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SGRO Segro Plc

903.80
11.80 (1.32%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Segro Plc LSE:SGRO London Ordinary Share GB00B5ZN1N88 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  11.80 1.32% 903.80 902.80 903.20 904.00 890.00 901.80 3,268,876 16:35:29
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Real Estate Agents & Mgrs 749M -253M -0.2084 -43.33 10.96B

SEGRO PLC Results for the six months ended 30 June 2017 (9494L)

25/07/2017 7:00am

UK Regulatory


Segro (LSE:SGRO)
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TIDMSGRO

RNS Number : 9494L

SEGRO PLC

25 July 2017

25 JULY 2017

RESULTS FOR THE six monthsED 30 june 2017

SEGRO plc ('SEGRO' / 'Company' / 'Group') today announces its results for the six months ended 30 June 2017.

-- Strong first half results and operating metrics, reflecting a portfolio which is well-positioned to take advantage of favourable occupational and investment market conditions.

-- Adjusted pre-tax profit up 23 per cent reflects the acquisition of the Airport Property Partnership (APP) portfolio, development-led growth and our focus on customer and portfolio management, which delivered high customer retention rates, a continuing low vacancy rate and strong like-for-like rental growth.

-- Adjusted EPS up 3.2 per cent to 9.7 pence (H1 2016: 9.4 pence(1) ), incorporating the new shares issued in the March rights issue. IFRS EPS of 41.3 pence (H1 2016: 24.8 pence(1) ), was higher due mainly to increased valuation gains on our investment portfolio.

-- EPRA NAV per share up 5.4 per cent to 504 pence (31 December 2016: 478 pence(1) ), driven by a 4.9 per cent increase in the value of the portfolio, due primarily to development and asset management gains, as well as yield compression.

-- Successful GBP557 million rights issue has created significant capacity for growth. Three quarters of the proceeds already deployed or allocated to specific investment opportunities, including taking full ownership of the APP portfolio of industrial property at and around London's airports.

-- Future earnings prospects underpinned by largely de-risked and fully funded development programme. The current development pipeline is capable of generating GBP46 million of rent, GBP31 million of which has been secured through pre-lets. In addition, near-term projects associated with a further GBP14 million of potential rent are at advanced stages of discussion.

-- Interim dividend increased by 5.0 per cent to 5.25 pence (2016 interim dividend: 5.0 pence(1) ).

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

"SEGRO has delivered another strong set of results in H1 2017, underpinned by active development and asset management as well as further portfolio valuation growth.

"Whilst political and economic uncertainty has increased in the UK, we are encouraged by the continued leasing momentum across our portfolio. Furthermore, business confidence in Continental Europe has picked up in recent months and there is no sign of any slowdown in the growth of internet retailing which is an important driver of demand for modern warehouse space across our markets, both in big boxes used for logistics and smaller, urban warehouses used for last mile delivery. With few signs of any meaningful new supply of speculatively developed space and investor appetite for good quality warehouse assets remaining strong, our business is well-placed to continue outperforming the wider market."

FINANCIAL AND OPERATING HIGHLIGHTS(2)

Strong development and asset management activity, supported by positive market conditions

-- 28 per cent increase in new rent contracted in the period to GBP27.5 million (H1 2016: GBP21.5 million), of which GBP18.4 million (H1 2016: GBP8.7 million) is from new development pre-let agreements and lettings of speculative space prior to completion.

-- 3.9 per cent like-for-like net rental income growth, including 5.9 per cent in the UK and stable rents in Continental Europe, aided by a 15 per cent uplift on rent reviews and renewals in the UK portfolio, capturing reversionary potential accumulated in recent years.

-- Portfolio occupancy remains high with a vacancy rate of 5.5 per cent (31 December 2016: 5.7 per cent).

Valuation gains across the portfolio reflecting continued investor demand and asset management gains

-- Portfolio capital value growth of 4.9 per cent (UK 5.3 per cent, Continental Europe 3.9 per cent) from asset management initiatives and market-driven yield compression (20 basis points across the portfolio), rental value growth (0.9 per cent UK; 0.4 per cent Continental Europe) and development gains.

Capital allocation focused on accretive development programme and on securing full ownership of the Airport Property Partnership (APP) portfolio

-- GBP46 million of potential rent from current development pipeline, of which 68 per cent has been secured through pre-lets. Completions in the second half of 2017 potentially generate GBP29 million of rent, of which GBP21 million has been secured.

-- Further 'near-term' pre-let and speculative projects associated with GBP14 million of rent are at advanced stages of discussion.

   --     Total development capex for full year expected to exceed GBP350 million. 

-- Acquisition of 50 per cent of the GBP1.1 billion APP portfolio not previously owned allowing us to add scale in the attractive Heathrow market and to take full advantage of significant asset management and development opportunities.

Balance sheet strengthened with GBP1.1 billion of new financing agreed in the period

-- GBP557 million of (net) proceeds from the rights issue in March provided capital to acquire APP portfolio and to pursue further development. Approximately three quarters of the proceeds have been invested or are allocated to specific current or near-term development projects.

-- EUR650 million of debt from a US private placement which was signed during the period and will be drawn in August 2017, improving the strength and duration of our capital structure and reducing the overall cost of debt by 30 basis points.

   --     Look-through LTV ratio of 29 per cent (31 December 2016: 33 per cent). 

(1) Historic metrics for earnings per share, dividend per share and net asset value per share have been adjusted by a bonus adjustment factor of 1.046 to reflect the rights issue carried out in March 2017.

(2) Figures quoted on pages 1 to 13 refer to SEGRO's share, except for land (hectares) and space (square metres) which are quoted at 100 per cent, unless otherwise stated. Please refer to the Presentation of Financial Information statement in the Financial Review for further details.

FINANCIAL SUMMARY(1)

 
                                    6 months  6 months 
                                          to        to 
                                     30 June   30 June     Change 
  Income statement metrics              2017      2016   per cent 
----------------------------------  --------  --------  --------- 
  Adjusted(2) profit before tax 
   (GBPm)                               91.2      74.2       22.9 
  IFRS profit before tax (GBPm)        397.1     200.7       97.9 
  Adjusted(3) earnings per share 
   (pence)                               9.7       9.4        3.2 
  IFRS earnings per share (pence)       41.3      24.8       66.5 
  Dividend per share (pence)            5.25      5.00        5.0 
----------------------------------  --------  --------  --------- 
 
 
                                   30 June  31 December     Change 
  Balance sheet metrics               2017         2016   per cent 
---------------------------------  -------  -----------  --------- 
  Portfolio valuation (SEGRO 
   share, GBPm)                      7,277        6,345     4.6(6) 
  EPRA(4 5) net asset value per 
   share (pence, diluted)              504          478        5.4 
  IFRS net asset value per share 
   (pence, diluted)                    504          480        5.0 
  Group net borrowings (GBPm)        1,742        1,598        9.0 
  Loan to value ratio including 
   joint ventures at share (per 
   cent)                                29           33          - 
---------------------------------  -------  -----------  --------- 
 

1 Per share figures have been adjusted by a bonus adjustment factor of 1.046 to reflect the rights issue in March 2017.

2 A reconciliation between Adjusted profit before tax and IFRS profit before tax is shown in Note 2 to the condensed financial information.

3 A reconciliation between Adjusted earnings per share and IFRS earnings per share is shown in Note 11 to the condensed financial information.

4 A reconciliation between EPRA net asset value per share and IFRS net asset value per share is shown in Note 11 to the condensed financial information.

5 Calculations for EPRA performance measures are shown in the Supplementary Notes to the condensed financial information.

6 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.

WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS

A live webcast of the results presentation will be available from 09:00 (UK time) at:

https://secure.emincote.com/client/segro/segro025

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

 
A conference call facility          An audio recording of the 
 will be available at 09:00          conference call will be available 
 (UK time) on the following          until 1 August 2017 on: 
 number:                             UK & International: +44 (0) 
 Dial-in: +44 (0) 20 3059 8125       121 260 4861 
 Access code: SEGRO Half Year        USA: +1 844 230 8058 
 Results                             Access code: 6449248# 
 

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 H1 2017 Property Analysis Report and other information about SEGRO.

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

 
SEGRO           Soumen Das                                    Mob: +44 (0) 7771 
                 (Chief Financial Officer)                     773 134 
                                                               Tel: + 44 (0) 20 
                                                               7451 9110 
                                                               (after 11am) 
                Harry Stokes                                  Mob: +44 (0) 7725 
                 (Head of Investor Relations and Research)     735 322 
                                                               Tel: +44 (0) 20 
                                                               7451 9124 
                                                               (after 11am) 
FTI Consulting  Richard Sunderland / Claire Turvey            Tel: +44 (0) 20 
                                                               3727 1000 
--------------  ------------------------------------------  ------------------- 
 

FINANCIAL CALAR

2017 interim dividend ex-div date 17 August 2017

2017 interim dividend record date 18 August 2017

2017 interim dividend scrip dividend price announced 24 August 2017

Last date for scrip dividend elections 8 September 2017

2017 interim dividend payment date 29 September 2017

2017 Third Quarter Trading Update 19 October 2017

Full Year 2017 Results 16 February 2018

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 of space (68 million square feet) 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.

See www.SEGRO.com for further information.

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 Financial Conduct Authority's Disclosure Guidance and Transparency Rules), 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

STRATEGY

Our goal is to be the best owner-manager and developer of industrial and warehouse properties in Europe and a leading income-focused REIT.

To that end, our strategy is to create a portfolio which generates attractive, low risk, income-led returns with above average rental and capital growth when market conditions are positive, and which is also 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 we believe 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 by 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.

