LondonMetric Regulatory News (LMP)

LONDONMETRIC PROPERTY PLC

("LondonMetric" or the "Group" or the "Company")

ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2019

Structurally supported portfolio continues to deliver attractive returns

and support a progressive dividend

LondonMetric today announces its annual results for the year ended 31 March 2019.

1. Including share of Joint Ventures

2. Further details on Alternative Performance Measures and the presentation of financial information can be found in the Financial Review and definitions can be found in the Glossary

3. Including deferred consideration receivable on transactions that have exchanged in the year

Continued income growth increases earnings and dividends

· Net rental income up 3.5% to £93.8m1

· EPRA EPS up 3.5% to 8.8p

· Dividend increased 3.8% to 8.2p, 107% covered by EPRA EPS, including Q4 dividend declared today of 2.5p

· Reported profit of £119.7m

Sector alignment and asset selection delivers further valuation gains, contributing to total returns

· EPRA NAV per share up 5.9% to 174.9p, IFRS NAV per share up 5.4% to 174.7p

· Driven by a revaluation surplus of £64.4m1, a 3.6% uplift on the portfolio with distribution increasing by 6.8%

· Equivalent yield compression on portfolio of 10bps and ERV growth of 0.9%

· Total Accounting Return of 10.7% and Property Return of 9.0%, outperforming IPD All Property by 440bps

Investment activity increases distribution weighting to 72.5%, further improving portfolio quality

· £163.3m acquired, predominantly urban logistics which has grown to represent 27.3% of the portfolio

- WAULT of 14 years, with 63% of income acquired subject to contractual uplifts

· £238.2m disposed, predominantly mega and regional distribution as well as retail parks which represents just 4.7% of the portfolio

- WAULT of 9 years, generally in weaker geographies and over 30% was vacant

50 occupier transactions contributing to like for like income growth of 5.7% (2.9% excluding one off gains)

· £2.0m pa income uplift from lettings, signed with a WAULT of 11 years

- Distribution regears increased WAULT from four to 11 years with 17% rental uplift on urban regears

· £1.2m pa income uplift from rent reviews, 12% uplift above passing on a five yearly equivalent basis

- 28% uplifts on urban, 18% on long Income, 8% on mega and regional

0.9m sq ft of short cycle developments underway or planned creating future income at a yield of 6.7%

· At Bedford, 73% of the 188,000 sq ft development was pre-let post year end and construction of 500,000 sq ft under phase 2 remains subject to occupier commitments

Portfolio metrics reflect our focus on long income, contractual uplifts and low operational requirements

· WAULT of 12.5 years with only 3.5% of income expiring within three years

· 63% of income subject to contractual uplifts and gross to net income ratio remains above 98%

Conservative financing continues to enhance income

· LTV of 32% and debt maturity increased from 4.8 years to 6.4 years following two new debt arrangements

Recommended Offer for A&J Mucklow Group plc

· LondonMetric has today separately announced a £414.7 million recommended offer for A&J Mucklow Group plc ('Mucklow'), a distribution and industrial REIT with a portfolio located predominantly in the West Midlands.

Andrew Jones, Chief Executive of LondonMetric, commented:

"These results again demonstrate that our pivot into distribution was the right strategy to ensure that we could deliver reliable, repetitive and growing income-led returns that will outperform over the long term. Over the six years since our merger, we have delivered a total shareholder return of 156% and significantly outperformed the FTSE 350 Real Estate Super Sector of 57%.

"We believe that today's announcement of the recommended offer for Mucklow is a natural next step for the Company. With a highly complementary portfolio focused on the outperforming urban logistics sector along with asset management opportunities, which play to LondonMetric's strengths and experience, we believe this transaction creates a compelling combination, which will offer attractive shareholder returns both today and in the years to come."

Meeting and audio webcast

A meeting for investors and analysts will be held at 10.30am today at FTI Consulting, 200 Aldersgate Street, London, EC1A 4HD. The conference call dial-in for the meeting is +44 (0) 330 336 9125 (participant passcode: 7868568). In addition, there will be a live webcast available at https://www.londonmetric.com/investors with an on demand recording of the webcast available shortly after the meeting from the same link.

Notes to editors

LondonMetric is a FTSE 250 REIT (ticker: LMP) that specialises in distribution, long income and convenience-led retail property. It focuses on strong and growing income and enhancing capital values. LondonMetric has 12 million sq ft under management. Further information is available at www.londonmetric.com

Neither the content of LondonMetric's website nor any other website accessible by hyperlinks from LondonMetric's website are incorporated in, or form part of this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of shares in LondonMetric.

This announcement does not constitute a prospectus under the prospectus rules made for the purposes of Part VI of the Financial Services and Markets Act 2000 ("FSMA"), as amended, nor does it constitute or form any part of any offer or invitation to purchase, sell or subscribe for, or any solicitation of any such offer to purchase, sell or subscribe for, any securities in LondonMetric or Mucklow nor shall this announcement or any part of it, or the facts of its distribution, form the basis of, or be relied on in connection with, any contract therefor. The contents of this announcement has not been examined or approved by the Financial Conduct Authority or the London Stock Exchange, nor is it intended that the announcement will be so examined or approved.

Persons who wish to vote in favour of the recommended offer by LondonMetric for Mucklow (the "Combination") are reminded that such decision should only be made on the basis of the information in the combined circular and prospectus, and, in the case of Mucklow shareholders, the scheme document which will be circulated to Mucklow shareholders, to be published in connection with the Combination and not on the information contained in this announcement. No reliance may be placed, for any purposes whatsoever, on the information contained in this announcement or on its completeness and this announcement should not be considered a recommendation by LondonMetric or Mucklow or any of their respective advisers or affiliates or Numis Securities Limited, Peel Hunt LLP, or JP Morgan Cazenove (together the "Banks") or any of their respective advisers or their subsidiaries, branches or affiliates (the "Relevant Entities") to vote in favour of the Combination. No representation or warranty, express or implied, is given by or on behalf of the Relevant Entities or any of their respective directors, partners, officers, employees, advisers or any other persons as to the accuracy, fairness or sufficiency of the information or opinions contained in this announcement and none of the information contained in this announcement has been independently verified by the Relevant Entities or any other person. Save in the case of fraud, no liability is accepted for any loss howsoever arising, directly or indirectly, from any use of this announcement or for errors, omissions or inaccuracies in such information or opinions contained herein or otherwise arising in connection herewith. In addition, no duty of care is owed by any Relevant Entity to recipients of the announcement or any other person in relation to this announcement. Recipients of the announcement should conduct their own investigation, evaluation and analysis of the business, data and property described in the announcement.

Forward looking statements: This announcement may contain certain forward-looking statements with respect to LondonMetric's expectations and plans, strategy, management objectives, future developments and performance, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Certain statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Any forward-looking statements made by or on behalf of LondonMetric speak only as of the date they are made. LondonMetric does not undertake to update forward-looking statements to reflect any changes in LondonMetric's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast. Past share price performance cannot be relied on as a guide to future performance.

Alternative performance measures: The Group financial statements are prepared in accordance with IFRS where the Group's interests in joint ventures are shown as a single line item on the income statement and balance sheet. Management reviews the performance of the business principally on a proportionately consolidated basis which includes the Group's share of joint ventures on a line by line basis. Alternative performance measures are financial measures which are not specified under IFRS but are used by management as they highlight the underlying performance of the Group's property rental business and are based on the EPRA Best Practice Recommendations (BPR) reporting framework which is widely recognised and used by public real estate companies.

Chairman's statement

It's now ten years since we emerged from the Global Financial Crisis and history would suggest that we are in late cycle territory and that a correction is overdue. But looking ahead to the next decade, mitigating factors point to an extension of the current cycle.

Firstly, annual growth rates over the last decade have been relatively constrained and markets have remained largely rational. Secondly, interest rates have barely moved from their unprecedented low levels and, with a relatively modest outlook for wage inflation and the global economy, are unlikely to change significantly in the medium term. Finally, we live in a world where technological and political disruption is challenging long established principles and an ageing population is creating an unprecedented demand for income.

This backdrop has wide ranging consequences for real estate. Whilst many continue to see property as a trading commodity and an opportunity to reposition and crystallise capital appreciation, we believe that the most attractive characteristic of property is its income compounding quality over the longer term. The ability to generate reliable, repetitive and growing income returns makes certain property sectors a perfect asset class in which to deploy capital in the current investment environment.

However, we are acutely aware that this doesn't apply to all property. History would suggest that downward repricing is caused by serious imbalances in supply and demand. The real estate market is not seeing such imbalances but some real estate sectors are facing disruption in demand from structural change that is material, permanent and unrelated to a property cycle downturn. In particular, the migration to online shopping is causing a serious downturn in traditional retail property and this disruption will continue to cause a downward trajectory in income and have a destructive impact on valuations.

The Company's actions and strong performance continue to reflect its focus on owning good assets, in structurally supported sectors of logistics and convenience-led retail, that are let to strong occupiers, on long leases and that can deliver reliable and growing income.

During the year, the Company increased EPRA earnings per share by 3.5% and dividends per share by 3.8%, a fourth year of progression. It significantly outperformed IPD All Property, increased EPRA NAV per share by 5.9% and reported a profit of £119.7 million. Further debt arrangements have also been put in place to lengthen our debt maturity and provide flexibility whilst maintaining a prudent level of gearing.

As a measure of our longer term progress and performance, over the six years since our merger, we have delivered a total shareholder return of 156% and significantly outperformed the FTSE 350 Real Estate Super Sector average of 57%. Despite much uncertainty, we look forward to building on this performance knowing that our decisions put us in a strong position to outperform and further progress the dividend.

We recognise that the success of the Company is reliant on our people and I would like to thank the Board and all of our employees for their continued hard work. We have reviewed the structure of the Board during the year in the light of changes to the Corporate Governance Code. As a consequence, Alec Pelmore and Philip Watson retired as Non Executive Directors at the end of the year. I thank them both for their dedication over nine years and I warmly welcome Robert Fowlds, who joined the Board on 31 January 2019.

To ensure a balance between Executive and Non Executive Directors, both Valentine Beresford and Mark Stirling will step down at the AGM in July, but will remain an integral part of the senior executive team in their respective roles as Investment Director and Asset Director.

I am also pleased that we have agreed a £414.7 million recommended offer to acquire A&J Mucklow Group plc . The combination of their assets, approximately 70% of which is in distribution and industrial property, is consistent with our strategy of increasing our urban logistics exposure. The combination has compelling strategic and portfolio rationale with strong operational and financial benefits. I am delighted to say that we think this deal will be immediately earnings enhancing for shareholders. There will be work to do, but we are excited by the reversionary and asset management potential of their assets which will underpin and further support our progressive dividend policy.

