“I think REITs need to do a better job in order to retain interest from global investors. I think size helps and therefore I think further consolidation is almost certain because I think you have to get bigger to remain relevant. And so I think that, you know, we could end up in a situation where you have six or seven super REITs specialising in, in a sector or specialising in, in a thematic so I think that that is almost inevitable.”
Susan Freeman
Hi, I’m Susan Freeman. Welcome back to our PropertyShe podcast series brought to you by Mishcon de Reya in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment. Today, I am delighted to welcome Andrew Jones, CEO of London Metric which has become known as the consolidator of the UK REIT market and is now the third largest UK REIT behind SEGRO and Landsec. Andrew was a co-founder and CEO of Metric Property Investments Plc from its inception in March 2010 until its merger with London and Stamford in January 2013. On completion of the merger Andrew became chief executive of London Metric. Andrew was previously head of retail at British Land, he joined British Land in 2005 following the acquisition of Pillar and served on the main board with responsibility for shopping centres, retail park investment and asset management. He is also a non-exec director of leading electric vehicle network, InstaVolt and was previously non-executive director of Unite Plc for six years.
So now I’m looking forward to hearing from Andrew Jones on the relentless expansion of London Metric and his strategy and thoughts on the real estate market. Andrew, good morning, I’m delighted to be talking to you this morning having heard you on a panel describing offices as melting ice cubes a little while ago, I have been really looking forward to this conversation.
Andrew Jones
Morning, well it’s an honour to be here with you.
Susan Freeman
So let’s start with a bit of background. I know that, um, you were very interested in the stock market from an early age but I wondered whether you were equally interested in real estate from an early age or, or how that interest developed?
Andrew Jones
No I mean I, I got fascinated with the stock market when, uh, in my early teens, um, I think I bought my first shares when I was about 13 or my father bought them or my other half and I didn’t really think about real estate until I was looking for a, you know, a cause to study in college. None of my family have been in real estate and so it was actually a friend of mine that suggested that we both look at the real estate courses that were on offer at the various, uh, universities and, and polytechnics in those days. And I couldn’t come up with a better suggestion or better idea and therefore, um, as they say, the rest is history.
Susan Freeman
Okay, so, uh, it happened by default?
Andrew Jones
Oh very much so, very much so, very much so. I mean it wasn’t just, in fact I think there was three of us who actually ended up taking the, uh, the valuation estate management options at the various colleges. And all three of us are still in real estate and I’m still great friends.
Susan Freeman
And where did you start off your, your real estate career?
Andrew Jones
So I left Bristol and the market at the time of me applying for jobs was very strong and very different I suspect from the challenges that today’s graduates face. So I actually had five offers upon leaving Bristol and had no idea which one really was, was going to be the right, the right home for me so it was very much a default and so I ended up going to work at a company called St Quintin, uh, which I suspect you, you’ll remember Susan, um which was subsequently then taken over by effectively CBRE and I stayed there for a couple of years before moving on to Healey & Baker. And I moved because I didn’t get a pay rise at St Quintin so in those days any time, you know, we, we would, the bubble had burst in the late 80s, the market had turned and, you know, the early 90s were quite tough and obviously costs were an important issue for businesses and therefore there was no pay rises so the only way to get a pay rise in those days was to try and move jobs.
Susan Freeman
Okay so, um, so there was quite a lot of sideways moves at that point?
Andrew Jones
Yeah I know it was, but it was, I mean I moved from, you know, I started off in shopping centre management and then I moved into portfolio management so that, you know, there was always a, I’d like to think it wasn’t, it wasn’t a dramatic promotion when I moved but it was certainly a positive incline.
Susan Freeman
So retail, the world of retail was a strong feature even at that stage and then of course you, um, you moved to British Land. You were head of retail there. What made you move from that role in 2010 to effectively start something completely new?
