Segro Regulatory News (SGRO)

19 FEBRUARY 2016

SEGRO plc

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

SEGRO plc ('SEGRO' / 'Company' / 'Group') today announces its results for the year ended 31 December 2015.

· Strong operating and portfolio performance reflects the active management of our assets, positive market dynamics and the strategic repositioning of our portfolio, which is now almost exclusively focused on industrial and logistics properties. Occupier and investor appetite for modern warehouses in prime locations continues to be underpinned by a favourable macro-economic environment, limited supply of new space and structural changes in the nature of consumer demand towards online and convenience retailing. Retailers, parcel delivery companies and third party logistics providers are responding to these changes by restructuring their supply chains, in which modern storage and distribution warehouses in the right places play a vital role.

· IFRS profit before tax of £686.5 million (2014: £654.4 million) combines higher underlying profits with another year of significant capital value growth.

· Adjusted EPS of 18.4 pence represents a 7 per cent increase from 2014 (17.2 pence), driven by improving like-for-like rental income, a record low vacancy rate of 4.8 per cent, new developments, acquisitions and lower financing and operating costs.

· 21 per cent increase in EPRA NAV per share to 463 pence reflecting capital value increases from a high quality portfolio which has benefited from yield shift and rental growth, particularly in the UK, as well as gains from developments and profits on disposal.

· Development programme and well-located land bank to drive significant future growth. The current construction programme and medium term development projects are capable of delivering annual rental income of approximately £109 million, equivalent to 38 per cent of SEGRO's current income stream, over the next five years.

· Final dividend increased by 3.9 per cent to 10.6 pence (2014: 10.2 pence).

Commenting on the results, David Sleath, Chief Executive, said:

"2015 has been another very good year for SEGRO and we are reporting strong results. The outlook for occupational demand remains encouraging and the new year has started well, with a healthy pipeline of lettings and new development opportunities. Whilst there are a number of broader economic and geopolitical uncertainties, we are confident that our portfolio is well positioned to be able to deliver growth and outperform the wider property market."

FINANCIAL AND OPERATING HIGHLIGHTS1

Strong operating performance across the Group

· 4.2 per cent like-for-like net rental income growth, including 5.2 per cent in the UK and 1.2 per cent in Continental Europe.

· 11 per cent increase in new rent contracted to £39.3 million (2014: £35.4 million), including £18.7 million from standing stock and £14.1 million from new development pre-let agreements.

· Completed developments added £9.9 million of annualised rental income (£11.8 million when fully leased). Additionally, the committed development pipeline is 61 per cent pre-let and expected to deliver £26.1 million of annualised rental income when completed and fully leased.

· Vacancy rate improved further to 4.8 per cent (31 December 2014: 6.3 per cent) largely due to strong net absorption of existing space and development lettings. Approximately a quarter of current vacant space is in newly completed developments, which we expect to lease in the near future.

Positive asset revaluations across all of our main markets

· Portfolio capital value growth of 11.1 per cent. The UK completed portfolio increased by 13.1 per cent (outperforming the MSCI-IPD UK All Industrial Quarterly Index capital return of 10.6 per cent) combining a 30 basis point reduction in equivalent yield, development completions, asset management initiatives and rental value growth of 4.4 per cent. The Continental European completed portfolio increased by 7.9 per cent, reflecting mainly a 100 basis point improvement in equivalent yield. Rental values fell 0.9 per cent for the year overall but were stable in the second half.

· EPRA NAV per share increased by 21 per cent to 463 pence (31 December 2014: 384 pence), primarily the result of the improvement in the value of completed assets and development gains.

Investing for growth

· £719 million of investment in our portfolio, focused on developing new assets (£164 million) and adding to the land bank (£221 million), as well as £334 million of acquisitions in a number of markets where we wish to build scale: Northern Italy, the Netherlands and the UK.

· £661 million of disposals of assets not core to our strategy, including offices in Milan and (post year-end) in Slough which resulted in a pro forma look-through LTV ratio of 34 per cent (31 December 2014: 40 per cent).

Outlook

· Occupational market conditions remain favourable, particularly in the UK, principally reflecting the structural changes in consumer demand from e-commerce driving retailers to review and re-design their supply chains and fuelling demand for last mile delivery space. The supply of modern, flexible warehouse space has also remained limited, and there are no signs of an impending over-supply.

· Investment market appetite remains healthy but increasingly selective, focused on prime buildings in prime locations, where rental growth prospects can justify current yield levels. We see potential for further capital growth across our markets, but the pace is likely to slow, in the UK in particular, and be based more on the prospects for rental growth than on further yield compression.

· Group's priorities remain focused on disciplined capital allocation and operational excellence. Notwithstanding broader economic and geopolitical uncertainties, we will continue to actively manage our existing assets and develop modern warehousing on our well-located land bank to take advantage of the favourable supply-demand dynamics in our markets and to drive attractive risk-adjusted returns for our shareholders.

1 All figures quoted in this statement refer to SEGRO's share, except for land (hectares) and space (square metres) which are quoted at 100 per cent, unless otherwise stated.

FINANCIAL SUMMARY

1 A reconciliation between Adjusted profit before tax and IFRS profit before tax is shown in Note 2 to the consolidated financial statements.

2 A reconciliation between Adjusted earnings per share and IFRS earnings per share is shown in Note 11 to the consolidated financial statements.

3 A reconciliation between EPRA net asset value per share and IFRS net asset value per share is shown in Note 11 to the consolidated financial statements.

4 Calculations for EPRA performance measures are shown in the Supplementary Notes to the consolidated financial statements.

5 Percentage valuation movement during the period based on the difference between opening and closing valuations for completed properties, adjusting for capital expenditure, acquisitions and disposals.

6 LTV ratio at 31 December 2014 stated net of £110 million deferred consideration receivable in relation to the creation of the SEGRO European Logistics Partnership joint venture. Pro forma LTV ratio at 31 December 2015 adjusted for proceeds received post year-end from the sale of the Bath Road office portfolio completed in January 2016.

WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS

A live webcast of the results presentation will be available from 09.00 (UK time) at:

http://www.emincote.com/segro012/default.asp

The webcast will be available for replay at SEGRO's website at: http://www.segro.com/investors by the close of business.

A video interview with David Sleath, Chief Executive, discussing the results is now available to view on www.segro.com, together with this announcement, the 2015 Property Analysis Report and other information about SEGRO.

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

FINANCIAL CALENDAR

ABOUT SEGRO

SEGRO is a UK Real Estate Investment Trust (REIT), and a leading owner, asset manager and developer of modern warehousing and light industrial property. It owns or manages 6.0 million square metres of space in £6.8 billion of assets (at 31 December 2015, excluding the office portfolio sold in January 2016, SEGRO's share totals £5.5 billion), serving customers from a wide range of industry sectors. Its properties are located around major conurbations and at key transportation hubs across ten European countries, principally in the UK, France, Germany and Poland.

Forward-Looking Statements: This announcement contains certain forward-looking statements with respect to SEGRO's expectations and plans, strategy, management objectives, future developments and performances, costs, revenues and other trend information. These statements are subject to assumptions, risk and uncertainty. Many of these assumptions, risks and uncertainties relate to factors that are beyond SEGRO's ability to control or estimate precisely and which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. Certain statements have been made with reference to forecast process changes, economic conditions and the current regulatory environment. Any forward-looking statements made by or on behalf of SEGRO are based upon the knowledge and information available to Directors on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be met and SEGRO's shareholders are cautioned not to place undue reliance on the forward-looking statements. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority), SEGRO does not undertake to update forward-looking statements to reflect any changes in events, conditions or circumstances on which any such statement is based. Past share performance cannot be relied on as a guide to future performance. Nothing in this announcement should be construed as a profit forecast.

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.

CHIEF EXECUTIVE'S REVIEW

We have continued to focus on delivering our strategy of creating a portfolio which generates attractive, low risk, income-led returns with above average rental and capital growth when market conditions are positive, and is resilient in a downturn. We seek to enhance returns through development, while ensuring that the short-term income 'drag' associated with holding land does not outweigh the long-term potential benefits.

