Quick Insights on Two Real Estate Stocks - LondonMetric Property & Safestore Holdings - Kalkine Media

September 12, 2020 02:44 PM BST | By Kunal Sawhney
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Summary

  • LondonMetric Property’s net rental income increased by 24 percent year on year to £115.9 million in FY2020.
  • Acquisition of Mucklow portfolio added £20.5 million to the net rental income in FY2020.
  • Safestore Holdings generated revenue of £40.2 million, which increased by 5.2 percent year on year in Q3 FY2020.
  • The average storage rate was £26.56, and the closing occupancy was 4.944 million sq feet in Q3 FY2020.

LondonMetric Property (LON: LMP) and Safestore Holdings PLC (LON: SAFE) are the FTSE-250 listed real estate stocks. Based on 1-year performance, shares of LMP and SAFE were up by around 6.05 percent and 22.70 percent, respectively.

LondonMetric Property (LON: LMP) - Declared a quarterly dividend of 2.1 pence per share for FY21

LondonMetric Property is a UK based FTSE 250 listed real estate investment trust (REIT). The Company owns and manages real estate. The value of the Company’s portfolio is around £2.3 billion, and it has close to 16 million sq feet under management. Some of LondonMetric Property’s top tenants include DHL, Primark, Amazon, Tesco and M&S.

Portfolio Type of LondonMetric Property

(Source: Company website)

Sale of Six Warehouses

As on 11 September 2020, LondonMetric Property announced the sale of six distribution warehouses to asset manager Canmoor and AIMCo, a Canadian Institutional investor. The total value of the sale was £57.3 million with a net initial yield of 5.3 percent. The assets were located in Huyton, Milton Keynes, A&J Mucklow, Castle Donnington, Worcester, Leamington Spa and Royston. The assets had a weighted average unexpired lease term (WAULT) of 7.5 years. The warehouses are presently let out to Hamleys, CEVA, ITAB, Transmec and Groupo Antolin. The Company would earn a profit of £8.8 million and an ungeared internal rate of return of 11 percent per annum from the deal. LondonMetric Property would get an additional rent payment of £1.5 million as the transaction has been deferred until March 2021.

Rent Collection Update as reported on 2 July 2020

The Company stated it had received 95 percent of the advance rental payment until 24 June 2020, and the remaining 3 percent would be received shortly, whereas 2 percent of the rent due is under discussion and it expects that less than half of that would be exempted. It also announced the completion of the sale of three distribution warehouses for £54.5 million. Two assets were in Doncaster and one in Cheltenham, and all three assets have WAULT of six years. On 20 August 2020, LondonMetric Property declared a quarterly interim dividend of 2.1 pence per share for FY21.

FY2020 results (ended 31 March 2020) as reported on 10 June 2020

(Source: Company website)

In FY20, LondonMetric Property generated a net rental income of £115.9 million, which increased by 24 percent year on year from £93.8 million in FY19. The acquisition of Mucklow portfolio added £20.5 million to net rental income. EPRA earnings were £74.5 million in FY20, up by 22.1 percent from £61.0 million in FY19. The Company paid a full-year dividend of 8.3 pence per share. As on 31 March 2020, asset portfolio value was £2,352.2 million, and it had cash of £86.1 million.

Share Price Performance Analysis

1-Year Chart as on September-11-2020, after the market close (Source: Refinitiv, Thomson Reuters)

LondonMetric Property PLC’s shares last traded at GBX 224.20 (as on 11 September 2020, after the market close). LMP’s 52-week High and Low were GBX 245.40 and GBX 132.90, respectively. LondonMetric Property had a market capitalization of around £2.04 billion.

Business Outlook

LondonMetric Property foresees logistics business to do well, and the demand for well let assets would increase. The low-interest rate scenario and higher quality assets at an attractive price are an opportunity for the Company. LondonMetric Property highlighted that it would invest proceeds from the sale of warehouses in assets that are more strategically located and earn a higher rental income in the long-term.

Safestore Holdings PLC (LON: SAFE) - Acquired six assets of Lokabox in JV with Carlyle

Safestore Holdings PLC is a UK based self-storage company. It owns 163 stores, of which 125 stores are located in the UK, 28 stores in Paris region, six stores in the Netherlands and four stores in Barcelona. Safestore Holdings is listed on the FTSE 250 index.

Business Model of Safestore Holdings

(Source: Company website)

Q3 FY20 trading update (ended 31 July 2020) as reported on 10 September 2020

(Source: Company website)

In Q3 FY20, Safestore Holdings reported revenue of £40.2 million, which increased by 5.2 percent year on year. The average storage rate was £26.56 in Q3 FY20 that improved by 3.5 percent year on year from £25.66 in Q3 FY19. The Storage revenue was £32 million, and Ancillary revenue was £6.5 million in Q3 FY20. Storage revenue increased by 2.6 percent year on year, whereas Ancillary revenue fell by 7.1 percent year on year in Q3 FY20.

The closing occupancy was 4.944 million sq feet in Q3 FY20. In June 2020, the joint venture formed by Safestore Holdings and Carlyle completed the acquisition of six stores of Lokabox. Safestore Holdings made an equity contribution of €2.8 million related to the acquisition, and it would earn a management fee for the transaction. The Company acquired the Basildon store in July 2020 for £4.95 million, and the store generates annual rent of £210,000. In July 2020, Safestore Holdings also completed the acquisition of freehold site of 1.5 acres in Sheffield.

Regional Performance in Q3 FY2020

The UK division reported revenue of £29.6 million in Q3 FY20, which increased by 2.8 percent year on year from £28.8 million in Q3 FY19. The occupancy lost in March and April slightly recovered in June and July. The UK business division added like for like occupancy of 279,000 sq feet in Q3 FY20. The performance of new storage stores opened in London Carshalton, Gateshead and Sheffield were in line with the expectation. Paris division generated revenue of £11.0 million in Q3 FY20, which was up by 3.8 percent year on year from £10.6 million in Q3 FY19.

The average storage rate increased by 1.7 percent year on year to €39.22 in Q3 FY20. In Paris, the revenue collection was not affected due to the pandemic, and close to 86.6 percent revenue for July 2020 was collected by the end of August 2020. Safestore Holdings acquired OMB in December 2019 and the trading performance during the first seven months after acquisition has been steady. The post-lockdown performance had been strong, and the occupancy of OMB in Barcelona increased to 93.5 percent in July 2020 from 89 percent at the end of April 2020.

Share Price Performance Analysis

1-Year Chart as on September-11-2020, after the market close (Source: Refinitiv, Thomson Reuters)

Safestore Holdings PLC's shares last traded at GBX 792.00 (as on 11 September 2020, after the market close). SAFE's 52-week High and Low were GBX 886.89 and GBX 501.00, respectively. Safestore Holdings had a market capitalization of around £1.67 billion.

Business Outlook

Post-lockdown performance of the Company improved, and in August 2020 the performance was even stronger as compared to previous years. However, the Company expects the occupancy to fall in Q4 FY20 as compared to Q3 FY20 level. Given the strength of the balance sheet, Safestore Holdings would tap the opportunity related to asset acquisition at lucrative prices. The full-year earnings are expected to be in line with the management’s expectation.


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