Trading Update

RNS Number : 0369D

SEGRO PLC

22 October 2015

 

22 October 2015

SEGRO plc

Trading Update

SEGRO plc ("SEGRO" or the "Group") today publishes its trading update for the period from 1 July to 21 October 2015¹.

David Sleath, Chief Executive, said:

"Occupational conditions continue to be favourable, particularly in our UK portfolio, and we remain optimistic about our full year operating performance. We have seen further net absorption of existing space contributing to an improvement in our vacancy rate, and continued strengthening in overall rental terms. Against this positive market backdrop, we have added £1 million to our rent roll from letting up speculatively developed space and have further expanded our development pipeline which includes £3.3 million of new pre-let agreements, with a number of others in advanced negotiation.

"Investor demand for well-located industrial and logistics assets remains strong in all of our markets, with yields continuing to compress. This should be positive for the value of our portfolio, but it also means that we will remain deliberately selective about acquisition opportunities, whilst continuing to focus on development, which we believe will deliver attractive returns for shareholders."

Driving operational excellence and delivering profitable growth from development (Appendix 1)

·     Continuing the positive leasing trend seen in the first half of 2015, we contracted £10.6 million of new rent during the third quarter (Q3 2014: £6.5 million), including £2.3 million of net absorption of existing space (Q3 2014: £1.9 million net absorption), our strongest quarterly performance since 2012.

·     The vacancy rate has improved to 6.6 per cent (7.4 per cent at 30 June 2015) reflecting the net absorption of existing space and lettings of recently completed speculative developments.

·     Rents are improving in our UK markets, especially in London and South East England. In the 9 months to 30 September 2015, new rents on review and renewal were 3.0 per cent higher in the UK (in tandem with a general improvement in lease terms) and 1.4 per cent lower in our Continental European portfolio (the declines mainly occurring in Central Europe), both in line with market rental value trends.

·     32,900 sq m of developments were completed in the third quarter, capable of generating annualised rent of £1.1 million (SEGRO share) when fully let, of which £0.7 million has already been secured.

·     We approved or commenced the development of 120,800 sq m of space during the third quarter, of which 67,800 sq m are pre-let, including a 17,800 sq m parcel delivery centre for TNT in Paris. We also approved 53,000 sq m of speculative development, including 43,700 sq m of warehousing units to complete our logistics park in Rugby, a key strategic location in the UK, where the demand-supply dynamics are very favourable.

·     420,300 sq m of space were under development at 30 September 2015, of which 49 per cent are pre-let (30 June 2015: 332,400 sq m, 50 per cent pre-let). These projects equate to potential future annualised rent of £29 million (SEGRO share; 30 June 2015: £22 million), reflecting a projected yield on total development cost of 8.1 per cent. We have invested approximately £40 million in the current pipeline in the third quarter, with a further £150 million of expected capital expenditure required to complete these projects.

·     £31 million has been invested in land during the third quarter to enhance our future development pipeline, including transactions which will help us to establish a presence in three of our target markets. We have established a solid base in East London with the acquisition of an 8 hectare site in Purfleet capable of supporting 37,000 sq m of big box logistics warehouses and, since the end of the quarter, SEGRO has been named as the preferred partner by the Greater London Authority for the redevelopment of 35 hectares in East London. In Continental Europe, we acquired a 2 hectare site in Munich associated with a pre-let currently under discussion and, since the end of the quarter, we have acquired a 5.6 hectare site just outside Barcelona which is capable of supporting 37,000 sq m of big box logistics warehousing.

Disciplined Capital Allocation: selective, off-market acquisitions funded by active recycling of assets into a strong investment market (Appendices 2 and 3)

·     The IPD Monthly Index showed 3.1 per cent growth in UK industrial property capital values for the third quarter, with London and South East industrial performing better than the average. Total returns from UK industrial real estate continue to outperform most other sectors.

·     £71 million of investment acquisitions were completed in the third quarter at a blended net initial yield of 6.0 per cent, including a big box logistics warehouse in Northamptonshire let to Asda which was acquired as part of an off-market asset swap. Since the end of the quarter, we have acquired, also off-market, two newly developed logistics properties in prime locations in the Netherlands.

·     £76 million of disposals were completed in the third quarter, reflecting a blended topped-up net initial yield of 6.6 per cent. In addition, we announced that we are exploring a potential sale of our portfolio of offices on the Bath Road in Slough. We are encouraged by the level of investor interest in this portfolio and will update the market in due course.

Net debt increased slightly due to net investment and dividend payment

·     Net debt (including our share of debt in joint ventures) at 30 September 2015 was £2.2 billion (30 June 2015: £2.1 billion). During the period, we received €154 million of deferred consideration agreed at the creation of the SEGRO European Logistics Partnership and have used this to part-fund the repayment of £208 million of bonds which matured in September and October. The remainder has been funded from existing resources.