Together 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 portfolio comprises modern big box and urban 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.

DISCIPLINED capital allocation - ACQUISITION ACTIVITY

During the first half, we took full control of the GBP1.1 billion APP property portfolio through the acquisition of the 50 per cent interest from our joint venture partner, Aviva. There were no other significant asset acquisitions during the period, although we have purchased approximately GBP34 million of land, mainly to facilitate imminent development starts in Northern Italy and East London.

We now fully own the assets within APP, which will allow us to plan with greater certainty and flexibility. The Heathrow Cargo Area offers particular potential for growth. In the short term, re-gearing leases on peppercorn rents which expire in 2019 offers reversionary potential of GBP11 million, of which we have already captured 15 per cent and are in discussion over a further 40 per cent: these are the main reasons for the low initial yield on the portfolio of 4.2 per cent which rises to 5.2 per cent if the Cargo Area is excluded. In the medium term, we expect to redevelop the Cargo Area which is both one of the oldest and best located properties in our portfolio.

Excluding APP, we reviewed a number of acquisition opportunities, and continue to do so, but pricing levels mean that, for the time being, it remains more accretive to focus our investment activity on development rather than acquisition.

Acquisitions completed in H1 2017

 
Asset location / type                        Purchase price(1)  Net initial yield                Topped-up 
                                           (GBPm, SEGRO share)                (%)    net initial yield (%) 
----------------------------------------  --------------------  -----------------  ----------------------- 
Urban warehousing                                        550.1                3.6                      4.2 
Land(3)                                                   34.4                n/a                      n/a 
Total acquisitions completed in H1 2017                  584.5             3.6(2)                   4.2(2) 
----------------------------------------  --------------------  -----------------  ----------------------- 
 

1 Excluding acquisition costs.

2 Yield excludes land transactions.

3 Land acquisitions are discussed in Future Development Projects.

disciplined capital allocation - DISPOSING OF NON-STRATEGIC ASSETS

During the first half of 2017, we sold GBP206.5 million of assets at a topped-up net initial yield of 5.2 per cent, including GBP150 million as part consideration for the acquisition of APP. In addition, we sold a plot of land in West London to a residential developer for GBP81 million, well above book value.

In addition to the assets sold to Aviva Investors as part consideration for its 50 per cent interest in the APP property portfolio, we sold a portfolio of older industrial estates in Germany for GBP47 million. This sale continues the process of focusing our urban warehouse portfolio in Continental Europe on core markets where we see good demand-supply dynamics.

We will continue to evaluate opportunities to dispose of more mature assets, deploying the proceeds in our development programme to allow us to grow and improve our portfolio without over-levering the balance sheet.

Disposals completed in H1 2017

 
Asset location / type                         Gross proceeds  Net initial yield               Topped-up 
                                         (GBPm, SEGRO share)                (%)   net initial yield (%) 
--------------------------------------  --------------------  -----------------  ---------------------- 
Big box logistics (sale to SELP)                         9.7                4.7                     6.0 
Urban warehousing: UK                                  149.9                3.7                     4.8 
Urban warehousing: Continental Europe                   46.9                6.5                     6.5 
Land                                                    81.0                n/a                     n/a 
Total disposals completed in H1 2017                   287.5             4.4(1)                  5.2(1) 
--------------------------------------  --------------------  -----------------  ---------------------- 
 

1 Yield excludes land transactions.

PROPERTY valuATION GAINS from development activity, asset management and market-driven yield improvement

The Group's property portfolio was valued at GBP7.3 billion at 30 June 2017 (GBP8.4 billion of assets under management). The portfolio valuation, including completed assets, land and buildings under construction, increased by 4.9 per cent on a like-for-like basis (adjusted for capital expenditure and asset recycling during the year). This combines a 4.6 per cent increase in the value of completed properties (including acquisitions and complete developments), and a 17.2 per cent valuation gain on properties currently under construction.

Valuation gains were driven primarily by around 20 basis points of yield compression reflecting the quality of our portfolio, improved by our active asset management and development activity.

The UK portfolio of completed properties delivered a 5.5 per cent valuation uplift, slightly under-performing the MSCI-IPD UK Industrial Monthly Index which increased by 5.7 per cent in the first half. The performance reflects a combination of yield shift across the portfolio and the capture of reversionary potential in lease reviews and renewals, particularly in London. The average yield applied to our UK portfolio was 5.4 per cent (true equivalent yield), a 20 basis point improvement from 31 December 2016, while rental values improved by 0.9 per cent.

During 2017, ERV growth for our portfolio has been lower than the very strong figures seen in the last two years, particularly in London. However, we remain confident that the fundamental drivers of good occupational demand and limited supply of space continue to offer the potential of attractive rental growth over the coming years.

In Continental Europe, the completed portfolio value increased by 2.3 per cent during the period on a constant currency basis reflecting 20 basis points of yield compression to 6.4 per cent. Our properties in Germany and France were particularly strong, delivering a 2.6 per cent and 4.5 per cent uplift, respectively. Rental values increased by 0.4 per cent for the portfolio as a whole, with the increases concentrated in the wholly-owned portfolio of urban warehouses: ERVs grew 0.1 per cent in SELP, and 0.9 per cent for SEGRO's wholly-owned assets, including sizeable increases in a number of our more modern urban warehouse assets in Paris.

More details of our property portfolio can be found in Note 12 to the condensed financial information and in the H1 2017 Property Analysis Report available at www.segro.com/investors.

Property portfolio metrics at 30 June 2017(1)

 
                                                                        Portfolio value, GBPm                                                                                          Yield(3) 
                                   -----------------------------------------------------------------------------------------------                               ------------------------------ 
                                                                                                                                                                       Net                          Vacancy 
                         Lettable                                                                                                   Valuation movement(2 3)        initial  Net true equivalent    (ERV)(4) 
                        area sq m  Completed  Land & development  Combined property portfolio          Combined property portfolio                        %              %                    %           % 
                            (AUM)                                                                                            (AUM) 
--------------------  -----------  ---------  ------------------  ---------------------------          ---------------------------  -----------------------      ---------  -------------------  ---------- 
UK 
Greater London          1,055,245    2,698.4               168.5                      2,866.9                              2,866.9                      5.7            3.9                  5.2         7.0 
Thames Valley and 
 National Logistics     1,106,786    1,920.2               195.7                      2,115.9                              2,115.9                      5.2            4.7                  5.6         5.9 
UK Total                2,162,031    4,618.6               364.2                      4,982.8                              4,982.8                      5.5            4.2                  5.4         6.5 
Continental Europe 
Germany/Austria         1,167,980      577.5               134.3                        711.8                              1,091.0                      2.6            5.2                  5.7         2.8 
Belgium/Netherlands       298,882      116.6                19.8                        136.4                                223.6                      0.5            7.2                  7.0         9.9 
France                  1,031,648      507.7               109.7                        617.4                                884.5                      4.5            6.0                  6.5         2.4 
Italy/Spain               368,655      157.0               196.1                        353.1                                427.9                      1.2            6.1                  6.6         0.3 
Poland                  1,169,112      372.9                35.5                        408.4                                709.9                    (0.1)            6.5                  6.9         4.5 
Czech 
 Republic/Hungary         132,534       46.1                21.0                         67.1                                111.1                      2.0            5.4                  6.9         6.4 
Continental Europe 
 Total                  4,168,811    1,777.8               516.4                      2,294.2                              3,448.0                      2.3            5.9                  6.4         3.5 
GROUP TOTAL             6,330,842    6,396.4               880.6                      7,277.0                              8,430.8                      4.6            4.7                  5.7         5.5 
--------------------  -----------  ---------  ------------------  ---------------------------          ---------------------------  -----------------------      ---------  -------------------  ---------- 
 

1 Figures reflect SEGRO wholly owned assets and its share of assets held in joint ventures unless stated "AUM" which refers to all assets under management.

2 Valuation movement is based on the difference between the opening and closing valuations for completed properties (properties held throughout the period, acquisitions and completed developments), allowing for capital expenditure, acquisitions and disposals.

3 In relation to completed properties only.

4 Vacancy rate excluding short term lettings for the Group at 30 June 2017 is 6.0 per cent.

OPERATIONAL EXCELLENCE

At 30 June 2017, our portfolio comprised two main asset types: urban warehouses and big box warehouses. The demand-supply dynamics differ, varying by both type and by geography.

-- Urban warehouses account for 54 per cent of our portfolio value. They are located mainly on the edges of London, Paris, Düsseldorf, Berlin and Warsaw, where land supply is restricted and there is strong demand for warehouse space, particularly catering for the needs of last mile delivery and, in Slough, from data centre users.

-- Big box warehouses, classed as those over 10,000 sq m in size, account for 39 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 Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin, Leipzig and Hamburg) and Poland (the central core of Poznań, ód and Warsaw, plus the industrial region of Silesia).

Growing rental income from letting existing space and new developments

We have continued to see strong occupier demand for warehouses across our markets, reflected in the 28 per cent increase in contracted rent compared to the first half of 2016. Our low vacancy rate means that lettings of existing space are lower than last year while our success at retaining customers is reflected in less space returned. Rental growth on existing space has instead been driven mainly by capturing significant reversionary potential from our UK portfolio and from indexation provisions attached to leases equating to approximately 40 per cent of our rent.

