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RBC initiates coverage on 'attractive' LondonMetric

Tue 16 April 2019 12:15 | A A A

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(Sharecast News) - Analysts at RBC Capital Markets initiated coverage on FTSE 250 real estate investment trust LondonMetric on Tuesday, calling the firm an "attractive opportunity" at a fair value.

RBC believes LondonMetric is levered to markets supported by long-term structural growth, thanks to management's plans to refocus its distribution portfolio towards London and the South East, with a greater weighting to urban warehouses, something the analysts forecast to have the "highest rental growth" over the next five years.

With LondonMetric increasing its exposure to UK distribution warehouses to over 70%, from under than 20% in 2013 and close to its 80% target, the Canadian broker reckons the group's portfolio transition was "well timed" having been largely executed ahead of significant pressures faced by retailers.

As a result of the positive trends, RBC expects to see LondonMetric's market rents for distribution warehouses increase about 5-6% per annum over the next five years, with urban warehouses at the high end of that range.

"The shift in retailing to servicing customers online has driven strong tenant demand and rent growth, which has also been supported by limited new supply. As a result, the average 4% pa like-for-like market rent growth we forecast for LondonMetric's overall portfolio is stronger than our broader coverage," said RBC.

RBC hit LondonMetric with a 'sector perform' rating and 205p target price right out the gate, noting that although it saw LondonMetric as an attractive opportunity, it still saw better opportunities elsewhere.

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