Fundamental to our strategy are three key pillars of activity which should combine to deliver an attractive, income-led total property return:

· Disciplined Capital Allocation: picking the right markets and assets to create the right portfolio shape by actively managing the portfolio composition and adapting our capital deployment according to our assessment of the property cycle.

· Operational Excellence: optimising performance from the portfolio through dedicated customer service, expert asset management, development and operational efficiency.

· Efficient capital and corporate structure: we aim to underpin the property level returns from our portfolio with a lean overhead structure and appropriate financial leverage through the cycle.

The combination of these three elements should translate into sustainable, attractive returns for our shareholders in the form of progressive dividends and net asset value growth over time.

Our goal is to be the best owner-manager and developer of industrial and warehouse properties in Europe and a leading income-focused REIT, and we have made considerable progress towards this goal over the last four years.

Our portfolio comprises modern big box logistics, urban distribution and light industrial warehouses which are well specified and located, with good sustainability credentials, and which should benefit from a low structural void rate and relatively low-intensity asset management requirements. Our assets are concentrated in the strongest European sub-markets which have attractive property market characteristics, including good growth prospects, limited supply availability and where we already have, or can achieve, critical mass.

ACQUIRING HIGH QUALITY WAREHOUSE ASSETS IN EUROPE

In particular, we acquired £130 million of big box logistics warehouses in the UK through off-market asset swaps, which reduce the earnings dilution from disposals while improving our scale in this attractive asset class.

At the end of June, we completed the acquisition of a 90 per cent stake in Vailog, one of Italy's leading logistics developers. At acquisition, Vailog contained €105 million of standing assets and land (including options over land), primarily in Northern Italy and France, allowing us to establish an immediate strategic big box warehouse presence and operating platform in the important Northern Italy logistics market with opportunities to grow additional scale through development. Since acquisition, we have completed a 92,900 sq m logistics warehouse outside Milan for home improvement retailer Leroy Merlin, and have agreed to develop 72,800 sq m of big box warehouses on land within Vailog for customers including parcel delivery company TNT in France and online fashion retailer OVS in Italy.

Acquisitions: What to expect in 2016

Competition for industrial and logistics properties remains strong so we expect to focus our investment on development, creating modern assets on our well-positioned land bank to take advantage of strong occupier demand and limited supply of competing product.

We will continue to look for further accretive acquisitions where we see value, including through property swap transactions.

Acquisitions completed in 2015

1 Excluding acquisition costs

2 Yield excludes land transactions

3 Land acquisitions are discussed in Future Development Projects

DISPOSING OF NON-STRATEGIC ASSETS

The largest disposals agreed during 2015 were of the two remaining office parks in our portfolio. In Italy, we completed the sale of Energy Park, just outside Milan; in the UK, we agreed to sell a portfolio of offices on the Bath Road, adjoining the Slough Trading Estate. These two disposals mean that offices now account for less than 1 per cent of our portfolio, substantially completing our strategy of focusing our asset base on industrial warehouse properties.

We disposed of £114 million of assets as part of property swaps during the year. Older light industrial estates in Radlett, Heathrow and Park Royal were exchanged for two modern big box logistics assets (and a balancing cash payment) in the Midlands and West London, adding to our scale in UK big box logistics warehousing.

We also dissolved the Heathrow Big Box Industrial and Distribution Fund (HBB) joint venture, with M&G Real Estate, ahead of its termination date in June 2016. The joint venture contained two assets, both near Heathrow Airport, of which we took full ownership of one and M&G Real Estate the other. This allowed us to increase our wholly-owned presence in our core Heathrow market while also reducing the number of non-strategic joint ventures in the Group.

We sold €67 million of recently-completed big box assets and development land from our wholly-owned Continental European portfolio to the SEGRO European Logistics Partnership (SELP) joint venture. During the year, we have acquired and completed development of a number of assets which would be suitable for future sale to SELP. We intend to offer these for sale to SELP during 2016.

Disposals: What to expect in 2016

We will continue to identify assets for disposal where we believe that the expected risk-adjusted returns from retaining them are less appealing than the returns offered by other investment opportunities, not least by those from investing in our own development pipeline. We will balance disposal activity with appropriate investment in line with our goal to generate a growing and resilient income stream. Our future asset recycling strategy will be focused on generating sufficient proceeds to fund substantially all of our planned investment in acquisitions and developments.

Disposals completed in 2015

1 Yield excludes land transactions

Asset values continued to increase

The strong investor demand for prime European warehouse assets has continued throughout 2015, reflecting an improving economic environment and favourable structural trends in retail distribution, as well as relatively high income yields. Investment demand has caused asset values to rise and yields to fall across almost all of our markets during the year.

The Group's property portfolio totalled £5.7 billion (£7.1 billion of assets under management) at 31 December 2015, prior to disposal of the Bath Road office portfolio. The portfolio valuation, including completed assets, land and buildings under construction, increased by 11.1 per cent on a like-for-like basis (adjusted for capital expenditure and asset recycling during the year). This mainly reflects an 11.7 per cent increase in the value of our completed properties, assisted by an increase in the value of properties under development but offset by a slower increase in the value of our land bank. Rental value growth was a more important driver of the improvement in values in 2015 than it was in 2014 and we expect this trend to continue during 2016.

The UK completed portfolio was the strongest component of performance, delivering a 13.1 per cent valuation uplift, outperforming the MSCI-IPD UK Industrial Quarterly Index which increased by 10.6 per cent. This outperformance reflects the high quality of our portfolio and the continued impact of our asset management initiatives across the business. The capital return on our UK portfolio was driven by the combination of a reduction in the equivalent yield to 5.8 per cent (31 December 2014: 6.3 per cent) and a 4.4 per cent improvement in estimated rental values (2014: 3.2 per cent).

In Continental Europe, the completed portfolio value increased by 7.9 per cent during 2015, representing a marked acceleration from 2014 (2.2 per cent) and from the first half of 2015 (2.3 per cent). The primary driver was an improvement in the portfolio equivalent yield to 6.8 per cent (31 December 2014: 7.9 per cent). Although rental values fell by 0.9 per cent (2014: 1.3 per cent decline), this was caused mainly by a 2.6 per cent decline in Central Europe which was concentrated in the first half of the year. Rental values in Central Europe stabilised in the second half, although there is some continuing pressure on incentives in this region reflecting a competitive market between landlords and developers for customers. Rental values were stable for most of our properties in Germany and showed signs of improvement in France.

More details of our property portfolio can be found in Note 12 to the financial statements and in the 2015 Property Analysis Report available at www.segro.com/investors.

Valuations: What to expect in 2016

Investor demand for industrial and logistics warehouses remains strong but it is becoming more selective on pricing and quality. Prime yields are now below the level they reached at the peak of the last investment cycle but still represent a wide spread over local risk-free bond yields. Over the next year, we expect capital values to be driven more by rental growth than yield compression in the UK, although we see potential for yields to fall further in Continental Europe.

As a result, we expect capital growth rates to slow in 2016, although we do not expect capital values to fall.

Property portfolio metrics at 31 December 2015

1 Valuation movement is based on the difference between the opening and closing valuations for completed properties, allowing for capital expenditure, acquisitions and disposals.

2 In relation to completed properties only.

3 Vacancy rate excluding short term lettings for the Group at 31 December 2015 is 6.3 per cent.

OPTIMISING THE PERFORMANCE OF OUR PORTFOLIO

At 31 December 2015, our portfolio comprised two main asset types: light industrial and urban distribution warehouses, and big box logistics warehouses. The demand-supply dynamics differ, varying by both type and by geography.

Urban distribution and light industrial warehouses account for 47 per cent of our portfolio value. They are located mainly on the edges of London, Paris, Düsseldorf, Berlin and Warsaw where land supply is most restricted and demand for warehouse space is strongest, particularly to cater for the needs of last mile delivery.

There are few places where the tension between demand and supply is as acute as it is in London. Industrial land is being lost to infrastructure projects and residential, office and retail uses, at a time when retailers and parcel delivery companies need more urban distribution warehousing to access their consumer base increasingly quickly and efficiently. This tension is manifesting itself in improving lease terms and, particularly in London, higher rental values.

