Last checked at 23 Oct 2014 07:00
23 October 2014
SEGRO plc
Interim Management Statement
SEGRO plc ("SEGRO" or the "Group") today publishes its Interim Management Statement for the period to 22 October 20141.
David Sleath, Chief Executive, said:
"We have continued to make good progress over the quarter, reflecting the benefits of the strategic reshaping of our portfolio. Occupational market conditions in the UK have continued to strengthen, which have contributed to further net absorption of existing space and a significant improvement in portfolio occupancy.
"Our development programme is delivering new product into a market that is short of well-located, modern warehouse space. Additionally, we have a committed development pipeline which is capable of generating an additional £17 million of rent, substantially over the next 12 months, half of which has already been leased.
"Investor demand for well-located industrial and logistics assets has continued to strengthen during the period. The IPD Monthly Index showed 3.9 per cent growth in UK industrial property capital values for the third quarter and transactional evidence of higher values continues to be observed in Continental Europe. Together, these factors should provide a supportive environment in which to undertake asset disposals and are likely to be positive for year-end property valuations.
"While approximately 70 per cent of the Group's invested capital is concentrated in the relatively strong South-East and Midlands regions of the UK, we remain conscious of on-going macro-economic weakness in the Euro-zone. Our Continental European portfolio now predominantly comprises Grade A assets in the main logistics corridors and around the major conurbations in Germany, France and Poland - consequently, we believe that it should be relatively resilient if weak economic conditions persist for some time."
Driving operational excellence (Appendix 1)
· Positive net leasing of existing space: Net absorption of existing built space added £1.9 million of annualised net rent during the third quarter of 2014 (Q3 2013: £0.1 million net take-back), building on the positive trend we reported as at 30 June 2014. We have let 149,000 sq m of existing space, including a 49,100 sq m logistics warehouse in Corby (which had been the last remaining void in the former Logistics Property Partnership ("LPP") portfolio) and 7,800 sq m at the Heathrow Cargo Centre, reflecting growing demand for older, but well-located, space in the absence of new supply.
· Further improvement in vacancy rate to 6.2 per cent at 30 September 2014 (from 8.3 per cent at 30 June 2014), reflecting the net absorption of existing space and the net impact of disposals and acquisitions in roughly equal measure.
· Development programme is delivering value: We completed 115,700 sq m of developments in the quarter, capable of generating annualised rent of £4.4 million, of which £3.8 million has already been secured. Completions include the first phase of the new premises for sportswear manufacturer ASICS at Krefeld (37,300 sq m) and a warehouse for fashion retailer Takko in Hamburg (22,900 sq m), both within the SEGRO European Logistics Partnership ("SELP") joint venture. We have also completed parcel delivery centres for DHL in Dusseldorf (8,200 sq m) and for La Poste/DPD in both London and the Thames Valley (7,000 sq m). In mid-October, we let a 4,900 sq m speculatively developed unit for 15 years to Mash Purveyors at the first phase of our Origin development in Park Royal and, at the same time, agreed (subject to planning permission) a 25 year pre-let with John Lewis for a 10,000 sq m distribution centre at the second phase.
Delivering profitable growth from development
· £17 million of potential rent from the current pipeline: We had 217,600 sq m of new space under development at 30 September 2014 across 19 projects which were 54 per cent let by ERV (30 June 2014: 335,000 sq m, 28 projects, 50 per cent pre-let). Capital expenditure in the third quarter was approximately £46 million (£128 million year to date) and the future cost to complete the pipeline will be around £60 million, of which we expect that around £40 million will be spent in the remainder of 2014. This equates to potential future annualised rent of £17 million (30 June 2014: £22 million), reflecting a projected yield on total development cost of 9.4 per cent.
Further progress with portfolio reshaping programme (Appendices 2 and 3)
· £246 million of acquisitions completed in the third quarter, reflecting a blended topped-up net initial yield (excluding land) of 6.8 per cent. These included the acquisition of Moorfield's 50 per cent interest in the LPP joint venture, giving us full ownership, and two big box logistics portfolios, one in the UK and the other within the SELP joint venture.
· £79 million of disposals completed in the third quarter, in line with book values at 30 June 2014, and reflecting a blended topped-up net initial yield (excluding land) of 9.3 per cent. These included Pegasus Park in Belgium, leaving just one of the original large, non-strategic assets remaining: Energy Park in Milan, Italy.
Higher net debt reflects investment activity in the quarter
· Net debt (including our share of debt in joint ventures) at 30 September 2014 increased to £2.3 billion, from £2.1 billion at 30 June 2014, principally reflecting acquisitions and development capital expenditure during the period, offset by proceeds from the disposal of Pegasus Park and other non-core assets. Look-through loan-to-value ratio ("LTV"), based on 30 June 2014 book values, rose to 45.5 per cent from 43.6 per cent at 30 June 2014, as advised at the time of the Group's interim results. Further disposal activity is expected to reduce net debt and LTV by the year-end.