Andrew Jones
Yeah look, I mean, I’d arrived at British Land when they bought Pillar Property in 2005. I hadn’t applied, you know, for a job at British but, uh, they took Pillar over in the summer of ’05 and as part of that transaction myself and a number of my colleagues, you know, moved across and we were asked then to run the large retail portfolio. Pillar had obviously been a big player in the out of town retail market. I ran a fund called the Hercules, uh, Retail Warehouse Fund and, which was the biggest owner of retail warehouse parks and was probably, you know, one of the main attractions as to why British wanted to buy Pillar. So we all arrived in 2005. We were still in the middle of a ball market that probably peaked in the summer of 2007 and then we, you know, the world changed, you know, we entered into a global financial crisis which made 2008 tough. Started to come out of it in Easter of 2009 and then by the time you get to the early Summer or Spring, Summer of 2009 you just felt that the clouds were beginning to disperse and that opportunities, you know, were beginning to open up. Nick had IPO’d Max Properties in the Summer of ’09 which was indication that, you know, the stock market was available and was looking for new, fresh companies to invest in and to take advantage of, you know, the recalibration of prices that had taken place through the GFC. And then another company called LXB floated, I think in the October of ’09, again and it got good support on the stock market and so, you know, all of that was going into my head as to, you know, the next stage of my career. I’d just turned 40 and, you know, I’d had a good career. I actually enjoyed my time at British, I worked with some, you know, very talented people, we had some incredible, uh, assets but it was really, you know, it was a decision for me and what I wanted to do in the second half of my career that effectively led Mark Valentine and I into deciding that we wanted to do something that was completely different.
Susan Freeman
And was there a visit at Omaha to see what Warren Buffett was up to which sort of, may have had some influence?
Andrew Jones
Yeah, no so, I went to Omaha in, uh, in the April of ’09, you know, I’d studied Warren for many years, you know, you can’t help be interested in the stock market and not study Warren. I mean I am just actually looking at about three or four books that I’ve got on my desk, um, about him. And, you know, that, that was an important experience, you know, and one I will never forget and it just helped I suppose put into sharper focus, you know, what you wanted to do with the rest of your, like I say, the rest of my career and, um, it certainly had a massive impact and, you know, I think mentally I’d made a decision and I wanted to do something else but in order to do that the market’s got to be there for you and so you have to watch, you know, it’s all very well having a great idea but if the stock markets closed or the stock market’s, you know, in a bearish phase then, you know, you’re not going to raise the money, you’re not going to be able to fulfil your ambitions and so, you know, the two had to go hand-in-hand. It’s all very well, I mean lots of people come to, even now, come to me and say, I want to change direction, I want to do something else. Well, that’s fine but if, if, you know, if the opportunities are not presenting themselves then that’s, that’s just a wish that is unlikely to be fulfilled.
Susan Freeman
So you started, it was effectively a start-up. How did you go about raising money and building up a new portfolio?
Andrew Jones
So we, we framed the idea at the, you know, during the Summer of ’09 onwards, you know, we took a lot of comfort from the success that Max Properties had done, had and also the equity that Alex B had raised and we, we went and spoke in, in the beginning, in the early months, I think it was about probably February of 2010, we went and spoke to some of the key equity investors in, in the UK, uh, REIT sector to gauge their reaction to the idea that we presented which was effectively going to be a retail, out of town retail opportunity to take advantage of, you know, some of the distress that was still playing through following the GFC. And, um, we went to Holland, we went to New York. Obviously we went to London, we went to Edinburgh to gauge reaction to this because at the end of the day, as I said before, you can have an idea but you’ve got to be able to, you know, the money has got to be there to be able to fulfil it. You know, we had a, a good response, we got a strong indication of interest from institutions and investors in all of those, those four geographies and therefore I think we, we issued our, what we call, it’s called an ITF, uh, around about Valentine’s day actually in 2010, uh, which is an intention to float. I think we had to target 150, 175 million. I can’t remember what we went out to try and target. We exceeded the target and we effectively raised 190 million and then, as you say Susan, it was all about then trying to set about how to invest it sensible in bombed out opportunities. Which actually, when I look back now was maybe a little bit harder than I thought it might have been, you know, I expected there to be more willing sellers than there were. Uh, there were certainly some motivated sellers but in out of town retail there wasn’t, it didn’t really feel like there was a huge amount of, of real distress. But look, you know, we’d been in that sector a long time, you know, Mark and Valentine and I, you know, we were well plugged in to the market, that particular market. I think it was Peter Bill who, who actually wrote, uh, the boys will know where the bodies are buried and so we set about doing that and, you know, the portfolio grew. We then started to put a little bit of debt onto the assets so, within two years we were up and, we were over 300 million I think of, of, uh, of money invested.
Susan Freeman
And, um, then the merger with London Stamford was, um, at the beginning of January 2013. What did the portfolio look like after that merger?