Patrick Vaughan

Chairman

23 May 2019

Chief Executive's review

Overview

The Company's purpose is to own and manage UK real estate that can deliver reliable, repetitive and growing income-led returns and that will outperform over the long term. In summary, we aim to behave as a true REIT.

We continue to operate within a market framed by political and economic uncertainty combined with ongoing structural changes and technological disruption. Whilst it's not always easy to predict outcomes, the direction of travel is clear so we continue to prepare and adapt.

The property market appears to be broadly in a state of equilibrium and this period of yield tranquillity is set to continue. As I commented at the half year, however, we continue to see a further polarisation across certain real estate subsectors as yields adjust further to more realistically reflect the anticipated trajectory, certainty and timing of future rental cashflows. 'Beds, sheds & meds' continue to be clear winners whilst operational shopping centres, department stores and retail parks have been the undeniable losers.

I also stated previously that I didn't think that the market was properly discriminating and that it was time to own not only the winning sectors but also the right assets in those sectors. Today, we believe these principles are more important than ever to delivering attractive long term returns.

It is this focus that frames our capital allocation and has created what we believe is an 'all weather' portfolio of fit for purpose distribution and long income assets where we can take a longer term investment view and collect, compound and grow our income.

Logistics continuing to benefit from online adoption

Despite the gloomy headlines for retail, it's not necessarily a case of consumers shopping less but more about how they are choosing to shop.

The internet continues to change consumer shopping patterns with sales continually moving away from physical stores towards online. The percentage of non-food retail sales that are now online has grown to an estimated 23% and is expected to increase further to 28% by 2023. Indeed we believe that these profound changes will be of greater significance over the next 5-10 years than what ultimately happens with the UK's relationship with the EU.

These shifts in consumer shopping patterns are causing significant challenges for many established retailer business models. Those retailers that adapt quickly enough will ultimately win, probably at the expense of those who cling to the old ways, who will likely fail and disappear. The survivors are already inheriting unprecedented pricing power on lease renewal negotiations which will further compound this advantage. This shift is firmly underway and it continues to influence our sectoral choices, asset selections and credit decisions.

It is clear that the ecommerce revolution is continuing to drive sustained demand for logistics and warehouse space with CBRE reporting record logistics take up in 2018 of 31.5 million sq ft, driven in particular by demand from online retailers. Whilst supply levels and speculative development has responded, vacancy rates continue to remain at historically low levels. Furthermore, after several years of consistent rental growth, JLL is still forecasting further rental growth in logistics of 2.1% per annum over the next four years, outperforming most other real estate subsectors.

Interestingly rental growth is expected to vary significantly by region. One of the top performing regions over the next five years is expected to be London and the South East, with JLL forecasting growth of 4.6% per annum. Other regions that are expected by Gerald Eve to outperform include the North West and the West Midlands. Urban logistics 'last mile' is expected to benefit in particular with this subsector witnessing ever reducing levels of supply as urbanisation leads to stronger competition from more valuable alternative land uses.

Our portfolio is aligned to distribution assets that will outperform

Our exposure to distribution has grown over the year to represent 72.5% of our portfolio. Whilst we look to grow our logistics exposure further, our overwhelming focus is to own the right assets that can provide reliable, repetitive and growing income.

The positive momentum in logistics is clear and we expect it to continue to outperform other real estate sectors as investors remain attracted by the sector's strong fundamentals, as well as a need to further re-weight real estate allocations away from legacy sectors, primarily retail. However, one of the consequences of elevated levels of investor demand is that we quite often see too much optimism factored into pricing as investors exuberantly extrapolate the sector's strong fundamentals. We have seen this particularly in larger box distribution and shorter let assets located in weaker geographies.

As a result, we are increasingly rejecting many new opportunities that come across our desks and have taken advantage of market strength to sell our weaker assets for good prices. Over the year, we sold £155.1 million of distribution assets, of which £115.6 million was mega and regional distribution warehouses. Two thirds of the sales were in Yorkshire and half were non income producing, the majority of which related to the sale of a 527,000 sq ft warehouse formerly let to Poundworld and a 335,000 sq ft warehouse let to Marks & Spencer but sold on a vacant basis. The WAULT to first break on the remaining assets sold was just four years.

Our reinvestment has continued to focus on urban logistics where we see superior rental growth prospects. In the year, we acquired £106.6 million of urban assets which, together with further expenditure on developments, has helped to increase our urban logistics platform over the year from £366.5 million to £503.9 million, representing 38% of our total distribution portfolio. Our focus on long income and strong locations, has increased the WAULT on our urban logistics to 10 years and its London and South East weighting to 64%.

Long income and convenience-led retail continues to deliver

There are still many weak parts of the retail property market where assets are materially over-rented, let to distressed occupiers, in increasingly marginal locations, with impending capex liabilities and shortening lease lengths. Whilst the operational-led retail real estate market has already seen material valuation falls, we expect values to weaken further.

We have continued to divest our multi-let operational retail parks and disposed of two parks, both at book value. Three retail parks remain and they account for less than 5% of our portfolio, down from 20% four years ago. Whilst they are modern fit for purpose assets, 98.8% let on an average lease length of 10 years, across the board price reductions by valuers, who are increasingly sentiment driven, resulted in these parks delivering a total property return over the year of -3.2% and these assets are now valued at a blended NIY of 6.3%. However, despite these falls, our shareholders have still made good profits compared to historic cost.

Despite the well publicised challenges, we do not think that all retail assets are heading into history and that some of the pessimism is overdone. Indeed our long let assets continue to successfully navigate the retail disruption and, whilst not immune from the challenges, delivered a total property return over the year of 4.8%. In particular, convenience food is performing well as internet penetration rates for food remain low and top up shopping continues to grow in popularity.

We spotted this trend a number of years ago when we acquired our first standalone Aldi store and have grown this to 22 convenience stores let to occupiers such as Aldi, Lidl, M&S and the Co-op. We have been able to acquire and build these assets at attractive prices, often in conjunction with our occupiers, well before the market fully appreciates their true intrinsic values.

In the year, we selectively acquired £56.7 million of further long let income opportunities, with average lease lengths of 18 years and 67% of the income benefitting from contractual rental uplifts. As well as convenience stores, some of these acquisitions related to service-led opportunities and roadside assets.

Overall, our retail and leisure portfolio is well located and has strong income characteristics with 99.8% occupancy, a WAULT of 12 years let to good occupiers at sustainable rents, with low operational requirements and average lot sizes of under £10 million.

Income will continue to define this decade's investment winners

We have highlighted on previous occasions our view that income and income growth would be the defining characteristics of the next decade's investment environment.

Growth rates across the world continue to moderate and 10 year government bond yields have returned to historically low levels. This benign economic environment coincides with the impending demographic explosion in the number of retirees across the globe. In the UK, the old age dependency ratio (pensioners per 1,000 people of working age) is expected to rise from 280 to 364 in 20 years' time, a 30% increase.

Therefore, we believe that well located property, that is let on long leases to strong credits, delivering a return that is 400-500 bps higher than government bonds, is increasingly attractive. If you overlay an inflation hedge then the margin over bond yields becomes even more attractive.

Our portfolio's income metrics remain strong

Income and income growth remain a key priority, which allows us to be a little less obsessed about predicting exact market movements or timing of cycles.

Our portfolio's income metrics remain strong with 98% occupancy, long leases averaging 12.5 years and only 3.5% of income expiring within three years. Our focus on single let properties with very limited defensive capex requirements, something we refer to as 'Triple net income', continues to contain our gross to net income leakage at under 2%.

Delivering enhanced income-led returns through our asset management

We are strongly of the view that delivering income growth will be crucial for future outperformance. Therefore, our portfolio has consciously been constructed to deliver this growth in three ways:

1. Contractual uplifts in the form of RPI, CPI or fixed increases - 63% of our rental income benefits from some form of contractual uplift (up from 50% 12 months ago) and this dominates our mega and regional logistics assets as well as our convenience and leisure assets;

2. Organic growth through the five yearly rent review cycles - this predominantly relates to our urban logistics portfolio, where we are settling material uplifts on open market rent reviews; and

3. Asset management and development initiatives - historically this was focused across our retail park assets but now is increasingly being undertaken within our urban logistics portfolio where we look to invest alongside our occupiers to deliver fit for purpose real estate.

During the year, our lettings and rent reviews helped to deliver £3.2 million of additional income. We signed 11 distribution lettings and regears across 1.9 million sq ft which significantly increased rents and extended the lease lengths on regeared properties from four years to 11 years. Rent reviews were settled at 11.7% ahead of passing on a five yearly equivalent basis. These deals helped to grow like for like income by 5.7% over the year.

Outlook

The decision to pivot the portfolio a number of years ago to align with the structural changes in shopping habits continues to bear fruit and we expect further outperformance as real estate assets continue to polarise. Our strategic repositioning since 2013 means that we increasingly like what we own and expect it to deliver strong income and income growth.

We have exited assets and sectors that we regard as less attractive and have invested in stronger assets within the winning sectors. We can't always predict, but we can prepare, and so we will continue to evolve to ensure that our portfolio remains fit for purpose. If we avoid the losers, the winners will look after themselves.

We will stay rational, unemotional and above all patient. We will move forward using our experience and expertise to help guide us and accepting that, amongst uncertainty, we cannot be so optimistic that we want to bid on everything, but neither are we so bearish that we want to sell everything; remembering that when the dust settles and all the uncertainty has disappeared, there will be no bargains left.

Our long term 'all weather' approach, combined with our belief in the merits of behaving as a 'true REIT' and full shareholder alignment, will ensure that we continue to progress the dividend and deliver compounding returns.

Property review

We invest in real estate that can deliver repetitive, reliable and growing income and that offers the best prospects for superior income-led total returns. Our actions aim to strengthen our portfolio's income metrics.

Continued focus on aligning our portfolio to logistics and convenience-led assets

Acquisitions in the year were £163.3 million and consisted mainly of urban logistics, long income and convenience assets. These assets had an average lease length of 14 years with 63% of the income subject to contractual uplifts and 45% located in London and the South East. Consequently, together with reversionary potential, the blended acquisition NIY of 4.6% is expected to increase to 5.3% over the next five years.

As part of our disciplined portfolio management, we sold £238.2 million of assets at a NIY of 3.7% (including vacant properties) and with a WAULT of nine years. Approximately half of the disposals were larger distribution warehousing, the majority of which were vacant and located predominantly in Yorkshire. The balance of the disposals was split between assets outside our preferred sectors, namely two retail parks and 18 residential flats, and selective urban logistics, convenience and leisure assets where we reacted to strong offers for our assets.