Full year results announcement
Results for the year to 31 December 2014 will be published on 25 February 2015.
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.
Appendices
1. Leasing data for the period to 30 September 20141
| Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 | |
Take-up of existing space2 (A) | £m | 5.3 | 3.4 | 13.7 | 15.9 |
Space returned3 (B) | £m | (3.4) | (3.5) | (11.1) | (16.2) |
NET ABSORPTION OF EXISTING SPACE (A-B) | £m | 1.9 | (0.1) | 2.6 | (0.3) |
Take-up of developments (C) | |||||
- Pre-let developments2 | £m | 3.2 | 0.3 | 8.2 | 3.1 |
- Speculative developments2 | £m | 1.0 | 0.5 | 1.5 | 1.9 |
TOTAL TAKE UP2 (A+C) | £m | 9.5 | 4.2 | 23.4 | 20.9 |
Less take-up of pre-let developments2 | £m | (3.2) | (0.3) | (8.2) | (3.1) |
Pre-lets signed in the period2 | £m | 0.04 | 2.7 | 6.1 | 5.0 |
RENTAL INCOME CONTRACTED IN THE PERIOD2 | £m | 6.3 | 6.6 | 21.3 | 22.8 |
Take-back of space for redevelopment3 | £m | (0.1) | (1.4) | (4.1) | (2.9) |
Neckermann campus space returned, net of reletting3 | £m | - | 0.2 | - | (9.5) |
1. All figures reflect exchange rates at 30 September and include joint ventures at share and exclude lettings and take-backs on the Neckermann campus, except where stated
2. Annualised rental income, after the expiry of any rent-free periods
3. Annualised rental income
4. Pre-let for John Lewis at Origin signed in October 2014, subject to planning permission being granted
2. Acquisitions completed during the three months to 30 September 2014
Month | Property type | Location | Acquisition price (£m) | Net initial yield (%) |
July | Big box logistics | UK | 49.5 | 6.3 / 6.33 |
July | Big box logistics (LPP) | UK | 175.0 | 5.4 / 6.63 |
August | Land2 | Germany | 4.6 | n/a |
September | Big box logistics2 | France, Czech Republic, Germany | 16.9 | 8.4 / 8.43 |
Total acquisitions during the quarter | 246.0 | 5.9 / 6.81 3 | ||
1. Yield excludes land acquisitions
2. Within SELP joint venture
3. Including the benefit of top-ups
3. Disposals completed during the three months to 30 September 2014
Month | Property type | Location | Gross proceeds (£m) | Net initial yield (%) |
July | Suburban office | UK | 2.4 | Vacant |
July | Urban logistics | France | 3.7 | Vacant |
July | Land | Germany | 2.2 | n/a |
August | Light industrial | Germany | 4.7 | 8.3 / 8.31 |
September | Suburban office | Belgium (Pegasus Park) | 66.2 | 10.1 / 10.11 |
Total disposals during the quarter | 79.2 | 9.3 / 9.3 1 2 | ||
1. Including the benefit of top-ups
2. Yield excludes land disposalsCONFERENCE CALL FOR INVESTORS AND ANALYSTS
There will be a conference call at 08.30 hours (UK time) today on the following number:
Telephone: +44 (0) 20 3059 8125
Password: SEGRO plc Q3 IMS
An audio recording of the conference call will be available until Wednesday 29 October on +44 (0) 121 260 4861 and +1 866 268 1947 (USA), with passcode 2721434#.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO | Justin Read (Group Finance Director) | Tel: + 44 (0) 20 7451 9110 |
Harry Stokes (Head of Investor Relations and Research) | Tel: + 44 (0) 20 7451 9124 | |
Lizzie Humphreys (External Communications Manager) | Tel : + 44 (0) 20 7451 9129 | |
FTI Consulting | Stephanie Highett / Nick Taylor / Claire Turvey | Tel: + 44 (0) 20 3727 1000 |
This IMS, 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 leading owner, asset manager and developer of modern warehousing and light industrial properties, with £4.5 billion of assets (at 30 June 2014, including joint ventures at share) principally concentrated in London's Western Corridor (including the Thames Valley) and in key conurbations in France, Germany and Poland. It also develops and owns warehouses in important distribution markets in the UK, Belgium, the Netherlands and the Czech Republic, and offices in Slough and Milan. The Group serves around 1,250 customers spread across a diverse range of industry sectors. It has 5.8 million square metres of built space under management and a gross passing rent roll of £266 million (SEGRO share).
For further information see www.SEGRO.com