Data on the logistics markets in the UK (from JLL) and France (from CBRE) implies that available space continues to equate to less than one year of take-up. This supply-demand tension has manifested itself in our own experience through rent from pre-let agreements signed during the period more than doubling from the first half of 2016, as occupiers seek to secure new space in supply-constrained markets. Colliers International expects speculative completions in the UK to fall by 60 per cent in 2017 to just 0.3 million sq m, suggesting that the supply-demand imbalance is unlikely to be alleviated in the near term.

During H1 2017, we contracted new leases and pre-let agreements totalling GBP27.5 million of annualised rental income (H1 2016: GBP21.5 million), 28 per cent higher than in the previous year. We generated GBP5.9 million from our standing assets (H1 2016: GBP8.8 million), offset by GBP3.0 million of rent lost from space returned to us (H1 2016: GBP6.6 million), resulting in net take-up of GBP2.9 million of existing space (H1 2016: GBP2.2 million).

-- Retailers and companies involved with retail distribution accounted for around half of our take-up during the first half, including Amazon which occupied 59,700 sq m of the Company's space in the UK (occupying the larger of the two units we developed speculatively at Rugby Gateway), Germany (in a pre-let unit just outside Munich) and Spain (occupying both of our speculatively developed warehouses on the edge of Barcelona).

-- Manufacturing companies accounted for a further 14 per cent of take-up, including auto exterior manufacturer Plastic Omnium in Poland and glazing manufacturer Maxlight in London.

Developments completed during the period added GBP6.8 million to the rent roll, of which GBP3.8 million was contracted in warehouses built speculatively. Around 15 per cent of the speculative lettings were agreed prior to practical completion and the average period between practical completion and letting was approximately four months.

Summary of key leasing data for H1 2017(1)

 
 Summary of key leasing data for the half                     H1 2017   H1 2016 
  year to 30 June(1) 
---------------------------------------------------  ------  --------  -------- 
 Take-up of existing space(2) (A)                     GBPm        3.5       8.0 
 Space returned(3) (B)                                GBPm      (3.0)     (6.6) 
 NET ABSORPTION OF EXISTING SPACE (A-B)               GBPm        0.5       1.4 
 Other rental movements (rent reviews, 
  renewals, indexation)(2) (C)                        GBPm        2.4       0.8 
 RENT ROLL GROWTH FROM EXISTING SPACE                 GBPm        2.9       2.2 
 Take-up of developments completed in the 
  period - pre-let space(2) (D)                       GBPm        3.0       6.5 
 Take-up of speculative developments completed 
  in the past two years(2) (D)                        GBPm        3.8       5.0 
 TOTAL TAKE UP(2) (A+C+D)                             GBPm       12.7      20.3 
 Less take-up of pre-lets and speculative 
  lettings signed in prior periods(2)                 GBPm      (3.6)     (7.5) 
 Pre-lets and lettings on speculative developments 
  signed in the period for future delivery(2)         GBPm       18.4       8.7 
 RENTAL INCOME CONTRACTED IN THE PERIOD(2)            GBPm       27.5      21.5 
 Take-back of space for redevelopment                 GBPm      (2.6)     (0.5) 
 Retention rate(4)                                    %          92.1      76.1 
---------------------------------------------------  ------  --------  -------- 
 

1 All figures reflect exchange rates at 30 June 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 and we therefore avoid over-reliance on any single sector or individual customer. Our top 20 customers account for 30 per cent of our rent roll, and our largest customer represents just under 5 per cent.

The rent roll from our standing assets is influenced by three main factors: lettings of available space (discussed above), space returned to us, and rent agreed at rent reviews and lease renewals. Overall operating performance is also dependent on the level of vacancy, pre-let agreements and lease terms agreed, as well as operating cost efficiencies which are examined in the Financial Review.

-- Rent reviews and lease renewals: uplift of 11.1 per cent. During the period, new rents agreed at review and renewal were 15.3 per cent higher in the UK, reflecting the capture of reversion accumulated over recent years, and adding GBP2 million of passing rent to the rent roll. In Continental Europe, rents agreed were 1.2 per cent lower than previous headline rents, equating to a reduction of less than GBP0.1 million of rent.

-- Vacancy remains low at 5.5 per cent. The vacancy rate at 30 June 2017 fell slightly to 5.5 per cent, compared to 5.7 per cent at 31 December 2016. Approximately a quarter of the vacancy (1.3 percentage points) relates to recently completed speculative developments. This compares to our target vacancy rate of between 5 and 7 per cent. Treating short-term lettings as vacant space would increase the vacancy rate to 6.0 per cent (31 December 2016: 6.3 per cent). The average vacancy rate during the period was 5.5 per cent, slightly higher than in H1 2016 (5.0 per cent) due primarily to the recently completed big box warehouses in Rugby and the big box warehouse in Magna Park which was taken back in November 2016.

-- High retention rate of 92 per cent (H1 2016: 76 per cent). During the period, space equating to just GBP3.0 million (H1 2016: GBP6.6 million) of rent was returned to us, including GBP0.3 million of rent lost due to insolvency (H1 2016: GBP0.6 million). We took back space equating to an additional GBP2.6 million for redevelopment, and this is almost exclusively related to a well-located, but now redundant, site near Heathrow Airport following DHL's relocation to its new facility at our Poyle development in 2016. Approximately GBP22 million of headline rent was at risk from a break or lease expiry during the period and we retained 89 per cent in existing space, with a further 3 per cent retained but in new premises.

-- Lease terms continue to offer attractive income security. The level of incentives agreed for new leases (excluding those on developments completed in the period) represented 8.1 per cent of the headline rent (H1 2016: 7.6 per cent). The portfolio's weighted average lease length remained stable compared to 31 December 2016 at 7.0 years to first break (8.7 years to expiry). Lease terms are longer in the UK (8.1 years to break) than in Continental Europe (5.1 years to break).

-- GBP21.6 million of rent contracted from developments (H1 2016: GBP12.7 million). During the period, we contracted GBP18.4 million of rent from pre-let agreements and lettings of speculative developments prior to completion (H1 2016: GBP8.7 million), of which GBP6.4 million was from supermarkets including Carrefour in France and GBP4.6 million from retailers, including Italian fashion retailer Yoox Net-a-Porter and Amazon in the second phase of our big box warehouse development outside Barcelona. We also secured GBP6.8 million from take-up of developments completed in the preceding 24 months (H1 2016: GBP11.5 million), of which GBP3.6 million (1H 2016: GBP7.5 million) had been contracted in prior periods.

DISCIPLINED CAPITAL ALLOCATION AND OPERATIONAL EXCELLENCE - DELIVERING GROWTH THROUGH DEVELOPMENT

We invested GBP195 million in new developments and GBP20 million in infrastructure during H1 2017 (H1 2016: GBP115 million) and GBP34 million in our land bank to expand our development capacity. The increased pre-let activity means that our expected development capital expenditure for 2017 as a whole should now exceed GBP350 million (and over GBP400 million including land and infrastructure expenditure).

Development projects completed

We completed 79,200 sq m of new space during the period. These projects were 61 per cent pre-let prior to the start of construction and were 91 per cent let as at 30 June 2017, generating GBP4.5 million of annualised gross rent, with a potential further GBP0.5 million to come when the remainder of the space is let. This translates into a yield on total development cost (including land, construction and finance costs) of 8.6 per cent when fully let.

Amongst the development projects completed in the first half were the warehouses let to Amazon described above. We also completed further speculative phases of urban warehouses in our City Park and Rheinpark estates in Düsseldorf, which are both almost fully let.

The additional capital provided through the two equity raises in the past 12 months has enabled us to accelerate the investment in our development pipeline:

-- At the time of the equity placing in September 2016, we identified projects under development or awaiting approval associated with GBP456 million of capital expenditure. Projects associated with over 90 per cent of this capital expenditure have either completed or are in the current development pipeline.

-- At the time of the rights issue in March 2017, we identified projects under development or awaiting approval requiring GBP165 million of capital expenditure. Projects associated with approximately half of this capital expenditure have either completed or are current development pipeline.

-- The remaining GBP175 million of proceeds of the rights issue were allocated to future development on our land bank. Since the time of the rights issue, we have committed, or expect to commit, approximately GBP125 million to new projects of which GBP60 million are in the current development pipeline and GBP65 million are associated with new pre-let requirements.

Current development pipeline

At 30 June 2017, we had development projects approved, contracted or under construction totalling 920,400 sq m, representing GBP231 million of future capital expenditure and GBP46 million of annualised gross rental income when fully let. These projects are 68 per cent pre-let and should yield 7.7 per cent on total development cost when fully occupied.

-- In the UK, we have 89,900 sq m of space approved or under construction, including two sites in East London, one of which has been pre-let to DPD. We are also continuing our rejuvenation of the Slough Trading Estate with 24,700 sq m of new space, including a Premier Inn hotel, a car showroom and a data centre.

-- In Continental Europe, we have 830,500 sq m of space approved or under construction, including a number of pre-let developments in Italy, including space for Amazon, Yoox Net a Porter, Jaguar Land Rover and Leroy Merlin.

We continue to focus our speculative developments primarily on urban warehouse projects, particularly in the UK and Germany, where modern space is in short supply and occupier demand is strong. In the UK, our speculative projects are focused on the East Plus site in East London, Enfield in North London and on the Slough Trading Estate. In Continental Europe, we continue to build scale in Germany, where projects are underway in Berlin, Frankfurt and Cologne.

Future development pipeline

Near-term development pipeline

Within the future development pipeline are projects which are close to being approved, awaiting either final pre-let conditions to be met or planning approval to be granted. We expect to commence these projects within the next six to twelve months.

