement”) and will be subject to the terms and conditions set out in the Appendix. J.P. Morgan Cazenove and Peel Hunt have been appointed joint bookrunners in respect of the Placing.
Background to the Placing
LondonMetric’s strategic decisions and actions over the past few years have aligned the portfolio to structurally supported sectors that are benefitting from the changes in consumer shopping habits and to those sectors that offer superior growth prospects.
Driven by changing consumer shopping habits and technological disruption, the trend towards online and convenience has shown no signs of slowing down. Whilst COVID-19 is creating an economic shock, the Company believes that it is only serving to further accelerate these trends with temporary changes from the pandemic, in some cases, likely to become permanent. The Company expects these structural tail winds to further benefit its portfolio of logistics and long income assets, as good assets in resilient sectors continue to be the clear winners and sought after in the investment market.
The Company also believes that the macro environment is highly supportive for the right real estate that can generate long and strong income. The global search for income has intensified further as corporates across the board cut dividends and yields on government bonds fall to record lows. Therefore, the Company believes that property let on long leases with potential income growth to high quality counterparties at yields that are 400-500 bps higher than government bond yields remains highly attractive.
The Company’s £2.3 billion portfolio (as at 31 March 2020 on an unaudited basis) is 99 per cent. occupied with 35.4 per cent. of LondonMetric’s properties in urban logistics, 34.4 per cent. in regional and mega logistics, and 23.9 per cent. in long income assets. The portfolio is valued at a topped up net initial yield of 5.0 per cent. and let on average lease lengths of 11 years to a diverse range of occupiers with over half of its income subject to contractual rental uplifts.
Despite the significant economic impact of COVID-19, the portfolio has demonstrated significant resilience with strong rent collection to date and robust valuation performances. Whilst the Company cannot be totally immune from current events, it enjoys excellent relationships with its stakeholders which, combined with long experience and its continued balance sheet discipline means that it is very well placed to deal with the current disruption.
Furthermore, the Company believes that the challenging markets are creating uncertainty which is starting to give rise to attractive investment opportunities seldom available in a normalised market. The Company expects the competition for these opportunities to be less intense and therefore pricing to be more attractive than would otherwise have been the case.
Use of Proceeds
The Company has consistently employed a strict internal competition for capital. It has funded recent investments primarily through ongoing disposals and, consequently, has only raised equity once in 2017 since it was formed through the merger in 2013.
The Company has today separately announced an update on current trading ahead of its full year results for the year ended 31 March 2020 which continues to show strong operational and financial performance.
The Company has identified a programme of Investments and opportunities. The Company intends that the Net Proceeds will be used to fund the Investments set out below, as well as other potential pipeline opportunities:
· Approximately £60 million used to acquire a long income portfolio comprising five assets:
o In legals on a sale and leaseback with a convenience/online operator, on a “principal to principal” basis with exclusivity
o New 20 year lease (15 year break) with CPIH indexation
o Excellent real estate in strong locations with extremely high occupier contentment
· Approximately £10 million used to acquire a London focussed sale and leaseback portfolio which is in legals
· Approximately £30 million for the purchase of an identified pipeline of opportunities which are in discussions and comprise an urban logistics warehouse in London and a sale and leaseback portfolio. Furthermore, the Company has very recently completed the acquisition of a £3.2 million urban logistics property in London let to a parcel operator
Financial impact
With this strong programme of Investments and opportunities in place, the Company expects to substantially deploy the Net Proceeds within three months. These acquisitions will further lengthen and strengthen the income profile of the Company as well as further improve its income granularity and diversification.
The Company’s progressive dividend policy remains unchanged and it expects to pay a fourth quarterly dividend to shareholders of 2.3 pence per share to be declared at the time of the Company’s results for the year to 31 March 2020 and paid in July 2020. This increases the dividend for Full Year 2020 to 8.3 pence (2019: 8.2 pence).
LondonMetric continues to employ a rigorous balance sheet discipline which has been enhanced following a recent £75 million HSBC unsecured financing. LondonMetric’s average debt maturity as at 31 March 2020 is 4.7 years, with a marginal cost of debt currently of 1.5 per cent (each on an unaudited basis). In addition, the Company has an LTV of 35.9 per cent. (unaudited basis) as at 31 March 2020 after adjusting for £64 million of disposals that had exchanged but not completed at the year end. Following deployment of the Net Proceeds, LTV is anticipated to be maintained broadly in line with these levels.
Details of the Placing
Under the terms of the Placing, LondonMetric intends to place approximately 56 million Placing Shares, representing approximately 6.7 per cent. of the current issued ordinary share capital of the Company.
The Placing is being conducted, subject to the satisfaction of certain conditions, through an accelerated bookbuild process to be carried out by J.P. Morgan Cazenove and Peel Hunt. The book will open with immediate effect and may close at any time thereafter. The timing of the closing of the book, the Placing Price and the number of Placing Shares will be agreed between the Bookrunners and the Company following completion of the Bookbuild and will then be announced as soon as practicable on a Regulatory Information Service.
A description of certain relevant aspects of the Placing Agreement can be found in the terms and conditions contained in the Appendix to this Announcement under the heading “Participation in, and principal terms of, the Placing”. The Placing will be made on a non-pre-emptive basis. The Company will rely on the waiver of pre-emption rights authorities given by shareholders of the Company at the Annual General Meeting held on 11 July 2019.
Prior to launch of the Placing, the Company consulted with a significant number of its shareholders to gauge their feedback as to the terms of the Placing. Feedback from this consultation was highly supportive and as a result the Board has chosen to proceed with the Placing. The Placing is being structured as a Bookbuild to minimise execution and market risk. The Board intends to apply the principles of pre-emption when allocating Placing Shares to those shareholders that participate in the Placing.
Application will be made for the Placing Shares to be admitted to listing on the premium listing segment of the Official List of the FCA and to be admitted to trading on the main market for listed securities of the London Stock Exchange plc. Subject to Admission becoming effective, it is expected that settlement of subscriptions in respect of the Placing Shares and trading in the Placing Shares will commence at 8.00 a.m. on 7 May 2020.
The Placing is conditional upon, inter alia, Admission becoming effective not later than 8.00 a.m. (London time) on 7 May 2020 (or such later time and/or date, being not later than 8.00 a.m. (London time) on 15 May 2020, as JPMC and Peel Hunt may jointly agree with the Company) and the Placing Agreement not being terminated in accordance with its terms before that time.
The above proposed dates may be subject to change at the discretion of the Company, JPMC and Peel Hunt.
The Placing Shares will, when issued, be credited as fully paid and rank pari passu with the existing Ordinary Shares in the capital of the Company including the right to receive all future dividends and distributions declared, made or paid, including the fourth quarterly interim dividend of 2.3 pence per share that the Company expects to be declared at the time of the Company’s results for the year to 31 March 2020, which will be paid in July 2020. The Company has agreed with the Bookrunners to a 90 day lock-up from Admission, subject to certain exceptions.
The Placing is conditional upon, inter alia, Admission becoming effective. The Placing is also conditional upon the Placing Agreement becoming unconditional and not being terminated.