Andrew Jones
Well, I still keep a slide of, of what a portfolio looked like after that merger because it was a very, it was an eclectic mix of, uh, of assets. I mean roughly speaking we had a quarter of our assets in two City of London office buildings, we had a quarter of our assets in London residential, we had a quarter of our assets in logistics and we had a quarter of our assets in out of town retail and that was fine when you had an opportunistic strategy but the stock market, you know, we were coming out of the GFC, things were beginning to settle down. The stock market was beginning to look for a growth strategy and, you know, it certainly likes a little bit of sector specialisations and so we had to decide, or I had to decide what, what our strategy was going to look like post that merger. I mean it was a good merger for both sets of shareholders, you know, London and Stamford had just sold a 50% stake in Meadowhall to the Norwegian sovereign wealth fund and didn’t have any retail so the Metric portfolio gave them that out of town retail and that was going to be important to us. I had worked out by then that I wanted to be in logistics and so the logistics part of the portfolio was, was also going to be pretty cool. So therefore that left the London residential and the London offices that needed to be monetised and we set about doing that. You know, selling the London offices and also we had two regional offices, one in Leatherhead and one in Marlow and so we sold those into a relatively receptive market at the time, you know, that’s when offices actually had some strong investor demand. And we sold the residential individually, uh, that took a little bit longer and the money was reinvested largely in, back into our logistic strategy which ironically was, you know, very closely aligned with our retail strategy. So I think the first ten warehouses that we purchased, I think starting in the Summer of 2013, they were all let to retailers. So, you know, it was Primark and Argos and DFS and Dixons and Marks & Spencer and Next and Superdrug, Boden, Oak Furniture Land, you know, so, you know, people that we knew, you know, people, you know, that we had relationships with obviously through their store portfolios.
Susan Freeman
No it’s interesting because I hadn’t necessarily thought about, you know, the logistics portfolio as being part of the retail ecosystem. So even at that stage you were not into offices, you didn’t have any sort of second thoughts about selling off the office portfolio?
Andrew Jones
No I’ve never had, you know, I’ve never doubted my thoughts on, on offices. I mean I haven’t liked offices probably even before Covid or work from home came around. I didn’t like the, I think they are, I think you mentioned in your opening, you know, opening remarks, I referred to them as melting ice cubes. I mean, I think it is very difficult to have a long-term relationship with an office because, well, you know, what happens is, is their beauty fades, they require more capital to maintain their, their appeal. The demand for them therefore starts to thin out a little bit and, and their values dwindle and then the cycle starts again. And so, you know, when I started my career, you know, offices were quite often let off 25 year leases or 20 year leases and increasingly now they’re let off 10 year leases or 15 at most and they obsolescence is quickening up as a result of, you know, energy efficiency requirements but also, also employee requirements. People want now, well, you know, it’s not a prime office build if it doesn’t have a roof terrace or a coffee bar in the reception or something and, you know, they continue to evolve which means that, you know, even green offices turn brown quite quickly and the capital that is then invested into them, is it offensive move not an aggressive move. So it’s, it’s what I call a defensive or maintenance CapEx not offensive or creative CapEx. And so I’ve never liked them. I think a lot of them, you know, they get redeveloped because if they don’t get redeveloped they’ll lose even more money and, and shopping centres can have similarities in that but I think that, uh, at least I think that they have a slightly longer shelf life than, than most of the office market. I mean I think our industry unfortunately also talks about offices with a very, very narrow lens of being based in, in the West End or based in the City of London I mean, you know, the vast majority of the office accommodation in the United Kingdom isn’t within those two jurisdictions and so I think it’s a tough game. As I say, I think it’s difficult to marry an office. There are turnaround strategies that can be implemented in offices but, but like I said, it’s best to date an office, not marry it.
Susan Freeman
Interesting. And then you mentioned that, um, you also had, um, residential and you’ve not been tempted by residential like some of the other REITs are pivoting towards residential?
Andrew Jones
No look, I mean, our strategy has, has evolved as, as things have changed but one of the things about the whole REIT environment, you know, the REIT regime is designed to encourage real estate allocators of capital to collect rent of buildings and to pass it through as efficiently as possible to shareholders through, through a dividend which is why that there are, you know, there aren’t minimum pay out ratios in the REIT regime, you know, it’s there to design to encourage you to pay dividends and residential has just a, you know, it doesn’t necessarily fit that mold particularly well given the irrecoverable aspects of the residential market, the short-term occupation, the CapEx requirements, the leakage and also then the overhead and, and the number of people that are required to manage it doesn’t really fit in with my ideals of how an income compounding reach should look with inefficient cost base and platform.
Susan Freeman
That makes sense, um, well Andrew, I mean just looking at, at the figures you are now the third largest UK REIT after SEGRO and Landsec and, um, I think the portfolio is now what, 7.4 billion. So we’ll talk about the, um, corporate, uh, deals in a minute but obviously you’re doing something right and unsurprisingly your approach to real estate has been described by some as Warren Buffett-like and, uh, you know, focussing as you’ve said on compounding income and I think being unemotional about, you know, where you, you allocate, um, capital whereas I think a lot of property people are so emotionally invested in, in the property that, uh, you know, they’re not necessarily looking at it objectively so, do you think that’s a sort of fair characterisation?
