SEGRO plc: Results for the Six Months Ended 30 June 2021

SEGRO reports a strong performance in H1 2021 and remains well-positioned to deliver further growth.

LONDON–(BUSINESS WIRE)–Regulatory News:

Commenting on the results, David Sleath, Chief Executive, said:

“SEGRO has delivered another strong set of results, which reflect the high quality of our portfolio and increased demand from a diverse range of occupiers and investors. Together with our active approach to asset management, rental growth and further progress with our development pipeline, these factors have driven significant valuation increases and earnings growth.

“We have also made important progress on our Responsible SEGRO priorities, putting the necessary framework in place to enable us to deliver on our long-term commitments, whilst continuing to work with our local teams and partners to embed our approach into our day-to-day business.

“SEGRO is well-placed to continue benefitting from the structural tailwinds driving the industrial property sector with our unique portfolio of prime warehouses, two-thirds of which are located in the most supply constrained urban markets, and an enviable land bank capable of supporting our profitable and expanding development programme. The combination of our established pan-European, customer-focused operating platform and our relationships and reputation with other key stakeholders, give us a significant competitive advantage which further enhances our ability to secure opportunities for future growth.”

HIGHLIGHTSA:

  • Adjusted pre-tax profit of £168 million up 19 per cent compared with the prior year (H1 2020: £141 million). Adjusted EPS is 13.8 pence, up 10 per cent (H1 2020: 12.5 pence).
  • Adjusted NAV per share is up 12 per cent to 909 pence (31 December 2020: 814 pence) driven by portfolio asset management initiatives, yield compression, rental growth and our development activity delivering a 10 per cent increase in the valuation of the portfolio.
  • Strong occupier demand, our customer focus and active management of the portfolio generated £38 million of new headline rent commitments during the period, including £21 million of new pre-let agreements, and a 12 per cent average uplift on rent reviews and renewals (UK: 16 per cent, CE: 2 per cent).
  • Further growth in the development pipeline with 1.3 million sq m of projects under construction or in advanced pre-let discussionsequating to £96 million of potential rent, of which 75 per cent has been pre-let, substantially de-risking the 2021-2022 pipeline.
  • Balance sheet positioned to support further, development-led growth with access to over £1.2 billion of available liquidity and a low level of gearing reflected in an LTV of 21 per cent at 30 June 2021 (31 December 2020: 24 per cent).
  • Interim dividend increased by 7 per cent to 7.4 pence (2020: 6.9 pence), in line with our usual practice of setting the interim dividend at one-third of the previous full year dividend.

FINANCIAL SUMMARY

6 months to

30 June 2021

6 months to

30 June 2020

Change

per cent

Adjusted1 profit before tax (£m)

168

141

19.1

IFRS profit before tax (£m)

1,413

221

Adjusted2 earnings per share (pence)

13.8

12.5

10.4

IFRS earnings per share (pence)

110.3

19.5

Dividend per share (pence)

7.4

6.9

7.2

Total Accounting Return (%)3

13.5

4.6

 

 

30 June 2021

31 December

2020

Change

per cent

Portfolio valuation (SEGRO share, £m)

14,446

12,995

10.24

Adjusted5 6 net asset value per share (pence, diluted)

909

814

11.7

IFRS net asset value per share (pence, diluted)

897

809

10.9

Net debt (SEGRO share, £m)

3,092

3,088

 

Loan to value ratio including joint ventures at share (per cent)

21

24

 

 

 

 

 

1. A reconciliation between Adjusted profit before tax and IFRS profit before tax is shown in Note 2 to the condensed financial information.

2. A reconciliation between Adjusted earnings per share and IFRS earnings per share is shown in Note 11 to the condensed financial information.

3. Total Accounting Return is calculated based on the opening and closing adjusted NAV per share adding back dividends paid during the period.

4. Percentage valuation movement during the period based on the difference between opening and closing valuations for all properties including buildings under construction and land, adjusting for capital expenditure, acquisitions and disposals.

5. A reconciliation between Adjusted net asset value per share and IFRS net asset value per share is shown in Note 11 to the condensed financial information.

6. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA) (see Table 4 in the Supplementary Notes for a NAV reconciliation).

