Segro Regulatory News (SGRO)

8 November 2011

INTERIM MANAGEMENT STATEMENT FOR THE PERIOD FROM 1 JULY 2011 TO 8 NOVEMBER 2011

Overview

SEGRO continued to deliver good operational results in the third quarter of the year, despite the unsettled macro economic environment. We saw a good level of enquiries across our portfolio with demand both for new space and pre-let developments holding up well and have further reduced our vacancy rate to 10.2 per cent. Our retention rate remains high and takebacks for the period were in line with our expectations.

Occupier markets

·; £11.9 million of new annualised rental income secured in the third quarter from lettings of existing space and from pre-let developments to be delivered in later periods (Q3 2010: £9.5 million).

·; Customer retention rate remains strong at 71 per cent in the nine months to 30 September 2011 (Nine months to 30 September 2010: 56 per cent).

·; Continued improvement in Group vacancy rate to 10.2 per cent as at 30 September 2011 versus 11.4 per cent as at 30 June 2011 (benefitting from 2.3 per cent and 1.8 per cent, respectively, relating to short term lets).

·; Five pre-let developments completed in the third quarter generating £3.5 million of annualised rental income.

·; 22 developments are now contracted, or under construction, representing in aggregate circa £174 million of capital expenditure and circa £19 million of annualised rental income, of which 76 per cent is pre-let.

Financial position

·; Net borrowings of £2.3 billion and unchanged LTV of 47 per cent based on the June 2011 valuation.

·; Completed refinancing of the APP joint venture portfolio in September with new five year £400 million facility now in place.

·; Completed refinancing of £270 million Group debt facility due to mature in January 2013 on 4 November with new €440 million facilities signed with a group of core relationship banks which will mature in November 2016.

Investor and analyst day

·; SEGRO is today hosting an investor and analyst event in London at which management will outline our plans to develop the business over the coming years. Please see the separate announcement released this morning for further details.

Commenting, David Sleath, Chief Executive, said:

"We are pleased to have delivered a strong performance in the third quarter, keeping our retention rate high, generating good levels of letting and pre-let development activity and further reducing our vacancy rate.

The impact of the broader economic environment on occupier markets remains difficult to predict, although with generally low levels of good quality industrial space available and very limited speculative development, SEGRO remains well placed."

UK

1. Take-up excludes 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. Take-up of existing space less pre-let developments completed in the period but including pre-let developments signed in the period for completion in later periods.

4. All figures include joint ventures at share.

We continued to see a good level of enquiries and lettings in the third quarter of 2011, with a total of 71 new leases signed across the UK portfolio. Take-up in the period generated £6.3 million of annualised rental income, an increase of 14.5 per cent on the prior year period including the completion of the pre-letting of 3,500 sq m to GeoPost at Enfield.

In line with our focus on maximising the income available from our vacant buildings and mitigating empty property costs, we have continued to undertake a number of short term lets in the period. As at 30 September 2011, these arrangements benefitted the UK vacancy rate by 2.8 per cent (30 June 2011: 2.1 per cent) with a bias towards the former Brixton portfolio.

UK Market conditions have remained broadly as we reported at our half year results on 23 August 2011, with occupier demand continuing to be strongest in London and the South East. We made good progress in our Heathrow wholly owned portfolio during the third quarter, with three lettings completed for an aggregate of 7,100 sq m including lettings at Polar Park and the Heathrow Estate. These reduced the vacancy in this part of the portfolio from 31.4 per cent to 26.9 per cent at 30 September 2011. Our estates at and around Park Royal continue to see good demand with eight new lettings signed for a total of 2,900 sq m in the third quarter. Our Park Royal region once again recorded the strongest rental performance with transactional rental levels on new lettings and lease renewals 7.3 per cent above December ERVs for the nine months to 30 September 2011. 

At the Slough Trading Estate, we completed 12 lettings of existing space in the period as demand remained robust. We continue to develop our datacentre portfolio at Slough and have recently signed a new pre-let with Infinity, a specialist datacentre operator, for the development of an 11,600 sq m data centre on the estate. This development will be fast tracked under the Trading Estate's Simplified Planning Zone status and is expected to be completed in Q4 2012. Infinity will take a 25 year lease on the premises. 