Activity over the year significantly increased our urban logistics exposure to over £500 million, representing 27% of the overall portfolio. Despite net disposal activity, our total distribution exposure increased further from 68.5% to 72.5%. Long income increased to 13% whilst convenience and leisure reduced slightly to 9%. Directly owned retail parks now represent less than 5%, down from 7% at the start of the year, and residential fell to less than 1% with 33 flats at Moore House remaining to sell of the original 149 owned.

1 NIY includes vacant distribution property disposals totalling £74.5 million, where there was no income

2 Excludes proceeds from disposals in Loughborough and South Elmsall totalling £47.5 million that exchanged last year but completed in the year and, as such, are reflected in the full year financial statements

3 Includes a £10.5 million regional disposal in Wakefield that exchanged in the year but completed post year end and will be reflected in next year's financial statements

Portfolio metrics strengthened over the year

As a result of our management and investment activity, the portfolio's average lease length increased over the year to 12.5 years (11.6 years to first break). This provides a high level of income security with only 3.5% of income expiring over three years and 37.6% over 10 years. Occupancy increased over the year from 97.5% to 97.8% and our gross to net income ratio of 98.2% continues to compare very favourably against our peers and reflect the low operational requirements of our assets.

During the year, we undertook 50 occupier transactions which generated £3.2 million of additional income. Like for like income growth was 5.7% or 2.9% excluding one off gains.

Urban & regional logistics continues to perform

Over the year, the portfolio delivered a total property return of 9.0%, significantly outperforming the IPD All Property return of 4.6%. Distribution delivered a total return of 12.2%, long income, convenience and leisure delivered 4.8% whilst retail parks delivered a -3.2% total return.

The portfolio revaluation gain over the year was £64.4 million, reflecting a 3.6% increase. This was driven by an equivalent yield compression of 10bps on a like for like basis and ERV growth of 0.9%. ERV growth was highest in urban logistics, which saw a 5.0% increase, whilst mega distribution increased by 0.8%.

Distribution delivered an £82.5 million revaluation gain, a 7% increase, with urban and regional logistics again outperforming. Developments delivered a 19% increase equating to a £9.7 million uplift. Retail and leisure values fell by 5% overall, where the valuation uplift on convenience and leisure was offset by falls at our retail parks. Residential saw a £1.8 million decline. The investment portfolio's EPRA topped up net initial yield is 4.7% and the equivalent yield is 5.1%.

distribution

We invest across the distribution subsectors and in assets that we believe have the best return prospects.

Our distribution assets are spread across the urban, regional and mega subsectors. Including developments, their value increased over the year from £1,263 million to £1,339 million, representing 72.5% of the portfolio. The average WAULT is 13 years, up from 12 years, whilst occupancy increased to 97%. 72% of income from our distribution assets is now subject to contractual rental uplifts.

1 Including developments

2 Percentage of portfolio that benefits from contractual rental uplifts

Increasing our urban logistics exposure to over £500m

We have been increasingly attracted to urban logistics where we perceive investment returns are greatest and where, over the last three years, we have selectively increased our exposure from £37 million to £504 million. Urban logistics is now the largest component of both our distribution exposure and the wider portfolio.

The restricted supply in urban logistics and strong occupier demand continues to generate highly favourable market dynamics, which are driving attractive rental growth and returns. This is reflected in our urban logistics average ERV which, at £7.70 psf, is 15% higher than passing rent of £6.70 psf.

Our recent distribution investments have been exclusively in urban logistics. During the year, we acquired £106.6 million of urban logistics at a NIY of 4.5%, which is expected to increase to 5.3% over five years as a result of organic reversion and contractual uplifts. These acquisitions had a WAULT of 12 years with 60% of the income subject to contractual uplifts. These assets were also located mainly in the South and helped to increase our urban portfolio's London and the South East weighting to 64%.

Focusing on the right assets within logistics

Whilst we remain focused on growing our logistics exposure, we are more conscious than ever that asset selection will be crucial to deliver consistent, reliable and growing income returns.

Therefore, to ensure that our portfolio remains fit for purpose, we sold 15 distribution assets in the year for £155.1 million. We took advantage of the strong market to sell three non income producing assets totalling £74.5 million. Of the remainder, the WAULT to first break was four years and these assets were sold at a blended NIY of 5.7%.

Reflecting our conscious move away from larger distribution, where we believe rental growth prospects are weaker, 75% of disposals were mega and regional assets. As a consequence, mega distribution exposure has fallen from 27% to 23% of the portfolio and all of these assets now have contractual rental uplifts.

Our greater geographic focus saw us sell a number of assets in what we consider are less favourable locations. Two thirds of our disposals were located in Yorkshire, a region where we have consciously sought to reduce our exposure, and this helped to reduce our Yorkshire distribution exposure from 17% to 9%.

ACQUISITIONS (ALL URBAN)

340,000 sq ft portfolio

Acquired for £49.1 million let to occupiers including CEVA Logistics, DSV and Jewson for a further eight years.

112,000 sq ft in Milton Keynes

Acquired for £12.0 million let to Royal Mail for a further 10 years.

80,000 sq ft in Cambridgeshire

Acquired for £10.0 million let to Cambridge Commodities for a further 20 years.

78,000 sq ft in Thorne

Acquired for £7.9 million let to Omega Plc for 20 years.

48,000 sq ft in Avonmouth

Acquired for £13.5 million let to Chep for a further nine years.

34,000 sq ft in Basildon

Acquired for £6.3 million let to WCM for 20 years.

25,000 sq ft in Orpington

Acquired for £7.8 million let to Selco for 15 years.

Post year end, we acquired two assets for £9.9 million:

· 35,000 sq ft urban logistics warehouse in Dunstable for £5.7 million let to Mega Marble for 15 years; and

· 26,000 sq ft urban logistics warehouse in Croydon, London for £4.2 million let to Harrow Green for 17 years.

DISPOSALS

527,000 sq ft in Wakefield

Disposed for £43.5 million, formerly let to Poundworld but sold on a vacant basis.

492,000 sq ft portfolio

Disposed for £36.0 million let to occupiers including Encon, NNR & Hillary's Blinds for a further six years.

335,000 in Sheffield

Disposed for £23.5 million let to Marks & Spencer until end of March 2019 and sold on a vacant basis.

137,000 sq ft in Doncaster

Disposed for £9.9 million let to Howdens for a further two years.

128,000 sq ft in Ashby-de-la-Zouche

Disposed for £12.1 million let to United Biscuits for a further nine years (four years to first break).

121,000 sq ft in Wakefield

Disposed for £10.5 million let to One Stop Stores for a further four years.

103,000 sq ft in Wakefield

Disposed for £7.5 million let to Menzies for a further seven years (two years to first break).

97,000 sq ft in Leicester

Disposed for £7.5 million, sold on a vacant basis.

54,000 sq ft in Wakefield

Disposed for £4.8 million let to Macfarlane for a further six years.

long income & convenience-led RETAIL

We focus on long income and convenience-led retail that can generate reliable and growing income.

Our long income and convenience-led portfolio is 100% let with a WAULT of 12 years, let to strong occupiers at affordable average rents of £17.90 psf and valued at an attractive NIY of 5.8%. The average lot size is less than £10 million with 46% of income subject to contractual uplifts.

Attracted by these strong characteristics, these assets continue to see strong investment demand from low energy pension fund investors, as evidenced by our £72.7 million of disposals at a NIY of 5.1%. Our disposals were broadly offset by £56.7 million of acquisitions which we acquired at a NIY of 4.9% and, with contractual uplifts on 67% of this income, this is expected to rise to 5.3% over five years. Reflecting our long income focus, the average WAULT on acquisitions was 18 years.

1 Including developments

2 Percentage of portfolio that benefits from contractual rental uplifts

Long income

Long income represents 13% of the portfolio and consists of properties held predominantly within our MIPP and DFS joint ventures. These assets have very limited operational requirements, are let on average for 11 years, typically to single tenants such as Dunelm, Wickes and DFS. A third of income has contractual uplifts.

Convenience & leisure

These assets represent 9% of the portfolio, have an average lease length of 15 years and 84% of income is subject to contractual rental uplifts. They consist of convenience-led stores let mainly to M&S, Aldi, Co-op and Lidl, and five Odeon cinemas, mostly acquired as part of a portfolio of ten cinemas in 2013.

Retail parks

Over the last four years, our direct retail park exposure has significantly reduced from 16 assets to three today. During the year, we sold a 70,000 sq ft retail park in Launceston for £21.9 million at a NIY of 5.6% and our Martlesham Heath Retail Park for £22.0 million at a NIY of 5.2%. These disposals were sold at book value. Retail Parks now represent under 5% of the total portfolio and consist of assets in Tonbridge, Coventry and Leeds that have all been recently repositioned, are 98.8% let at sustainable rents, on average for a further 10 years, and valued at a NIY of 6.3%.

ACQUISITIONS

MIPP Joint Venture

Acquired four assets in Aldershot, Beverley, Newmarket and Telford for £21.4 million (Group Share: £10.7 million) let predominantly to Wickes and the Range. Other occupiers include Burger King, KFC and Costa.

Derby

Acquired a 34,000 sq ft long income asset let to Wickes for £5.9 million.

Durham

Acquired a 58,000 sq ft forward funded convenience development for £13.6 million pre-let to Lidl and the Range.

Roadside Portfolio

Acquired a portfolio of eight roadside convenience assets for £12.1 million let to Euro Garages under franchise agreements with Starbucks, Burger King, Greggs and Subway. The assets occupy prominent roadside locations, with the largest two in Bicester.

Hull

Acquired a 35,000 sq ft Odeon Cinema for £4.3 million.

London

Acquired two convenience assets let to the Co-op for £10.2 million.

Post year end, we increased our equity holding in the DFS Joint Venture from 45% to 82% for £18.6 million. The opportunistic acquisition gives LondonMetric full operational control, allows it to accelerate various asset management initiatives and also pay down expensive secured bank facilities which were due to expire imminently. We also acquired two convenience stores in Worthing and Bournemouth for £6.1 million let to the Co-op for 20 years.

DISPOSALS

Roadside Portfolio

Disposed of two assets let to Euro Garages for £2.2 million.

Penrith & Cowes

Disposed of two M&S convenience stores for £10.7 million.

Warrington

Disposed of a 36,000 sq ft Odeon Cinema for £13.7 million.

Launceston

Disposed of a 70,000 sq ft retail park for £21.9 million.

Martlesham Heath, Ipswich

Disposed of a 48,000 sq ft retail park for £22.0 million.

Oldham

Our MIPP JV sold a 25,000 sq ft asset let to Wickes for a further 15 years for £4.5 million (Group Share: £2.3 million).

asset management

Our asset management activity continues to improve the quality of our real estate as well as grow our income. We undertook 50 occupier transactions in the year, generating £3.2 million of additional income and reducing our vacancy rate to 2%. Like for like income growth in the year was 5.7%, 2.9% excluding one off gains. Contracted income at the year end was £89.7 million.