Andrew Jones
Yeah I do, I mean look, I mean I started, as we already touched on, I started my career in, in shopping centres, um, I then pivoted into, into retail parks. At British I also had a big, uh, we had a big portfolio of food, you know, supermarkets and then obviously, you know, following the merger and the creation of London Metric, we, you know, we moved heavily into logistics. I mean and, and those are pivots largely driven by evolving consumer behaviour and I mean just because I, I was a competent manager of shopping malls or, or retail parks, I never thought that should stop me moving in to supermarkets or indeed in, into logistics, you know, I think the same competencies can be applied to different, uh, asset classes. I think some people, you know, become an expert in their sector and they feel that that’s all they are an expert in. And, you know, I’m an expert in, in, in offices so I’ve got to stay in offices. But the world changes and, you know, technology has had a massive impact on our lives and if you cling to the old ways as I think Jack Marr once said, then you will get disrupted and, and we’ve seen that in the shopping centre market, we’ve seen it in the office market. It wouldn’t have been that long ago Susan where you might have been interviewing, you know, the chief executive of Intu, who would have told you about how mission critical the shopping centres were. Well that didn’t end too well. Shields in Hamilton have been through a, a rollercoaster as well because the consumers preferences moved on and, um, I think the same is true in parts of the office market as well and I think our ability to be able to move with the macro trends has been part of our strengths and has helped, you know, move the company forward from where we were even, you know, 12 years ago.
Susan Freeman
And it’s interesting the two examples you just mentioned are very, as you said, sector focussed and I was wondering when REITs first started in the UK, I think there was a feeling that they needed to be sector specific, you know, having an eye on the REIT market in the, in the States but you have gone for diversity. Has that thinking changed do you think?
Andrew Jones
Yeah I mean, no, I think the point you, you make is right and I would argue that actually the US has a similar focus but our focus is, is what we call a triple net REIT platform, which also exists in the US, in fact, you know, the US is, is the most mature triple net REIT market in, in the world. I mean what we’ve done is, is we’ve said, look we have a specialism in, in certain sectors and retail and logistics would be right up there but we want to be in the subsectors of retail or the subsectors of logistics where we think that the, our money will be treated best, you know, whether or not it’s in grocery, convenience, retail or whether or not it’s in, in urban logistics. But what over arches all of that is the fact that we don’t want to be involved in operational real estate. So we don’t operate, we have a few but generally we avoid multi-let situations where we have to run the asset because that, you know, rather than the responsibility resting with the occupier. Which is what a triple net REIT is all about, you know, the UK has one of the best legal systems in, in the world, you know, long leases, full repairing and insuring and in some way that lends itself to what a triple net REIT can offer. You know, our property leakage is, is, you know, the lowest in the sector, you know, and that’s not by accident. And so while I don’t see us as being sector agnostic. I don’t see us as being diversified actually. I think we’ve allocated money into sectors that we think are going to be winning and they are going to be winning because they are aligned to evolving consumer behaviour. Whether or not it’s for online shopping to house, whether or not it’s for a growing expectation for quicker and more efficient, you know, fulfilments, instant gratification. Whether or not it is acknowledging that time is a more valuable commodity today than, than it might have been 10 or 15 or 20 years ago and therefore you can do your weekly grocery shop in 30 minutes so you don’t need to be walking up and down forty four aisles in your 120,000 square foot supermarket to fill your, your basket. It’s also, you know, an increasing theme that people want to spend more of their disposable money on entertainment and experiences and fulfilment with friends, you know, whether or not it’s going to music festivals and having to stay the night in a budget hotel or whether or not it’s going to the theme park or whether or not it’s going to watch, uh, a sporting event or whether or not it’s going on a city break. So I don’t see us as diversified, we’re very much actually focussed on, on what we consider to be the three key winning sectors. But whilst, you know, we could also talk about residential being a strong sector as well, but that doesn’t fit the triple net model, you know, residential and student is much more an operational platform and that’s what we’re keen to avoid.
Susan Freeman
And I think you mentioned that there are, there’s more of a focus on triple net REITs in the States. Are there other triple net REITs in the UK?