-- Pre-let near-term projects: We are in discussions with potential customers or have signed agreements subject to planning for approximately 169,400 sq m of space, equating to approximately GBP92 million of additional capital expenditure and GBP9 million of additional rent.

-- Speculative near-term projects: We have speculative projects totalling 73,700 sq m of space (potential capital expenditure of GBP54 million, excluding land) ready to proceed at a time of our choosing, which could generate a further GBP5 million of rent.

Land bank

Our land bank identified for future development totalled 610 hectares at 30 June 2017, equating to GBP388 million, or around 5 per cent of our total portfolio. We invested GBP34 million in acquiring new land during the first half of the year, including land sourced from the Roxhill and East Plus agreements and land associated with developments expected to start in the short term.

We estimate that our land bank, including the near-term projects above, can support 2.5 million sq m of development over the next five years. The prospective capital expenditure associated with the future pipeline is GBP1.2 billion. It could generate GBP127 million of gross rental income, representing a yield on total development cost (including land and notional finance costs) of 7.8 per cent. These figures are indicative of our current expectations but are dependent on our ability to secure pre-let agreements, planning permissions, construction contracts and on our outlook for occupier conditions in local markets.

Land with a total value of GBP61 million has been identified as suited to alternative use or surplus to our short term requirements, halving from GBP125 million at 31 December, following the sale of the former Northfields industrial estate in Park Royal to a residential developer. The largest single component is a brownfield site in Hayes, West London, which was formerly a Nestlé factory. Along with our residential partner, Barratt London, we have submitted a planning application for a mixed use scheme comprising over 1,000 homes and 21,000 sq m of urban warehousing. On receipt of planning consent, we will sell the land zoned for residential use to Barratt and will develop the warehouse element ourselves.

Land held under option agreements

Land sites held under option agreements are not included in the figures above but together represent significant further development opportunities, primarily in the UK, including sites for urban warehousing in East London and for big box warehouses in the Midlands and South East regions. The options, held on the balance sheet at a value of GBP19 million (including joint ventures at share), are exercisable in both the short and the longer term: those in the short term are for land capable of supporting just under 750,000 sq m of space and generating GBP50 million of headline rent for a blended yield of approximately 7 per cent.

Further details of our completed projects and current development pipeline are available in the H1 2017 Property Analysis Report, which is available to download at www.segro.com/investors.

maintaining AN EFFICIENT AND RESILIENT CAPITAL STRUCTURE

Net debt, including our share of joint venture net debt, was broadly stable from 31 December at GBP2.1 billion. The look-through loan to value ratio (LTV) improved to 29 per cent (31 December 2016: 33 per cent) due both to the proceeds from the rights issue and to improvement in asset values. This is consistent our aim to have an LTV ratio closer to 35 per cent than our through-cycle target of 40 per cent.

The small movement in net debt, including our share of debt in joint ventures, from GBP2,091 million to GBP2,086 million, primarily reflects receipt of the net proceeds from the rights issue, offset by the GBP216 million cash consideration for, and the GBP190 million of net debt associated with, the acquisition of the 50 per cent interest in the APP property portfolio, and by GBP215 million of development capex (including GBP20 million of infrastructure expenditure), as well as disposals, acquisitions and exchange rate movements.

In the first half of 2017, we have strengthened and improved our capital structure:

-- We raised GBP573 million of gross proceeds (GBP557 million net proceeds) through a fully underwritten rights issue to fund the cash consideration for a 50 per cent interest in APP (GBP216 million), GBP165 million of development capital expenditure on identified projects and GBP175 million for future development projects on land owned and under option. Take up of the offer was high at 98 per cent, with the residual shares placed into the market.

-- We signed a US private placement debt issue, raising EUR650 million of 10, 12 and 15 year senior unsecured notes at a weighted average coupon of 1.9 per cent and a weighted average maturity of 11.2 years. The debt, which will be drawn during August 2017, will be used to refinance the 2018 sterling bonds (which were repaid early) and the secured debt within the Airport Property Partnership. In addition to improving the average duration and cost of our debt, the raising of euro denominated debt increases the natural currency hedge: our euro denominated assets are approximately 70 per cent hedged, of which half is now natural, reducing the need for synthetic hedging through currency swaps.

The combination of the financing activity during the first half, including the impact of the US private placement once drawn, will reduce our look-through cost of debt by 30 basis points to 3.1 per cent.

The actions we have taken over the past five years to improve the quality of our portfolio and the strength of our balance sheet, including GBP3.3 billion of disposals and GBP0.9 billion of new equity, means that we estimate that our entire portfolio would have to fall in value by 55 per cent before breaching the gearing covenant threshold on our debt of 160 per cent (equating to a pro forma look-through LTV ratio of around 64 per cent at 30 June 2017).

The number of pre-let agreements signed during the first half means that we will increase the pace of development this year and now expect to invest in excess of GBP350 million (from GBP300 million expected at the time of our 2016 full year results) during 2017. In addition, we expect to invest over GBP50 million in infrastructure spend and further land acquisitions to facilitate future development.

INTERIM DIVID OF 5.25 PENCE PER SHARE

Consistent with its previous guidance that the interim dividend would normally be set at one-third of the previous year's total dividend, the Board has declared an increase in the interim dividend of 0.25 pence per share to 5.25 pence (H1 2016: 5.0 pence, adjusted for the rights issue bonus adjustment factor), a rise of 5.0 per cent. This will be paid as an ordinary dividend on 29 September 2017 to shareholders on the register at the close of business on 18 August 2017.

The Board will offer a scrip dividend option for the 2017 interim dividend, allowing shareholders to choose whether to receive the dividend in cash or new shares. 13 per cent of the 2016 final dividend was paid in new shares, equating to GBP9.6 million of cash retained on the balance sheet and 2.1 million new shares being issued.

OUTLOOK

The outlook for our occupational markets remains broadly positive, given the continued shift towards online retailing, supply chain restructuring and limited speculative supply of new warehousing in core logistics and urban locations. The growth of e-commerce is gathering pace in Continental Europe and, when combined with an improving economic outlook for our major markets, the prospects for strengthening occupier demand here are good. In the UK, Brexit negotiations and the less stable political situation appear to be weighing somewhat on consumer confidence which could impact the pace of economic growth. However, online sales continue to grow strongly and increase as a proportion of total retail sales. This dynamic plays to our strength in well located, modern warehouse assets.

Investor demand for good quality, well-located warehouse assets also remains positive, attracted by the occupational market fundamentals and yield profile of the sector.

We enter the second half of the year with 920,400 sq m of buildings in the current development pipeline, 169,400 sq m of further pre-let projects in advanced discussions and numerous other opportunities on our substantial land bank. Our vacancy rate is low and our balance sheet has been significantly strengthened by the refinancing activity undertaken in the first half of the year. Accordingly, we are well-placed to continue adding to our low risk development programme and expect the overall level of development expenditure for the year to exceed GBP350 million, well above the level of GBP300 million indicated at the time of the rights issue, should occupier market conditions remain supportive.

Overall, our business is well placed to continue outperforming the wider real estate market.

FINANCIAL REVIEW

The acquisition of the remaining 50 per cent of the APP property portfolio, development lettings and like-for-like net rental income growth were the primary drivers of the 22.9 per cent increase in Adjusted profit before tax compared to H1 2016. EPRA NAV per share increased by 5.4 per cent to 504 pence compared to December 2016 and the balance sheet has been strengthened by the rights issue during the first half. The LTV ratio has improved to 29 per cent from 33 per cent at December 2016.

Financial highlights

 
                                                30 June  30 June 
                                                   2017     2016  31 December 2016 
----------------------------------------------  -------  -------  ---------------- 
Total property return (%)                           7.2      4.3               9.3 
IFRS(1 3) net asset value (NAV) per share (p)       504      461               480 
EPRA(1 3) NAV per share (diluted) (p)               504      454               478 
IFRS profit before tax (GBPm)                     397.1    200.7             426.4 
Adjusted(2) profit before tax (GBPm)               91.2     74.2             154.5 
IFRS earnings per share (EPS) (p)(3)               41.3     24.8              51.6 
Adjusted(2 3) EPS (p)                               9.7      9.4              18.8 
 
 

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

2 A reconciliation between IFRS profit before tax and Adjusted profit before tax is shown in Note 2 and between IFRS EPS and Adjusted EPS is shown in Note11.

3 The comparatives in pence per share have been re-presented to reflect the impact of the rights issue in March 2017 by applying a bonus adjustment factor of 1.046 as detailed in Note 11.

Presentation of financial information

The condensed financial information is 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 Adjusted profit measure better reflects the underlying recurring performance of the Group's property rental business, which is SEGRO's 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. There are no such items reported in the current or comparative periods. Consequently the SEGRO Adjusted metrics and EPRA metrics are consistent.

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

The Supplementary Notes to the enclosed financial information include other EPRA metrics as well as SEGRO's Adjusted income statement and balance sheet presented on a proportionately consolidated basis.

SEGRO monitors the above 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.

Look-through metrics for like-for-like net rental income and loan to value ratio are also provided, with joint ventures included at share, in order that our full operations are captured, therefore providing more meaningful analysis.