Big box warehouses, classed as those over 10,000 sq m in size, account for 40 per cent of our portfolio value. These are focused on the major logistics hubs and corridors in the UK (South-East and Midlands regions), France (the logistics 'spine' linking Lille, Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin, Leipzig and Hamburg) and Poland (Warsaw, Lodz and Poznan).

Although occupier demand is healthy across all of our markets, the availability of land and competition for customers outside the UK means that new supply often keeps pace with demand, resulting in limited rental growth.

In the UK, the availability of Grade A warehousing in core logistics locations has been particularly low and this has resulted in significant rental growth over the past 18 months. The level of development is now beginning to increase which means we expect that rental growth may slow somewhat, but we do not expect it to reverse. In Continental Europe, there is little speculative construction underway and big box logistics rents are broadly stable, except in Central Europe where the competition for pre-let agreements has caused market rents to fall. There is a risk that this trend will spread into other countries but we do not currently see any signs of significant over-supply in our major markets.

Growing rental income from letting existing space and new developments

During 2015, we contracted new leases and pre-let agreements totalling £39.3 million of annualised rental income. We generated £19.3 million from leases on existing space, offset by £14.1 million of rent lost from space returned to us, resulting in net take-up of £5.2 million of existing space.

Additionally, we contracted £27.9 million of rent from letting up developments completed during 2015 (of which £7.9 million were agreed in prior years).

Summary of key leasing data for 20151

1 All figures reflect exchange rates at 31 December and include joint ventures at share.

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

3 Annualised rental income, excluding space taken back for redevelopment.

4 Headline rent retained as a percentage of total headline rent at risk from break or expiry during the period.

Our customers represent a wide range of industries, allowing us to avoid over-reliance on any single sector or individual customer. Our top 20 customers represent 28 per cent of our rent roll, and our largest customer represents just over 3 per cent.

Take-up reflects the economic and structural trends in our major markets, with 21 per cent of new rent from parcel delivery companies and third party logistics providers, while retailers and manufacturers accounted for 16 per cent and 17 per cent respectively.

Changes in the rent roll from our standing assets is influenced by three main factors: rent agreed at rent reviews and lease renewals, the portfolio's vacancy rate and space returned to us. Overall operating performance is also dependent on pre-let agreements, lease terms agreed and operating cost efficiencies.

· Rent reviews and lease renewals: uplift of 2.6 per cent. Rents are improving in our UK markets, especially in London and South-East England. During the year, new rents on review and renewal were 3.3 per cent higher in the UK (in tandem with an improvement in lease terms) and 1.2 per cent lower in our Continental European portfolio. In Continental Europe, the reduced rents on renewal occurred mainly in Central Europe where competition for tenants is greater; they were broadly stable in our other markets.

· Vacancy improves to 4.8 per cent. The vacancy rate at 31 December 2015 improved to 4.8 per cent (31 December 2014: 6.3 per cent), of which approximately 20 per cent represents speculative developments completed in 2014 and 2015. Treating short-term lettings as vacant space would increase the vacancy rate to 6.3 per cent (31 December 2014: 7.7 per cent). The average vacancy rate during the year was also lower, at 6.5 per cent compared to 7.7 per cent in 2014. We have reduced our target vacancy rate to between 5 and 7 per cent (from between 6 and 8 per cent) reflecting the improvement in portfolio quality resulting from the repositioning activity undertaken over the past four years. This range allows for temporary volatility arising from the timing of speculative development completions.

· Retention rate of 68 per cent. During the year, space equating to £14.1 million (2014: 16.1 million) of rent was returned to us, including £1.3 million of rent lost due to insolvency (2014: £3.8 million). We retained 68 per cent of rent at risk from break or expiry during the year (2014: 68 per cent). During 2016, £28.7 million of rent is at risk from lease break or expiry and, at 31 December 2015, customers in administration represented £0.3 million of annualised rent (31 December 2014: £2.3 million). 77 per cent of customers rated us 'good' or 'excellent' in our annual customer survey, a lower level than in 2014 (86 per cent), reflecting in part market rental growth, but still high by historic standards. We continually seek to improve our customer service and the survey is a useful tool to direct our focus.

· Lease terms improve. The level of incentives agreed for new leases (excluding those on developments completed in the year) represented 8.0 per cent of the headline rent, a modest improvement from the 8.5 per cent in 2014 and substantially better than the 11.0 per cent achieved in 2013. Lease lengths also improved to 6.8 years to first break (8.6 years to expiry) as at 31 December 2015, compared to 6.7 years (8.6 years to expiry) at 31 December 2014. Lease terms continue to be longer in the UK (7.5 years to break) than in Continental Europe (5.5 years to break).

· £20 million of rent contracted from developments. During the year, we contracted £14.1 million of rent from pre-let agreements during the year (2014: £10.7 million). Parcel delivery and logistics companies account for approximately half of the agreements, including Deutsche Post DHL and Hermes in the UK, TNT in France and Geodis in Germany. Retailers were also prominent, including John Lewis in the UK, and our first pre-lets on land in Italy, acquired with Vailog, to retailer OVS and food distributor Naturasi. We also secured £6.3 million from take-up of space completed speculatively (2014: £3.8 million), the largest of which was a 22,000 sq m warehouse in Rugby to DHL in November.

· Total cost ratio improves to 22.5 per cent. Our total cost ratio for 2015 improved to 22.5 per cent (2014: 23.7 per cent). Approximately half of our costs are considered property operating costs, the remainder being central administration costs. Property operating costs fell by £2.8 million, driven mainly by a £5.9 million reduction in vacant property costs. This partly reflects the lower average vacancy rate during the year but was also helped by an increase in out of period credits of £1.8 million which we do not expect to recur in future years.

Asset management: What to expect in 2016

We expect rent roll growth from standing assets to remain positive in 2016. The acceleration of speculative development completions during the year means that the vacancy rate may rise towards the end of the year, but we expect it to remain within our revised range of between 5 and 7 per cent. We will continue to focus on maintaining an efficient cost base.

ENHANCING GROWTH THROUGH DEVELOPMENT

Development projects completed

We completed 318,000 sq m of new space during the year. These projects were 55 per cent pre-let prior to the start of construction and were 84 per cent let as at 31 December 2015, generating £10 million of annualised gross rent, with a potential further £2 million to come when the remainder of the space is let (SEGRO share). This translates into a yield on total development cost (including land, construction and finance costs) of 8.7 per cent when fully let, substantially higher than yields available on acquisitions of similar quality assets.

Amongst the developments completed in 2015 were a 92,900 sq m logistics warehouse in Italy acquired as part of the Vailog transaction and let to French home improvement company Leroy Merlin, and a 22,000 sq m big box logistics warehouse in Rugby Gateway which we developed speculatively and let to Deutsche Post DHL shortly before completion as a distribution centre to service its contract with fashion retailer TK Maxx.

Active development projects

At 31 December 2015, we had development projects approved, contracted or under construction totalling 407,900 sq m, representing £143 million of future capital expenditure and £26 million of annualised gross rental income (SEGRO share) when fully let. The projects due to complete in 2016 and 2017 are 61 per cent pre-let and will yield 7.6 per cent on total development cost when fully occupied. In addition, we are close to completing a new office building in Slough which we pre-sold as part of the Bath Road portfolio in January 2016.

The strengthening occupier market, particularly in the UK, has given us confidence to develop a larger amount of space speculatively. We will usually build urban warehouses speculatively as occupiers prefer to see the space before committing to a lease. We are more cautious about building big box warehouses speculatively unless they can be leased to multiple parties or are in areas of particular supply constraint, such as in the Midlands in the UK.

Availability of warehouses in the 15,000 to 30,000 sq m size bracket is very short in the Midlands 'golden triangle'. We have agreed to build a 25,000 sq m big box logistics warehouse for Hermes on Rugby Gateway and will complete the logistics park with two speculative big box warehouses totalling 43,700 sq m. These three units account for 40 per cent of our UK pipeline.

We have also commenced speculative development of a number of multi-let industrial estates across our entire portfolio. These are all close to population centres, allowing businesses to access their customers quickly and easily. They are also increasingly popular with local authorities as a means of regenerating brownfield sites, often near the centre of towns, and as a source of employment.