Andrew Jones
Yeah look, I mean I, I think if, if, um, if you widen the search a little bit past us and, you know, you’ve got supermarket income rates, you know, that obviously as the name suggests, specialises in, in large floor plate supermarkets and that definitely would qualify as a triple net REIT. You know, you could look at companies like PHP, um, maybe not quite as compelling a triple net REIT but it would certainly have certain characteristics that would help it to qualify. You know, some of the small healthcare businesses, you know, might also consider themselves to be triple net but, you know, I’m kind of struggling after those three. So it hasn’t been embra…, you know, I could argue the whole new, the whole REIT regime in the UK hasn’t been embraced in the way it was expected and that actually all that’s happened is that the, the legacy companies have just carried on doing, operating the same, the same strategy that they had in place before REITs were introduced in, in 2007 and they just see it as a way to pay less tax. You know, I don’t think it’s changed a huge amount of behaviour.
Susan Freeman
How would you have expected, um, behaviour to have changed?
Andrew Jones
With great focus on income. That’s the whole point, you know, the, there’s a reason why the REIT regime effectively removed double taxation for investors. So it took away the income tax that the corporate would pay, you know, so, so that income was able to pass efficiently – well in theory efficiently – from the tenant to the shareholder without that taxation drag that you get through corporates. So therefore it was, it was designed to encourage lower leverage which I’d argue it has done, it was designed to maybe discourage as much development and, and, um, speculative investment. I’m not quite sure it’s done that. And it was designed to encourage a much higher pay out ratio than historically had been the case. I think it’s only in the last maybe 6 or 12 months that we’ve started to see real estate companies talk about earnings, growth and income and move away from their obsession over the previous 15 years with, with NAV.
Susan Freeman
Interesting. And what, what do you think’s driven that change?
Andrew Jones
Well their previous strategies weren’t working.
Susan Freeman
Okay. That’s a good brief.
Andrew Jones
I mean a lot of the legacy REITs are trading on massive discounts to their NAV which suggests that the stock market doesn’t actually believe the V. As one very, very smart alyst said, you know, any V stands for not actual value. You know, there’s no surprise that the American REITs don’t actually publish it. The American triple net REITs have no idea what their, their NAV is.
Susan Freeman
Interesting I didn’t realise that. So, you have been, um, pretty busy over the last few years consolidating UK REIT market and we’ll, you know, we’ll talk about some of the transactions but what does a business have to look like to appeal to London Metric?
Andrew Jones
Well it’s got to be heavily invested in the sectors that we consider that, that we like, you know, it has to have a high exposure to those winning sectors that, that I’ve touched on already. But, you know, we’re not doing this just for fun or to make our investment bankers wealthy and so the companies that we’ve acquired over the last few years have had a strong triple net approach or thesis running through the portfolio. They will be invested in, like I say, the winning sectors whether or not it is entertainment, whether or not it is convenient grocery or indeed logistics. We’d have to be confident of our ability also then to dispose of what we consider to be the non-core assets at a price that is, that is reflected in, in the takeover proposal.
Susan Freeman
And was there a point that you decided that actually consolidation was core to, to your strategy or was it just coming across a deal and it happened?
Andrew Jones
No look, I mean, you know, my job is to allocate capital and we can allocate capital to developments, you know, and we do but also pre-let developments. Uh, we can allocate capital to portfolios which we do. We allocate capital to the sale of leasebacks which we do. But similarly we can allocate capital to corporate takeovers and I don’t see corporate takeovers any differently to the other opportunities that, that I’ve outlined and it also allows us to immediately drive efficiencies because, you know, when you put two companies together, you know, you don’t need two chief execs, you don’t need two finance directors, you don’t need, you know, there’s a lot of overlap that can be done away with and so there are some, you know, enormous costs savings which flow through into our earnings and, you know, our earnings as I touched on before, is an important metric for a triple net REIT and therefore that is something that isn’t always available when you buy direct real estate, you know, because, you know, you’re not inheriting the platforms. So all of our transactions have been earnings secretive.
Susan Freeman
So let’s, let’s talk about the, um, LXI REIT acquisition in, in 2024 which effectively doubled the size of your, your portfolio and you mentioned Nick Leslau at the beginning of the, of the conversation and so presumably you, you knew each other pretty well. Um, I just wondered how that deal came about and what were the negotiations like? What were the challenges?
Andrew Jones
I’ve known Nick a number of years and he actually reached out in, to me in the Summer of 2023 actually and he text me and said, oh can we get together and Nick is somebody you go well he’s not doing it because, you know, he just wants to have a coffee and catch up and, you know, there’s obviously something on his mind and I went to see him pretty quickly expecting actually that there was a portfolio that they’d been offered that was maybe a little bit big for them and that they needed to try and, you know, share it around. So that was my expectation. So we met discreetly, you know, because the West End can be quite a small place.
Susan Freeman
Where do you go for a discreet meeting Andrew?
