Real estate for modern shopping Annual Report and Accounts 2018 Contents Strategic report Financial performance See page 34 Overview Our story 01 IFRS reported Total accounting EPRA EPS Dividend Performance highlights 10 profit return per share Chairman’s statement 11 At a glance 12 % % % % Our strategy +195 +16 +4 +5 Our strategic priorities 14 Chief Executive’s review 15 Our marketplace 20 N\Pځ]״Our business model 22 <PQ[aMIZUIZSML4WVLWV5M\ZQK Performance review anniversary since its merger in 2013. ]״Key performance indicators 24 1hIUhM`\ZMUMTaXZW]LWN\PM+WUXIVa Property review 26 Financial review 34 XZWOZM[[IVLIKPQM^MUMV\[׸ Responsible Business Patrick Vaughan Responsible Business review 40 Chairman See page 11 Risk Risk management 48 Viability statement 60 Property performance See page 26 Governance WAULT Total property return LFL income growth Introduction from the Chairman 62 Board of Directors 64 % % Governance at work 66 12.4 years +13.7 +4.3 Leadership 67 Effectiveness 74 – Nomination Committee report 74 Accountability 80 – Audit Committee report 80 MK\TWVOMZ\MZU[MK\WZIVLڂRemuneration 88 7]ZZM\]ZV[ZM – Remuneration Committee report 88 XZWXMZ\aLMKQ[QWV[_PMZM_MPI^M[]KKM[[N]TTa Report of the Directors 104 XQ^W\ML\PMXWZ\NWTQW\W_IZL[LQ[\ZQJ]\QWVIVL Directors’ responsibility statement 107 KWV^MVQMVKMI[[M\[\PI\PI^M[\Z]K\]ZIT[]XXWZ\ NZWUKPIVOQVOKWV[]UMZ[PWXXQVOPIJQ\[׸ Financial statements Andrew Jones Independent Auditor’s report 109 Chief Executive See page 15 Group financial statements 114 Notes forming part of the Group financial statements 118 Marketplace review Responsible Business review Company financial statements 137 Notes forming part of the Company See page 20 See page 40 financial statements 139 Supplementary information 142 Glossary 147 Notice of Annual General Meeting 148 Financial calendar 152 Shareholder information 152 Alternative performance measures are financial measures which are not specified under IFRS but are used as they highlight the performance of the Group’s property rental business. They are described in further detail in the Performance highlights section on page 10 and in the Financial review on page 34. LondonMetric Property Plc Annual Report and Accounts 2018 01 7]ZX]ZXW[M Overview We provide desirable real estate strategyOur marketplace Our for modern shopping Our businessOur model 7]Z[\WZa Performance review Our portfolio is We focus on Responsible aligned to modern sustainable and Business Risk Governance shopping habits growing income See page 02 See page 04 statements We manage, Our expertise Financial enhance and and relationships create property shape our in a responsible decision making way See page 06 See page 08 LondonMetric Property Plc 02 Annual Report and Accounts 2018 Our story Our portfolio is aligned to modern shopping habits Technological advancement continues to impact our daily lives and is causing significant disruption to the retail landscape. As an allocator of capital and a manager of risk, one of our main objectives is to own real estate that is structurally supported and aligned to modern shopping habits. We have pivoted away from traditional retail into the distribution and convenience retail sectors where we believe that the prospects for superior returns are significantly better. Online spend1 Consumers continue to migrate online and towards convenienceenience +13 %pa Consumer shopping habits have Percentage of total retail sales changed significantly driven by made online in 2017 In-store spend1 technological change. Today, consumers can engage with UK 18% retailers in a number of different % US 12% ways, not just through the store. -1 pa This consumer environment makes Germany 9% it ever more crucial for retailers to Distribution take up2 adapt to keep up. France 8% The UK is a leader in online shopping. Canada 8% 18% of total retail sales are online Italy 4% +23m sq ft in the UK compared to 12% for the US and 9% for Germany. 26% Net stores closed in 20173 of all non food retail sales in the UK online market share (non food) UK are expected to be online by 2020 and parcel deliveries are growing at 16% per annum, with % -1,772 same day and next day delivery 26 in 2020 increasingly common. (increase from 13% in 2011) 1 Three month average, Barclaycard 2 Over 12 months, CBRE Conversely, store portfolios are 3 Local Data Company shrinking as occupiers prioritise investment in distribution and logistics capabilities. Convenience retail continues to perform strongly as online shoppers look to make 2011 2020 smaller but more frequent purchases to supplement their larger shopping needs. See Market review on pages 20 to 21 LondonMetric Property Plc Annual Report and Accounts 2018 03 Overview Our portfolio is aligned to sectors with the best prospects strategyOur marketplace Our Change in portfolio since Company’s merger in 2013 We have adapted to these structural shifts. 