Future development projects

Our land bank identified for future development totalled 472 hectares at the end of 2015, equating to £251 million, or around 4 per cent of our total portfolio (SEGRO share). During 2015, we deployed around 30 per cent of our start-year land bank in our development pipeline. Development is an important source of growth and, in order to ensure an attractive pipeline in the medium term, we have acquired or agreed to acquire a number of further sites in areas experiencing strong demand for warehousing with limited supply, particularly around London.

London's industrial land has been eroding steadily for many years as manufacturing industry in the city declined in favour of the office-based service sector and retail. Recently, however, London's growing population and the consequential need for more housing has accelerated the change of use of industrial land to residential and retail. At the same time, the growing population is spurring greater demand for edge of town warehouse space from parcel delivery companies and retailers which is in increasingly short supply.

We acquired 36 hectares of land in South-East England, both in our heartland of West London and the Thames Valley, and in East London, a key target market for us, where population growth is expected to be fastest as the area undergoes widespread regeneration. We acquired 8 hectares of land in Purfleet and have also been selected as the preferred partner by the Greater London Authority (GLA) to develop 35 hectares of industrial land across five sites known collectively as East Plus. The agreement will give us the right to acquire the land from the GLA on a draw-down basis, minimising the earnings drag of holding non-income producing land on our balance sheet. We estimate that the sites could support around 140,000 sq m of urban distribution and light industrial warehouse space. 

The combination of these sites, along the A13 main road between London's inner and outer ring-roads, should provide us with an enviable position in this regenerating area.

The appeal of using light industrial development as a means of regeneration is not limited to London.

· In Cologne, we acquired the former campus of AkzoNobel to create our first multi-let industrial estate in the city and the first phases of development are underway.

· In Paris, we bought an 18 hectare plot of land in the prime logistics hub of Garonor which was formerly a PSA Peugeot Citroën manufacturing facility.

· We bought 11 hectares of brownfield land just outside Vienna which was formerly a research and development and office facility for Novartis. We are in the process of securing a pre-let agreement for a new urban distribution warehouse.

We have also secured land in three further target markets. In Germany, we secured 2 hectares of land on the outskirts of Munich on which we are negotiating to build a distribution warehouse pre‑let to a major retailer and, in Spain, we bought a 6 hectare site on the edge of Barcelona which we will prepare for big box logistics use. In Italy, our acquisition of the stake in Vailog has given us access to a 100 hectare land bank in Italy and France which can support 338,000 sq m of big box warehousing, with a further 80 hectares under option.

We estimate that our land bank can support 2.2 million sq m of development over the next five years. Approximately three-quarters of the land bank is suitable for the development of big box logistics warehouses, with much of the remainder being suitable for light industrial development. The prospective capital expenditure associated with these projects is £751 million and we estimate that they could generate £83 million of gross rental income (SEGRO share), representing a yield on total development cost (including land and notional finance costs) of 8.3 per cent. These figures are indicative of our current expectations but are dependent on our ability to secure pre-let agreements, planning permission, construction contracts and on our outlook for occupier conditions in local markets.

Land worth £84 million is either surplus to our near-term requirements or suited to alternative use. The latter includes part of a site we acquired in Hayes, West London, in 2015. The overall site is suited to a combination of industrial and residential development and we are working on a master plan for the entire site which incorporates both uses. The land suitable for industrial use is in our core land bank and we will develop this ourselves. We intend to sell the surplus land once planning permission is granted.

Development: What to expect in 2016

393,000 sq m of new warehouse space in our committed pipeline is expected to complete during 2016, equating to £25 million of potential gross passing rent, of which £15 million is pre-let. We currently expect to invest approximately £300 million in development during 2016 which includes both our committed pipeline and further development opportunities under discussion, including a number of pre-let projects under negotiation or subject to planning.

We have a number of land acquisition opportunities in the pipeline but we expect such opportunities to reduce as land prices rise and potential returns from development moderate. Even without further land acquisitions, we have enough land to generate approximately £109 million of new rent from current and future development over the next five years, equating to 38 per cent of our current rent roll.

Further details of our completed and active development projects are available in the 2015 Property Analysis Report, which is available to download at www.segro.com/investors.

CREATING A STRONG AND RESILIENT CAPITAL BASE

The movement in net debt is largely a function of £719 million of investment (SEGRO share) in developments and acquisitions, offset by £336 million of disposals. We also received €154 million from our SELP joint venture partner which represents consideration agreed at the time of the creation of SELP but deferred for two years. This was used to fund the repayment of two bonds totalling £208 million which matured in the second half of the year, the remainder being funded from existing resources.

We estimate that our portfolio would have to fall in value by 47 per cent before breaching the tightest covenants on our debt. To put this into context, our portfolio fell in value by approximately 35 per cent between the peak in 2007 and the trough in 2012, our portfolio today is of substantially better quality than it was in 2007, and we believe that the potential for a market correction of the magnitude of 2008/09 is relatively low.

The euro weakened by 10 per cent against sterling during the year. We have maintained a high degree of hedging to protect our balance sheet and earnings from the impact of future volatility. Our net assets are 90 per cent hedged and our euro earnings are 69 per cent hedged against movements in the euro-sterling exchange rate. Further details can be found in the Financial Review.

Capital structure: what to expect in 2016

We expect to invest approximately £300 million (SEGRO share) in development and refurbishment capital expenditure during 2016. At 31 December 2015, adjusted for disposals in early 2016, we had £503 million of cash and bank credit facilities available to us to fund these commitments.

Assuming capital values remain unchanged and depending on any acquisitions and disposals, we expect the LTV ratio to remain well below 40 per cent for the coming year.

DIVIDEND INCREASE REFLECTS A STRONG YEAR AND CONFIDENCE FOR THE FUTURE

Under the UK REIT rules, we are required to pay out 90 per cent of UK-sourced, tax-exempt rental profits as a 'Property Income Distribution' (PID). Since we also receive income from our properties in Continental Europe, our total dividend should normally exceed this minimum level and we target a payout ratio of 85 to 95 per cent of Adjusted EPS.

We aim to deliver a progressive and sustainable dividend which grows in line with our profitability in order to achieve our goal of being a leading income-focused REIT.

The Board has concluded that it is appropriate to recommend an increase in the final dividend per share of 0.4 pence to 10.6 pence (2014: 10.2 pence) which will be paid as a PID. The Board's recommendation is subject to approval by shareholders at the Annual General Meeting, in which event the final dividend will be paid on 5 May 2016 to shareholders on the register at the close of business on 29 March 2016.

In considering the final dividend, the Board took into account:

· the policy of paying out between 85 and 95 per cent of Adjusted EPS;

· the desire to ensure that the dividend is sustainable and progressive throughout the cycle; and

· the results for 2015 and the outlook for earnings.

The total dividend for the year will, therefore, be 15.6 pence, a rise of 3.3 per cent on 2014 (15.1 pence) and represents payment of 85 per cent of Adjusted EPS; allowing for the pro forma effect of the Bath Road office portfolio disposal, the payout ratio would have been 91 per cent.

The Board has decided to retain a scrip dividend option for the 2015 final dividend, allowing shareholders to choose whether to receive the dividend in cash or new shares. In 2015, 30 per cent of the 2014 final dividend and 2 per cent of the 2015 interim dividend was paid in new shares, equating to £21.6 million of cash retained on the balance sheet and 5.1 million new shares being issued.

OUTLOOK: WHAT TO EXPECT FOR SEGRO IN 2016 AND BEYOND

Our portfolio at the end of 2015 is transformed from where it was just four years ago. It is focused on modern, flexible warehouse properties in attractive locations where occupier and investor demand are expected to be enduring and where we have a strong market position. Equally, our sources of income are very well spread across a diversified customer base and we have a much leaner cost base.

The operating prospects for the business are encouraging. We are experiencing strong or improving occupier demand from a wide range of customers and industries - including retailers, parcel delivery companies and third party logistics providers - for modern, well-located warehouses to cater for the growing consumer appetite for goods ordered online and delivered conveniently. At the same time, the current availability and impending supply of high quality warehousing is modest.

We expect this favourable demand-supply balance to translate into new development opportunities across the portfolio and into further rental growth in our UK portfolio. In Continental Europe, we also anticipate rental growth in our portfolio of smaller, urban warehouses, although we expect rents for Continental European big box logistics warehouses to remain stable due to competitive pressures.