Andrew Jones
Oh well if I told you that, then people would, people would be going. Yeah I have, I have some places. Um, so we actually met at the back of a restaurant and he mentioned that he thought that putting together LXI and LMP would be a good idea for both sets of shareholders, you know, the scale it would create and the economies and, that it could produce he thought that were quite compelling. I actually then explained to him that we were in the middle of a, of another takeover and therefore that, you know, we couldn’t progress it even if, you know, I was, you know, extremely keen to do it. Uh, we were in actually the process of taking over Columbia Threadneedle Property Trust at that time and it hadn’t broken, it wasn’t in the press so nobody knew about it and Nick was like, oh, oh right okay, um, right. I said, so look I can’t do anything about it Nick, I’ll think about it. We’re going to close this deal in the May and, the end of May and then maybe I’ll think about what you suggested over the Summer and I’ll, I’ll get back to you in the Autumn sort of thing. I couldn’t have done anything else so, so I took, so I thought about it over the Summer a lot and I think the news broke, you know, there was quite a lot of work to do as you rightly say Susan, it was a big deal, you know, it was doubling the size of our business. But LXI was a classic triple net REIT, you know, to their credit, you know, they, they ran an incredibly efficient, you know, operation. Um, I think they had about seventeen people and so it ticked that box. I mean it was in some sectors that we hadn’t had exposure to but it was in sectors that had a great overlap, you know, they, we had come up against LXI quite a lot on, as we were growing our convenience grocery business with Aldi and Lidl and M&S and what have you and so, you know, we were coming up against them so that was very complimentary. You know, we, we’d had some investments in budget hotels and LXI was big in that. So that was complimentary but obviously it came with some, you know, some theme parks which we didn’t have any experience in but again I think our theme parks are again the epitome of triple net, you know, I don’t think Merlin need my help on how to run Thorpe Park or, or Alton Towers and they came with some very, very long leases which is something that I, I like. I mean a lot of people don’t understand compounding. I think it was Charlie Munger who, who said, the first rule of compounding is don’t interrupt it. And so very long leases play into that extremely well. So I think the news broke of the, of the deal just before Christmas of 2023 and then we all worked quite hard over that period to be able to, to announce it then to our respective shareholders in, in the January of ’24.
Susan Freeman
So the theme parks were quite, um, a new asset class for you?
Andrew Jones
Yeah but they chimed with what I said earlier, they chimed with an increasing focus of people looking to divert discretionary expenditure away from general merchandise into experiences and fulfilment and so I didn’t have to grapple with that for very long.
Susan Freeman
No and were there any sort of like big surprises when you take over a large portfolio like that?
Andrew Jones
Susan there’s always, there’s always surprises. Um, both good and bad. But we, well you go into these, look it’s like when you buy a portfolio of properties, you know, it’s exactly the same, you know, there’s going to be, there’s going to be some really good stuff that, you know, that is better than you expected and there’s going to be some things that are not quite as good and so, that’s just the way of the world. I mean anybody that goes into these transactions thinking it’s all going to be fantastic, has obviously never done it before. Um, so we, we worked hard, I mean we’ve worked very, very hard on trimming out some of the assets that didn’t meet our own aspirations for returns and, you know, we have sold I think over 10% of the, of the LXI portfolio by value and, um, certainly a lot more than that by number. And that project, you know, I think we’ve broken the back of it. There’s a bit more to do but nothing that keeps me awake at night.
Susan Freeman
Okay. And then in 2025, well this year, you acquired two companies I think concurrently, so Urban Logistics and, and Highcroft. I mean that must be quite a difficult thing to accomplish?
Andrew Jones
Yeah look, I mean, again I mean we were, we were made aware of the opportunity to acquire Highcroft earlier and it wasn’t a very big transaction but it, again we don’t mind that I mean, you know, we’re happy to do small deals because they have a habit of mounting up and become quite material and again, you know, I had a good relationship with their chairman which effectively helped enormously. I mean of all the transactions I’ve done in the M&A space, what is very, very important is to have a relationship with the chairman of, of the target company. You know, that goes back to the merger with London and Stamford, you know, Patrick and I had a great relationship. It goes to the takeover of A&J Mucklow, again, Rupert and I still have a, a strong relationship. I see him quite a lot in, in Portugal and so that, that was important, you know, as indeed having a strong relationship with Nick and Sandy on the board of LXI was, was important to that deal coming to fruition. Similarly with Highcroft with, with Charles and that, that makes it a lot easier. So whilst it sounds like a very, a tough gig to do two takeovers at the same time, it is made a lot easier when you have a, a relationship with the, with the target board.
