Segro plc (LON:SGRO) today announced its results for the six months ended 30 June 2018.
· SEGRO reports strong operating, financial and portfolio performance metrics, with significant pre-let development commitments underpinning future income growth.
· Adjusted pre-tax profit up 21 per cent reflecting development completions, rental growth captured through asset management and reduced interest expenses due to active management of the capital structure. IFRS profit before tax of £570.9 million, which includes valuation gains, increased 43.8 per cent (H1 2017: £397.1 million).
· Adjusted EPS increased 11 per cent to 10.8 pence (H1 2017: 9.7 pence) while IFRS EPS increased 34 per cent to 55.4 pence (H1 2017: 41.3 pence) which incorporates valuation gains on the investment portfolio and an increased number of shares compared to the prior year.
· EPRA NAV per share increased 8.5 per cent to 603 pence (31 December 2017: 556 pence), driven by a 5.9 per cent increase in the value of the portfolio, due to development and asset management gains, further yield compression and ERV growth across the portfolio.
· Future earnings potential underpinned by over 1 million sq m of development projects under construction or in advanced pre-let discussions. The current development pipeline is capable of generating £54 million of rent, reflecting a yield on cost of over 7 per cent, of which £38 million (71 per cent) has been secured through pre-lets or lettings prior to practical completion. In particular, we are developing over 250,000 sq m of new space at our flagship SEGRO Logistics Park East Midlands Gateway, all secured during the past six months.
· Interim dividend increased by 5.7 per cent to 5.55 pence (2017 interim dividend: 5.25 pence), in line with our dividend policy.
Commenting on the results, David Sleath, Chief Executive, said:
“Our modern, well-located portfolio, together with our focus on customer service and continued healthy occupier demand across our markets, are reflected in strong occupancy and customer retention rates, a record volume of pre-let agreements and a further expansion of our development activity. Meanwhile, occupier demand and supply are well balanced across our markets and investor appetite for good quality warehouse assets remains unsated.
“The structural drivers of occupier demand – particularly e-commerce and urbanisation – remain strongly in evidence across our markets and whilst we remain alert to a number of macroeconomic and political risks, we have a strong pipeline of activity and remain confident about our prospects.”
FINANCIAL AND OPERATING HIGHLIGHTS1
Strong development and asset management activity, supported by positive market conditions
· 45 per cent increase in new rent contracted in the period to £39.8 million (H1 2017: £27.5 million), of which £30.4 million (H1 2017: £18.4 million) is from new development pre-let agreements and lettings of speculatively developed space prior to completion.
· 2.3 per cent like-for-like net rental income growth, including 2.9 per cent in the UK and 1.0 per cent in Continental Europe, aided by an 8.7 per cent uplift on rent reviews and renewals in the UK portfolio, capturing reversionary potential accumulated in recent years.
· Portfolio occupancy remains high with a vacancy rate of 4.8 per cent (31 December 2017: 4.0 per cent), as does retention of rent at risk at 91 per cent.
Valuation gains across the portfolio reflecting asset management successes and ongoing investor demand
· Portfolio capital value growth of 5.9 per cent (UK 6.7 per cent, Continental Europe 4.2 per cent) from asset management initiatives and market-driven yield compression, rental value growth (2.3 per cent UK; 0.6 per cent Continental Europe) and development gains.
Capital allocation focused on accretive development programme
· Net capital investment of £251 million involving £56 million of asset and investment acquisitions, £280 million in new land and development capital expenditure, offset by £85 million of proceeds from disposals.
· £54 million of potential rent from current development pipeline, of which 71 per cent has been secured through pre-lets. Completions in the second half of 2018 potentially generate £17 million of rent, of which £12 million has been secured.
· £12 million of rent secured at SEGRO Logistics Park East Midlands Gateway, where 250,000 sq m of new warehouse space is under construction.
· Further ‘near-term’ pre-let projects associated with £17 million of rent are at advanced stages of discussion.
· Total development capex for full year expected to exceed £500 million (of which £100 million relates to land acquisitions completed in the first half and infrastructure), reflecting big box warehouse pre-lets ahead of expectations, particularly in Italy and the Midlands region of the UK where we have seen strong demand from online retailers including Amazon, Zalando and Shop Direct.
Balance sheet well positioned to support further acceleration in development
· Gearing maintained at low levels, with look-through LTV of 29 per cent (31 December 2017: 30 per cent) and a low average cost of debt of 2.0 per cent (31 December 2017: 2.1 per cent)