Investor demand for industrial and logistics assets remains strong even though prime yields are now below the level they reached at the peak of the last investment cycle. We expect capital growth rates to slow in 2016 but the prospects for rental growth in our UK portfolio and very low interest rates with the potential for further quantitative easing in Continental Europe are likely to provide support for capital values in 2016.

While there are a number of broader economic and geopolitical uncertainties, we are confident that our portfolio is well positioned to be able to outperform the wider property market.

Our priorities for 2016 and beyond

Our strategy is unchanged from 2011 and is directed at delivering attractive total returns for shareholders in the form of a sustainable, progressive dividend stream and net asset value growth over time. Within the strategic 'pillars', however, our priorities will be different as we move from a period of portfolio transformation to one of growth:

· Disciplined Capital Allocation. We will seek to capitalise on the strong market positions we have in South-East England, France, Poland and the Rhine-Rühr region of Germany, while seeking to gain additional scale in UK big box logistics warehousing and in our newer markets such as Italy, Spain and other regions of Germany. We expect our investment activity to focus on development and land acquisitions rather than the acquisition of standing assets although we will remain open to acquisitions where the pricing is attractive. We will also seek to capitalise on the strong investment market by selling more mature assets in order to substantially fund our investment activities.

· Operational Excellence - Development and Asset Management. Our development pipeline is an important source of enhanced returns which are largely within our control. We will continue to pursue development opportunities, maintaining a speculative element particularly of light industrial and urban distribution warehouses while occupier demand remains strong. The speed of delivery of warehousing allows us to be sensitive to changing occupier conditions and, if they weaken or if supply by competitors increases too much, we are able to reduce or cease speculative development, focusing instead on securing pre-let agreements.

Expert asset management and customer service are fundamental to delivering attractive returns through the cycle. We will continue to focus on satisfying our customers, actively managing the portfolio, including maintaining a high occupancy rate, and pursuing further operating and cost efficiencies.

· Efficient and resilient capital structure. Having reduced our LTV ratio to 34 per cent following the sale of the Bath Road office portfolio in early 2016, we intend to maintain this ratio at below 40 per cent over the medium term in order to enable us to fund capital expenditure whilst providing appropriate resilience in the event of a property market correction. In this context, our planned capital expenditure for 2016 is expected to be substantially funded from the proceeds of further asset disposals.

In summary, we will continue to be disciplined in what we buy, what we develop and how we manage our assets, seeking to maximise the income return to shareholders, while maintaining an efficient cost base and a conservative financial structure.

FINANCIAL REVIEW

Financial highlights

1 A reconciliation between IFRS NAV and its EPRA equivalent is shown in Note 11.

2 A reconciliation between IFRS profit before tax/EPS and Adjusted profit before tax/EPS is shown in Notes 2 and 11 and a reconciliation between Adjusted profit before tax/Adjusted EPS and their EPRA equivalents are shown in Table 2 of the Supplementary Notes. .

Presentation of financial information

The Group financial statements are prepared under IFRS where the Group's interests in joint ventures are shown as a single line item on the income statement and balance sheet and subsidiaries are consolidated at 100 per cent.

The new Adjusted profit measure more accurately reflects the Group's financial performance and the underlying recurring performance of the property rental business, which is our core operating activity. It is based on the Best Practices Recommendations of the European Public Real Estate Association (EPRA) which are widely used alternate metrics to their IFRS equivalents (further details on EPRA Best Practices Recommendations can be found at www.epra.com). In calculating Adjusted profit, the Directors may also exclude additional items considered to be non-recurring, not in the ordinary course of business, and significant by virtue of size and nature. See Table 2 of the Supplementary Notes for further information on these adjustments, including the adjustment made in 2015.

A detailed reconciliation between Adjusted profit after tax and IFRS profit after tax is provided in Note 2 of the financial statements.

Reconciliations between SEGRO Adjusted metrics and EPRA metrics are provided in the Supplementary Notes to the financial statements, which also include other EPRA metrics as well as SEGRO's Adjusted income statement and EPRA balance sheet presented on a proportionately consolidated basis.

SEGRO monitors these alternative metrics, as well as the EPRA metrics for vacancy rate, net asset value and total cost ratio, as they provide a transparent and consistent basis to enable comparison between European property companies.

Adjusted profit

Adjusted profit

1 Comprises net property rental income less administration expenses, net interest expenses and taxation.

Adjusted profit before tax increased by 6.9 per cent to £138.6 million (2014: £129.7 million) during 2015 reflecting increased joint venture fees and lower property operating expenses and net finance costs, offset by a reduction in gross rental income due to disposals, and lower surrender premiums and one-off items.

Net rental income

Net rental income fell by £1.6 million to £173.0 million, reflecting the positive net impact of investment activity and development completions during the period, offset by the impact of disposals, the weakening euro and £6.0 million less income from surrender premiums and other one-off items.

On a like-for-like basis, net rental income increased by £7.4 million, or 4.2 per cent, compared to 2014. This is mainly due to rental increases in our UK portfolio and a lower overall vacancy rate during the year which enhanced gross rental income and reduced vacant property costs.

The like-for-like rental growth metric is based on properties held throughout both 2015 and 2014. Where an asset has been sold into a joint venture (transfers into SELP, for example) or purchased from a joint venture (Axis Park was bought by SEGRO from the Heathrow Big Box joint venture), the 50 per cent share owned throughout the period is included in like-for-like calculation, with the balance shown as disposals or acquisitions.

Like-for-like net rental income (including joint ventures at share)

1 Other includes the corporate centre and other costs relating to the operational business which are not specifically allocated to a geographical business unit.

Income from joint ventures

Joint venture management fee income increased by £5.2 million to £17.0 million. This increase was largely due to higher performance fees from the Airport Property Partnership (APP) joint venture, but also to increased development and management fees from SELP, part of which relates to the size of the portfolio which was €2.1 billion at 31 December 2015, compared to €1.7 billion a year earlier.

SEGRO's share of joint ventures' Adjusted profit after tax fell by £1.9 million, or 4.1 per cent, reflecting the closing of the Logistics Property Partnership (LPP) and Heathrow Big Box (HBB) joint ventures in July 2014 and June 2015 respectively, partly offset by higher income from the SELP joint venture. SEGRO acquired the LPP assets and one of the two assets within HBB and the income from these is now reflected in Group net rental income.

Administrative and operating costs

The Group is focused on managing its cost base and uses a Total Cost Ratio as a key measure of cost management. The Total Cost Ratio for 2015 improved to 22.5 per cent from 23.7 per cent for 2014. The calculation is set out in Table 6 of the Supplementary Notes to the financial statements.

The balance of acquisitions, development completions, rental growth and disposals has slightly reduced the gross rental income (the denominator of this ratio), while total costs have fallen by £5.0 million due to lower property operating expenses.

Within property operating expenses, group vacant property costs fell by £4.1 million to £3.4 million due largely to an increase in out of period credits of £1.8 million, together with a lower average vacancy rate during the year compared to 2014.

Net finance costs

Net finance costs fell by £7.4 million in 2015 to £67.3 million. The decrease is mainly attributable to the impact of interest savings from lower interest rates following the euro interest rate swap portfolio restructuring in April 2015, the impact of the weaker euro and lower commitment fees.

Taxation

The tax charge on Adjusted profit of £1.3 million (2014: £1.9 million) reflects an effective tax rate of 0.9 per cent (2014: 1.5 per cent), consistent with a Group target tax rate of less than 3 per cent.

The Group's target tax rate reflects the fact that over three-quarters of its assets are located in the UK and France and qualify for REIT and SIIC status respectively in those countries. This status means that income from rental profits and gains on disposals of assets in the UK and France are exempt from corporation tax, provided SEGRO meets a number of conditions including, but not limited to, distributing 90 per cent of UK taxable profits.

Adjusted earnings per share

Adjusted earnings per share are 18.4 pence (2014: 17.2 pence) reflecting a £9.5 million improvement in Adjusted profit after tax and an increased average number of shares as a result of take-up of the scrip dividend option offered with the 2014 final and 2015 interim dividends.