Adjusted profit

Adjusted profit

 
                                                        Six months to  Six months to 
                                                         30 June 2017   30 June 2016 
                                                                 GBPm           GBPm 
======================================================  =============  ============= 
Gross rental income                                             127.3          110.7 
Property operating expenses                                    (23.9)         (22.1) 
======================================================  =============  ============= 
Net rental income                                               103.4           88.6 
Joint venture management fee income                              16.5            9.1 
Administration expenses                                        (17.5)         (15.5) 
Share of joint ventures' Adjusted profit after tax(1)            22.1           25.5 
======================================================  =============  ============= 
Adjusted operating profit before interest and tax               124.5          107.7 
Net finance costs                                              (33.3)         (33.5) 
======================================================  =============  ============= 
Adjusted profit before tax                                       91.2           74.2 
Tax on Adjusted profit                                          (0.7)          (0.8) 
======================================================  =============  ============= 
Adjusted profit after tax(2)                                     90.5           73.4 
======================================================  =============  ============= 
 

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

2 A detailed reconciliation between Adjusted profit after tax and IFRS profit after tax is provided in Note 2 to the condensed financial information.

Adjusted profit before tax increased by 22.9 per cent to GBP91.2 million (H1 2016: GBP74.2 million). The primary driver was a GBP14.8 million increase in net rental income to GBP103.4 million, mainly reflecting the acquisition of the remaining 50 per cent of the APP property portfolio on 9 March 2017, growth in like-for-like net rental income and the positive net impact of development completions during the period. In addition there was a significant increase in joint venture fee income (see Income from joint ventures below). This was partially offset by a reduction in Adjusted profit from joint ventures (due to the APP portfolio becoming wholly owned during the period) and higher operating and central administrative costs. Interest costs remained stable. The average sterling-euro exchange rate during the period was EUR1.16:GBP1 which was 9 per cent stronger than during H1 2016 (EUR1.28:GBP1) which added around GBP3 million to Adjusted profit after tax.

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

 
                                        Six months  Six months 
                                                to          to    Variance    Change 
                                           30 June     30 June        GBPm         % 
                                              2017        2016 
Like-for-like net rental income               GBPm        GBPm 
                                        ==========  ==========  ==========  ======== 
UK                                            79.1        74.7         4.4       5.9 
Continental Europe                            36.7        36.7           -         - 
======================================  ==========  ==========  ==========  ======== 
Like-for-like net rental income 
 before other items                          115.8       111.4         4.4       3.9 
Other(1)                                     (2.3)       (1.6)       (0.7) 
--------------------------------------  ----------  ----------  ----------  -------- 
Like-for-like net rental income              113.5       109.8         3.7       3.4 
Development lettings                          10.6         2.0 
Properties taken back for development          0.3         1.1 
======================================  ==========  ==========  ==========  ======== 
Like-for-like net rental income 
 plus developments                           124.4       112.9 
Properties acquired                           11.0         0.4 
Properties sold                                2.2        13.4 
======================================  ==========  ==========  ==========  ======== 
Net rental income before surrenders, 
 dilapidations and exchange                  137.6       126.7 
Lease surrender premiums and 
 dilapidations income                          0.5         0.6 
Rent lost from lease surrenders 
 and other items                               0.5         2.1 
Impact of exchange rate difference 
 between periods                                 -       (4.1) 
Net rental income before joint 
 venture fees                                138.6       125.3 
======================================  ==========  ==========  ==========  ======== 
Share of joint venture fees                  (7.9)       (4.4) 
======================================  ==========  ==========  ==========  ======== 
Net rental income per income 
 statements                                  130.7       120.9 
======================================  ==========  ==========  ==========  ======== 
 

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

The like-for-like rental growth metric, which is based on properties held throughout both H1 2017 and H1 2016, includes wholly owned assets (net rental income of GBP103.4 million) and SEGRO's share of net rental income held in joint ventures (GBP35.2 million, before the impact of fees paid to joint venture partners of GBP7.9 million). Net rental income on this basis increased by GBP13.3 million which mainly reflects GBP8.6 million of income from development lettings and GBP4.4 million of like-for-like net rental income growth (3.9 per cent higher than in H1 2016). The growth in like-for-like net rental income was mainly due to rental increases on review and renewal in our UK portfolio.

Investment activity had a neutral impact on net rental income: the additional income from the APP acquisition was offset by income lost from disposals, primarily those completed during 2016 and the assets sold in part consideration for APP.

The GBP3.5 million of additional joint venture fee costs (mainly those within APP which crystallised on acquisition) resulted in an overall increase in net rental income per the financial statements of GBP9.8 million.

Where an asset has been sold into SELP, the 50 per cent share owned throughout the period is included in the like-for-like calculation, with the balance shown as a disposal. Similarly, the 50 per cent of APP owned throughout the period is included in the like-for-like calculation, but the income for the 50 per cent of APP acquired during H1 2017 is shown within properties acquired.

Income from joint ventures

Joint venture management fee income increased by GBP7.4 million to GBP16.5 million. This increase was mainly due to higher performance fees from the APP joint venture which crystallised on acquisition.

SEGRO's share of joint ventures' Adjusted profit after tax decreased by GBP3.4 million, mainly reflecting the acquisition of the remaining 50 per cent of the APP property portfolio in March 2017. After this date all of the income from APP was recognised within wholly owned net rental income rather than within the share of joint ventures' Adjusted profit after tax.

Administrative and operating costs

The Group is focused on managing its cost base. The Total Cost Ratio for H1 2017 decreased to 22.9 per cent from 23.2 per cent in H1 2016. Excluding the impact of share based payments the Cost Ratio decreased to 20.4 per cent in H1 2017 from 21.5 per cent in H1 2016. The calculations are set out in Table 6 of the Supplementary Notes to the condensed financial information.

The main reason behind the increase in total costs used for the numerator of these ratios were an increase in staff related costs, particularly share based payments which were GBP1.6 million higher in H1 2017 than in H1 2016.

Net finance costs

Net finance costs were broadly stable during the period compared to H1 2016 at GBP33.3 million, driven by a combination of a slightly lower average cost of debt, offset by the impact of weakening sterling against the euro.

Taxation

The tax charge on Adjusted profit of GBP0.7 million (H1 2016: GBP0.8 million) reflects an effective tax rate of 0.8 per cent (H1 2016: 1.1 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 were 9.7 pence (H1 2016: 9.4 pence) reflecting the combination of a GBP17.1 million improvement in Adjusted profit after tax, but an increased average number of shares, mainly as a result of the equity share placing in 2016 and the rights issue in 2017.

TOTAL PROPERTY RETURN

The total property return (TPR) for the portfolio in H1 2017 (as defined in the Glossary) was 7.2 per cent, higher than for H1 2016 (4.3 per cent), reflecting primarily a higher capital return on the portfolio. The TPR comprises an income return of 2.3 per cent (H1 2016: 2.4 per cent) and a capital return of 4.9 per cent (H1 2016: 1.9 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 H1 2017 was GBP397.1 million (H1 2016: GBP200.7 million), equating to post-tax IFRS earnings per share of 41.3 pence compared with 24.8 pence for H1 2016. The increase in IFRS profits is driven primarily by unrealised and realised gains on our property portfolio which were GBP228.8 million higher in H1 2017 than in the same period a year ago.

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

Realised and unrealised gains on wholly owned investment and trading properties of GBP309.9 million in H1 2017 (H1 2016: GBP81.1 million gain) have been recognised in the income statement, mainly comprising an unrealised valuation surplus of GBP302.9 million (H1 2016: GBP76.0 million surplus) and a profit of GBP7.7 million on asset disposals (H1 2016: GBP6.4 million profit).

SEGRO's share of realised and unrealised gains on properties held in joint ventures was GBP21.1 million (H1 2016: GBP27.9 million) and is further analysed in Note 6 to the condensed financial information.

BALANCE SHEET

EPRA net asset value

 
                                                                               GBPm  Shares million  Pence per share 
--------------------------------------------------------------------------  -------  --------------  --------------- 
EPRA net assets attributable to ordinary shareholders at 31 December 2016   4,162.1        871.5(1)              478 
Realised and unrealised property gain                                         309.9 
Adjusted profit after tax                                                      90.5 
Dividend net of scrip shares issued (2016 final)                             (83.4) 
Net proceeds from the rights issue                                            556.5 
Exchange rate movement (net of hedging)                                        14.7 
Other                                                                           3.2 
--------------------------------------------------------------------------  -------  --------------  --------------- 
EPRA net assets attributable to ordinary shareholders at 30 June 2017       5,053.5         1,002.9              504 
--------------------------------------------------------------------------  -------  --------------  --------------- 
 

1 Re-presented for a bonus adjustment factor of 1.046.

At 30 June 2017, IFRS net assets attributable to ordinary shareholders were GBP5,054.1 million (31 December 2016: GBP4,182.1 million), equating to 504 pence per share on a diluted basis (31 December 2016: 480 pence).

On 28 March 2017, the Company issued 166,033,133 new ordinary shares of 10 pence each through a rights issue which generated net proceeds of GBP556.5 million. Further details of the rights issue are provided in Note 14. To reflect the rights issue, the number of shares previously used to calculate diluted net assets per share and adjusted earnings per share have been amended in both the table and the narrative above.

A bonus adjustment factor of 1.046 has been applied, based on the ratio of an adjusted closing share price of 468.6 pence per share on 10 March 2017, the last business day before the shares started trading ex-rights and the theoretical ex-rights price at that date of 448.0 pence per share.

EPRA net asset value per share at 30 June 2017 was 504 pence (31 December 2016: 478 pence), the 5.4 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 condensed financial information.

Cash flow and net debt reconciliation

Free cash flow for the period was GBP80.9 million, a GBP20.7 million increase from H1 2016 (GBP60.2 million). Cash flow from operations has increased by GBP17.4 million and is primarily attributed to the acquisition of the APP property portfolio in the first half of H1 2017. Free cash flow was also impacted by the early repayment of bonds amounting to GBP10.3 million in H1 2017. The H1 2016 free cash flow was impacted by an outflow of GBP10.1 million of tax paid in H1 2016 relating to capital gains taxes on 2015 disposals.

The acquisition of APP in H1 2017 is the largest cash outflow in the period and represents the purchase of the remaining 50 per cent of the joint venture SEGRO did not already own. The property portfolio was acquired for a cash outflow of GBP217.2 million (which includes transaction costs of GBP1.2 million) and GBP149 million of property assets as part consideration.

Cash flows from acquisitions (excluding the APP property portfolio) and developments of investment properties at GBP202.3 million are GBP56.2 million higher than H1 2016 and is primarily driven by the increased level of development activity (see Capital Expenditure section for more details). Cash flows from investment property sales are GBP143.6 million, which is at a lower level than in H1 2016, largely due to the receipt of GBP321 million from the sale of the Bath Road office portfolio in H1 2016.

The largest cash inflow during the period was GBP556.8 million, being proceeds from the issue of ordinary shares of which GBP556.5 million relates to the net proceeds from the rights issue. Further details of the rights issue are provided in Note 14.

Other significant cash flows include the dividends paid of GBP70.4 million which is GBP24.0 million higher than the prior period, mainly due to a lower level of scrip dividend take-up and the impact of a higher number of shares following the share placing in 2016. The net investment in joint ventures has fallen by GBP63.8 million to GBP8.2 million primarily due to a lower level of acquisitions in SELP in H1 2017 compared to H1 2016. Additionally, GBP26.6 million has been paid to settle foreign exchange derivatives (H1 2016: GBP18.8 million), reflecting the strengthening of the euro exchange rate against sterling during H1 2017.

As a result of these factors there was a net funds inflow of GBP252.6 million during the period (H1 2016: GBP127.9 million inflow).

Cash flow and net debt reconciliation

 
                                               Six months   Six months 
                                                    to 30        to 30 
                                                June 2017    June 2016 
                                                     GBPm         GBPm 
 Opening net debt                               (1,598.4)    (1,806.5) 
 
 Cash flow from operations                          116.2         98.8 
 Finance costs (net)                               (41.0)       (43.3) 
 Early close out of debt                           (10.3)            - 
 Dividends received                                  16.2         14.8 
 Tax paid                                           (0.2)       (10.1) 
============================================  ===========  =========== 
 Free cash flow                                      80.9         60.2 
 Dividends paid                                    (70.4)       (46.4) 
 Acquisitions and development of investment 
  properties                                      (202.3)      (146.1) 
 Investment property sales                          143.6        391.2 
 Acquisition of APP                               (217.2)            - 
 Acquisition of interests in property               (2.5)       (36.7) 
 Net settlement of foreign exchange 
  derivatives                                      (26.6)       (18.8) 
 Proceeds from issue of ordinary shares             556.8            - 
 Net investment in joint ventures                   (8.2)       (72.0) 
 Other items                                        (1.5)        (3.5) 
============================================  ===========  =========== 
 Net funds flow                                     252.6        127.9 
 Non-cash movements                                 (1.7)        (2.4) 
 Debt acquired with APP                           (390.4)            - 
 Exchange rate movements                            (3.7)       (25.9) 
============================================  ===========  =========== 
 Closing net debt                               (1,741.6)    (1,706.9) 
============================================  ===========  =========== 
 

Capital expenditure

The table below sets out analysis of the capital expenditure on property assets during the period. 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 period was GBP1,390.6 million, an increase of GBP1,146.5 million compared to H1 2016, mainly due to the APP property portfolio acquisition (GBP1,112.6 million) and higher development expenditure.

Development capital expenditure increased by GBP100.3 million to GBP215.0 million, reflecting the ongoing momentum in our development programme. Development spend incorporates interest capitalised of GBP2.8 million (H1 2016: GBP2.9 million) including joint ventures at share.

Spend on existing completed properties totalled GBP9.9 million (H1 2016: GBP11.8 million), of which GBP4.9 million was for value-enhancing major refurbishment and fit-out costs prior to re-letting. The balance mainly comprises minor refurbishment costs, which equates to 5 per cent of Adjusted profit before tax.

EPRA capital expenditure analysis

 
                                      Six months to                          Six months to 
                                       30 June 2017                           30 June 2016 
------------------------  --------------------------------------  ----------------------------------- 
                           Wholly owned  Joint ventures    Total  Wholly owned  Joint ventures  Total 
                                   GBPm            GBPm     GBPm          GBPm            GBPm   GBPm 
------------------------  -------------  --------------  -------  ------------  --------------  ----- 
Acquisitions                 1,143.6(1)            15.5  1,159.1       65.5(1)            39.8  105.3 
Development(4)                 184.0(2)            31.0    215.0       97.1(2)            17.6  114.7 
Completed properties(4)          7.9(3)             2.0      9.9        9.8(3)             2.0   11.8 
Other(5)                            5.0             1.6      6.6          10.2             2.1   12.3 
Total                           1,340.5            50.1  1,390.6         182.6            61.5  244.1 
------------------------  -------------  --------------  -------  ------------  --------------  ----- 
 

1 Being GBP1,143.6 million investment property and GBPnil trading property (2016: GBP65.5 million and GBPnil million respectively) see Note 12.

2 Being GBP184.0 million investment property and GBPnil trading property (2016: GBP96.8 million and GBP0.3 million respectively) see Note 12.

3 Being GBP7.9 million investment property and GBPnil trading property (2016: GBP9.7 million and GBP0.1 million respectively) see Note 12.

4 Includes wholly owned capitalised interest of GBP2.5 million (2016: GBP2.4 million) as further analysed in Note 8 and share of joint venture capitalised interest of GBP0.3 million (2016: GBP0.5 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 2016.

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 Chief Financial Officer.

FINANCIAL POSITION AND FUNDING

Financial Key Performance Indicators

 
                                                      30 June  30 June 2016 
GROUP ONLY                                               2017                31 December 2016 
---------------------------------------------------   -------  ------------  ---------------- 
Net borrowings (GBPm)                                   1,742         1,707             1,598 
Available Group cash and undrawn facilities (GBPm)        644           440               567 
Gearing (%)                                                34            47                38 
Weighted average cost of debt13 (%)                       3.5           3.7               3.9 
Interest cover2 (times)                                   2.9           2.4               2.4 
----------------------------------------------------  -------  ------------  ---------------- 
INCLUDING JOINT VENTURES AT SHARE 
Net borrowings (GBPm)                                   2,086         2,112             2,091 
LTV ratio (%)                                              29            36                33 
Weighted average cost of debt13 (%)                       3.1           3.4               3.4 
Average duration of debt (years)(3)                       7.8           6.3               6.2 
----------------------------------------------------  -------  ------------  ---------------- 
 

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

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

3 30 June 2017 figures are pro forma for the impact of the USPP debt issuance and the APP term debt repayment and associated derivative transactions.

At 30 June 2017, the Group's net borrowings (including the Group's share of borrowings in joint ventures) were GBP2,086 million (31 December 2016: GBP2,091 million).

Excluding the Group's share of borrowings in joint ventures, net borrowings at 30 June 2017 were GBP1,741.6 million comprising gross borrowings of GBP1,804.4 million (of which GBP323.8 million, mainly relating to APP, were secured) and cash and cash equivalent balances of GBP62.8 million. The APP debt was repaid in July 2017 (see below).

The Group's share of the net borrowings in its joint ventures was GBP344.6 million comprising gross borrowings of GBP383.1 million and cash and cash equivalent balances of GBP38.5 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 30 June 2017 totalled GBP644 million, comprising GBP62.8 million of cash and short-term investments and GBP581.2 million of undrawn bank facilities provided by the Group's relationship banks, of which only GBP5.0 million is uncommitted

The Group announced in July that it had signed a EUR650 million US Private Placement Debt issue across three maturities with a number of institutional investors with an average maturity of 11.2 years and a weighted average coupon of 1.9 per cent. Closing and funding are due to take place in August 2017. The proceeds will be used to re-finance the 2018 sterling bonds and the APP secured debt. This transaction, combined with the extension of the Group's largest revolving credit facility (EUR610 million) to 2022 has increased the average maturity of the gross borrowings of the Group (including joint ventures at share) to 7.8 years (31 December 2016: 6.2 years).

The Group seeks to maintain, over the medium term, an appropriate mix of debt funding between longer-dated core funding provided by bonds or private placement notes, and shorter-dated bank facilities providing funding headroom and more flexible borrowings that are cheaper and easier to repay. At 30 June 2017 (pro forma for the USPP debt issuance and the APP debt repayment), 71 per cent of the debt facilities of the Group were bonds or private placement notes and 29 per cent were bank borrowings.

The market value of the gross borrowings of the Group (including debt funding arrangements within joint ventures) at 30 June 2017 was GBP326 million higher than the balance sheet carrying value. This difference mainly relates to the sterling bond portfolio which have fixed interest coupons above current market rates. The majority (GBP1,109 million) of the sterling bonds have been swapped into floating sterling debt or floating euro debt via a combination of interest rate and currency swaps and forward foreign exchange contracts.

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 30 June 2017 was an asset of GBP52.5 million (31 December 2016: an asset of GBP66.9 million). The decrease in the asset during the period was mainly due to the reduction in maturity of the various swap portfolios, bringing the APP swap portfolio within derivatives on the balance sheet and a slight strengthening in the euro exchange rate, partly offset by the impact of a reduction in medium term sterling interest rates. 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 30 June 2017 on a look-through basis (including the borrowings and property assets of the Group's share of joint ventures) was 29 per cent (31 December 2016: 33 per cent).

The gearing ratio of the Group at 30 June 2017, as defined within the principal debt funding arrangements of the Group (excluding debt funding arrangements within joint ventures), was 34 per cent (31 December 2016: 38 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 55 per cent from their 30 June 2017 values to reach the gearing covenant threshold of 160 per cent. A 55 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 30 June 2017, the Group's multiple is comfortably above this threshold at 2.9 times. On a look-through basis, including joint ventures, the multiple was 3.4 times.

INTEREST RATE 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 30 June 2017, (pro forma for the impact of the USPP debt issuance and the APP debt repayment and including the impact of derivative instruments), 70 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 12 years.

At 30 June 2017, again pro forma for the USPP debt issuance and the APP debt repayment, the weighted average interest rate for gross borrowings (excluding those within joint ventures) was 3.5 per cent (31 December 2016: 3.9 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 30 June 2017, before commitment fees and amortised costs, was 3.1 per cent (31 December 2016: 3.4 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 30 June 2016, the adjusted net finance cost of the Group would have increased by approximately GBP1.7 million, representing around 2 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 30 June 2017, the Group had gross foreign currency assets which were 68 per cent hedged by gross foreign currency denominated liabilities (including the impact of derivative financial instruments).

Including the impact of forward foreign exchange and currency swap contracts used to hedge foreign currency denominated net assets, a 5 per cent strengthening against sterling in the value of the other currencies in which the Group operates at 30 June 2017 would have increased net assets by approximately GBP34 million and there would have been an increase in gearing of approximately 0.9 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 the period into sterling within the consolidated income statement of the Group was EUR1.16:GBP1. Based on the hedging position at 30 June 2017, if the euro had been 5 per cent stronger than it was against sterling throughout the first half of the year (EUR1.10: GBP1), Adjusted profit after tax for the period would have been approximately GBP1.7 million (1.9 per cent) higher than reported.

In the event of the euro weakening 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, the Group has a strong liquidity position, a favourable debt maturity profile (enhanced by the recently contracted USPP which will be drawn down in August) 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 (see Statement of Principal Risks for further information), 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 condensed financial information). Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

STATEMENT OF PRINCIPAL RISKS

The Group recognises that its ability to manage risk effectively throughout the organisation continues to be central to its success. Our approach to risk management aims to bring controllable risks within our appetite, and to enable our decision making to balance uncertainty against the objective of creating value for our shareholders.

The Group's risk appetite, its integrated approach to managing risk, and the governance arrangements in place are described in the Principal Risks section of the 2016 Annual Report on pages 54 to 57.

The Group notes the outcome of the UK General Election held on 8 June 2017, and the subsequent formation of a minority Government. Whilst this development does not significantly change our assessment of risk to the Group, we observe that it has increased the level of uncertainty in the UK political environment generally.

Nevertheless, there are no significant changes to the risks presented in the 2016 Annual Report on pages 58 to 61. A summary of the Group's principal risks for the second half of 2016 is provided below.

1. Property Risks

These are risks to achieving above average rental and capital growth from our portfolio, including external market and competitive conditions, portfolio strategy, and execution of acquisitions and disposals.

We recognise that, in seeking outperformance from our portfolio, the Group must accept a balanced level of property risk - with diversity in geographic locations and asset types and an appropriate mixture of stabilised income producing and opportunity assets - in order to provide opportunities for superior returns.

Market cycle. The property market is cyclical and there is a 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.

2. Financial Risks

These are risks to the revenues, costs, cash flows, equity capital and solvency of the Group resulting from the capital structure of the Group and changes in external factors such as interest rates, foreign exchange rates and the creditworthiness of the Group's major financial counterparties.

The Group maintains a low to moderate appetite for financial risk in general, with a very low appetite for risks to solvency and gearing covenant breaches.

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 EU. The uncertainty associated with the UK's decision to exit the EU may impact investment, capital, financial (including foreign exchange) and occupier markets in the UK during the transition period as the terms of exit and future relationships are negotiated, and in the long term. In the long term, exit from the EU could reduce levels of investor and 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.

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

Financial leverage. The Group could maintain an inappropriate capital structure. Financial leverage (usually expressed as the LTV ratio, but in financial covenants defined as gearing) needs to be managed depending on the direction of the economic and property market cycle. 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.

3. Corporate Risks

These are risks to business performance, legal and regulatory compliance, health and safety, environmental impact, reputation and business continuity arising from external factors or inadequate internal processes, people or systems.

We have a very low appetite for risks to our good reputation and risks to being well-regarded by our investors, regulators, employees, customers, business partners, suppliers, lenders and by the wider communities and environments in which we operate.

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; supply chain failure; the structural failure of one of our assets; a major high-profile incident involving one of our assets; or a cyber-security 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 or regulatory changes, leading to a significant unforecasted financial or reputational impact.

RESPONSiBILITY STATEMENT

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.28R (disclosure of related parties' transactions and changes therein).

By order of the Board,

   David Sleath                                                                            Soumen Das 

Chief Executive Chief Financial Officer

Independent review report to SEGRO plc

Report on the condensed set of financial statements

Our conclusion

We have reviewed SEGRO plc's condensed set of financial statements (the "interim financial statements") in the half-yearly report of SEGRO plc for the 6 month period ended 30 June 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

   --     the condensed group balance sheet as at 30 June 2017; 

-- the condensed group income statement and condensed group statement of comprehensive income for the period then ended;

   --     the condensed group cash flow statement for the period then ended; 
   --     the condensed group statement of changes in equity for the period then ended; and 
   --     the explanatory notes to the interim financial statements. 

The interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

24 July 2017

Notes:

a) The maintenance and integrity of the SEGRO plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

CONDENSED GROUP INCOME STATEMENT

For the six months ended 30 June 2017

 
                                                   Half year      Half year 
                                                          to             to       Year to 
                                                     30 June        30 June   31 December 
                                                        2017           2016          2016 
                                                 (unaudited)    (unaudited)     (audited) 
                                        Notes           GBPm           GBPm          GBPm 
======================================  =====  =============  =============  ============ 
Revenue                                     4          155.0          136.7         283.5 
======================================  =====  =============  =============  ============ 
Gross rental income                         4          127.3          110.7         225.5 
Property operating expenses                 5         (23.9)         (22.1)        (44.9) 
======================================  =====  =============  =============  ============ 
Net rental income                                      103.4           88.6         180.6 
Joint venture management fee income                     16.5            9.1          18.6 
Administration expenses                               (17.5)         (15.5)        (31.4) 
Share of profit from joint ventures 
 after tax                                  6           36.3           63.4          85.1 
Realised and unrealised property 
 gain                                       7          309.9           81.1         246.0 
Goodwill and other amounts written 
 off on acquisitions and amortisation 
 of intangibles                                        (0.6)          (0.1)         (0.2) 
                                                                             ============ 
Operating profit                                       448.0          226.6         498.7 
Finance income                              8           26.0           47.7          46.7 
Finance costs                               8         (76.9)         (73.6)       (119.0) 
                                                                             ============ 
Profit before tax                                      397.1          200.7         426.4 
Tax                                         9          (9.6)          (5.9)         (7.7) 
                                                                             ============ 
Profit after tax                                       387.5          194.8         418.7 
======================================  =====  =============  =============  ============ 
Attributable to equity shareholders                    385.7          194.1         417.7 
Attributable to non-controlling 
 interests                                               1.8            0.7           1.0 
======================================  =====  =============  =============  ============ 
                                                       387.5          194.8         418.7 
======================================  =====  =============  =============  ============ 
Earnings per share (pence)(1) 
Basic                                      11           41.3           24.8          51.6 
Diluted                                    11           41.1           24.7          51.3 
======================================  =====  =============  =============  ============ 
 

1 The comparative earning per share has been re-presented following the rights issue detailed in Note 11.

CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2017

 
                                                                    Half year      Half year 
                                                                           to             to         Year to 
                                                                      30 June        30 June     31 December 
                                                                         2017           2016            2016 
                                                                  (unaudited)    (unaudited)       (audited) 
                                                         Notes           GBPm           GBPm            GBPm 
======================================================  ======  =============  =============  ============== 
Profit for the period                                                   387.5          194.8           418.7 
Items that will not be reclassified subsequently 
 to profit or loss 
Actuarial (loss)/gain on defined benefit pension 
 schemes                                                                (9.0)            0.3            15.0 
--------------------------------------------------------------  -------------  -------------  ============== 
                                                                        (9.0)            0.3            15.0 
Items that may be reclassified subsequently to profit 
 or loss 
Foreign exchange movement arising on translation 
 of international operations                                             20.1           92.7           114.1 
Decrease in value of available-for-sale investments                         -          (0.3)           (0.3) 
Fair value movements on derivatives in effective 
 hedge relationships                                                    (5.4)         (72.4)          (86.4) 
--------------------------------------------------------------  -------------  -------------  ============== 
                                                                         14.7           20.0            27.4 
Tax on components of other comprehensive income                             -              -               - 
======================================================  ======  =============  =============  ============== 
Other comprehensive profit before transfers                               5.7           20.3            42.4 
Transfer to income statement of amount realised on 
 fair value of interest rate swaps and derivatives                        3.1              -               - 
Transfer to income statement of realised foreign 
 exchange movements                                                         -              -           (2.0) 
                                                                                              ============== 
Total comprehensive profit for the period                               396.3          215.1           459.1 
==============================================================  =============  =============  ============== 
Attributable to - equity shareholders                                   394.5          214.4           458.5 
                      - non-controlling interests                         1.8            0.7             0.6 
==============================================================  =============  =============  ============== 
Total comprehensive profit for the period                               396.3          215.1           459.1 
==============================================================  =============  =============  ============== 
 