Susan Freeman
That’s a really useful observation and I was just thinking, you know, had there been, you know, corporate deals which, you know, didn’t go through, haven’t been in the press because there wasn’t that sort of relationship?
Andrew Jones
I am sure there are, I mean we, we haven’t had to do a hostile takeover yet. I mean I’m not saying we wouldn’t do it but it just does make it a lot easier when it’s, you know, when there is, there is support for the, because, you know, what you’re doing, you know, one of the things about the transactions and how we’ve structured them, you know, you’re not selling out, you know, the target shelves are not selling out, you know, at the wrong time or what they consider to be the wrong time or indeed at the wrong price. You know, what we’re doing is we’re suggesting that they swap the shares that they have in their smaller company for shares in a bigger company. And those bigger company shares offer you greater liquidity and are bigger company shares in, in our case offer you higher dividends and more secure dividends and so therefore, because you’ve got greater granularity of income, you know, so that if one of our tenants leaves one of our buildings it’s not going to affect, you know, our ability to be able to pay our dividend in the same way that it might affect a much smaller company whose, you know, if one of their big tenants leaves. So, so we’re not asking you to make a judgment on the timing and if you don’t like our shares then you can always sell them.
Susan Freeman
So, obviously there has been quite a wave of consolidation. Are you now going to be focussing on organic growth or are there more targets on the radar?
Andrew Jones
Well look, I think our, my job is to look for two things. One, is to look at, for organic growth opportunities, you know, within the portfolio and, and, you know, an important part of my job is to make sure that we’ve allocated capital into properties that are going to give us that organic, what I call internal growth and if they’re not then they will be sold. But ally to that is a strategy to, to try and look for opportunities for external growth and as you’ve rightly said, that’s seen us increase the size of the business quite materially over the last two to three years and we remain alert and open-minded about new external opportunities both in the private or indeed the public markets because that’s my job. Well not least a more M&A time will tell but, it’s my job to be, uh, alert and open-minded.
Susan Freeman
And how do you see the UK REIT landscape evolving over the next few years, sort of more of the same, more consolidation. Because a lot of the REITs are actually quite small?
Andrew Jones
Yeah look I think, I hope it’s not more of the same, I think REITs need to do a better job in order to retain interest from global investors. Um, I think size helps and therefore I think further consolidation is almost certain, um, because I think you have to get bigger to remain relevant and so I think that, you know, we could end up in a situation where you have six or seven super REITs, specialising in, in a sector or specialising in, in a formulaic, ours obviously would be a triple net somatic, some people will specialise in health care and logistics. So I think that, that is almost inevitable in order for people to, to survive and stay relevant. Those six super REITs could then be supported by some, some nimble property companies that are maybe a little bit more active traders in their specialised sector. But we have to drive greater efficiencies, you know, we have to think about costs ratios, we have to think about earnings, we have to, you know, we can’t just expect investors to be patient sitting there hoping that the NAV rises because there’s been a change in, in the macroeconomic interest rate environment. You know, we have to pay people to be patient and the way in which we do that is obviously through well covered progressive dividend.
Susan Freeman
And I think you, you said that everything in the portfolio is potentially in the shop window apart from the theme parks. Is that right and, um, if the right approach was made, would you make a strategic sale?
Andrew Jones
Every asset has a price. Everybody has a number. So, you know, there are no sacred cows here, there are no family silver or crown jewels. Every single asset has a price.
Susan Freeman
Even the theme parks?
Andrew Jones
Every asset has a price.
Susan Freeman
Okay.
Andrew Jones
I mean, look, I can put a number on everything apart from my wife, my children and my friends.
Susan Freeman
(laughs) I’m glad they’ve escaped. So Andrew, have there been any sort of particular, I mean apart from the ones that we’ve discussed, any, any particular sort of influences or, or sort of mentors in business or, or indeed in life?
Andrew Jones
Look I’ve been, you know, very fortunate, you know, you talked about my interest in the stock market and, and where that’s led me into, you know, finding some incredible business people that I read about a lot. You know, I’m currently listening to a podcast which is an interview with Jamie Dimon, you know, he’s somebody who I spent a lot of time reading about or, or listening to. Uh, we’ve talked about Warren and Charlie Mungo who have written some incredible, incredible articles or done some incredible interviews and then I would, you know, urge anybody going into business to, to read some of the, those articles or indeed the Berkshire Hathaway annual letters. But then at a more personal level I’ve, I’ve been very fortunate to work with some incredible people in my career. I, you know, I’ve, I’ve already referenced my former chairman, Patrick Vaughan and his business partner, Raymond Mould, they, both of them had an incredible impact on my career. You know, I enjoyed my time at British working with Stephen Hester and, you know, more closer to home I’ve worked now for probably 30 years with Valentine and Mark, who again have had a massive impact on how I go about my job and, and how we, you know, we shape this business. And they are very, very much part of our success and all of that and so, you know, I think there, there is a Buffett quote that says, you know, I just want to surround myself with people that are just far more intelligent than I am in the hope that some of it might rub off, um, and I probably, I probably subscribe to that.
