Segro Regulatory News (SGRO)

26 April 2012

INTERIM MANAGEMENT STATEMENT FOR THE PERIOD FROM 1 JANUARY 2012 TO 26 APRIL 2012

Overview

SEGRO started the year well, progressing with strategic plans to recycle capital out of non-core assets and focusing on operational excellence. We continue to benefit from the constrained supply of high quality, well located industrial and logistics space in our key markets. During the quarter, we secured £5.5 million of new annualised contracted rental income and maintained a sub-10 per cent vacancy rate, in addition to signing four further pre-let developments. In the year to date, we have also disposed of £172 million of non-core assets including the announced disposal of IQ Farnborough, the first of our six large non-strategic assets.

Continued focus on Operational Excellence

·; £5.5 million of new annualised contracted rental income secured in the first quarter (Q1 2011: £5.6 million); £6.2 million of annualised rental income lost through takebacks (Q1 2011: £8.1 million).

·; Group vacancy rate increased to 9.6 per cent as at 31 March 2012 versus 9.1 per cent as at 31 December 2011, in part due to acquisition and disposal activity in the first quarter.

·; Strong development pipeline, with four new pre-let developments signed, and three pre-let developments completed, since the start of the year. 21 developments currently contracted or under construction, representing £18.5 million of annualised rental income, of which 75 per cent is pre-let.

Disciplined Capital Allocation

·; £172 million of non-core asset disposals completed in the year to date, including the disposal of five non-core UK industrial estates for £80.2 million in February 2012 and the announced disposal of IQ Farnborough for £90.1 million in April 2012. Aggregate sale proceeds in the year to date, net of lease incentives/rental guarantees, were 0.8 per cent below 31 December 2011 book values.

·; £314.7 million acquisition of the UK Logistics Fund ('UKLF') completed in January 2012 in a 50/50 JV with Moorfield, consistent with our strategy to introduce third party capital and expand our logistics portfolio. Each partner contributed £65 million of equity investment.

·; At 31 March 2012, net borrowings were unchanged from 31 December 2011 at £2.3 billion. 77 per cent of net borrowings from long-term bonds; weighted average maturity of gross borrowings is 8.6 years; no significant debt maturities before 2014.

Rent at risk

·; Annualised income lost due to customer insolvencies during the first quarter was £0.7 million, over 30% below the prior year period. However, in view of uncertain macro-economic conditions, this remains an area that we continue to monitor carefully.

·; We have received preliminary notification from one of our major Continental European customers which could lead to a significant restructuring of their lease. The principal asset being occupied by the customer was valued at £86 million at 31 December 2011, upon which approximately £12 million of rental income was received in 2011. We will update the market further as appropriate.

Commenting, David Sleath, Chief Executive, said:

"Although the macro-economic environment is likely to remain unsettled for some time and could impact both occupiers and investment markets, we made a good start to the year both operationally and with the previously announced portfolio reshaping exercise."

1. All figures include joint ventures at share.

2. Income contracted includes income from the long term letting of existing space and any pre-let developments signed for completion in later periods during Q1. It does not include pre-let developments completed in Q1.

3. Take-up includes income from the long term letting of existing space and any pre-let developments completed in Q1. It does not include pre-let developments signed during Q1 for completion in later periods.

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

GOOD EARLY MOMENTUM IN LEASING ACTIVITY

We started the year with a good level of enquiries, from which our operational teams have successfully secured 56 new lettings in the quarter representing 79,600 sq m and £4.9 million of annualised new rental income (Q1 2011: £6.3 million), including £0.9 million relating to pre-let completions.

Contracted rental income, excluding pre-let developments completed in the period but including pre-let developments signed for completion in future periods, remained broadly consistent with the prior year period, at £5.5 million (Q1 2011: £5.6 million).

In the UK, occupier demand has remained most resilient in our core multi-let industrial markets of London and the South East. We continue to see good demand for space at prime estates including Premier Park, at Park Royal, and Greenford Park. Outside of London and the South East, market conditions have remained more difficult.

During the first quarter we signed a total of 41 new leases in the UK and have also secured a key deal since the quarter end at X2, Heathrow Airport, where we let 3,400 sq m on the upper floor to Freightnet, a cargo handling company, on a 10 year lease. At Meteor Park, Birmingham, we completed our largest UK letting in the quarter for 5,500 sq m, with the result that this estate is now fully let.

In Continental Europe, the relative strength of the German economy has continued to support a good level of demand across a range of businesses. In Dϋsseldorf, we successfully re-let 20,000 sq m of space taken back in the quarter at the SEGRO Logistics Centre Neuss-Sϋd to Rhenus Home Delivery on a 10 year lease. We also let 5,500 sq m of logistics warehousing space to SCA Rhein Display.

In France, where four leases were signed, we have seen demand for industrial and logistics assets continue, both in the prime Ile de France region, where supply is more limited, and in Lyon, which benefits as an important logistics hub. Our largest lettings during the quarter were for 5,700 sq m to Transalliance, a Europe-wide transport and logistics provider, in Aulnay Garonor, to the north of Paris city centre and 6,100 sq m to Sapronit, a packaging and building products business, in Lyon.