A Figures quoted on pages 1 to 17 refer to SEGRO’s share, except for land (hectares) and space (square metres) which are quoted at 100 per cent, unless otherwise stated. Please refer to the Presentation of Financial Information statement in the Financial Review for further details.

OUTLOOK

SEGRO continues to be positioned well for further growth, benefiting from a unique portfolio of assets and a development pipeline located in areas which are highly sought after and where land is in increasingly short supply. Our ability to provide our customers with modern, sustainable premises in prime locations, two-thirds of which are in Europe’s major cities, combined with the extensive experience and networks of our local teams, give us a strong competitive advantage.

Our buildings are adaptable to many different uses and serve a wide range of customers and sectors. A significant portion of occupier demand continues to arise from the increased use of digital channels by retailers and consumers which, in turn, is driving increased e-commerce penetration and consumption of data across Europe. Although internet sales penetration levels have understandably fallen from their highs as physical retail has reopened, they remain significantly higher than pre-pandemic levels as cultural barriers have been overcome and habits have changed. We believe that the long-term trend towards increased on-line shopping has been amplified and accelerated by the pandemic and this has given a new impetus to demand for space.

Coupled with that, many customers and logistics suppliers are placing renewed emphasis on supply chain resilience, near-shoring and local sourcing, improved customer service and cost or inventory efficiency which are fuelling increased demand for modern, well-located warehouses – both urban and big box. We expect these themes to continue for some time. More recently we have also seen demand arising from emerging new sectors including creative industries and q-commerce (including rapid food delivery providers).

Record levels of take-up across Europe have resulted in low vacancy rates and in most of our markets supply currently equates to less than a year of take-up. This is resulting in rental growth in our core markets, most notably in urban areas where the combination of a shortage of modern warehouse space, a shortage of land suitable for development and the diversity of the occupier base is most prevalent.

Given these strong market dynamics investor demand for well-located, modern industrial assets is likely to continue to grow, putting further upward pressure on asset values.

These factors, combined with our active approach to asset management, are enabling us to drive strong returns from the existing portfolio, supplemented by our profitable, de-risked development programme which generates additional rental income and allows us to further modernise the portfolio to help our customers meet their own sustainability requirements.

We remain confident in the outlook for the remainder of 2021 and beyond given the strong levels of occupier demand and the competitive position of our business, but remain alert to macro risks, not least the ongoing Covid-19 pandemic.

SUMMARY & KEY METRICS

H1 2021

H1 2020

FY2020

STRONG PORTFOLIO PERFORMANCE (see page 8):

 

 

Valuation increase driven by yield compression, rental value growth and active asset management of the standing portfolio, supplemented by development gains.

Portfolio valuation uplift (%)

 

10.2

0.7

10.3

Like-for-like portfolio valuation growth (%)

UK

8.6

0.1

9.2

 

CE

8.3

0.8

10.2

Estimated rental value (ERV) growth (%)

UK

3.6

1.0

3.1

CE

1.5

0.4

1.5

ACTIVE ASSET MANAGEMENT DRIVING OPERATIONAL PERFORMANCE (see page 9):

Strong performance in capturing new rent, including leases signed with customers from new sectors, highlighting the versatility of our urban portfolio. Our approach to asset management and customer focus has also resulted in continued capture of reversionary potential.

Total new rent contracted during the period (£m)

38

34

78

Pre-lets signed during the period (£m)

 

21

19

41

Like-for-like net rental income growth (%):

Group

4.7

(0.2)

2.1

 

UK

4.8

0.6

0.9

 

CE

4.6

(0.7)

4.3

Uplift on rent reviews and renewals (%)

 

12.1

10.4

19.1

Vacancy rate (%)

 

4.3

5.2

3.9

Customer retention (%)

 

83

88

86

INVESTMENT ACTIVITY CONTINUES TO FOCUS ON DEVELOPMENT (see page 14):

Investment continues to focus on the development and we sourced further land to secure future opportunities. Development capex for 2021, including infrastructure, expected to be c.£750 million.

Development capex (£m)

364

265

531

Acquisitions (£m)

 

92

426

889

Disposals (£m)

154

59

139

EXECUTING ON AND GROWING OUR DEVELOPMENT PIPELINE (see page 12):

Continuing to add to our development pipeline with a further 770,000 sq m expected to complete by year end and £96m of potential rent from developments under construction or in advanced discussions.

