Image source: Ocado Group plc
London metric property (LSE:LMP) has been promoted since FTSE 250 join the premier league of listed companies in the UK. Going in the other direction is Ocado Group.
Decline
It has been a sad, if inevitable, fall for the online grocer.
The company has been around for 23 years and has only posted an annual after-tax profit for three of those years. In its last five financial years, it has racked up more than £1.2 billion in losses.
Even the most tolerant investors seem to have run out of patience. Since June 2019, its share price has plummeted 67%.
In my opinion, a return to FTSE 100 It depends on the company being able to license its innovative technology to others around the world.
By contrast, LondonMetric Property is profitable and growing.
It is a real estate investment trust (REIT), which means it makes money by leasing properties to third parties. And it seems to have a lot to offer.
For the year ended March 31 (FY24), its earnings per share (EPS) was 10.9p, compared to 10.3p in FY23.
Currently, its properties have a 99.4% occupancy rate. And 80% of their rental income is covered by contractual increases.
It also has a weighted average current lease term of 19.4 years, compared to 5.4 years when its debt matures. This means you have the potential to generate a lot of cash once your debt has been paid off.
However, I suspect it will want to continue taking on debt to finance its expansion plans.
Growth
The company recently concluded two deals that should transform the size and scale of its operations. Analysts forecast EPS of 13.02p in FY25 and 13.47p in FY26.
Like all REITs, to avoid having to pay corporate tax, it must return at least 90% of its profits to shareholders each year.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice.
Based on its FY24 dividend of 10.2p, its shares currently yield 5%. However, it is aiming to pay 12p in FY25, implying a 5.8% yield. The FTSE 100 average is 3.8%.
And while I prefer to do my own research, it's comforting to know that of the 13 brokers covering the company, eight rate its stock as Buy, five are Neutral, and none advise their clients to sell.
Areas of concern
But there are risks.
According to its most recent accounts, as of March 31, the trust's net assets were equivalent to 191.7pa shares.
Today (June 10), its share price is 199.5 pence, a premium of 4.1%. This could limit the future growth of its stock valuation.
Additionally, commercial real estate can be volatile. There was evidence of this in FY23, when LondonMetric Property had to write down the value of its portfolio by £563 million.
However, overall I think the trust's shares would be a good long-term investment. More than 40% of its assets are in the logistics sector. These properties are likely to continue to be in high demand and should provide some protection against a general downturn in the housing market.
I also like their ambitious growth plans.
And the above-average performance is attractive to an income investor like me.
For these reasons, I'll put the REIT on my watch list for the next time I have some extra money.