Distribution lettings

Distribution lettings and regears in the year were signed across 1.9 million sq ft, adding £1.6 million of income with an average lease length of 11 years and tenant incentives equivalent to c.10 months rent free. On regears, lease lengths were increased from four to 11 years.

Three regears were signed on mega and regional assets:

· Bedford, we signed a 15 year regear with Argos across 656,000 sq ft, increased from four years

· Swindon, we exchanged contracts with Oak Furniture to extend its 302,000 sq ft distribution warehouse by 55,000 sq ft. The lease runs for a further nine years following removal of the break

· Sheffield, a five year regear on 291,000 sq ft was signed with M&S

Eight urban logistics lettings and regears were signed with rents on regears increasing by 17% against previous passing. Material lettings and regears included:

· Croydon, a 10 year regear was signed with Tesco

· Frimley, a new 10 year lease was signed with DPD at our recently completed development

· Warrington, a new 15 year lease was signed with Bonfigioli

· Solihull, a 10 year regear was signed with DHL

· Basildon, a 15 year regear was signed with Geodis Wilson

· Havant, a 10 year regear was signed with Wartsila

Post year end, we exchanged on two lettings at our Bedford development. 15 year leases were signed with a major US automation and technology business, and Workstories on 107,000 sq ft and 31,000 sq ft respectively. At our developments in Stoke and Crawley, which completed last year, detailed discussions on letting the remaining space are ongoing.

Distribution rent reviews

During the year, we settled 11 distribution rent reviews across 3.8 million sq ft adding £1.0 million of income at 10% above passing rent on a five yearly equivalent basis.

In urban logistics, we settled four reviews, including two open market reviews in Leyton and Crawley, at an average of 28% above previous rent on a five yearly equivalent basis, generating £0.3 million of additional income. There is good potential for further organic income growth from our urban logistics assets where average ERV is 15% higher than average passing rent.

This contrasts with the more muted rental growth that bigger box logistics is experiencing generally and where we settled seven rent reviews at 8% above passing on a five yearly equivalent basis, split 7% for mega and 11% for regional. These reviews generated an uplift of £0.7 million.

Long income and convenience-led retail lettings and reviews

20 rent reviews were signed which generated an uplift of £0.2 million at 18% above previous passing on a five yearly equivalent basis. These reviews were almost exclusively on convenience and leisure assets with RPI or fixed uplifts. Eight lettings were signed which generated an uplift of £0.4 million. The lettings had a WAULT of 14 years with contractual uplifts on 37% of the income and average incentive packages equivalent to eight months.

developments

During the year, we completed 0.3 million sq ft of developments, generating £2.6 million of additional contracted rent at a yield of 5.8%, 89% of which was pre-let prior to construction commencing. Developments under construction or in the pipeline total 0.9 million sq ft and are expected to generate an additional £7.1 million of rent at a yield of 6.7%.

1 Based on calendar quarters and years

2 Anticipated yield on cost and rents

Bedford

At our 40 acre site, we have built three urban logistics warehouses. 73% of the 188,000 sq ft development has been let. We continue to see good interest from occupiers for the last remaining warehouse and will look to commence construction of the second phase totalling 500,000 sq ft upon commitment from new occupiers.

Durham

The forward funded development is expected to complete in July. The development is pre-let to Lidl and The Range with a WAULT of 20 years.

Derby

The development has been revised for planning and detailed discussions are ongoing with a convenience operator. Acquisition of the development is subject to planning.

Weymouth

19,000 sq ft has been pre-let to Aldi and offers have been received on the letting of three small pods. The development is expected to have a WAULT of 18 years. The site has been purchased and construction of the Aldi unit is expected to commence shortly with completion expected in January 2020.

Swindon

See the asset management review for more information.

New Malden

Extension to and modification of an existing asset to accommodate three new convenience related occupiers. On completion, the asset will be let for c.17 years to occupiers including Dixons, an existing tenant who are expected to occupy 38,000 sq ft, and Lidl, a new occupier who has agreed a pre-let for 25 years on 11,000 sq ft. Planning consent is expected in June 2019.

Financial review

Our strong financial performance this year is a result of making the right strategic decisions in the past. Our portfolio is well positioned to benefit from the migration of shoppers to online platforms and withstand Brexit disruption in the short term.

Overview

IFRS reported profit for the year of £119.7 million was predicated on EPRA earnings of £61.0 million and a revaluation gain of £64.4 million including our share of joint ventures. IFRS net assets increased 5.9% to £1,216.8 million.

EPRA earnings per share has grown by 3.5% to 8.8p, allowing us to increase our dividend for the year by 3.8% to 8.2p per share. The dividend is 1.07 times covered by EPRA earnings and can be taken as a cash payment or scrip share alternative. EPRA NAV per share increased by 5.9% to 174.9p.

We entered into two new debt arrangements in the year to improve our capital structure and lengthen our debt maturity.

In July, we entered into a new £75 million unsecured debt facility with Wells Fargo, of which £50 million has been drawn on a seven year term. In December, we entered into a £150 million private placement at a blended fixed rate coupon of 3.5% and an average maturity of 12 years. As a result, our average debt maturity has increased to 6.4 years from 4.8 years last year and available undrawn facilities have increased to £373.5 million.

These financing transactions provide flexibility to execute our property strategy and underpin our strong financing metrics.

Following sales at the year end, our loan to value is 32% (2018: 35%) and our average cost of debt is 3.1% (2018: 2.8%). Proceeds from sales will be used to fund our investment plans.

Presentation of financial information

The Group financial statements are prepared in accordance with IFRS where the Group's interests in joint ventures are shown as a single line item on the consolidated income statement and balance sheet and all subsidiaries are consolidated at 100%.

Management monitors the performance of the business principally on a proportionately consolidated basis, which includes the Group's share of joint ventures on a line by line basis in the financial statements.

These measures, presented on a proportionately consolidated basis, are alternative performance measures, as they are not defined under IFRS.

The figures and commentary in this review are consistent with our management approach, as we believe this provides a meaningful analysis of overall performance.

Alternative performance measures

The Group uses alternative performance measures based on the European Public Real Estate Association ('EPRA') Best Practice Recommendations ('BPR') to supplement IFRS.

EPRA earnings per share is one of the Group's KPIs and supports the level of dividend payments. It is also one of the financial performance targets under the variable incentive arrangements for Executive Directors.

The EPRA measures are widely recognised and used in our sector and seek to improve transparency, comparability and relevance of published results, as they highlight the underlying performance of the Group's property rental business.

Further details, definitions and reconciliations between EPRA measures and the IFRS financial statements can be found in note 8 to the financial statements, Supplementary notes i to vii and in the Glossary.

Income statement

EPRA earnings for the Group and its share of joint ventures are detailed as follows:

The table below reconciles the movement in EPRA earnings in the year.

1 Other items include taxation

Net rental income

One of our key strategic priorities has been to grow sustainable income to support growth in EPRA earnings and a progressive dividend. This year, net rental income increased by 3.5% to £93.8 million. Movements in net rental income are reflected in the table below.

Income from lettings, rent reviews and regears of our existing portfolio generated additional income of £4.2 million, which included lease surrender premiums of £2.5 million compared with £1.5 million last year. Completed developments delivered a further £2.6 million of additional income and net disposals reduced income by £3.1 million.

Property costs have increased by £0.5 million due to increased costs of vacant units, however our property cost leakage continues to be minimal at less than 2%.

Administrative costs

Administrative costs have reduced by £0.2 million to £13.7 million and are stated after capitalising staff costs of £1.9 million (2018: £1.8 million) in respect of time spent on development projects in progress, in accordance with our accounting policy. Average headcount is slightly lower at 28 employees compared with 31 last year.

EPRA cost ratio

The EPRA cost ratio continues to be a key measure of our effective cost management and at 15.0% is one of the lowest in the sector. The ratio, which reflects total operating costs as a percentage of gross rental income, has fallen by 28 bps over the year. The full calculation is shown in Supplementary note iv.

Net finance costs

Net finance costs, excluding the costs associated with repaying debt and terminating hedging arrangements on sales and refinancing in the year, were £20.2 million, an increase of £1.7 million over last year.

Although net debt decreased over the year, average borrowings were actually higher in 2019 compared with 2018, which together with higher average rates, resulted in increased bank interest costs of £0.8 million. Alongside this, interest capitalised on developments fell by £0.6 million and we incurred additional fees and interest on new Group facilities and joint venture debt of £0.3 million. Further detail is provided in notes 5 and 10 to the financial statements.

Share of joint ventures

EPRA earnings from joint venture investments were £7.0 million, an increase of £0.5 million over last year as reflected in the table below.

Our MIPP joint venture received surrender income net of associated costs of £0.7 million in the year and additional net rent from acquisitions and completed developments of £0.2 million. Income from our 45% holding in the DFS joint venture fell by £0.3 million this year as a result of two disposals in the previous year. In addition, the Group received net management fees of £0.9 million for acting as property advisor to each of its joint ventures (2018: £0.9 million).

IFRS reported profit

Management principally monitors the Group's underlying EPRA earnings which reflect earnings from core operational activities and excludes property and derivative valuation movements, profits and losses on disposal of properties and financing break costs.

A full reconciliation between EPRA earnings and IFRS reported profit is given in note 8(a) to the financial statements and is summarised in the table above.

The Group's reported profit for the year was £119.7 million compared with £186.0 million last year. The £66.3 million reduction was primarily due to a £57.2 million lower property revaluation gain and £12.0 million adverse derivative movement net of break costs this year.

Sales of 17 flats at Moore House generated a loss on sale of £1.6 million. Other Group sales generated a profit over book value of £0.6 million, resulting in an overall loss of £1.0 million compared with a loss of £2.0 million last year. The total profit over original cost of all sales in the period was £40.6 million, representing a return of 17.3%. Including one further flat sale at Moore House post year end, we have 33 remaining flats of the original 149 owned.

Disposals are discussed in detail in the Property review.

Taxation

As the Group is a UK REIT, any income and capital gains from our qualifying property rental business are exempt from UK corporation tax. Any UK income that does not qualify as property income within the REIT regulations, principally management fees and interest receivable, is subject to UK tax in the normal way.

The tax credit in the period reflects a land remediation receipt of £0.4 million net of a tax provision of £0.2 million on income that does not qualify as property income within the REIT regulations.

The Group's tax strategy is compliance orientated; to account for tax on an accurate and timely basis and meet all REIT compliance and reporting obligations. Our strategy, which has been approved by the Board, can be found on our website at www.londonmetric.com.