TOTAL PROPERTY RETURN

The total property return ('TPR') for the portfolio in 2015 (calculated by MSCI Real Estate) was 18.4 per cent, slightly lower than for 2014 (19.4 per cent), reflecting a lower income return due to yield compression during the year. The TPR comprises an income return of 5.3 per cent (2014: 6.1 per cent) and a capital return of 12.4 per cent (12.6 per cent). More detail on the performance of the property portfolio can be found in the Chief Executive's Review.

IFRS PROFIT

IFRS profit before tax in 2015 was £686.5 million (2014: £654.4 million), equating to post-tax IFRS earnings per share of 91.7 pence compared with 92.0 pence for 2014, principally reflecting improved operating earnings and realised and unrealised gains offset by the absence of a tax refund credited in the prior year.

A reconciliation between Adjusted profit before tax and IFRS profit before tax is provided in Note 2 to the financial statements.

Realised and unrealised gains on wholly owned investment and trading properties of £461.5 million in 2015 (2014: £408.6 million gain) have been recognised in the income statement, comprising an unrealised valuation surplus of £439.8 million (2014: £385.6 million surplus) and a profit of £22.9 million on asset disposals (2014: £24.7 million profit), offset by impairment provisions of £1.2 million (2014: £1.7 million) against trading properties where their fair values are deemed to be less than their original cost.

SEGRO's share of realised and unrealised gains on properties held in joint ventures was £125.6 million (2014: £109.4 million) and is further analysed in Note 6.

The Group's trading property portfolio (including its share of joint ventures) has an unrealised valuation surplus of £1.7 million at 31 December 2015 (31 December 2014: £2.3 million surplus) which has not been recognised in the financial statements as these properties are recorded at the lower of cost or fair value. This valuation uplift is, however, recognised in the EPRA net asset value calculation.

IFRS earnings were also impacted by a net fair value loss on interest rate swaps and other derivatives of £23.7 million (2014: £10.9 million gain) and a tax charge of £3.7 million, compared to a credit of £27.6 million in 2014 mainly due to a tax refund related to the disposal of SEGRO's US business in 2007.

BALANCE SHEET

EPRA net asset value

At 31 December 2015, IFRS net assets attributable to ordinary shareholders were £3,489.9 million (31 December 2014: £2,888.8 million), reflecting 468 pence per share (31 December 2014: 390 pence).

EPRA net asset value per share at 31 December 2015 was 463 pence (31 December 2014: 384 pence), the 21 per cent increase mainly reflecting property gains in the period. The table above highlights the other principal factors behind the increase. A reconciliation between IFRS and EPRA net assets is available in Note 11 to the financial statements.

The £4.8 million pension settlement costs relate predominantly to an agreement reached with an insurance company to commit to a process which will result in the buy-out to secure all member benefits of the Bilton Group pension scheme, one of the Group's legacy defined benefit pension schemes.

During the year, the Group restructured and extended its euro interest rate swap portfolio resulting in a cash close out cost of £24.8 million.

Cash flow and net debt reconciliation

Free cash flow generated from operations was £87.7 million in 2015, a decrease of £35.3 million from 2014 due to lower cash flows from operations owing mainly to the disposal of properties in the prior year, and the cost of the early close out of interest rate swaps. These were partially offset by lower finance costs and the receipt of a tax refund from US tax authorities relating to the disposal of SEGRO's US business in 2007.

On a cash flow basis, which reflects the cash element of property swap transactions and excludes the impact of joint ventures, the Group invested a net £244.5 million in investment properties and development during the year (2014: £160.8 million) as the portfolio reshaping has continued. It received cash from disposals of £226.3 million (2014: £408.7 million) and spent £470.8 million (2014: £247.9 million) to purchase and develop investment properties.

During the year, the Group acquired a 90 per cent interest in Vailog. The impact on net debt was split between £26.4 million of acquisition and transaction costs and the addition of £48.7 million of debt to the Group balance sheet.

The cash flow from the sale of the portfolio into SELP relates to the disposal of wholly owned Continental European logistics assets into a joint venture in which the Group has a 50 per cent interest.

The settlement of foreign exchange derivatives has led to an inflow of £101.1 million as the euro has weakened in the year. Net debt has increased in the year from £1,679.2 million to £1,806.5 million.

In January 2016, the Group completed the disposal of the Bath Road office portfolio which resulted in the receipt of £321 million of net proceeds. The pro forma Group net debt adjusting for this receipt is £1,486 million, representing an 11 per cent decline from 31 December 2014.

A summary of the cash flows for the year are set out in the table below.

Cash flow and net debt reconciliation

Capital expenditure

The table below sets out analysis of the capital expenditure during the year. This includes acquisition and development spend, on an accruals basis, in respect of the Group's wholly‑owned investment and trading property portfolios, as well as the equivalent amounts for joint ventures at share.

Total spend for the year is £882.0 million, an increase of £14.7 million compared to 2014. Acquisitions include the £146.6 million purchase of Axis Park from the HBB joint venture. More detail on acquisitions can be found in the Chief Executive's Review, although note that where SEGRO has bought from a joint venture the acquisition is reflected at 50 per cent, unlike in the table below where all acquisitions are recognised at 100 per cent.

Development capital expenditure increased by £7.1 million to £164.4 million, reflecting our stated intention to increase the level of investment in developments, both speculative and pre-let, to take advantage of strong occupier demand for modern space in our markets. Development spend incorporates interest capitalised of £3.0 million (2014: £4.8 million) including joint ventures at share.

Spend on existing completed properties totalled £25.0 million (2014: £25.8 million), of which £17.9 million (2014: £14.5 million) was for value-enhancing major refurbishment and fit-out costs prior to re-letting. The balance mainly comprises infrastructure and more minor refurbishment costs, which equates to 5 per cent of Adjusted profit before tax and 0.1 per cent of our completed portfolio.

The Other category increased by £4.2 million due mainly to tenant incentives associated with increased letting activity during 2014 and 2015.

EPRA capital expenditure analysis

1 Being £602.5 million investment property and £nil trading property (2014: £437.1 million and £nil million respectively) see Note 12.

2 Being £143.6 million investment property and £0.5 million trading property (2014: £122.7 million and £13.6 million respectively) see Note 12.

3 Being £17.7 million investment property and £0.4 million trading property (2014: £20.2 million and £1.5 million respectively) see Note 12.

4 Includes wholly owned capitalised interest of £2.9 million (2014: £4.4 million) as further analysed in Note 8 and share of joint venture capitalised interest of £0.1 million (2014: £0.4 million).

5 Tenant incentives, letting fees and rental guarantees.

TREASURY POLICIES AND GOVERNANCE

The Group Treasury function operates within a formal treasury policy covering all aspects of treasury activity, including funding, counterparty exposure and management of interest rate, currency and liquidity risks. Group Treasury policies are reviewed by the Board at least once a year, most recently in September 2015.

Group Treasury reports on compliance with these policies on a quarterly basis to the Finance Committee, which includes the Chief Executive and is chaired by the Group Finance Director.

FINANCIAL POSITION AND FUNDING

Financial Key Performance Indicators

1 Based on gross debt, excluding commitment fees and amortised costs.

2 Net rental income/Adjusted net finance costs (before capitalisation).

3 2014 LTV includes £110 million of deferred consideration receivable.

4 Pro forma figures are adjusted for the receipt of the proceeds from the sale of the Bath Road office portfolio in January 2016.

At 31 December 2015, the Group's net borrowings (including the Group's share of borrowings in joint ventures) were £2,193.2 million (31 December 2014: £2,040.4 million).

Excluding the Group's share of borrowings in joint ventures, net borrowings at 31 December 2015 were £1,806.5 million comprising gross borrowings (all but £3.6 million of which were unsecured) of £1,822.9 million and cash and cash equivalent balances of £16.4 million.

The Group's share of the net borrowings in its joint ventures was £386.7 million comprising gross borrowings (all of which were secured on a non-recourse basis to SEGRO) of £428.1 million and cash and cash equivalent balances of £41.4 million.

Cash and cash equivalent balances, together with the Group's interest rate and foreign exchange derivatives portfolio, are spread amongst a strong group of banks, all but one of which currently have long-term credit ratings of A- or better.

