Interim Management Statement

RNS Number : 1603W

SEGRO PLC

15 November 2010

 



15 November 2010

INTERIM MANAGEMENT STATEMENT

SEGRO, EUROPE'S LEADING INDUSTRIAL REIT, DELIVERS GOOD LETTINGS PERFORMANCE

Continued progress made with our key priorities in the three months to 30 September 2010:

Improving occupancy

·     Group vacancy rate reduced to 13.4% - down from 14.0% at 30 June 2010

·     Positive leasing momentum continues - £8.3 million of new annualised rental income generated (Q3 2009: £4.1 million)

·     Takebacks in line with expectations but reflect challenging occupier markets - £6.8 million annualised rental income lost from space returned (Q3 2009: £2.5 million)

·     Vacancy in former Brixton portfolio reduced to 19.4% (21.5% at 30 June 2010) - largest vacant building in portfolio let in September on a long lease to a major supermarket chain

Capitalising on opportunities to profitably grow and improve the portfolio

·     Exploiting opportunities to deliver attractive returns from existing land bank - development pipeline strengthened further with nine pre-let projects now signed

·     Construction started on developments in UK, Poland and Czech Republic - pre-let developments commenced at Southall, London and Slough (UK), Gliwice (Poland) and Ostrava (Czech Republic) 

Prudently managing financial position

·     Net debt and gearing remain in line with position at 30 June 2010

Management changes

·     Retirement of Ian Coull, Chief Executive - announced on 15 October 2010 that Ian Coull would retire as Chief Executive during the course of 2011 once a successor had been appointed.  Process for selecting a successor is underway and will include internal and external candidates

Commenting, Ian Coull, Chief Executive said:

"We delivered strong lettings progress in the period and, at the end of September, our vacancy rate had fallen to 13.4%.  Occupier markets are still challenging and, as expected, takebacks remained high in the third quarter as customers consolidated their space.  Enquiry levels continue to be robust and demand for pre-let developments continues to be encouraging.  The capital values of good quality industrial assets appear to have stabilised across our markets and there is good demand for product from a range of investors.  Filling up our vacant space remains our primary focus and we are well placed to benefit as underlying markets recover."

Positive letting momentum in difficult occupier markets

	Area (000's sq m)				Rent pa (£m)²
	Lettings¹		Space returned		Lettings¹		Space returned
	Q3 2010	Q3 2009	Q3 2010	Q3 2009	Q3 2010	Q3 2009	Q3 2010	Q3 2009
UK	61.3	37.4	60.5	24.5	5.5	2.2	5.7	2.3
Continental Europe	57.9	38.0	8.5	2.5	2.8	1.9	1.1	0.2
Group total	119.2	75.4	69.0	27.0	8.3	4.1	6.8	2.5

1.     Lettings exclude lease renewals, unexpired break options and income from short term license agreements.

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

3.     Includes joint ventures at share. 

In the UK, we completed 60 new lettings in the third quarter generating £5.5 million of new annualised rental income, significantly ahead of the equivalent period in 2009.

Demand around Park Royal remained strong and in September we completed the letting of the 22,700 sq m Verdus building in Greenford on a long lease to a major supermarket chain.  At Heathrow, the encouraging pick up in activity we saw at the end of the first half continued during the quarter and has begun to feed through into our lettings numbers with a total of seven new leases signed.  The APP joint venture has given us a significantly enhanced portfolio at Heathrow with exposure to key airside assets and we are actively working on opportunities to drive further value here through economies of scale, potential developments and re-gearing of existing leases. 

In the Thames Valley demand remained steady with 17 lettings at the Slough Trading Estate totalling 10,400 sq m in the period.  Outside the South East, which represents less than 20% of our UK portfolio, markets are more challenging but we continued to make progress with 19 new lettings signed representing 17,200 sq m.

Overall headline rental levels versus December ERVs on the new lettings and lease renewals completed in the UK were in line with the levels reported for the first half.  Rental incentives for the first nine months of 2010 were an average of 10.6%, in line with the current market norm.

The lease retention rate in the UK remained flat on the position at 30 June 2010 at 52%.  Takebacks for the quarter were in line with our expectations at £5.7 million of annualised rental income with space consolidation remaining the key driver.  The level of insolvencies amongst the tenant base remains low. 

Our Continental European business delivered £2.8 million of new annualised rental income in the three months with 21 new lettings signed. 

In Germany, we completed nine new lettings of 21,000 sq m and continued to make progress with the re-letting of the Karstadt-Quelle space with 9,500 sq m of this space let in the quarter.  As at 30 September, 37% by annualised rental income of the Karstadt-Quelle property had been re-let or sold.