Our responsible approach seeks to minimise the level of tax risk and to structure our affairs based on sound commercial principles. We maintain an open dialogue with HMRC to identify and resolve any issues as they arise.

We continue to monitor and comfortably comply with the REIT balance of business tests and distribute as a Property Income Distribution 90% of REIT relevant earnings to ensure our REIT status is maintained.

In accordance with REIT regulations, £5.4 million was withheld on property income distributions and paid directly to HMRC in the year.

Dividend

The Company has continued to declare quarterly dividends and has offered shareholders a scrip alternative to cash payments.

In the year to 31 March 2019, the Company paid the third and fourth quarterly dividends for 2018 and the first two quarterly dividends for 2019 at a total cost of £55.6 million or 8.0p per share as reflected in note 7 to the financial statements.

The Company issued 2.8 million ordinary shares in the year under the terms of the Scrip Dividend Scheme, which reduced the cash dividend payment by £5.0 million to £50.6 million.


The first two quarterly payments for the current year of 1.9p per share were paid as Property Income Distributions ('PIDs') in the year. The third quarterly payment of 1.9p was paid as a PID in April 2019 and the Company has proposed a fourth quarterly payment of 2.5p payable on 11 July 2019, of which 0.75p per share will be a PID, to shareholders on the register at the record date of 7 June 2019.

The total dividend payable for 2019 has increased 3.8% to 8.2p, comprising a PID of 6.45p and an ordinary dividend of 1.75p.

The Board took the following into account when considering its dividend payments:

· Its REIT obligations to distribute 90% of property rental business profits

· Its desire to pay a sustainable and progressive level of dividend

· Its EPRA earnings for 2019 and outlook

At the year end the Company had distributable reserves of £748.4 million, providing substantial cover for the dividend payable for the year. When required and at least six monthly, the Company receives dividends from its subsidiaries which increase distributable reserves.

Balance sheet

EPRA net assets for the Group and its share of joint ventures are as follows:

EPRA net asset value is a key measure of the Group's overall performance, reflecting both income and capital returns. It excludes the fair valuation of derivative instruments that are reported in IFRS net assets. A reconciliation between EPRA net assets and IFRS reported net assets is provided in the table above and in note 8 to the financial statements.

IFRS reported net assets increased by £67.3 million or 5.9% in the year to £1,216.8 million.

EPRA net assets have increased £72.1 million or 6.3% in the year to £1,218.7 million. On a per share basis, EPRA net assets increased by 9.7p to 174.9p. The table below summarises the movement in the year.

1 Other movements include scrip share issue savings (£5.0 million), offset by loss on sales (£1.0 million) and share based awards (£1.7 million)

2 Other movements in EPRA NAV per share reflect the impact of share movements in the year

The increase in both IFRS and EPRA net assets per share was principally due to the property revaluation gain of 9.3p. EPRA earnings per share of 8.8p covered the 8.0p dividend paid in the year.

Total accounting return is another important measure of our performance as it reflects EPRA net asset value growth plus dividends paid in the year. Our strong return this year of 17.7p per share, or 10.7%, although lower than last year, compares favourably with many of our peers. The full calculation can be found in supplementary note viii.

Portfolio valuation

We have continued to invest in urban logistics assets that have once again delivered high levels of rental and valuation growth. Our distribution exposure has increased to 72.5% including distribution developments, up from 68.5% last year. Further sales of retail parks have reduced our exposure in this sector to less than 5%.

Developments in progress at the year end included our 40 acre scheme in Bedford, a retail development pre-let to Aldi in Weymouth and a forward funded pre-let scheme in Durham. Projects at Dagenham, Frimley, Ipswich, Ringwood and Telford completed in the year and our investment in development assets remains at modest levels.

A breakdown of the property portfolio by sector is reflected in the table below.

The movement in the investment portfolio is explained in the table below.

Property values have increased by £64.4 million in the year, most significantly in the distribution and development sectors and the portfolio has delivered a total property return of 9.0% compared to the IPD All Property index of 4.6%.

The Group spent £156.3 million in the year acquiring £112.5 million urban logistics, £15.6 million long income and £28.2 million convenience and leisure assets.

We completed 23 commercial property and 17 residential flat sales in the year generating net proceeds of £274.0 million and reducing the book value of property by £275.0 million (including the cost of lease incentives written off of £16.2 million). We exchanged to sell our distribution centre in Wakefield let to One Stop for £10.5 million in the year. The sale completed in April 2019 and will be accounted for next year.

At the year end, the Group had capital commitments of £19.7 million as reported in note 9 to the financial statements, relating primarily to committed developments in progress at Durham and Bedford.

Further detail on property acquisitions, sales, asset management and development can be found in the Property review.

Financing

The performance indicators used to monitor the Group's debt and liquidity position are shown in the table below. The Group and joint venture split is shown in Supplementary note iii.

Net debt has fallen over the year by £67.5 million to £602.1 million.

We entered into new debt arrangements to lengthen our debt maturity and increase our firepower in order to provide further operational flexibility.

In July 2018 we entered into a new unsecured debt facility with Wells Fargo for £75 million, of which £50 million was immediately drawn on a seven year term. The undrawn balance of £25 million is on a five year term and can be extended by up to two years.

In December 2018, we entered into a £150 million private placement with five institutional investors, at a blended fixed rate coupon of 3.5% and an average maturity of 12 years. Funds were drawn in March 2019 and were used to repay part of the unsecured credit facility, which remains available to redraw in full.

Post year end, we increased our equity holding in the DFS joint venture to 82% and repaid its secured debt facility which was due to expire.

Our average debt maturity has increased to 6.4 years from 4.8 years last year and available undrawn facilities have increased to £373.5 million.

After deducting contracted capital commitments at the year end of £19.7 million, our headroom which can be used to fund our investment plans is £353.8 million.

Our other financing metrics remain strong, with average cost of debt of 3.1% (2018: 2.8%) and loan to value of 32% (2018: 35%) following sales at the year end.

The Group has comfortably complied throughout the year with the financial covenants contained in its debt funding arrangements and has substantial levels of headroom. Covenant compliance is regularly stress tested for changes in capital values and income.

The Group's unsecured facilities and private placement loan notes contain gearing and interest cover financial covenants. At 31 March 2019, the Group's gearing ratio as defined within these funding arrangements was 46% which is significantly lower than the maximum limit of 125%, and its interest cover ratio was 4.7 times, comfortably higher than the minimum level of 1.5 times.

The Group's policy is to substantially de-risk and limit exposure to volatility in interest rates by entering into hedging arrangements.

At 31 March 2019, 73% of our exposure to interest rate fluctuations was hedged by way of swaps and caps assuming existing debt facilities are fully drawn (2018: 73%).

As a result of the hedging in place, if interest rates had been on average 1% higher in the year, net finance costs would be approximately £2.3 million higher, reducing EPRA earnings by 3.8%.

We are advised by JCRA and continue to monitor our hedging profile in light of forecast interest rate movements.

Cash flow

During the year, the Group's cash balances decreased by £5.6 million as reflected in the table below.

Cash inflows from operating activities increased by £10.7 million to £54.2 million, driven by increases in net rental income and the expiry of rent free periods.

The Group received net cash proceeds of £83.2 million during the year from its investment activities. This included £261.0 million from property disposals and £12.4 million from joint ventures. The Group spent £159.0 million acquiring property and £31.2 million on capital expenditure for asset management and development activities.

Cash outflows from the Group's financing activities reflect net debt repayments of £85.0 million, cash dividend payments of £50.6 million, financing costs of £2.9 million and share purchases of £4.5 million.

Further detail is provided in the Group cash flow statement.

Risk management

We seek to safeguard our stakeholders' interests by identifying and actively managing the risk inherently present as we strive to deliver growing returns.

The Company's risk management procedures reduce the negative impact of risk on the business and are critical to the generation of reliable and growing, income-led returns and long term outperformance.

The Board recognises its overall responsibility for undertaking a robust risk assessment and for establishing the extent to which it is willing to accept some level of risk in achieving its strategic goals, all the while ensuring that stakeholder interests are protected. Although risk cannot be eliminated completely, the Board's risk tolerance is low where its objectives are prejudiced.

At each meeting the Board considers risk at a high level via a dashboard which enables material issues to be monitored so that key risks can be managed and emerging risks identified early on with appropriate action taken to remove or reduce their likelihood and any potential negative impact.

The Audit Committee assists the Board by playing a key oversight and assurance role. It does so by appraising the risk management framework in detail and seeking comfort that the principal risks facing the Company have been carefully identified, assessed and mitigated. The Committee annually reviews the Company's risk register and systems of internal controls, considers their effectiveness and reports its findings to the Board. At its March 2019 meeting the Committee scrutinised the risk register, which had recently been comprehensively updated, and an internal controls evaluation report. The Committee is satisfied that there are appropriate procedures in place to identify and ensure that emerging and principal risks are robustly assessed, that evidence supports the ongoing monitoring of risk mitigation measures and that where control weaknesses are identified they are acted upon.

Considered risk taking is required for all business and investment activity and the Executive Committee is responsible for ongoing risk identification and the design, implementation and maintenance of a robust system of internal controls in light of the risks identified. The Committee is assisted by senior management. Appropriate mitigation plans are developed based on an assessment of the impact and likelihood of a risk occurring.

Executive Committee members are closely involved in day to day matters and the Company has a small number of employees. This flat management structure with all staff operating from one office location enables risks to be swiftly identified so appropriate responses can be put in place.

Within the risk register, specific risks are identified and their probability rated by management as having either a high, medium or low impact. A greater weighting is applied the higher the significance and probability of a risk. These weightings are then mathematically combined to produce an overall gross risk rating which is colour coded using a traffic light system. Risk specific safeguards are identified, detailed in the register and rated as strong, medium or weak. The stronger the safeguard, the greater the weighting applied. The gross risk rating and strength of the safeguards against that risk are then combined to produce a resultant overall net risk. Consideration is given to the implementation of further action to reduce risk where necessary. Finally, every risk is allocated an owner and details of how the safeguards are evidenced are noted. The risk register is comprehensively reviewed at least once a year.

Principal risks

Our principal risks and uncertainties are identified and reported below. They refer to those risks with the potential to cause material harm to the business and impact our ability to execute our strategic priorities or exceed the Board's risk appetite.

Identifying emerging risk

Management have strong retailer relationships and regularly meet with occupiers to understand their needs and to gain insights into their businesses. These relationships are one of the key tools which assist us in identifying emerging risks and were one of the main drivers behind the decision to pivot the portfolio away from certain subsectors of retail six years ago. The current portfolio is now more closely aligned with changes in consumer shopping habits, fuelling the growth in ecommerce and convenience-led retail. Management also regularly meet industry representatives, shareholders and analysts. Reports are commissioned and briefings arranged on wide ranging pertinent topics to understand changes within the sector and the wider economic outlook.