Financial calendar

The 2015 full year results will be published on Friday 19 February 2016.

¹ In this statement, space is stated at 100 per cent, whilst financial figures are stated reflecting SEGRO's share of joint ventures. Financial figures are stated for the three months to, or at, 30 September unless otherwise indicated. The exchange rate on 30 September 2015 was €1.35:£1.

Appendices

1.   Leasing data for the period to 30 September¹

		Q3 2015	Q3 2014	9M 2015	9M 2014
Take-up of existing space2 (A)	£m	6.2	5.3	15.8	13.8
Space returned3 (B)	£m	(3.9)	(3.4)	(12.2)	(11.1)
NET ABSORPTION OF EXISTING SPACE (A-B)	£m	2.3	1.9	3.6	2.7
Other rental movements (rent reviews, renewals, indexation)2 (C)	£m	0.1	0.3	0.3	0.6
RENT ROLL GROWTH FROM EXISTING SPACE	£m	2.4	2.2	3.9	3.3
Take-up of pre-let developments completed in the period2 (D)	£m	0.6	3.2	3.6	8.2
Take-up of speculative developments completed in 2014 and 2015 year to date2 (E)	£m	1.0	0.9	1.6	1.3
TOTAL TAKE UP2 (A+C+D+E)	£m	7.9	9.7	21.3	23.9
Less take-up of pre-lets signed in prior periods2	£m	(0.6)	(3.2)	(3.7)	(8.2)
Pre-lets signed in the period for delivery in later periods2	£m	3.3	0.0	8.1	6.4
RENTAL INCOME CONTRACTED IN THE PERIOD2	£m	10.6	6.5	25.7	22.1
Take-back of space for redevelopment	£m	(0.1)	(0.1)	(0.9)	(4.1)

1 All figures reflect exchange rates at 30 September and include joint ventures at share.

2 Annualised rental income, after the expiry of any rent-free periods.

3 Annualised rental income, excluding space taken back for redevelopment.

2.   Acquisitions completed during the three months to 30 September 2015

Asset location / type	Purchase price1 (£m, SEGRO share)	Net initial yield (%)	Topped-up net initial yield2 (%)
UK: Land	26.1	n/a	n/a
UK: Big box logistics	57.5	5.6	5.6
Continental Europe: Land	5.2	n/a	n/a
Continental Europe: Light industrial	7.3	8.2	8.2
Continental Europe: Big box logistics	6.1	7.8	7.8
Total acquisitions during the quarter	102.2	6.03	6.03

1 Excluding acquisition costs; purchase price reflects exchange rate at 30 September 2015 and includes joint ventures at share.

2 Topped up net initial yield includes rent due after expiry of rent-free periods.

3 Yield excludes land acquisitions.

3.   Disposals completed during the three months to 30 September 2015

Asset location / type	Gross proceeds1 (£m, SEGRO share)	Net initial yield (%)	Topped-up net initial yield2 (%)
UK: Land	2.7	n/a	n/a
UK: Light industrial	67.1	5.4	6.0
Continental Europe: Light industrial	6.6	12.4	12.4
Total disposals during the quarter	76.4	6.03	6.63

1 Proceeds reflect exchange rate at 30 September 2015 and include joint ventures at share.

2 Topped up net initial yield includes rent due after expiry of rent-free periods.

3 Yield excludes land disposals.

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

SEGRO	Justin Read (Group Finance Director)	Tel: [phone]
	Harry Stokes (Head of Investor Relations and Research)	Tel: [phone]
	Lizzie Humphreys (External Communications Manager)	Tel: [phone]
FTI Consulting	Richard Sunderland / Claire Turvey	Tel: [phone]

This Trading Update, the most recent Annual and Interim Reports and other information are available on the SEGRO website at www.segro.com/investors.

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.

Forward-looking statements: This announcement may contain 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 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 SEGRO speak only as of the date they are made. SEGRO does not undertake to update forward-looking statements to reflect any changes in SEGRO'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 performance cannot be relied on as a guide to future performance.

About SEGRO

SEGRO is a UK Real Estate Investment Trust (REIT), and a leading owner, asset manager and developer of modern warehousing and light industrial property. It owns or manages 5.7 million square metres of space in £6.4 billion of assets (at 30 June 2015, SEGRO's share of which totals £5.2 billion), serving 1,200 customers from a wide range of industry sectors. Its properties are located around major conurbations and at key transportation hubs across eight European countries, principally in the UK, France, Germany and Poland.

For further information see www.SEGRO.com/investors.

 

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