Development completions:

 

 

 

– Space completed (sq m)

 

104,000

358,500

835,900

– Potential rent (£m) (Rent secured, %)

8 (75%)

22 (64%)

47 (84%)

Current development pipeline potential rent (£m) (Rent secured, %)

 

74 (72%)

45 (85%)

54 (66%)

Near-term development pipeline potential rent (£m)

 

22

33

27

FINANCING (see page 15):

Strong balance sheet and low cost of debt provides significant capacity to invest for future growth.

Cost of debt (%)

1.5

1.7

1.6

Average debt maturity (years)

 

9.7

9.4

9.9

Cash and available facilities (£m)

1,230

1,541

1,189

WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS

A live webcast of the results presentation will be available from 08:30am (UK time) at:

https://www.investis-live.com/segro/60e718e680fc931000313c84/hy21

The webcast will be available for replay at SEGRO’s website at: http://www.segro.com/investors shortly after the live presentation.

A conference call facility will be available at 08:30 (UK time) on the following number:

Dial-in: +44 (0)800 640 6441

+44 (0) 203 936 2999

Access code: 933901

An audio recording of the conference call will be available until 5 August 2021 on:

UK: +44 (0) 203 936 3001

Access code: 713190

A video of David Sleath, Chief Executive discussing the results will be available to view on www.segro.com, together with this announcement, the Half Year 2021 Property Analysis Report and other information about SEGRO.

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

SEGRO

Soumen Das

(Chief Financial Officer)

Tel: + 44 (0) 20 7451 9110

(after 11am)

 

Claire Mogford

(Head of Investor Relations)

Mob: +44 (0) 7710 153 974

Tel: +44 (0) 20 7451 9048

(after 11am)

FTI Consulting

Richard Sunderland / Claire Turvey /

Eve Kirmatzis

Tel: +44 (0) 20 3727 1000

FINANCIAL CALENDAR

2021 interim dividend ex-div date

12 August 2021

2021 interim dividend record date

13 August 2021

2021 interim dividend scrip dividend price announced

19 August 2021

Last date for scrip dividend elections

3 September 2021

2021 interim dividend payment date

24 September 2021

2021 Third Quarter Trading Update

20 October 2021

Full Year 2021 Results (provisional)

18 February 2022

ABOUT SEGRO

SEGRO is a UK Real Estate Investment Trust (REIT), listed on the London Stock Exchange and Euronext Paris, and is a leading owner, manager and developer of modern warehouses and industrial property. It owns or manages 8.8 million square metres of space (95 million square feet) valued at £17.1 billion serving customers from a wide range of industry sectors. Its properties are located in and around major cities and at key transportation hubs in the UK and in seven other European countries.

For over 100 years SEGRO has been creating the space that enables extraordinary things to happen. From modern big box warehouses, used primarily for regional, national and international distribution hubs, to urban warehousing located close to major population centres and business districts, it provides high-quality assets that allow its customers to thrive.

A commitment to be a force for societal and environmental good is integral to SEGRO’s purpose and strategy. Its Responsible SEGRO framework focuses on three long-term priorities where the company believes it can make the greatest impact: Championing Low-Carbon Growth, Investing in Local Communities and Environments and Nurturing Talent.

See www.SEGRO.com for further information.

Forward-Looking Statements: This announcement contains certain forward-looking statements with respect to SEGRO’s expectations and plans, strategy, management objectives, future developments and performance, costs, revenues and other trend information. These statements are subject to assumptions, risk and uncertainty. Many of these assumptions, risks and uncertainties relate to factors that are beyond SEGRO’s ability to control or estimate precisely and which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Certain statements have been made with reference to forecast process changes, economic conditions and the current regulatory environment. Any forward-looking statements made by or on behalf of SEGRO are based upon the knowledge and information available to Directors on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be met and you are cautioned not to place undue reliance on the forward-looking statements. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is provided as at the date of this announcement and is subject to change without notice. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), SEGRO does not undertake to update forward-looking statements, including to reflect any new information or changes in events, conditions or circumstances on which any such statement is based. Past share performance cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit estimate or profit forecast. The information in this announcement does not constitute an offer to sell or an invitation to buy securities in SEGRO plc or an invitation or inducement to engage in or enter into any contract or commitment or other investment activities.