Changes in risk factors

No new principal risks have been identified during the year.

Increasing risk

Brexit continues to dominate political and economic risk with an increased probability of a disruptive Brexit, a potential General Election and an extended period of uncertainty. This may negatively impact the investment, capital, financial, labour and occupier markets. To provide greater clarity on Brexit's potential impact on us we have split Brexit out from under political and economic risk into its own category. The Board acknowledges that the present Brexit situation is unprecedented and current uncertainties may accelerate and necessitate more boardroom debate about the consequences, alternative strategies or adjustments to the current strategy. It may be difficult to adequately foresee emerging risks and uncertainties arising out of Brexit given the lack of clarity surrounding it. Ultimately however, we believe that the profound structural changes in the retail landscape will be more important over the medium and long term than what ultimately happens with the UK's relationship with the EU.

Decreasing risks

Liquidity risk has decreased within the last 12 months as we have lengthened our debt maturity and welcomed new lenders, whilst maintaining a prudent level of gearing. Our overall property risk has also decreased. We have refined our portfolio to align it to distribution assets that will outperform, focusing reinvestment on urban logistics where we see better valuation support and rental growth prospects and low energy convenience assets which benefit from the increasing popularity of top up shopping.

Corporate risks

1 STRATEGY

2 BREXIT

3 ECONOMIC AND POLITICAL FACTORS

4 HUMAN RESOURCES

5 REGULATORY AND TAX FRAMEWORK

6 RESPONSIBLE BUSINESS APPROACH

7 SYSTEM, PROCESSES AND FINANCIAL MANAGEMENT

9 DEVELOPMENT RISK

10 VALUATION RISK

11 TRANSACTION AND TENANT RISK

Financing risk

12 CAPITAL AND FINANCE RISK

Viability statement

In accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Board has assessed the prospects of the Group over a period longer than the 12 months required by the 'Going Concern' provision. The Directors conducted this review taking account of the Group's current financial position, strategy, principal risks and future plans.

Assessment of viability review period

The Board has determined that the three year period to 31 March 2022 is an appropriate period over which to assess the Group's viability, as in previous years, for the following reasons:

· The Group's financial business plan and detailed budgets cover a rolling three year period;

· It is a reasonable approximation of the typical time it takes from committing funds to development projects to practical completion. The average length of the Group's developments that completed in the year at Dagenham, Frimley, Ipswich, Ringwood and Telford was 13 months; and

· Three years is considered to be the optimum balance between long term property investment and the difficulty in accurately forecasting ahead given the cyclical nature of property investment.

This period is reviewed and challenged annually to ensure it remains appropriate.

In addition to the three year viability assessment period, the Board considered a number of other factors when assessing the Group's longer term prospects, including:

· The weighted average unexpired lease length of 12.5 years;

· The longer term nature of some debt facilities and a weighted average debt maturity of 6.4 years; and

· The longer term investment horizon and nature of the property cycle.

Assessment of prospects

The Group's strategy is reviewed by the Board at each meeting and extensively on an annual basis.

The business plan is structured around the Group's strategy and consists of a rolling three year profit and cash flow forecast, with both a base case scenario including deals under offer and also an assumed case factoring in reinvestment and development. The business plan considers property investments, capital commitments, dividend cover, loan covenants and REIT compliance metrics. The Executive Committee provides regular strategic input to the financial forecasts covering investment, divestment and development plans and capital allocation. Forecasts are updated at least quarterly, reviewed against actual performance and reported to the Board.

When assessing longer term prospects, the Board is mindful of the following:

· Income certainty, with over 63% of the Group's rental income benefitting from contractual uplifts and an average unexpired lease length of 12.5 years;

· A proven track record of executing transactions and progressing a fully covered dividend;

· Substantial available debt facilities and headroom under loan covenants; and

· Good relationships with lenders and past experience of raising debt and equity finance.

Assessment of viability

The business plan was stress tested to validate its resilience to a combination of adverse movements in its principal risks including:

· Changes to macro-economic conditions including the impact of a disorderly exit from the EU, impacting rental income levels and property values;

· Challenges in the retail environment including tenant failures impacting occupancy levels and lettings;

· Changes in the availability of funds and interest rates; and

· Changes in property market conditions impacting disposal and reinvestment assumptions.

The stress testing involved modelling changes in property values, rental income, interest rates and disposal and reinvestment plans that were likely to have an impact on the Group's solvency, profitability and delivery of strategy. In addition, further reverse stress testing assessed the limits at which key financial covenants and ratios would be breached or deemed unacceptable.

Property values would need to fall by approximately 45% and rental income fall by 63% to breach the loan to value and interest cover covenants under the existing unsecured debt facilities.

This scenario testing, when combined with the Group's strong current position and mitigation actions available including deferring non committed capital expenditure and development projects and selling assets, supported the Group's ability to overcome adverse economic and property market conditions over the forecast viability period.

Conclusion

Based on the results of their review, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.

Directors' responsibility statement

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Company financial statements in accordance with Financial Reporting Standard 101 ('FRS101') 'Reduced Disclosure Framework'. Under Company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the Company financial statements, the Directors are required to:

· Select suitable accounting policies and then apply them consistently

· Make judgements and accounting estimates that are reasonable and prudent

· State whether applicable FRS101 'Reduced Disclosure Framework' has been followed, subject to any material departures disclosed and explained in the financial statements

· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business

In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

· Properly select and apply accounting policies

· Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information

· Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance

· Make an assessment of the Company's ability to continue as a going concern

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

· The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole

· The Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face

· The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy

By order of the Board

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF LONDONMETRIC PROPERTY PLC

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

OPINION

In our opinion:

· The financial statements of LondonMetric Property Plc ('the Company') give a true and fair view of the state of the Group's and of the Company's affairs as at 31 March 2019 and of the Group's profit for the year then ended

· The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union

· The Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 'Reduced Disclosure Framework'

· The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation

We have audited the financial statements, which comprise:

· The Group Income Statement

· The Group and Company Balance sheets

· The Group and Company Statements of Changes in Equity

· The Group Cash Flow Statement

· The Statement of Accounting Policies and the related notes 1 to 20 for the Group notes and I to VII for the Company

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.

We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT

Going concern

We have reviewed the Directors' Statement in note 1(c) to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group's and Company's ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements.

We considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the Directors' assessment of the Group's ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the Directors' plans for future actions in relation to their going concern assessment.

We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit.

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Principal risks and Viability Statement

Based solely on reading the Directors' statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the Directors' assessment of the Group's and the Company's ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to:

· The disclosures in the Risk Management section that describe the principal risks and explain how they are being managed or mitigated

· The Directors' confirmation in the Directors' Responsibility Statement that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity

· The Directors' explanation in the Viability Statement as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions

We are also required to report whether the Directors' Statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

During the year, we have rebutted the presumed significant risk in respect of revenue recognition. Previously, we identified the judgements in respect of recognition of property acquisitions and disposals as having a potentially key impact on revenue recognition. As a result of the implementation of IFRS 15 and the resulting change in accounting policy to recognise transactions on completion, rather than when significant risks and rewards pass, we consider that the level of judgement involved has reduced significantly. In addition, the remaining elements of rental income are considered to be stable and predictable as determined by long term lease agreements, hence this is no longer considered to be a Key Audit Matter.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.1 million (2018: £1.1 million) for the Group and £928,000 (2018: £870,000) for the Company, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit

LondonMetric Property Plc Group is a FTSE 250 Real Estate Investment Trust with investment property assets substantially in the United Kingdom.

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including group wide controls, and assessing the risks of material misstatement at Group level.

Based on that assessment, and consistent with our conclusion on scoping in the prior year, our full scope audit is performed on 100% (2018: 100%) of the Group's net assets, and 100% (2018: 100%) of revenue and profit before tax.

The Group was audited by one audit team, led by the Senior Statutory Auditor, responsible for the audit of the Company, joint ventures and certain subsidiaries. Our audit work on subsidiaries and joint ventures was carried out to a materiality which is lower than, and in most cases substantially lower than, Group materiality as set out above. Our audit also included testing of the consolidation process and group wide controls.

The Company is located in London, UK and audited directly by the Group audit team.

Other information

The Directors are responsible for the other information. The other information comprises the information included in the Annual Report other than the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

· Fair, balanced and understandable - the statement given by the Directors that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit

· Audit Committee reporting - the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee

· Directors' statement of compliance with the UK Corporate Governance Code - the parts of the Directors' statement required under the Listing Rules relating to the Company's compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code

We have nothing to report in respect of these matters.

Responsibilities of Directors

As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Details of the extent to which the audit was considered capable of detecting irregularities, including fraud, are set out below.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Extent to which the audit was considered capable of detecting irregularities, including fraud

We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.

Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following:

· Enquiring of management and the Audit Committee, including obtaining and reviewing supporting documentation, concerning the Group's policies and procedures relating to

· Identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance

· Detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud

· The internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations

· Discussing among the engagement team and involving relevant internal specialists, including tax and industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the valuation of investment property

· Obtaining an understanding of the legal and regulatory framework that the Group operates in, focusing on those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, REIT regime and tax legislation

Audit response to risks identified

As a result of performing the above, we identified valuation of investment property as a key audit matter. The key audit matters section of our report explains in more detail and describes specific procedures we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

· Reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above

· Enquiring of management, the Audit Committee and external legal counsel concerning actual and potential litigation and claims

· Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud

· Reading minutes of meetings of those charged with governance

· In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Report on other legal and regulatory requirements

Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the Annual Report on Remuneration to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

· The information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements

· The Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements

In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors' Report.

Matters on which we are required to report by exception

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

· We have not received all the information and explanations we require for our audit

· Adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us

· The Company financial statements are not in agreement with the accounting records and returns

We have nothing to report in respect of these matters.

Directors' remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors' remuneration have not been made or the part of the Annual Report on Remuneration to be audited is not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Other matters

Auditor tenure

Following the recommendation of the Audit Committee, we were appointed by the Board of LondonMetric Property Plc on 19 September 2013 to audit the financial statements for the year ending 31 March 2014 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is six years, covering the years ending 31 March 2014 to 31 March 2019.

Consistency of the Audit Report with the additional report to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

Use of our report

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Georgina Robb, FCA

(Senior statutory auditor)

For and on behalf of Deloitte LLPStatutory AuditorLondon, United Kingdom

23 May 2019

Group income statement

For the year ended 31 March

All amounts relate to continuing activities.

