LondonMetric Property (LSE: LMP) is drawing fresh attention from income investors as rising mortgage costs make traditional buy-to-let increasingly difficult to justify.
The average two-year fixed mortgage has crept up to 5.62%, leaving many buy-to-let landlords running numbers they would rather avoid entirely.
Real estate investment trusts offer an alternative route into property income without the need for a deposit, a mortgage application, or a call about a leaking roof.
REITs must hold at least 75% of assets in property and distribute 90% of taxable rental profits, paying no tax on that income in return.
That structure often produces high dividend yields, and UK share prices trailing their US counterparts only adds to the appeal of the headline numbers for income-focused investors.
LondonMetric is a FTSE 100 firm with a £7.6bn portfolio, now weighted 53% towards logistics following last year’s £699m acquisition of Urban Logistics REIT.
Its properties span parcel-delivery sheds, grocery-anchored retail parks, healthcare assets, and leisure facilities, all sectors where tenants tend to renew rather than relocate.
A 17-year weighted average unexpired lease term is unusually long by REIT standards, underpinning the company’s track record of consistent dividend growth over time.
Occupancy sits at 98%, reflecting strong underlying demand, while 108% dividend cover signals that shareholder returns are being funded from rental income rather than drawn from reserves.
The firm’s current loan-to-value ratio of 36.7% is higher than usual by its own historical standards, a direct consequence of the recent Urban Logistics acquisition.
Because REITs cannot retain significant earnings, growth typically requires debt-financed acquisitions, which is not inherently problematic but does demand disciplined oversight from management.
With 99.8% of existing borrowings hedged at 4%, the immediate refinancing risk is limited, though the duration and timing of those loans remains the key variable to monitor.
Long weighted average unexpired lease terms mean rental income should remain stable well before any debt needs to be renegotiated, which provides some structural comfort for investors.
At a 6.36% yield, a £20,000 investment in LondonMetric shares would generate approximately £1,272 a year in passive income, based on current figures.
The shares trade at a modest discount to net asset value, and with dividends well covered by rental income, the case for income investors prepared to do their diligence is a credible one.