In September, Slough Borough Council approved our revised redevelopment master plan for the Slough Trading Estate. Under this 20 year plan we will further develop our office portfolio at Slough across three new plazas at the front of the estate to provide 150,000 sq m of office space, two hotels and related amenities. The development will be pre-let driven. 

Incentive levels rose to 10.0 per cent for the period to 30 September 2011, from 7.2 per cent at the half year, although they remain lower than the prior year. This rise reflected the completion of two large office lettings in July 2011 at our 1020 Building at IQ Winnersh. Building 1020 was completed in 2010 as a speculative development alongside a similar building pre-let to Harris Systems. The two building development is now 80 per cent let.

Continental Europe

1. Take-up excludes 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. Take-up of existing space less pre-let developments completed in the period but including pre-let developments signed in the period for completion in later periods.

4. All figures Include joint ventures at share.

Although the ongoing turbulence in the macro-economy has started to have some impact on general business sentiment, we have yet to see this feed through into our local markets and have continued to see good levels of enquiries and letting activity in the quarter. Take-up in the period generated £5.0 million of annualised rental income with 21 new leases signed.

Transactional rental levels for the nine months to 30 September were 0.3 per cent above December ERVs, well ahead of the position at the same point last year but slightly behind the level reported for the half year. Lease incentives for the nine months were 8.8 per cent, down from the 9.0 per cent reported at the half year. 

In Germany, we signed five new leases in the three months for a total of 29,000 sq m, including the letting of 23,400 sq m to Metro at Holzwickede, Dortmund, which helped reduce the German vacancy rate from 8.1 per cent at 30 June 2011 to 6.1 per cent. Our French vacancy remains low at 2.9 per cent. The major transaction in France in the period was the completion of the 28,000 sq m pre-let development for Casino at Gonesse, Paris which was finished ahead of schedule, with Casino taking occupation of the building in August. 

The Polish market has continued to be very active and we completed 34,300 sq m of lettings in the third quarter including the completion of pre-let developments at Gliwice for General Motors and S&T Polska and at Tychy for Navo. In addition, we have now let up 50 per cent of our recently completed speculative development of small business units at Lodz to ABB. All these transactions contributed to a further reduction in our Polish vacancy to 1.6 per cent from 3.4 per cent at 30 June 2011. We have also added three new pre-let developments to our Polish pipeline in the period, representing in aggregate 45,800 sq m of space, including the pre-let of 31,700 sq m in Gliwice to a major international sportswear retailer.

Continued demand for pre-let developments

The demand for pre-let developments continues to be driven by the lower levels of grade A space generally available across several markets and we have agreed a further four pre-let developments in the period, three in Poland and one at the Slough Trading Estate. 

Taking account of these new projects, and excluding the five projects completed in the third quarter, our development pipeline at 30 September 2011 now comprises 22 contracted or under construction projects representing circa £19 million of annualised rental income and circa £174 million of capital expenditure, of which 76 per cent is pre-let.

Investment markets

Investment market transaction volumes were lower in the third quarter as investors took stock of the uncertain economic backdrop. There continues to be a large pool of equity capital looking to target the real estate sector, with particular demand in London and the South East in the UK as well as Germany and Poland. Prime assets in good locations with secure income are still attracting the majority of demand, but the availability of this type of product remains limited. The market for secondary product remains weaker and pricing here continues to be under pressure.

Capital recycling

We have continued to dispose of non-core assets across the portfolio. In the nine months to 30 September 2011 we have completed a total of £95.2 million of disposals (including our share of joint venture disposals), at an aggregate profit to book value of £7.7 million. The largest disposal in the third quarter was the sale of a portfolio of six industrial estates in Greater London to the Industrial Property Investment Fund managed by Legal & General Property for £38.2 million which was announced at the end of September.

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

This IMS, the most recent 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.

About SEGRO

SEGRO is Europe's leading developer and owner of industrial space. The Group is a Real Estate Investment Trust (REIT), listed on the London Stock Exchange. SEGRO's portfolio comprises £5.4 billion of predominantly industrial and warehouse assets concentrated in and around major business centres and transportation hubs such as ports and airports. The Group serves over 1,600 customers spread across many geographies and different industry sectors. It has 5.5 million sq m of built space and a passing rent roll of £340 million (as at 30 June 2011). For further information see www.SEGRO.com.