Group balance sheet

As at 31 March

The financial statements were approved and authorised for issue by the Board of Directors on 23 May 2019 and were signed on its behalf by:

Martin McGann

Finance Director

Registered in England and Wales, No 7124797

Group statement of changes in equity

For the year ended 31 March

Group cash flow statement

For the year ended 31 March

Notes forming part of the Group financial statements

For the year ended 31 March 2019

1 SIGNIFICANT ACCOUNTING POLICIES

a) General information

LondonMetric Property Plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is One Curzon Street, London, W1J 5HB. The principal activities of the Company and its subsidiaries ('the Group') and the nature of the Group's operations are set out in the Strategic report.

b) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union.

c) Going concern

The principal risks and uncertainties facing the Group's activities, future development and performance are reflected in the Risk Management section.

The Group's financial position, cash flows and liquidity, borrowings, undrawn facilities and hedging are described in note 14 and in the Financial Review.

The Directors have reviewed the current and projected financial position of the Group, making reasonable assumptions about future trading performance, property valuations and planned capital expenditure. As part of this review, the Group has considered its cash balances and undrawn facilities, future capital commitments, its debt maturity profile and the long term nature of tenant leases.

On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements for the year to 31 March 2019.

d) Basis of preparation

The financial statements are prepared on a going concern basis.

The functional and presentational currency of the Group is sterling. The financial statements are prepared on the historical cost basis except that investment and development properties and derivative financial instruments are stated at fair value.

The accounting policies have been applied consistently in all material respects except for the adoption of new and revised standards as noted below.

i) Significant accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, the change is recognised over those periods.

The accounting policies subject to significant judgements and estimates are as follows:

Significant areas of estimation uncertainty

Property valuations

The valuation of the property portfolio is a critical part of the Group's performance. The Group carries the property portfolio at fair value in the balance sheet and engages professionally qualified external valuers to undertake six monthly valuations.

The determination of the fair value of each property requires, to the extent applicable, the use of estimates and assumptions in relation to factors such as future lease income, lease incentives, current market rental yields, future development costs and the appropriate discount rate. In addition, to the extent possible, the valuers make reference to market evidence of transaction prices for similar properties.

The fair value of a development property is determined by using the 'residual method', which deducts all estimated costs necessary to complete the development, together with an allowance for development risk, profit and purchasers' costs, from the fair valuation of the completed property.

Note 9(b) to the financial statements includes further information on the valuation techniques and inputs used to determine the fair value of the property portfolio.

ii) Adoption of new and revised standards

Standards and interpretations effective in the current periodDuring the year, the following new and revised Standards and Interpretations have been adopted and have not had a material impact on the amounts reported in these financial statements. The Group and Company accounting policies were amended following the adoption of IFRS 9 and 15 as discussed further below.

IFRS 9 Financial instruments

IFRS 9 replaces the provisions of IAS 39 relating to the recognition, classification and measurement of financial assets and liabilities, derecognition of financial instruments, the impairment of financial assets and hedge accounting. The Group has applied IFRS 9 from 1 April 2018 without restating comparatives on initial application in accordance with the transitional provisions of the standard.

The Group has reviewed its financial assets and liabilities and has assessed the main impact of adopting this standard as follows:

Classification and measurement

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through profit and loss ('FVTPL') and fair value through other comprehensive income ('FVTOCI').

The Group's financial assets at 31 March 2019 consist primarily of trade receivables which will continue to be reflected at amortised cost as the Group's business model is to collect the contractual cash flows due from tenants, which meet the test of being solely payments of principal and interest ('SPPI').

There was no impact on the Group's accounting for financial liabilities under IFRS 9, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities.

Impairment

Trade receivables at 31 March 2019 were £903,000 (2018: £776,000) and the credit risk associated with unpaid rent is deemed to be low.

The new impairment model requires the recognition of impairment provisions based on expected credit losses ('ECL') rather than only incurred credit losses as was the case under IAS 39. It is no longer necessary for a credit event to have occurred before credit losses are recognised. The Group applies the IFRS 9 simplified approach to measuring ECLs at an amount equal to lifetime expected credit losses for all trade receivables.

We performed an assessment of the Group's trade receivables at 31 March 2018 and 31 March 2019 for impairment in accordance with the requirements of IFRS 9. We have based our estimate of expected credit losses on past experience of incurred credit losses and the trade debtor's current financial condition and we have specifically provided against receivables where there is no realistic prospect of recovery.

Based on our assessment, there was no material impact on the Group or Company financial statements of impairment losses recognised under IFRS 9 at transition and no adjustment was made to opening net assets. We recognised an impairment provision in accordance with IFRS 9 of £140,000 in the Group financial statements and £419,000 in the Company financial statements at the year end, as disclosed in notes 11 and iv respectively.

Changes to debt modification rules for non-substantial modifications may result in a gain or loss being recognised in the profit and loss equal to the difference in the present value of cash flows under the original and modified terms of the debt, discounted at the effective interest rate. We have reviewed debt modifications made last year as a result of refinancing our secured facility with Helaba and have concluded that there is no material impact on the financial statements at transition.

Hedge accounting

The Group does not apply hedge accounting and therefore there is no impact from the hedge accounting provisions in IFRS 9.

IFRS 15 Revenue from contracts with customers

The Group has applied IFRS 15 from 1 April 2018 and has adopted the modified retrospective approach without restatement of comparatives. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer.

IFRS 15 does not apply to rental income which, at 31 March 2019, accounted for over 95% of total gross revenue of the Group, but does apply to other non-core income streams including management fees and surrender premiums receivable. IFRS 15 did not have a material impact on the timing of revenue recognition for the non-core income streams.

The main impact of adopting IFRS 15 has been to recognise property transactions at the point of completion, which is the point at which control of the property passes, rather than on unconditional exchange of contracts, which was the point at which significant risks and rewards were transferred under IAS 18. The effect of adopting the cumulative catch up approach on transition to IFRS 15 was nil.

iii) Standards and interpretations in issue not yet adopted

The IASB and the International Financial Reporting Interpretations Committee have issued the following standards and interpretations that are mandatory for later accounting periods and which have not been adopted early:

IFRS 16 Leases

IFRS 16 was issued in January 2016 and is effective for the Group for accounting periods beginning on or after 1 April 2019.

It will result in almost all leases being recognised on the balance sheet for a lessee, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The accounting for lessors will not significantly change. The standard does not impact the accounting for the rental income earned by the Group as lessor.

At present, as a lessee the Group holds a limited number of operating leases as reflected in note 15, the most significant being the lease of its head office in London. Management has performed an assessment of the impact of bringing operating leases on to the balance sheet as at 31 March 2019. It has also assessed long leasehold properties where the Group is the lessee and ground rent is payable. IFRS 16 is not estimated to have a material impact on the gross or net asset position at transition nor the income statement for the year to 31 March 2020.

e) Basis of consolidation

i) Subsidiaries

The consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are those entities controlled by the Group. Control is assumed when the Group:

· Has the power over the investee

· Is exposed, or has rights, to variable returns from its involvement with the investee

· Has the ability to use its power to affect its returns

In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair value at the acquisition date.

The results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Where properties are acquired through corporate acquisitions and there are no significant assets or liabilities other than property, the acquisition is treated as an asset acquisition, in other cases the purchase method is used.

ii) Joint ventures and associates

Joint ventures are those entities over whose activities the Group has joint control. Associates are those entities over whose activities the Group is in a position to exercise significant influence but does not have the power to jointly control.

Joint ventures and associates are accounted for under the equity method, whereby the consolidated balance sheet incorporates the Group's share of the net assets of its joint ventures and associates. The consolidated income statement incorporates the Group's share of joint venture and associate profits after tax.

The Group's joint ventures and associates adopt the accounting policies of the Group for inclusion in the Group financial statements. Joint venture management fees are recognised as income in the accounting period in which the service is rendered.

f) Property portfolio

i) Investment properties

Investment properties are properties owned or leased by the Group which are held for long term rental income and for capital appreciation. Investment property includes property that is being constructed, developed or redeveloped for future use as an investment property. Investment property is initially recognised at cost, including related transaction costs. It is subsequently carried at each published balance sheet date at fair value on an open market basis as determined by professionally qualified independent external valuers. Changes in fair value are included in the income statement. Where a property held for investment is appropriated to development property, it is transferred at fair value. A property ceases to be treated as a development property on practical completion.

In accordance with IAS 40 Investment Properties, no depreciation is provided in respect of investment properties.

Investment property is recognised as an asset when:

· It is probable that the future economic benefits that are associated with the investment property will flow to the Group

· The cost of the investment property can be measured reliably

All costs directly associated with the purchase and construction of a development property are capitalised. Capital expenditure that is directly attributable to the redevelopment or refurbishment of investment property, up to the point of it being completed for its intended use, is included in the carrying value of the property.

ii) Assets held for sale

An asset is classified as held for sale if its carrying amount is expected to be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, the asset is available for sale in its present condition and management expect the sale to complete within one year from the balance sheet date.

iii) Tenant leases

Management has exercised judgement in considering the potential transfer of the risks and rewards of ownership in accordance with IAS 17 for all properties leased to tenants and has determined that such leases are operating leases.

iv) Net rental income

Rental income from investment property leased out under an operating lease is recognised in the profit or loss on a straight line basis over the lease term.

Contingent rents, such as turnover rents, rent reviews and indexation, are recorded as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants. Surrender premiums receivable are recognised on completion of the surrender.

Where a rent free period is included in a lease, the rental income foregone is allocated evenly over the period from the date of lease commencement to the earlier of the first break option or the lease termination date. Lease incentives and costs associated with entering into tenant leases are amortised over the period from the date of lease commencement to the earlier of the first break option or the lease termination date.

Property operating expenses are expensed as incurred and any property operating expenditure not recovered from tenants through service charges is charged to profit or loss.

The Group has applied IFRS 15, Revenue from contracts with customers, from 1 April 2018. The main impact of adopting IFRS 15 has been to recognise property transactions at the point of completion, which is the point at which control of the property passes, rather than on unconditional exchange of contracts, which was the point at which significant risks and rewards were transferred. The cumulative effect of adopting IFRS 15 at the date of initial application was nil.

v) Profit and loss on sale of investment properties

Profits and losses on sales of investment properties are calculated by reference to the carrying value at the previous year end valuation date, adjusted for subsequent capital expenditure.

g) Financial assets and financial liabilities

Financial assets and financial liabilities are recognised in the balance sheet when the Group becomes a party to the contractual terms of the instrument.

Financial instruments under IFRS 9

i) Trade and other receivables and payables

Trade receivables are recognised and carried at amortised cost as the Group's business model is to collect the contractual cash flows due from tenants. An impairment provision is created based on the expected credit loss model which reflects the Group's historical incurred credit losses and the lifetime expected credit loss.

ii) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less, measured at amortised cost.

iii) Borrowings

Borrowings are recognised initially at fair value less attributable transaction costs. Subsequently, borrowings are stated at amortised cost with any difference being recognised in the income statement over the term of the borrowing.