Neither the content of SEGRO’s website nor any other website accessible by hyperlinks from SEGRO’s website are incorporated in, or form part of, this announcement.

CHIEF EXECUTIVE’S REVIEW

INTRODUCTION

SEGRO has delivered another strong set of results, which reflect the high quality of our portfolio and increased demand from a diverse range of occupiers and investors. Together with our active approach to asset management, rental growth and further progress with our development pipeline, these factors have driven significant valuation increases and earnings growth.

Our business is well-placed to continue benefitting from the structural tailwinds driving the industrial property sector with our unique portfolio of prime warehouses, two-thirds of which are located in the most supply constrained urban markets, and an enviable land bank capable of supporting our profitable and expanding development programme. The combination of our established pan-European, customer-focused operating platform and our relationships and reputation with other key stakeholders, give us a significant competitive advantage which further enhances our ability to secure opportunities for future growth.

IMPORTANT PROGRESS WITH RESPONSIBLE SEGRO PRIORITIES

Earlier this year we launched our new Responsible SEGRO ambitions and commitments which address the key areas where we believe we can make the greatest environmental and social contribution, helping to position SEGRO for another 100 years of success.

Our three priorities are:

  • Championing low-carbon growth – we recognise the world faces a climate emergency and are committed to playing our part in tackling climate change.
  • Investing in our local communities and environments – as a long-term investor we are committed to contributing to the vitality of the communities in which we operate.
  • Nurturing talent – our people are vital to and inseparable from our success and we are committed to attracting, creating and retaining talented individuals from a wide range of backgrounds.

We have been working on these focus areas throughout the first half of the year, alongside and as part of the management of our property portfolio, and engaging with our stakeholders to gain their feedback, which has been overwhelmingly positive.

We have made good progress in Championing Low-Carbon Growth, particularly in the area of our Scope 3 carbon emissions. One of our key challenges in reducing and eliminating operational carbon emissions is for us to gain visibility over, and then influence, our customers’ energy usage and sources of supply. We are gathering more data than we have ever done before and now have visibility over significantly more data than we did at the end of 2020. We have also moved our Polish portfolio, which is one of the few parts of the portfolio where we directly source energy on behalf of our customers, onto a renewable energy tariff. This represents an important step forward as Poland has a highly coal-based power network and accounted for almost half of our known total carbon emissions in 2020. All of the markets where we procure energy (for ourselves and on behalf of our customers) are now on renewable energy targets. Finally, we have also signed our first Green lease on a data centre on the Slough Trading Estate which requires the customer to procure certified renewable energy.

We are addressing embodied carbon in our development pipeline by undertaking full lifetime carbon assessments for most developments and we continue to test and introduce leading sustainability features in our developments and refurbishments such as solar panels, LED lighting, living walls, battery storage, rainwater harvesting and sensors to measure air quality, energy usage and other day to day operational metrics.

In terms of Investing in our Local Communities and Environments, we have been working hard to put the necessary framework in place to launch our first Community Investment Plans (CIPs) in the second half of 2021. We have identified eight key markets and started to accept proposals for an initial set of projects.

The SEGRO Centenary Fund, which supports our Responsible SEGRO goal of improving employment prospects of the individuals within the communities in our major markets, has now committed its third and fourth rounds of funding. These two rounds contributed to 23 programmes supporting over 3,000 beneficiaries, with a focus on employability and skills training. Finally, we have continued our work with LandAid and Pathways to Property on projects aligned with our areas of focus.

We also continue to work to improve the physical environments within and around our estates, including the introduction of biodiversity features such as beehives and green spaces. For example, we recently funded the creation of Tree Trails in Slough and in Germany are working with Plant-My-Tree to support forest conservation and plant 1,430 trees near Hamburg.

A crucial element of Nurturing Talent is to ensure that we are a fully inclusive business which appeals to a wide, diverse and talented range of people. Our work in the first half has included working with the National Equality Standards to audit our business, participating in the Social Mobility Index and building on our strengths and identifying opportunities for improvement from the results of our ‘Your Say’ employee survey. These programmes and other initiatives will help us prioritise actions and improvements to ensure that we provide an inclusive culture and a healthy, supportive working environment.

