SEGRO plc (LON:SGRO) has published a trading update for the period from 1 January 2024 to 31 March 20241.
Summary
- Strong growth in our rent roll during the first quarter, supported by ongoing favourable occupier market dynamics.
- SEGRO has completed or unconditionally exchanged on £159 million of disposals so far in 2024, at prices above December 2023 book value. Market data shows industrial and logistics asset values are stabilising.
- SEGRO is well-placed to invest in profitable development with an average yield on cost of 7-8 per cent, with capacity for further attractive growth opportunities enhanced by the proceeds of our recent equity raise.
David Sleath, Chief Executive, said:
“2024 has started well for SEGRO. Our prime urban and big box portfolio and market-leading operating platform, supported by favourable occupier markets, have enabled us to sign £29 million of new headline rent during the first quarter. This was achieved through capturing rental uplift on lease renewals and rent reviews, as well as the signing of £17 million of new pre-let developments.
“Market data is showing that industrial and logistics asset values are stabilising and potentially reaching a turning point. Although transaction volumes remain muted, we have disposed of £159 million of land and standing assets so far this year (including £134 million exchanged since the quarter end), at prices above December 2023 book values, in line with our continued approach to disciplined capital allocation.
“As stated in our Full Year 2023 results, our existing portfolio and land bank offer us the potential to grow our passing rents by more than 50 per cent over the next three years, through capturing embedded rent reversion, leasing vacant units and developing new space. The £907 million of new equity raised in February provides us with the capacity to pursue further attractive growth opportunities, both through development and asset acquisitions. This gives us confidence in our ability to deliver further compound growth in earnings and dividends during 2024 and beyond.”
Financial calendar
Half Year 2024 results will be published on Friday 26 July 2024.
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 period to, or at, 31 March unless otherwise indicated. The exchange rate applied is €1.17:£1 as at 31 March 2024.
2 Headline rent is annualised gross passing rent receivable once incentives such as rent-free periods have expired.
3 Based on values as at 31 December 2023, adjusted for the equity placing, acquisitions, disposals and other capital expenditure during the first quarter.
| OPERATING SUMMARY & KEY METRICS | Q1 2024 | Q1 2023 | |
| ACTIVE ASSET MANAGEMENT CAPTURING RENTAL GROWTH AND INCREASING THE RENT ROLL (see Appendix): | |||
| Occupier markets remain favourable, which has supported our ability to lease new space and grow rents in the standing portfolio through capturing embedded reversion. Occupancy decreased slightly since year end (31 December 2023: 95.0 per cent) due to speculative development completions but remains within our target range and customer retention remains high. | |||
| Total new headline rent2 signed during the period (£m) | 29 | 24 | |
| Pre-lets signed during the period (£m) | 17 | 9 | |
| Uplift on rent reviews and renewals (%) | Group | 18 | 14 |
| UK | 21 | 18 | |
| CE | 9 | 3 | |
| Occupancy rate (%) | 94.5 | 95.7 | |
| Customer retention (%) | 90 | 82 | |
| INVESTMENT ACTIVITY REMAINS DISCIPLINED AND FOCUSED ON SECURING PROFITABLE GROWTH: | |||
| Most of our investment during the period was in our development programme (including the construction of two new data centres) with development capex for 2024, including infrastructure, still expected to be approximately £600 million. | |||
| Development capex (including infrastructure) (£m) | 99 | 138 | |
| Acquisitions (£m) | – | 130 | |
| Disposals (£m) | 25 | 48 | |
| EXECUTING AND GROWING OUR PROFITABLE DEVELOPMENT PIPELINE: | |||
| We signed a further £17 million of pre-lets during the first quarter. Development completions were lower, due to the timing of projects. Our development pipeline remains highly profitable with an average yield on cost in the current and near-term pipeline of 7.6 per cent and a yield on new money in excess of 10 per cent. | |||
| Development completions year-to-date: | |||
| – Space completed (sq m, at 100%) | 78,200 | 173,300 | |
| – Potential rent (£m, at share) (Rent secured) | 9 (57%) | 11 (74%) | |
| Current development pipeline potential rent (£m) (Rent secured) | 61 (73%) | 68 (73%) | |
| Near-term development pipeline potential rent (£m) | 3 | 16 | |
| BALANCE SHEET | 31 Mar 24 | 31 Dec 23 | |
| LONG-TERM, DIVERSIFIED DEBT PROFILE PROVIDES CERTAINTY AND FLEXIBILITY | |||
| We retain substantial liquidity and leverage remains modest. We have no material near-term refinancing requirements and a 6.7 year average debt maturity. The lower net debt figure reflects the £890 million net proceeds from the new equity raised in February. | |||
| Net debt (£bn) | 5.1 | 6.0 | |
| Cost of debt (%) | 3.0 | 3.1 | |
| LTV3 (%) | 29 | 34 | |
| Cash and available facilities (£bn) | 2.8 | 1.9 | |
Appendix
Leasing data for the period to 31 March (£m)1 2
| Q1 2024 | Q1 2023 | ||
| Take-up of existing space (A) | 5 | 4 | |
| Space returned2 (B) | (5) | (5) | |
| NET ABSORPTION OF EXISTING SPACE (A-B) | 0 | (1) | |
| Other rental movements (rent reviews, renewals, indexation) (C) | 6 | 7 | |
| RENT ROLL GROWTH FROM EXISTING SPACE | 6 | 6 | |
| Take-up of developments completed in the period – pre-let space (D) | 5 | 7 | |
| Take-up of speculative developments completed (E) | 1 | 4 | |
| TOTAL TAKE UP (A+C+D+E) | 17 | 22 | |
| Less take-up of pre-lets and speculative lettings signed in prior periods | (5) | (7) | |
| Pre-lets and lettings on speculative developments signed in the period for future delivery | 17 | 9 | |
| RENTAL INCOME CONTRACTED IN THE PERIOD2 | 29 | 24 | |
| Take-back of space for redevelopment | (1) | (1) |
1 All figures reflect headline rent (annualised gross rental income, after the expiry of any rent-free periods), exchange rates as at 31 March 2024 and include joint ventures at share.
2 Excluding space taken back for redevelopment.
This Trading Update, the most recent Annual Report and other information are available on the website at www.segro.com/investors.