Susan Freeman
And with the advantage of hindsight, is, is there anything that you would have done differently?
Andrew Jones
I mean I’ll be honest with you, I, I don’t spend a lot of time looking backwards because you can’t change it. I mean, I want to learn from mistakes, I mean there is absolutely, you know, there’s going to be property transactions that we’ve done and which I think, well I wish I hadn’t done that. But, you know, I think it’s been, it’s been an incredible journey with some great people around me and helping me and so there’s still, you know, spending time looking backwards is, is pretty futile. I mean, you know, I want to learn from my mistakes so that we don’t repeat it but there’s just so much to look forward to when you go, you know, ahead so let’s not spend too much time looking. The rear view mirror is always a lot clearer than the windscreen and so that, that’s the way we look at things. I mean we’ve all absolutely made mistakes on transactions and, but there’s, there’s nothing that, that springs to mind that says I wish I’d done something differently.
Susan Freeman
Okay. Well looking forward since we are drawing to the end of 2025. Any, um, big picture macro trends that, um, you expect to see in 2026?
Andrew Jones
I, I feel pretty bullish about ’26. I mean I was, you know, maybe more than I did about, about ’25. I mean I think that, you know, we, we’re in a position in the economy where, you know, some of the froth is coming out of it quite quickly, you know, you’ve seen an inflation print that’s come in lower than expectations, you’ve seen unemployment start to rise. That bodes well for interest rates, in the outlook for interest rates and, you know, we do have to remember that interest rates is the yard stick by which all investments must be assessed and so therefore falling interest rates is going to be good for real estate so therefore, you know, that’s probably why I’m a little bit more optimistic than I might have been this time last year. And I think that there are opportunities in real estate as we see a big change in, in the structure of the UK pension industry. I think that throws up a lot of new opportunities for, for material external growth, um, so I’m quite excited about that. I still think there’s further consolidation to take place in the listed sectors as, as we’ve touched upon and I think our winning sectors will continue to outperform and so looking forward I think that there is, in 2026 should be a better year, uh, for real estate and, and real estate equities in particular. I think the consumers are actually in good shape as well and employment will tick up but most people who want a job, have got a job and household savings ratios are higher than they’ve been, you know, in decades so that’s good. Wage growth has been a little bit, a little bit higher than I would have expected, particularly in the public sector, uh, so that means people, they’ve got more money coming through. We don’t talk anymore about credit card debts and, you know, how these are getting out of control like we used to pre-Covid. So actually there, there is an environment and a scenario that I can set out that says that actually the next 12 months could be pretty good. You know, lower interest rates, a strong, uh, a strong consumer, you know, it actually could look pretty good for, for commercial real estate in the UK. The one thing missing though is, is a confidence in the outlook and, you know, people have got the savings and they’ve got the jobs, um, but they’re not spending and that is because there’s been uncertainty by, you know, whether or not it’s, you know, an incredibly prolonged budget, you know, that was supposed to be delivered in the Autumn and came out I think on the end of November. You know, that’s, that’s winter. So that’s created a huge amount of uncertainty in people’s minds and therefore, and when there’s uncertainty people default to, to safety and safety of, oh I think I’ll save that rather than spend it. So if, if we could just engender and if we could the Government could engender a little bit more confidence, about the outlook and GDP growth, then actually, you know, we do have the ingredients for a strong ’26. But at the moment there is just a lack of, uh, that confidence is, is missing at the moment. You know, I don’t think this is going to be a bumper Christmas for retailers.
Susan Freeman
Okay. Well that’s pretty positive Andrew so thank you, thank you for that. And probably a good place to stop. So thank you so much, I’ve really enjoyed the conversation.
Andrew Jones
Great thank you, I mean so have I and, uh, I look forward to seeing you in 2026.
Susan Freeman
Thank you so much Andrew for talking to us so candidly about your consolidation of the UK REIT market and importance of unemotional capital allocation and unwavering focus on income and growth. Great also to hear your optimism for 2026, let’s hope the Government can engender some more much needed confidence.
So that’s it for now. I hope you enjoyed today’s conversation. Please join us for the next PropertyShe podcast interview coming very soon.
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