Financial instruments under IAS 39

iv) Derivative financial instruments

The Group uses derivative financial instruments to hedge its exposure to interest rate risks. Derivative financial instruments are recognised initially at fair value, which equates to cost and subsequently remeasured at fair value, with changes in fair value being included in the income statement.

h) Finance costs and income

Net finance costs include interest payable on borrowings, net of interest capitalised and finance costs amortised.

Interest is capitalised if it is directly attributable to the acquisition, construction or redevelopment of development properties from the start of the development work until practical completion of the property. Capitalised interest is calculated with reference to the actual interest rate payable on specific borrowings for the purposes of development or, for that part of the borrowings financed out of general funds, with reference to the Group's weighted average cost of borrowings.

Finance income includes interest receivable on funds invested at the effective rate and notional interest receivable on forward funded developments at the contractual rate.

i) Tax

Tax is included in profit or loss except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, together with any adjustment in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. The amount of deferred tax provided is based on the expected manner or realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

As the Group is a UK REIT there is no provision for deferred tax arising on the revaluation of properties or other temporary differences. The Group must comply with the UK REIT regulation to benefit from the favourable tax regime.

j) Share based payments

The fair value of equity-settled share based payments to employees is determined at the date of grant and is expensed on a straight line basis over the vesting period based on the Group's estimate of shares that will eventually vest.

k) Shares held in Trust

The cost of the Company's shares held by the Employee Benefit Trust is deducted from equity in the Group balance sheet. Any shares held by the Trust are not included in the calculation of earnings or net assets per share.

l) Dividends

Dividends on equity shares are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the shareholders at the Annual General Meeting.

2 Segmental information

An operating segment is a distinguishable component of the Group that engages in business activities, earns revenue and incurs expenses, whose results are reviewed by the Group's chief operating decision makers and for which discrete financial information is available. Gross rental income represents the Group's revenues from its tenants and net rental income is the principal profit measure used to determine the performance of each sector. Total assets are not monitored by segment. However, property assets are reviewed on an ongoing basis. The Group operates almost entirely in the UK and no geographical split is provided in information reported to the Board.

3 Gross revenue

For the year to 31 March 2019, 22% of the Group's gross rental income was receivable from two tenants. For the comparative period, 12% of the Group's gross rental income was receivable from one tenant.

4 Administrative costs

a) Total administrative costs

b) Staff costs

The long term share incentive plan ('LTIP') that was created following the merger in 2013 allows Executive Directors and eligible employees to receive an award of shares, held in trust, dependent on performance conditions based on the earnings per share, total shareholder return and total accounting return of the Group over a three year vesting period. The Group expenses the estimated number of shares likely to vest over the three year period based on the market price at the date of grant. In the current year the charge was £2.7 million (2018: £2.4 million).

The Company awarded 2,125,515 LTIP shares during the year, 1,514,969 of which were awarded to Executive Directors. The cost of acquiring the shares expected to vest under the LTIP of £4.8 million has been charged to reserves this year (2018: £2.8 million). Employee costs of £1.9 million (2018: £1.8 million) have been capitalised in respect of time spent on development projects.

The emoluments and pension benefits of the Directors, who are also the key management personnel of the Company, in aggregate are as follows:

In accordance with the disclosure requirements of IAS 24 Related party disclosures for key management personnel, short term employee benefits were £7.7 million and share based payments were £2.1 million.

c) Staff numbers

The average number of employees including Executive Directors during the year was:

d) Auditor's remuneration

In addition to the above audit fees, £48,200 (2018: £47,000) was due to the Group's auditor in respect of its joint venture operations. BDO LLP is responsible for the audit of other subsidiary entities at a cost to the Group of £33,700 (2018: £30,950).

5 Finance costs

6 Taxation

The tax assessed for the year varies from the standard rate of corporation tax in the UK. The differences are explained below:

The current tax credit relates to a land remediation receipt, net of tax arising on income that does not qualify as property income within the REIT regulations and income tax charged to non resident landlords on property rental income in the Isle of Man. As the Group is a UK REIT there is no provision for deferred tax arising on the revaluation of properties or other temporary differences.

7 Dividends

The Company paid its third quarterly interim dividend in respect of the current financial year of 1.9p per share, wholly as a Property Income Distribution ('PID'), on 17 April 2019 to ordinary shareholders on the register at the close of business on 15 March 2019.

The fourth quarterly interim dividend for 2019 of 2.5p per share, of which 0.75p is payable as a PID, will be payable on 11 July 2019 to shareholders on the register at the close of business on 7 June 2019. A scrip dividend alternative will be offered to shareholders as it was for the first three quarterly dividend payments.

Neither dividend has been included as a liability in these accounts. Both dividends will be recognised as an appropriation of retained earnings in the year to 31 March 2020.

During the year the Company issued 2,775,644 ordinary shares in relation to the last two quarterly dividend payments for 2018 and the first two quarterly dividend payments for 2019, which reduced the cash dividend payment by £5.0 million to £50.6 million.

8 Earnings and net assets per share

Adjusted earnings and net assets per share are calculated in accordance with the Best Practice Recommendations of The European Public Real Estate Association ('EPRA'). The EPRA earnings measure highlights the underlying performance of the property rental business.

The earnings per share calculation uses the weighted average number of ordinary shares during the year and excludes the average number of shares held by the Employee Benefit Trust for the year.

The net asset per share calculation uses the number of shares in issue at the year end and excludes the actual number of shares held by the Employee Benefit Trust at the year end.

a) EPRA earnings

EPRA earnings for the Group and its share of joint ventures are detailed as follows:

1 Group net finance costs reflect net borrowing costs of £18,484,000 (note 5) less early close out costs of £6,000 (note 5) and finance income of £343,000

The reconciliation of EPRA earnings to IFRS reported profit can be summarised as follows:

b) Earnings per ordinary share

1 Adjustments shown in table reconciling EPRA earnings with IFRS reported profit/(loss)

c) Net assets per share

Further EPRA performance measures are reflected in the Supplementary notes.

9 Investment properties

a) Investment properties

Investment properties are held at fair value as at 31 March 2019 based on external valuations performed by professionally qualified valuers CBRE Limited ('CBRE') and Savills (UK) Limited ('Savills'). The valuation of property held for sale at 31 March 2019 was £10.6 million (2018: £89.9 million).

The valuations have been prepared in accordance with the RICS Valuation - Professional Standards 2014 on the basis of fair value as set out in note 1. There has been no change in the valuation technique in the year. The total fees earned by CBRE and Savills from the Company represent less than 5% of their total UK revenues. CBRE and Savills have continuously been the signatory of valuations for the Company since October 2007 and September 2010 respectively.

Long term leasehold values included within investment properties amount to £109.4 million (2018: £101.4 million). All other properties are freehold.

Included within the investment property valuation is £62.5 million (2018: £70.3 million) in respect of unamortised lease incentives and rent free periods. The movement in lease incentives on properties sold has been reclassified between cash flows from investing activities and cash flows from operations in the Group cash flow statement this year. Prior year comparatives of £8.5m have been reclassified accordingly.

The historical cost of all of the Group's investment properties at 31 March 2019 was £1,295.6 million (2018: £1,328.8 million).

Capital commitments have been entered into amounting to £19.7 million (2018: £47.5 million) which have not been provided for in the financial statements. Internal staff costs of the development team of £1.9 million (2018: £1.8 million) have been capitalised, being directly attributable to the development projects in progress.

Forward funded development costs of £10.4 million (2018: £9.8 million) have been classified within investment property as acquisitions.

b) Valuation technique and quantitative information

All of the Group's properties are categorised as Level 3 in the fair value hierarchy as defined by IFRS 13 Fair Value Management. There have been no transfers of properties between Levels 1, 2 and 3 during the year ended 31 March 2019. The fair value at 31 March 2019 represents the highest and best use.

i) Technique

The valuation techniques described below are consistent with IFRS 13 and use significant 'unobservable' inputs. There have been no changes in valuation techniques since the prior year.

Yield capitalisation - for commercial investment properties, market rental values are capitalised with a market capitalisation rate. The resulting valuations are cross-checked against the net initial yields and the fair market values per square foot derived from recent market transactions.

Residual - for certain investment properties under development, the fair value of the property is calculated by estimating the fair value of the completed property using the yield capitalisation technique less estimated costs to completion and a risk premium.

Comparison - for residential properties the fair value is calculated by using data from recent market transactions.

ii) Sensitivity

An increase or decrease in ERV will increase or decrease the fair value of the Group's investment properties.

An increase or decrease to the net initial yields and reversionary yields will decrease or increase the fair value of the Group's investment properties.

An increase or decrease in the estimated costs of development will decrease or increase the fair value of the Group's investment properties under development.

There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in more than one input could magnify or mitigate the impact on the valuation.

iii) Process

The valuation reports produced by CBRE and Savills are based on:

· Information provided by the Group, such as current rents, lease terms, capital expenditure and comparable sales information, which is derived from the Group's financial and property management systems and is subject to the Group's overall control environment

· Assumptions applied by the valuers such as ERVs and yields which are based on market observation and their professional judgement

10 Investment in joint ventures

At 31 March 2019, the following principal property interests, being jointly controlled entities, have been equity accounted for in these financial statements:

1 The registered address for entities incorporated in England is One Curzon Street, London, W1J 5HB. The registered address for entities incorporated in Guernsey is Regency Court, Glategny Esplanade, St Peter Port, Guernsey, GY1 3AP

The principal activity of all joint venture interests is property investment in the UK in the sectors noted in the table above, which complements the Group's operations and contributes to the achievement of its strategy.

The Metric Income Plus Partnership ('MIPP'), in which the Company has a 50% interest, acquired a forward funded development in Telford for £4.0 million (Group share: £2.0 million) and three further investment assets for £17.4 million (Group share: £8.7 million) in the year.

The Group also disposed of 17 residential flats for £24.5 million (Group share: £9.8 million) through its 40% interest in LSP London Residential Investments Limited in the year. One further flat was sold at Moore House post year end, reducing the number held to 33.

At 31 March 2019, the freehold and leasehold investment properties were externally valued by Royal Institution of Chartered Surveyors ('RICS') Registered Valuers of CBRE Limited and Savills (UK) Limited.

The valuation of property held for sale by joint ventures at 31 March 2019 was £5.8 million (Group share: £2.8 million), (2018: £21.9 million and Group share £8.8 million).

The movement in the carrying value of joint venture interests in the year is summarised as follows:

The Group's share of the profit after tax and net assets of its joint ventures is as follows: