SEGRO PLC Trading Update (0111U)

TIDMSGRO

RNS Number : 0111U

SEGRO PLC

19 October 2017

19 October 2017

SEGRO plc

Trading Update

SEGRO plc ("SEGRO" or the "Group") today publishes a trading update for the period from 1 July 2017 to 18 October 2017(1) .

David Sleath, Chief Executive, said:

"The positive momentum in SEGRO's business has continued, driving increased rental income across both existing and new space. During the third quarter, we have completed new big box distribution warehouses for Yoox Net a Porter and Amazon in Italy, and a new urban parcel distribution warehouse for Fedex/TNT in Paris, reflecting demand related to e-commerce which continues to be an important component of our business.

"Investor appetite for prime warehouse assets remains strong, attracted by the structural drivers of occupier demand, limited supply and the prospect of rental growth particularly in the UK and in urban warehousing in Continental Europe.

"These trends in occupier and investor demand provide a supportive backdrop for SEGRO's performance for the remainder of 2017 and into 2018."

Positive leasing momentum driven by robust occupier market (Appendix 1)

 
 --   We contracted GBP8.8 million of new headline rent(2) 
       during the third quarter, including GBP3.8 million 
       in rent from existing space. Total contracted 
       headline rent for the nine months to 30 September 
       2017 was GBP36.4 million, 3 per cent ahead of 
       a very strong prior year comparator. 
 --   We completed 313,000 sq m of fully let developments 
       which will generate GBP12 million of headline 
       rent, the largest of which was a 156,000 sq m 
       fulfilment centre for Amazon in Rome. 
 --   Strong lettings of existing space and development 
       completions in the third quarter have contributed 
       to an improvement in the vacancy rate to 4.1 per 
       cent (30 June 2017: 5.5 per cent). In particular, 
       we have let the final speculatively developed 
       warehouses at Rugby Gateway in the Midlands and 
       Navigation Park in Enfield to DHL, meaning both 
       estates are now fully let. In addition, we have 
       let one of the two remaining warehouses at Origin 
       in West London to Amazon. These three transactions 
       added GBP2.4 million of headline rent. 
 --   We have continued to capture reversionary potential 
       from our UK portfolio, with new headline rents 
       on review and renewal approximately 15 per cent 
       higher in the UK and 1.5 per cent lower in Continental 
       Europe in the nine months to 30 September 2017. 
 

Significant investment activity focused on delivering profitable and low risk developments

 
 --   We signed new, unconditional pre-let agreements 
       totalling GBP1.3 million of headline rent during 
       the third quarter, including to retailer Leroy 
       Merlin near the inland port of Gennevilliers, 
       close to the centre of Paris. 
 --   At 30 September 2017, 725,000 sq m of space was 
       in the current development pipeline, equating 
       to potential future headline rent of GBP41 million 
       (30 June 2017: 920,400 sq m, GBP46 million). These 
       projects are 54 per cent let or pre-let by rent, 
       from 68 per cent at 30 June 2017, reflecting the 
       completion of developments in the third quarter 
       which were entirely pre-let. The current development 
       pipeline is expected to generate a yield on total 
       development cost of approximately 8 per cent. 
       Developments capable of generating GBP14 million 
       of headline rent are expected to complete in the 
       fourth quarter, of which GBP9 million has been 
       secured. We are on course to invest in excess 
       of GBP350 million in our development pipeline 
       in 2017. 
 --   During the third quarter, we invested GBP17 million 
       in four land acquisitions for future development 
       in the UK, Italy and Spain, two of which are already 
       subject to pre-let agreement. 
 

Enduring investor demand for high quality warehousing continues to strengthen capital values (Appendices 2 and 3)

 
 --   The CBRE Monthly Index reported a 3.1 per cent 
       increase in UK industrial property capital values 
       for the third quarter (9.1 per cent increase for 
       the first nine months of 2017). The strong investor 
       demand for pan-European portfolios acquired in 
       recent months provides evidence of the enduring 
       appeal of the asset class across our markets. 
 --   During the third quarter, we completed an asset 
       swap in Continental Europe, selling a GBP34 million 
       wholly-owned asset in Paris in exchange for a 
       big box warehouse in Lyon which was acquired by 
       the SELP joint venture for GBP36.2 million (SEGRO 
       share: GBP18.1 million). We also sold a small 
       industrial estate near Stansted airport, formerly 
       held within the APP joint venture. Neither of 
       the disposed assets was core to our business and 
       acquiring the warehouse in Lyon is in line with 
       our strategy of building scale in this important, 
       and undersupplied, logistics hub in France. 
 

Financing activity has improved the balance sheet by extending the maturity and has reduced the cost of debt

 
 --   On 11 October 2017, we completed the tender of 
       GBP550 million of outstanding bonds at a cash 
       cost of GBP677 million, and the new issue of GBP750 
       million of new 12 and 20 year bonds. The impact 
       of these transactions increases the average maturity 
       of Group debt by 3 years to 10.8 years, reduces 
       the average cost of debt by around 0.5 per cent 
       to approximately 2.5 per cent, thereby reducing 
       our annualised interest cost by approximately 
       GBP10 million. EPRA NAV will be approximately 
       GBP127 million (13 pence) lower. 
 --   Net debt (including our share of debt in joint 
       ventures) at 30 September 2017 was GBP2.3 billion 
       (GBP2.5 billion when adjusted for the bond tender 
       and issue; 30 June 2017: GBP2.1 billion). 
 --   The look-through loan to value (LTV) ratio at 
       30 September 2017 (based on asset values at 30 
       June 2017, adjusted for development expenditure, 
       acquisitions and disposals) was 31 per cent (33 
       per cent when adjusted for the bond tender and 
       issue). 
 

Financial calendar

The 2017 full year results will be published on Friday 16 February 2018.

(1) In this statement, space is stated at 100 per cent, whilst financial figures are stated reflecting SEGRO's share of joint ventures. Financial figures are stated for the period to, or at, 30 September 2017 unless otherwise indicated. The exchange rate applied is EUR1.13:GBP1 as at 30 September 2017.

(2) Headline rent is annualised gross passing rent receivable once incentives such as rent free periods have expired.

Appendices

   1.   Leasing data for the period to 30 September(1 2) 
 
                                                                                 Q3 2017   Q3 2016   9M 2017   9M 2016 
 -----------------------------------------------------------------------------  --------  --------  --------  -------- 
 Take-up of existing space (A)                                           GBPm        3.8       3.9       7.2      12.0 
 Space returned(2) (B)                                                   GBPm      (1.5)     (2.4)     (4.5)     (9.0) 
 NET ABSORPTION OF EXISTING SPACE (A-B)                                  GBPm        2.3       1.5       2.7       3.0 
 Other rental movements (rent reviews, renewals, indexation) (C)         GBPm        1.0       0.5       3.5       1.3 
 RENT ROLL GROWTH FROM EXISTING SPACE                                    GBPm        3.3       2.0       6.2       4.3 
 Take-up of pre-let developments completed in the period (D)             GBPm       11.8       5.1      14.8      11.6 
 Take-up of speculative developments completed in the period (E)         GBPm        2.7       1.3       6.5       6.4 
 TOTAL TAKE UP (A+C+D+E)                                                 GBPm       19.3      10.8      32.0      31.3 
 Less take-up of pre-lets and speculative lettings signed in prior 
  periods                                                                GBPm     (11.8)     (6.2)    (15.5)    (13.7) 
 Pre-lets and speculative lettings signed in the period for delivery 
  in later periods                                                       GBPm        1.3       8.9      19.9      17.8 
 RENTAL INCOME CONTRACTED IN THE PERIOD(2)                               GBPm        8.8      13.5      36.4      35.4 
 Take-back of space for redevelopment                                    GBPm      (0.6)     (0.4)     (3.2)     (0.9) 
----------------------------------------------------------------------  ------  --------  --------  --------  -------- 
 

1 All figures reflect headline rent (annualised gross rental income, after the expiry of any rent-free periods), exchange rates at 30 September and include joint ventures at share.

2 Excluding space taken back for redevelopment.

   2.   Acquisitions completed during the three months to 30 September 2017 
 
Asset location / type            Purchase  Net initial       Topped-up 
                                 price(1)        yield 
                             (GBPm, SEGRO          (%)     net initial 
                                   share)                 yield(2) (%) 
--------------------------  -------------  -----------  -------------- 
Continental Europe: Big 
 box warehouse                       18.1          6.2             6.2 
Continental Europe: Land             16.7          n/a             n/a 
Total acquisitions during 
 the quarter                         34.8       6.2(3)          6.2(3) 
--------------------------  -------------  -----------  -------------- 
 

1 Excluding acquisition costs; purchase price reflects exchange rate at 30 September 2017 and includes joint ventures at share.

2 Topped up net initial yield includes rent due after expiry of rent-free periods.

3 Yield excludes land acquisitions.

   3.   Disposals completed during the three months to 30 September 2017 
 
Asset location / type                     Gross proceeds(1)  Net initial       Topped-up 
                                                                   yield 
                                        (GBPm, SEGRO share)          (%)     net initial 
                                                                            yield(2) (%) 
-------------------------------------  --------------------  -----------  -------------- 
UK: Light industrial                                    6.8          5.9             6.2 
Continental Europe: Retail warehouse                   34.1          4.6             4.6 
Total disposals during the quarter                     40.9          4.8             4.9 
-------------------------------------  --------------------  -----------  -------------- 
 

1 Proceeds reflect exchange rate at 30 September 2017 and include joint ventures at share.

2 Topped up net initial yield includes rent due after expiry of rent-free periods.

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

 
SEGRO           Soumen Das (Chief Financial     Tel: [phone] 
                 Officer) 
-------------- 
                Harry Stokes (Head of Investor  Tel: [phone] 
                 Relations and Research) 
-------------- 
                Lizzie Humphreys (External      Tel: [phone] 
                 Communications Manager) 
--------------  ------------------------------  ------------------------- 
FTI Consulting  Richard Sunderland / Claire     Tel: [phone] 
                 Turvey / Eve Kirmatzis 
--------------  ------------------------------  ------------------------- 
 

This Trading Update, the most recent Annual and Interim Reports and other information are available on the SEGRO website at www.segro.com/investors.

Neither the content of SEGRO's website nor any other website accessible by hyperlinks from SEGRO's website are incorporated in, or form part of, this announcement.

Forward-looking statements: This announcement contains certain forward-looking statements with respect to SEGRO's current expectations and projections about future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan" "estimate", "expect" and words of similar meaning, include all matters that are not historical facts and reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. These statements are subject to unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, SEGRO does not assume any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. Any forward-looking statements speak only as of the date they are made. Any indication in this announcement of the price at which SEGRO's shares have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this announcement is or is intended to be a profit forecast or profit estimate or to imply that the earnings of SEGRO for the current or future financial years will necessarily match or exceed the historical or published earnings of SEGRO. The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares. Past performance is no guide for future performance.

About SEGRO

SEGRO is a UK Real Estate Investment Trust (REIT), and a leading owner, manager and developer of modern warehouses and light industrial property. It owns or manages 6.3 million square metres (68 million square feet) of space valued at over GBP8 billion, serving customers from a wide range of industry sectors. Its properties are located in and around major cities and at key transportation hubs in the UK and in nine other European countries.

For further information see www.SEGRO.com/investors.

SEGRO plc LEI number: 213800XC35KGM9NFC641

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October 19, 2017 02:00 ET (06:00 GMT)