Our low vacancy rate, combined with a robust level of demand primarily for logistics assets, continues to support a strong pipeline of pre-let development activity in Poland. During the period we completed an 18,900 sq m facility for Zabka in Tychy and a 1,200 sq m office extension for Eurocash in Poznan, both of which contributed to take up in the quarter.

As we reported at the full year, market conditions remain challenging in the office market surrounding Brussels where vacancy is high. We are therefore pleased to have secured three office lettings at Pegasus Park totalling 6,100 sq m, on an average lease length of seven years, to good covenants including Stanley Black & Decker, which leases SEGRO buildings in multiple locations across our portfolio.

MINIMISING THE LEVEL OF TAKEBACKS

Following on from a strong performance in 2011, we have continued to work closely with our customers to minimise the level of takebacks (rental income lost due to lease expiry, exercise of break options, surrender or insolvency). Over the first quarter, we lost £6.2 million of annualised rental income due to takebacks compared with £8.1 million in the same period last year.

VACANCY BELOW 10 PER CENT AT 31 MARCH 2012

Group vacancy increased to 9.6 per cent at 31 March 2012 compared with 9.1 per cent at 31 December 2011 (benefitting 2.1 and 1.9 per cent respectively from short term lets). This was partly as a result of the disposal of five fully let UK industrial estates and the acquisition of UKLF with 16 per cent vacancy. Stripping out the impact of these two transactions, Group vacancy would have only increased by 0.2 per cent during the quarter to 9.3 per cent.

In the UK, vacancy increased by 1.3 per cent to 11.5 per cent, due to the reasons outlined above and net takebacks. The largest takeback during the period was at IQ Farnborough, where vacancy increased by 10.3 per cent to 23.4 per cent over the quarter due to the take back of 4,000 sq m of office space.

In Continental Europe, vacancy declined by 1.2 per cent to 5.2 per cent. Within this, the vacancy rate is just 1.1 per cent in France, down from 2.9 per cent at the start of the year, driven by our leasing activity around Paris and in Lyon. Vacancy also declined in Central Europe (Poland and the Czech Republic), from 3.4 per cent to 2.0 per cent, as a result of pre-let completions and short term lettings. Within Germany, vacancy rose marginally during the period to 4.4 per cent (from 4.1 per cent at 31 December 2011), due to the return of space let on short-term leases. In Benelux and the remainder of Continental Europe, vacancy fell from 16.0 per cent to 13.8 per cent, predominantly due to lettings at Pegasus Park in Brussels.

ACTIVE DEVELOPMENT PROGRAMME CONTINUES

Our well located land bank, combined with the lack of available prime assets in core markets, has continued to facilitate demand for newly developed space. In the year to date, we have secured a further four pre-let developments in Poland totalling 29,200 sq m. This includes a 12,200 sq m warehouse and office facility for FlexLink in Poznan and a 5,200 sq m warehouse facility for DB Schenker in Gdansk.

Speculative development remains limited to those locations where demand significantly outweighs supply. In Germany we have made encouraging progress in letting the first phase of speculative developments under construction at SEGRO Park Berlin Airport, which is now 50 per cent let, and at SEGRO Park Düsseldorf Sϋd, where we signed our first lease. Both developments are due to complete in the third quarter of 2012.

Across the Group, we have a total of 21 developments contracted or under construction representing £18.5 million of annualised rental income, of which 75 per cent is pre-let, and £107.3 million of capital expenditure.

GOOD PROGRESS WITH PORTFOLIO RESHAPING

As part of our Group strategy outlined on 8 November 2011, we identified non-core assets for disposal valued at £1.4 billion as at 31 December 2011. This included six large non-strategic assets with a combined value of £515 million as at 31 December 2011.

Our Investment team has made good initial progress with the reshaping of our portfolio, having completed £172 million of non-core asset disposals since the start of the year. This included the disposal of IQ Farnborough in the UK, the first of the six large non-strategic assets, for £90.1 million in April 2012 and the disposal of five non-core industrial estates to Ignis for £80.2 million in February 2012. We also completed, in January, the £314.7 million acquisition of the UKLF in a 50/50 JV with Moorfield, consistent with our strategy to introduce third party capital and expand our logistics portfolio. Each partner contributed £65 million of equity investment. Since acquisition, the UKLF portfolio, comprising 14 prime logistics warehouses, has been successfully integrated into our business operations and is performing in line with our expectations.

Having been active in the market in recent months we are observing appetite both for individual and packaged assets from a range of investors. This includes institutional and private equity funds, where large pools of equity capital have been raised to target the real estate sector.

As guided at the full-year results on 21 February 2012, we aim to complete £300 - 500 million of non-core asset disposals during the current year, including those completed in the year to date. 

CONFERENCE 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 3140 0668

Access code: 499152#

Shortly after the call, a playback facility and web-link will also be available:

Telephone +44 (0)20 3140 0698

Access code 383993#

The web-link can be accessed through our website at www.segro.com/investors

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/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 Europe's leading owner-manager and developer of industrial property. We serve over 1,600 customers across a range of industry sectors and geographies. Our portfolio comprises £5.1 billion of assets concentrated in and around major conurbations and transportation hubs such as airports, ports and transportation networks. For further information see www.SEGRO.com.

SEGRO is a Real Estate Investment Trust (REIT) and is listed on the London Stock Exchange.