Alongside the ongoing work on these three focus areas, an important next step within our Responsible SEGRO framework in the second half of the year is to identify challenging but achievable non-financial KPIs to help us measure and report on our progress and to link these to remuneration as part of our updated Remuneration Policy which will be presented to shareholders for approval at the 2022 Annual General Meeting.

PORTFOLIO VALUATION: STRONG GROWTH IN ALL MARKETS

Valuation gains from asset management, market-driven yield improvement and development

There has been significant growth in property values across all of our markets in the first six months of 2021 as a result of the continued strong occupier and investor appetite for industrial assets.

The Group’s property portfolio was valued at £14.4 billion at 30 June 2021 (£17.1 billion of assets under management). The portfolio valuation, including completed assets, land and buildings under construction, increased by 10.2 per cent (adjusting for capital expenditure and asset recycling during the period) compared to 0.7 per cent in H1 2020.

This primarily comprises an 8.5 per cent increase in the assets held throughout the period (H1 2020: 0.3 per cent), driven by strong yield compression in most markets (the true equivalent yield fell 30 basis points across the whole portfolio to 4.2 per cent) and a 2.8 per cent increase in our valuers’ estimate of the market rental value of our portfolio (ERV).

Assets held throughout the period in the UK increased in value by 8.6 per cent (H1 2020: 0.1 per cent). The true equivalent yield applied to our UK portfolio was 4.1 per cent (31 December 2020: 4.3 per cent), reflecting yield compression, rental growth and the impact of newly completed developments. Rental values improved by 3.6 per cent (H1 2020: 1.0 per cent).

Assets held throughout the period in Continental Europe increased in value by 8.3 per cent (H1 2020: 0.8 per cent) on a constant currency basis, reflecting a combination of yield compression to 4.4 per cent (31 December 2020: 4.8 per cent) and rental value growth of 1.5 per cent (H1 2020: 0.4 per cent).

More details of our property portfolio can be found in the H1 2021 Property Analysis Report available at www.segro.com/investors.

Property portfolio metrics at 30 June 2021

 

 

Portfolio value, £m

Yield3

 

Lettable

area sq m

Completed

Land &

development

Combined

property

portfolio

 

 

Combined

property

portfolio

Valuation

movement2 3
%

 

Topped-up

net initial

%

Net true

equivalent

%

Vacancy

(ERV)4
%

 

(AUM)

 

 

 

 

 

(AUM)

 

 

 

 

 

UK

 

 

 

 

 

 

 

 

 

 

 

 

GREATER LONDON

1,225,704

5,165

184

5,349

 

 

5,349

8.4

 

3.2

3.9

6.6

THAMES VALLEY

568,337

2,033

216

2,249

 

 

2,249

8.5

 

4.0

4.4

2.4

NATIONAL LOGISTICS

546,252

911

527

1,438

 

 

1,438

9.6

 

4.3

4.3

UK TOTAL

2,340,293

8,109

927

9,036

 

 

9,036

8.6

 

3.5

4.1

4.7

Continental Europe

 

 

 

 

 

 

 

 

 

 

 

 

Germany

1,478,357

1,323

163

1,486

 

 

2,224

6.6

 

3.7

3.8

2.4

Netherlands

233,193

159

16

175

 

 

334

14.2

 

4.0

4.1

2.5

France

1,420,452

1,419

184

1,603

 

 

2,074

6.0

 

4.1

4.6

6.1

Italy

1,357,237

764

327

1,091

 

 

1,612

16.4

 

4.3

4.2

Spain

311,056

219

115

334

 

 

507

14.1

 

4.2

4.3

Poland

1,475,328

586

41

627

 

 

1,104

6.5

 

5.6

5.6

6.3

Czech Republic

169,515

83

11

94

 

 

180

10.7

 

4.8

5.2

2.9

CONTINENTAL EUROPE TOTAL

6,445,138

4,553

857

5,410

 

 

8,035

8.3

 

4.2

4.4

3.7

GROUP TOTAL

8,785,431

12,662

1,784

14,446

 

 

17,071

8.5

 

3.8

4.2

4.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Contacts

SEGRO plc

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