Leasing momentum continued in France particularly in light industrial and we signed one letting for 4,200 sq m at Les Ulis.  In Belgium, five new leases were signed with further successes at Pegasus Park, where 1,500 sq m was let in the three months.  

The quality and location of our assets in Poland continued to generate demand with 27,500 sq m let in the three months, including 24,000 sq m at Gliwice in August to Kaufland, the German retailer.  This reduced the vacancy rate in the Polish portfolio to just 4.8%, less than one third the level of the general market vacancy.

Overall headline rental levels versus ERV on the new lettings and lease renewals completed in Continental Europe for the nine months to end September were completed at an average of 0.5% below ERV.  Rental incentives averaged 6.7% for the first nine months of 2010.

Continental Europe continued to deliver a strong retention rate with 63% recorded for the first nine months of 2010. 

Group vacancy rate reduced to 13.4%

Vacancy rates by rental value (per cent)	30 September 2010	30 June 2010
Former Brixton portfolio	19.4	21.5
UK (excluding former Brixton portfolio)	12.2	11.5
Total UK	14.5	14.7
Total Continental Europe	11.1	12.4
Overall Group	13.4	14.0

The overall Group vacancy rate reduced by 0.6 percentage points in the period to 13.4%.  In the UK, the vacancy rate improved from 14.7% to 14.5% in the quarter.  We continued to make good progress with the former Brixton vacancy and this was reduced to 19.4% by the end of September.  We remain on track to reduce this vacancy to 15.0% by the end of 2012. 

In Continental Europe, reflecting the letting momentum across the portfolio, the vacancy level improved by 1.3 percentage points to 11.1%.  Excluding the Karstadt-Quelle space returned, the underlying vacancy improved by 1.2 percentage points to 8.7% from 9.9% at 30 June 2010.

Positive progress with pre-let developments

We have continued to see a strengthening in demand for pre-let developments.  On 26 August, we announced that we had 15 pre-let developments signed or under active negotiations representing in aggregate around £20 million of annualised rental income and £145 million of capital expenditure.   We have continued to make good progress with these potential projects and now have nine projects signed with active negotiations ongoing on a further six projects.

In the UK, six projects have now been signed.  Two of these developments are on the Slough Trading Estate and the remaining four are in the South East of England.  In September, we began construction on two pre-let projects, a 3,400 sq m development at Southall for a distribution company and a 3,500 sq m project on the Slough Trading Estate for a builders' merchant.

In Continental Europe, we have three pre-let agreements signed and have started construction on two of these projects at Ostrava in Czech Republic (56% pre-let to Adler) and Gliwice in Poland (78% pre-let to HL Displays).  Completion is expected on both these projects during the first quarter of 2011.

At Lodz (Poland), where we have an excellent development site and there is a shortage of good quality light industrial space plus strong market demand for the product, we have started construction of a small speculative development of light industrial units.  This development is expected to be completed during the first quarter of 2011. 

We have identified sites at Dusseldorf and Berlin (Germany) and Paris (France) which have similar characteristics and currently expect to commence speculative development of small light industrial schemes at these sites in 2011.

Disposals of £10.5 million

During the three months, we completed a total of five disposals generating net proceeds of £10.5 million and a profit over book value of £1.5 million.  In the UK, transactions included the sales of land at Voyager Park, Portsmouth and Elstree, London and the disposal for £4.8 million of a vacant building at Abbeydale Road, Park Royal.  In Continental Europe we disposed of a parcel of land at Floersheim, Dusseldorf for £4.5 million.

CONFERENCE CALL FOR INVESTORS AND ANALYSTS

There will be a conference call at 09.00 hours (UK time) today on the following numbers:

UK:       [phone]

US:       [phone]

Access code:    7886643#

From midday the conference call will be available on a replay basis on the following numbers or weblink:

UK:       [phone]

US:       [phone]

Access code:    7886643#

http://www.thomson-webcast.net/uk/dispatching/?event_id=5c4d2b47e9083fcc4d310917f367077c&portal_id=6a92849fc2a79254c939ec0a2f25296b

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES RESPECTIVELY:

SEGRO	Alex Shorland-Ball	Tel: + 44 (0) 20 7451 9043
Maitland	Liz Morley	Tel: + 44 (0) 20 7379 5151

This IMS, the most recent half-year report, Annual Report and other information are available on the SEGRO website at http://www.segro.com/segro/Investors/Investors-Home/.

Neither the content of SEGRO's website nor any other website accessible by hyperlinks from SEGRO's websites 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.

 

END

 

 

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