Funds available (excluding cash and undrawn facilities held in joint ventures) at 31 December 2015 totalled £234.3 million, comprising £16.4 million of cash and short-term investments and £217.9 million of undrawn bank facilities provided by the Group's relationship banks, of which only £5.0 million were uncommitted. Pro forma for the impact of the Bath Road office portfolio disposal, funds availability are £502.9 million.

At 31 December 2015, other than the Airport Property Partnership (APP) facility noted below, there were no debt maturities (bonds, notes and bank facilities) falling due within 12 months and the weighted average maturity of the gross borrowings of the Group (including joint ventures at share) was 6.0 years. In January 2016, the £400 million facility for APP was refinanced which, combined with facility cancellation relating to the Bath Road office portfolio disposal, has extended the average maturity to 7.0 years. With only 22 per cent of the Group's drawn debt at 31 December 2015 (13 per cent pro forma for the Bath Road office portfolio disposal) maturing in the next three years and no further debt maturities in 2016, this relatively long average debt maturity translates into a favourable, well spread debt funding maturity profile which reduces future refinancing risk.

During the year we agreed €210.0 million of new committed Group debt facilities with an average initial margin of 105 basis points. On 6 January 2016, a €70.0 million facility was cancelled following the announcement of the sale of the Bath Road office portfolio.

The Group seeks to maintain, over the medium term, an appropriate mix of debt funding between longer-dated core funding provided by bonds, and shorter-dated bank facilities providing funding headroom and more flexible borrowings that are cheaper and easier to repay than bonds.

At 31 December 2015, following the repayment of £208.3 million of sterling bonds during 2015, 82 per cent of the gross borrowings of the Group were bonds and 18 per cent were bank borrowings.

The market value of the gross borrowings of the Group (including debt funding arrangements within joint ventures) at 31 December 2015 was £295.7 million higher than the balance sheet carrying value. This difference mainly relates to the sterling bond portfolio and term debt in joint ventures which have fixed interest coupons above current market rates. The majority (£959 million) of the sterling bonds have been swapped into floating sterling debt or fixed or floating euro debt via a combination of interest rate and currency swaps.

The market value (including accrued interest) of the Group's derivative financial instruments (mainly interest rate and currency swaps used to hedge interest rate and currency exposures) at 31 December 2015 was an asset of £55.8 million (2014: £102.6 million). The decrease during the year was mainly due to cross-currency swap maturities, a stronger euro at the end of the year and a reduction in 2015 of the fair value of the sterling interest rate swaps. These were partially offset by the early settlement and extension of the euro-denominated interest rate swap portfolio in April 2015. These instruments are held at fair value on the Group's balance sheet within debtors and creditors.

GEARING AND FINANCIAL COVENANTS

The loan to value (LTV) ratio of the Group at 31 December 2015 on a look-through basis (including the borrowings and property assets of the Group's share of joint ventures) was 38 per cent. On a wholly owned basis, the LTV ratio of the Group was 40 per cent at 31 December 2015.

With the sale of the Bath Road office portfolio having successfully completed in January 2016, our look-through LTV on a pro forma basis now stands at 34 per cent. This represents a significant reduction from the 40 per cent reported at the end of 2014 and is consistent with our overall objective of delivering attractive risk-adjusted returns. Our intention for the foreseeable future is that we should now aim to keep our LTV below our previously stated mid-cycle target of 40 per cent. This ensures significant headroom compared to our tightest gearing covenants should property values decline, as well as providing the flexibility to take advantage of any opportunities arising.

The gearing ratio of the Group at 31 December 2015, as defined within the principal debt funding arrangements of the Group (excluding debt funding arrangements within joint ventures), was 52 per cent (31 December 2014: 58 per cent). This is significantly lower than the Group's tightest financial gearing covenant within these debt facilities of 160 per cent.

Property valuations would need to fall by around 41 per cent from their 31 December 2015 values to reach the gearing covenant threshold of 160 per cent. When the figures are adjusted for the impact of the Bath Road office portfolio disposal, the gearing ratio falls to 42 per cent and values would need to fall by around 47 per cent to reach the gearing covenant threshold. A 47 per cent fall in property values would equate to a look-through LTV ratio of around 64 per cent.

The Group's other key financial covenant within its principal debt funding arrangements is interest cover, requiring that net interest before capitalisation be covered at least 1.25 times by net property rental income. At 31 December 2015, the Group comfortably met this ratio at 2.5 times. On a look-through basis, including joint ventures, this ratio was 2.8 times.

INTEREST RATE RISK EXPOSURE

The Group's interest rate risk policy is that between 50 and 100 per cent of net borrowings (including the Group's share of borrowings in joint ventures) should be at fixed or capped rates both at a Group level and by major borrowing currency (currently euro and sterling), including the impact of derivative financial instruments.

At 31 December 2015, including the impact of derivative instruments, 75 per cent (2014: 80 per cent) of the net borrowings of the Group (including the Group's share of borrowings within joint ventures) were at fixed rates and the weighted average maturity of fixed cover was 7.4 years. By currency, 71 per cent of the euro denominated net borrowings and 80 per cent of the remaining net borrowings (predominantly sterling) were at fixed rates.

At 31 December 2015 the weighted average interest rate for gross borrowings (excluding those within joint ventures) was 3.7 per cent (4.2 per cent on a pro forma basis adjusting for the Bath Road office portfolio disposal; 2014: 4.4 per cent) before commitment fees and amortised costs.

Including the impact, at share, of gross borrowings in joint ventures, the weighted average interest rate of the Group at 31 December 2015, before commitment fees and amortised costs, was 3.5 per cent (3.8 per cent pro forma; 2014: 4.2 per cent).

As a result of fixed rate cover in place, if short-term interest rates had been 1 per cent higher throughout the year to 31 December 2015, the adjusted net finance cost of the Group would have increased by approximately £5 million, representing around 4 per cent of Adjusted profit after tax.

The Group elects not to hedge account its interest rate derivatives portfolio. Therefore, movements in its fair value are taken to the income statement but, in accordance with EPRA Best Practices Recommendations, these gains and losses are eliminated from Adjusted profit after tax.

Foreign currency translation exposure

The Group has negligible transactional foreign currency exposure, but does have a potentially significant currency translation exposure arising on the conversion of its substantial foreign currency denominated assets (mainly euro) and euro denominated earnings into sterling in the Group consolidated accounts. At 31 December 2015, the Group had gross foreign currency assets which were 89 per cent hedged by gross foreign currency denominated liabilities (including the impact of derivative financial instruments). Translation hedging has been maintained towards the upper end of the 50 to 100 per cent policy range in order to substantially reduce the impact of movements in the sterling/euro exchange rate on NAV and Adjusted profit after tax.

Including the impact of forward foreign exchange and currency swap contracts used to hedge foreign currency denominated net assets, a 5 per cent weakening against sterling in the value of the other currencies in which the Group operates at 31 December 2015 would have decreased net assets by approximately £7 million and there would have been a reduction in gearing of approximately 1 per cent and in the look-through LTV of 0.6 per cent.

The average exchange rate used to translate euro denominated earnings generated during 2015 into sterling within the consolidated income statement of the Group was €1.38:£1. Based on the hedging position at 31 December 2015, and assuming that this position had applied throughout 2015, if the euro had been 5 per cent weaker than it was against sterling throughout the year (€1.45: £1), Adjusted profit after tax for the year would have been approximately £1 million (0.7 per cent) lower than reported.

In the event of the euro strengthening by 5 per cent, the impact on income, net assets, gearing and LTV is approximately equal and opposite to the figures above.

Going concern

As noted in the Financial Position and Funding section, following the disposal of the Bath Road office portfolio, the Group has a very strong liquidity position, a favourable debt maturity profile and substantial headroom against financial covenants. Accordingly, it can reasonably expect to continue to have good access to capital markets and other sources of funding.

Having made enquiries and having considered the principal risks facing the Group, including liquidity and solvency risks, and material uncertainties, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future (a period of at least 12 months from the date of approval of the financial statements). Accordingly, they continue to adopt the going concern basis in preparing the Annual Report.

STATEMENT OF PRINCIPAL RISKS

The Group recognises that its ability to manage risk effectively throughout the organisation is central to its success. Risk management ensures a structured approach to decision making that aims to reduce the uncertainty surrounding expected outcomes, balanced against the objective of creating value for our shareholders.

