Higher interest rates knock LondonMetric

By Abigail Townsend

LondonMetric Property reported a slide into the red on Wednesday, despite a jump in rental income, after higher interest rates hit home.
The London-listed real estate investment trust reported a 14.1% rise in net rental income in the six months to 30 September, to £70.5m, while revenues rose to £71.9m from £63.7m.

However, the reported loss came in at £243.4m, compared to a £254.1m profit a year previously, because of the lower value of its investment properties.

Andrew Jones, chief executive: “Despite very strong operational and income metrics, the material upward movement in interest rates is having a profound impact on real estate valuations. They are the yardstick by which our assets are valued.

“Consequently, the negative sentiment on the future trajectory of debt costs has resulted in a material re-pricing, both in the direct property market as well as in the equity markets.”

EPRA net tangible assets per share fell by 12.2% over the period, to 229.3p, resulting in a total property return of -6.3% and a total accounting return of -10.3%.

Looking ahead, LondonMetric said it expected to see further repricing across the real estate industry, but certain sectors were likely to fare “substantially better” than those more exposed to changing consumer preferences or technological advances.

In recent years, LondonMetric has shifted its £3.5bn UK portfolio away from retail parks, offices and residential into distribution and other long income assets.

Jones said: “We continue to operate in a volatile environment with a number of challenges facing both the economy and the consumer. Sharp movements in both bond yields and interest rates have brought to an end the era of cheap money and is having a material impact on real estate valuations.

“Stability has partially returned, with a moderation in expectations for future rate increases. However, we are expecting interest rates to remain higher for longer.

“Our all-weather portfolio of quality assets in great locations continues to enjoy strong fundamentals of very high occupancy, long leases and excellent rental growth.”

As at 0945 GMT, shares in LondonMetric were off 2% at 186.1p.

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