LondonMetric theme park owner may boost funds: MIDAS STOCK TIPS

Nemesis is consistently ranked as one of the most thrilling roller coasters in the world – a highlight for anyone who enjoys hanging upside down while hurtling through the air at 80km/h.

Recently refurbished, Nemesis is one of Alton Towers’ flagship attractions and helps the theme park attract more than two million visitors a year, around 7,000 a day in summer.

Alton Towers in Staffordshire is Britain’s largest theme park, with its partner in thrills, Surrey’s Thorpe Park, close behind.

It is owned by LondonMetric, a property company that has achieved nine consecutive years of dividend growth and looks set to achieve that goal over a decade by the end of this year.

LondonMetric shares are trading at £2.01 and are expected to rise in price as CEO Andrew Jones is highly experienced, the company is deliberately focused on fast-growing sectors of the economy and is in excellent financial health.

Fresh from a board seat at industrial giant British Land, Jones founded Metric Property Investments in 2010.

Three years later, he merged the company with a rival firm and LondonMetric was born. Since then, a number of deals have followed, the most recent of which was an all-stock merger with LXi, another UK property group firmly focused on generating income for shareholders.

Today the enlarged company owns 580 properties across the UK, from Inverness in Scotland to Truro deep in Cornwall.

While Alton Towers and Thorpe Park are major tenants, warehouses and other logistics centres account for more than 40 per cent of the portfolio by value.

Primark’s flagship distribution centre was developed by LondonMetric, spans almost 2 million sq ft across four floors and generates an annual rent of over £5 million.

Other key tenants include Amazon, Royal Mail and DPD, while many smaller businesses also rent distribution space, from microbreweries to coffee roasters and traders selling their own products.

Away from logistics, private hospitals and budget hotels form a large part of the rental stock, along with suburban supermarkets and discounters, from Waitrose and M&S to Aldi and B&M.

The merger with LXi was a smart move, catapulting LondonMetric into the FTSE 100 index and making it more attractive to large institutional investors and better able to raise low-cost funding. However, the group should also prove attractive to individual shareholders.

Many real estate companies not only rent out land, but also manage it, making sure elevators work, lights are replaced, parking lots are clean, etc.

Jones takes a different approach, known in real estate circles as triple net. He provides land and buildings, but lets tenants manage them. That allows him to keep costs low so he can pay out a lot of cash in dividends — and he does.

There was a 7 per cent increase in the dividend to 10.2p for the 12 months to March 2024 and analysts expect a payout of 12p for the current year, putting LondonMetric on a yield of 6.25 per cent.

The group also pays dividends quarterly, so investors get a nice boost every three months.

The generous dividends are backed by strong growth across the business. Rental income rose 20 per cent to £177m last year, with occupancy levels above 99 per cent and only a handful of small tenants needing more time to pay.

Rents are expected to reach almost £400m this year following the merger with LXi. The deal will also deliver significant cost savings, which will improve revenue growth.

LondonMetric has become a reliable landlord over the years and 20-year leases are common, so businesses stay with the company for the long term.

Rents are reviewed regularly and 80 per cent involve a contractual increase, so they rise annually or every five years, providing a solid foundation for dividend growth.

MIDAS VERDICT: Property companies have been through some tough times, but the cycle appears to be turning and LondonMetric is well positioned to benefit.

Leases are long, tenants work in fast-growing sectors and many are blue-chip companies. At £1.91, the shares are a good buy and the generous dividends add to their appeal.