The Group's risk management process, principal risks, and mitigating actions are described in the 2015 Annual Report. The Principal Risks facing the Group are summarised below:

PROPERTY RISKS

Market cycle. The property market is cyclical and there is an inherent continuous risk that the Group could either misinterpret the market or fail to react appropriately to changing market conditions, which could result in capital being invested or disposals taking place at the wrong price or time in the cycle.

Portfolio strategy. The Group's Total Property and/or Shareholder Returns could underperform in absolute or relative terms as a result of an inappropriate portfolio strategy.

Execution of investment plans. Decisions to buy, hold, sell or develop assets could be flawed due to uncertainty in analysis, quality of assumptions, poor due diligence or unexpected changes in the economic or operating environment. Our investment decisions could be insufficiently responsive to implement our strategy effectively.

FINANCIAL RISKS

Solvency and covenant breach. A substantial fall in the Group's property asset values or rental income levels could lead to a breach of financial covenants within its debt funding arrangements. This could lead to a cancellation of debt funding which could, in turn, leave the Group without sufficient long-term resources (solvency) to meet its commitments.

UK exit from the European Union. The increasing uncertainty associated with the outcome of the UK's EU referendum may temporarily impact investment, capital and occupier markets in the UK through delayed decision-making. In the event of a UK vote to leave the EU, property valuations, capital markets and occupier demand in the UK could also be impacted during the subsequent transition period while the terms of exit and future relationships are negotiated. In the long term, exit from the EU could reduce levels of occupier demand as a result of reduced trade and/or the relocation of corporations and financial institutions away from the UK, and London in particular.

Eurozone economic environment. The risk of a significant adverse impact to the Group's earnings, net asset value, financial covenants or investor confidence arising from the exit of a significant economy from the Eurozone or sustained poor economic performance in the Eurozone.

Financial leverage. The Group could maintain an inappropriate capital structure. If gearing is too high when property valuations are falling, net asset value movements can be exacerbated and financial covenants put at risk. Equally, if gearing is too conservative, there is a risk that attractive growth opportunities could be missed and the benefits of leverage not maximised.

Interest rates. A significant adverse movement in interest rates could have an unacceptable impact on the Group's earnings, on investment market conditions or on tenant covenant strength.

Counterparty default. A bank or other counterparty could default while holding SEGRO deposits or derivative assets, resulting in a significant financial loss to the Group. This could also include the loss of solvency headroom from lost undrawn committed bank facilities.

CORPORATE RISKS

Operational delivery and compliance. The Group's ability to protect its reputation, revenues and shareholder value could be damaged by operational failures such as: environmental damage; failing to attract, retain and motivate key staff; a breach of anti-bribery and corruption or other legislation; major customer default or supply chain failure. Compliance failures, such as breaches of joint venture shareholders' agreements, secured loan agreements or tax legislation could also damage reputation, revenue and shareholder value.

Health and safety. Health and safety management processes could fail, leading to a loss of life, litigation, fines and serious reputational damage to the Group.

Regulatory environment. The Group could fail to anticipate legal, regulatory or fiscal changes, leading to a significant un-forecasted financial or reputational impact.

RESPONSiBILITY STATEMENT

The Statement of Directors' Responsibilities below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 December 2015. Certain parts of the Annual Report and Accounts have not been included in this announcement as set out in Note 1 to the financial information.

We confirm that to the best of our knowledge:

(a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

(b) the strategic report includes a fair view of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

(c) the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

This responsibility statement was approved by the Board of Directions on 18 February 2016 and signed on its behalf by:

David Sleath Justin Read

Chief Executive Group Finance Director

CONDENSED GROUP INCOME STATEMENT

For the year ended 31 December 2015

CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2015

CONDENSED GROUP BALANCE SHEET

As at 31 December 2015

CONDENSED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2015

For the year ended 31 December 2014

1 AFS is the term used for 'Available-for-sale investments' and is shown net of deferred tax.

2 Non-controlling interests in 2015 relate to Vailog S.r.l. acquired in the period (see Note 17(iii)) and is shown net of the estimated gross settlement amount of a put option held by the minority shareholder.

CONDENSED GROUP CASH FLOW STATEMENT

For the year ended 31 December 2015

1. SIGNIFICANT ACCOUNTING POLICIES

The financial information set out in this announcement does not constitute the consolidated statutory accounts for the years ended 31 December 2015 and 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 (approved by the Board on 18 February 2016) will be delivered following the Company's annual general meeting. The external auditor, Deloitte LLP, have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006.

Given due consideration to the nature of the Group's business and financial position, including the financial resources available to the Group, the Directors consider that the Group is a going concern and this financial information is prepared on that basis.

The financial information set out in this announcement is based on the consolidated financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for the use by the European Union and complies with the disclosure requirements of the Listing Rules of the UK Financial Services Authority. The financial information is in accordance with the accounting policies set out in the 2014 financial statements apart from the underlying profit measure which is now Adjusted profit rather than EPRA profit, as detailed in Note 2. In the current financial year the Group has applied, for the first time, IFRIC21 "Levies". There have been no changes to the basis of accounting on the adoption of this interpretation.

The principal exchange rates used to translate foreign currency denominated amounts are: Balance sheet: £1 = €1.36 (31 December 2014: £1 = €1.29) Income statement: £1 = €1.38 (31 December 2014: £1 = €1.24)

2. ADJUSTED PROFIT

Adjusted profit is a non-GAAP measure and is the Group's measure of underlying profit, which is used by the Board and senior management to measure and monitor the Group's income performance.

It is based on the Best Practices Recommendations of European Public Real Estate Association (EPRA), which calculate profit excluding investment and development property revaluations and gains or losses on disposals. Changes in the fair value of financial instruments and associated close-out costs and their related taxation, as well as other permitted one-off items are also excluded. Refer to the Supplementary Notes for all EPRA adjustments.

The Directors may also exclude from the EPRA profit measure additional items (gains and losses) which are considered by them to be non-recurring, not in the ordinary course of business and significant by virtue of size and nature. In the period to 31 December 2015, £4.8 million of pension settlement costs incurred in rationalising pension schemes, primarily the buying out of the Bilton Group Pension Scheme, were excluded from the calculation of Adjusted profit. There is no tax effect of this item in the period to 31 December 2015. No non-EPRA adjustments to underlying profit were made in 2014.

1 A detailed breakdown of the adjustments to the share of profit from joint ventures is included in Note 6.

2 Non-EPRA related adjustment referred to in third paragraph above.

3. SEGMENTAL ANALYSIS

The Group's reportable segments are the geographical business units, Greater London, Thames Valley and National Logistics, Northern Europe (principally Germany), Southern Europe (principally France) and Central Europe (principally Poland), which are managed and reported to the Board as separate distinct business units.

1 Other includes the corporate centre, SELP holding companies and costs relating to the operational business which are not specifically allocated to a geographical business unit.

2 Capital expenditure includes additions and acquisitions of investment and trading properties but does not include tenant incentives, letting fees and rental guarantees. The 'Other' category includes non-property related spend, primarily IT.

Revenues from the most significant countries within the Group were UK £185.2 million (2014: £173.9 million), France £22.6 million (2014: £21.4 million), Germany £17.7 million (2014: £55.8 million) and Poland £9.7 million (2014: £8.2 million).

4. REVENUE

5. PROPERTY OPERATING EXPENSES

1 Property administration expenses predominantly relate to the employee staff costs of personnel directly involved in managing the property portfolio.

2 Costs capitalised relate to internal employee staff costs directly involved in developing the property portfolio.

6. INVESTMENTS IN JOINT VENTURES

The table below presents a summary Income Statement of the Group's largest joint ventures, all of which are accounted for using the equity method. Each joint venture operates in the UK apart from SELP which is incorporated in Luxembourg and owns logistics property assets in Continental Europe. The Airport Property Partnership owns aviation-related property assets across sectors near airport hubs. The Heathrow Big Box Industrial and Distribution Fund owned two assets across logistics and industrial sectors. The Logistics Property Partnership, the remaining 50 per cent share of which was acquired in 2014, owned logistics property assets.

6(ii) - Summarised Balance Sheet information in respect of the Group's joint ventures