2013 2018 Our portfolio has pivoted away Distribution 21% 69% from traditional multi-let retail and Long Income 5% 12% legacy office and residential into our preferred sectors of distribution, 2013 2018 Convenience long income, convenience retail and & Leisure – 10% leisure. Distribution has grown from Retail Parks 26% 7% 21% five years ago to 69% today. Residential This has driven a strong performance businessOur and office 48% 2% by the Company and the portfolio model is well positioned for the future. See Property review for more information on each sector Performance ?MW_V[\ZWVOZMITM[\I\MTM\h\WhOWWL\MVIV\[QV^M[\QVO review QVh[MK\WZ[\PI\IZMITQOVML\WKPIVOQVO[PWXXQVOPIJQ\[׸ Andrew Jones CEO Responsible Business Risk Governance We have focused on growing our urban logistics portfolio Urban logistics – an attractive sub sector of distribution The increasing delivery demands of consumers has attracted us to further invest within the urban logistics sector, where there is strong demand/supply dynamics as occupiers seek locations closer to major conurbations. We continue to build critical mass in major UK geographies, with attractive income yields, supported by compelling income growth metrics. During the year, we made investments of £178 million across 25 assets. Our urban logistics assets were valued at £367 million as at 31 March 2018, up from £161 million in 2017. Over 70% of these assets are located in the South Cabot acquisition in August 2017 East and the Midlands and their locations provide strong statements intrinsic value from alternative use of land. The Cabot portfolio was acquired at a 6.1% net initial Financial yield and was our most significant investment in the year. The assets are in established distribution locations with excellent motorway connectivity and strong occupier demand. Greater than 60% of income is from retailers and 3PLs including DHL, Howdens and Royal Mail. £117m acquisition of 14 urban and regional distribution warehouses See Property review on pages 26 to 33 LondonMetric Property Plc 04 Annual Report and Accounts 2018 7]Z[\WZa We focus on sustainable and growing income Income remains central to our investment thesis in an environment where there is an almost desperate search for yield. Our ultimate priority is to pass on income generated 7]Z]T\QUI\MXZQWZQ\aQ[\WXI[[ from our assets to our shareholders in the form of a well covered and progressive dividend. QVKWUMOMVMZI\MLNZWUW]Z We believe strongly in the compounding attractions I[[M\[\WW]Z[PIZMPWTLMZ[QV of sustainable, repetitive and growing income streams to deliver long term consistent outperformance. \PMNWZUWNI_MTTKW^MZML Over the last five years, we have more than doubled our EPRA earnings per share and our strong portfolio metrics IVLhXZWOZM[[Q^MLQ^QLMVL׸ give us good certainty of future earnings growth. Andrew Jones CEO Delivered EPRA EPS growth of 118% since 2013, allowing dividend progression % 8.5 8.2 +118 7.8 6.6 4.2 3.9 2013 2014 2015 2016 2017 2018 Dividend per share LondonMetric Property Plc Annual Report and Accounts 2018 05 Overview Strong investor demand for income generating assets strategyOur marketplace Our The extended period of low economic growth and The focus on alternative investment sources for an low interest rates is creating an almost desperate acceptable income return has increased the attraction search for yield which is set to continue. of real estate which can deliver a reliable, predictable, long and growing income stream. The search for income is being intensified by the increasing proportion of the UK’s population LondonMetric’s dividend yield of 4.4% is almost 300 bps entering retirement age and longer life expectancy. higher than UK government bonds and is delivering a real return above inflation. Our yield is more than fully covered by our earnings. * businessOur % model 1.5 % Ten year UK treasury LondonMetric dividend yield 4.4 * Based on 7.9p dividend per share and share price as at 31 March 2018 Performance review Income from our portfolio is long and sustainable The Company has sector Lease expiry profile Top 5 occupiers leading portfolio metrics with Responsible Business Risk Governance 12.4 years average lease lengths, >20 years 16% 0–3 years 6% 98% occupancy and only 6% of income expiring over three years. We have financially strong occupiers, 16–20 with the top five accounting for 35% years 4–10 years of our rent and market capitalisations 11% 36% ranging from £2.4bn to £39.0bn. Average: 12 years The portfolio is focused on low operational assets, with many single let. Its low property costs result in only 11–15 years 1.3% gross to net income leakage. 31% …and our income has certainty of growth statements Financial Approximately half of the portfolio is % % subject to contractual rental increases and we are capturing strong open 50.3 +4.3 market rental uplifts on the remainder. of income has fixed like for like income This allows us to deliver annual like uplifts or is inflation linked growth in 2018 for like income growth on average of 3-4%.