CONDENSED GROUP BALANCE SHEET

As at 30 June 2017

 
                                                        30 June        30 June   31 December 
                                                           2017           2016          2016 
                                                    (unaudited)    (unaudited)     (audited) 
                                           Notes           GBPm           GBPm          GBPm 
=========================================  =====  =============  =============  ============ 
Assets 
Non-current assets 
Goodwill and other intangibles                              2.8            4.5           3.1 
Investment properties                         12        6,097.2        4,394.5       4,714.4 
Other interests in property                                12.1           42.4           9.6 
Plant and equipment                                        15.8           16.5          16.1 
Investments in joint ventures                  6          761.3        1,050.7       1,066.2 
Available-for-sale investments                                -            0.6           0.7 
Derivative financial instruments                           72.3          112.3          80.1 
Pension assets                                             41.5           24.6          45.7 
=========================================  =====  =============  =============  ============ 
                                                        7,003.0        5,646.1       5,935.9 
 
Current assets 
Trading properties                            12           25.4           33.0          25.4 
Trade and other receivables                               137.5           98.1         102.8 
Derivative financial instruments                            9.7            4.5          12.6 
Cash and cash equivalents                     13           62.8           10.9          32.0 
                                                          235.4          146.5         172.8 
 
Total assets                                            7,238.4        5,792.6       6,108.7 
=========================================  =====  =============  =============  ============ 
 
Liabilities 
Non-current liabilities 
Borrowings                                    13        1,484.4        1,717.8       1,630.4 
Deferred tax provision                         9           23.5           13.7          16.3 
Trade and other payables                                    4.8              -           4.7 
Derivative financial instruments                            9.3           21.7          14.7 
-----------------------------------------  -----  -------------  -------------  ------------ 
                                                        1,522.0        1,753.2       1,666.1 
Current liabilities 
Trade and other payables                                  317.1          255.0         246.5 
Derivative financial instruments                           20.2          131.6          11.1 
Borrowings                                    13          320.0              -             - 
Tax liabilities                                             7.0            5.3           4.1 
                                                          664.3          391.9         261.7 
 
Total liabilities                                       2,186.3        2,145.1       1,927.8 
=========================================  =====  =============  =============  ============ 
 
Net assets                                              5,052.1        3,647.5       4,180.9 
=========================================  =====  =============  =============  ============ 
 
Equity 
Share capital                                 14           99.8           75.4          83.0 
Share premium                                           1,980.7        1,113.1       1,431.1 
Capital redemption reserve                                113.9          113.9         113.9 
Own shares held                                           (4.7)          (5.8)         (5.5) 
Other reserves                                            216.8          187.6         196.2 
Retained earnings                                       2,647.6        2,164.7       2,363.4 
=========================================  =====  =============  =============  ------------ 
Total shareholders' equity                              5,054.1        3,648.9       4,182.1 
Non-controlling interests                                 (2.0)          (1.4)         (1.2) 
=========================================  =====  =============  =============  ------------ 
Total equity                                            5,052.1        3,647.5       4,180.9 
=========================================  =====  =============  =============  ============ 
Net assets per ordinary share (pence)(1) 
Basic                                         11            507            464           482 
Diluted                                       11            504            461           480 
-----------------------------------------  -----  -------------  -------------  ------------ 
 

1 The comparative net assets per ordinary share have been re-presented as detailed in Note 11.

CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2017

 
                                                                 Items 
                                                                 taken                                         Balance 
                               Balance                        directly                                              30 
                             1 January   Exchange  Retained         to   Shares                                   June 
                                  2017   movement    profit   reserves   issued   Other  Dividends  Transfers     2017 
(unaudited)                       GBPm       GBPm      GBPm       GBPm     GBPm    GBPm       GBPm       GBPm     GBPm 
==========================  ==========  =========  ========  =========  =======  ======  =========  =========  ======= 
Ordinary share capital            83.0          -         -          -     16.6       -        0.2          -     99.8 
Share premium                  1,431.1          -         -          -    540.2       -        9.4          -  1,980.7 
Capital redemption 
 reserve                         113.9          -         -          -        -       -          -          -    113.9 
Own shares held                  (5.5)          -         -          -        -   (1.7)          -        2.5    (4.7) 
Other reserves: 
 Share based payments 
  reserve                         13.5          -         -          -        -     5.8          -      (3.0)     16.3 
 Fair value reserve 
  for AFS(1)                     (0.2)          -         -          -        -       -          -        0.2        - 
 Translation, hedging 
  and other reserves              13.8       20.1         -      (5.4)        -     3.1          -      (0.2)     31.4 
 Merger reserve                  169.1          -         -          -        -       -          -          -    169.1 
==========================  ==========  =========  ========  =========  =======  ======  =========  =========  ======= 
Total other reserves             196.2       20.1         -      (5.4)        -     8.9          -      (3.0)    216.8 
Retained earnings              2,363.4          -     385.7      (9.0)        -       -     (93.0)        0.5  2,647.6 
==========================  ==========  =========  ========  =========  =======  ======  =========  =========  ======= 
Total equity attributable 
 to equity shareholders        4,182.1       20.1     385.7     (14.4)    556.8     7.2     (83.4)          -  5,054.1 
==========================  ==========  =========  ========  =========  =======  ======  =========  =========  ======= 
Non-controlling 
 interests(2)                    (1.2)          -       1.8          -        -   (2.6)          -          -    (2.0) 
==========================  ==========  =========  ========  =========  =======  ======  =========  =========  ======= 
Total equity                   4,180.9       20.1     387.5     (14.4)    556.8     4.6     (83.4)          -  5,052.1 
==========================  ==========  =========  ========  =========  =======  ======  =========  =========  ======= 
 

For the six months ended 30 June 2016

 
                                                              Items 
                                                              taken                                            Balance 
                            Balance                        directly                                                 30 
                          1 January   Exchange  Retained         to   Shares                                      June 
                               2016   movement    profit   reserves   issued  Other  Dividends  Transfers         2016 
(unaudited)                    GBPm       GBPm      GBPm       GBPm     GBPm   GBPm       GBPm       GBPm         GBPm 
=======================  ==========  =========  ========  =========  =======  =====  =========  =========  =========== 
Ordinary share capital         74.8          -         -          -      0.1      -        0.5          -         75.4 
Share premium               1,091.4          -         -          -      0.1      -       21.6          -      1,113.1 
Capital redemption 
 reserve                      113.9          -         -          -        -      -          -          -        113.9 
Own shares held               (6.3)          -         -          -        -  (2.2)          -        2.7        (5.8) 
Other reserves: 
 Share based payments 
  reserve                       8.5          -         -          -        -    3.5          -      (2.0)         10.0 
 Fair value reserve 
  for AFS(1)                    0.1          -         -      (0.3)        -      -          -          -        (0.2) 
 Translation, hedging 
  and other reserves         (11.9)       93.0         -     (72.4)        -      -          -          -          8.7 
 Merger reserve               169.1          -         -          -        -      -          -          -        169.1 
                         ==========  =========  ========  =========  =======  =====  =========  =========  =========== 
Total other reserves          165.8       93.0         -     (72.7)        -    3.5          -      (2.0)        187.6 
Retained earnings           2,050.3          -     194.1        0.3        -      -     (79.3)      (0.7)      2,164.7 
=======================  ==========  =========  ========  =========  =======  =====  =========  =========  =========== 
Total equity 
 attributable 
 to equity shareholders     3,489.9       93.0     194.1     (72.4)      0.2    1.3     (57.2)          -      3,648.9 
=======================  ==========  =========  ========  =========  =======  =====  =========  =========  =========== 
Non-controlling 
 interests(2)                 (1.8)      (0.3)       0.7          -        -      -          -          -        (1.4) 
=======================  ==========  =========  ========  =========  =======  =====  =========  =========  =========== 
Total equity                3,488.1       92.7     194.8     (72.4)      0.2    1.3     (57.2)          -      3,647.5 
=======================  ==========  =========  ========  =========  =======  =====  =========  =========  =========== 
 

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

2 Non-controlling interests relate to Vailog Sarl and is shown net of the estimated gross settlement amount of a put option held by the minority shareholder.

For the year ended 31 December 2016

 
                                                             Items 
                                                             taken 
                           Balance                        directly                                             Balance 
                         1 January   Exchange  Retained         to   Shares                                31 December 
                              2016   movement    profit   reserves   issued  Other  Dividends  Transfers          2016 
(audited)                     GBPm       GBPm      GBPm       GBPm     GBPm   GBPm       GBPm       GBPm          GBPm 
======================  ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
Ordinary share capital        74.8          -         -          -      7.5      -        0.7          -          83.0 
Share premium              1,091.4          -         -          -    310.9      -       28.8          -       1,431.1 
Capital redemption 
 reserve                     113.9          -         -          -        -      -          -          -         113.9 
Own shares held              (6.3)          -         -          -        -  (2.3)          -        3.1         (5.5) 
                        ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
Other reserves: 
 Share based payments 
  reserve                      8.5          -         -          -        -    7.0          -      (2.0)          13.5 
 Fair value reserve 
  for AFS(1)                   0.1          -         -      (0.3)        -      -          -          -         (0.2) 
 Translation, hedging 
  and other reserves        (11.9)      114.1         -     (86.4)        -  (2.0)          -          -          13.8 
 Merger reserve              169.1          -         -          -        -      -          -          -         169.1 
======================  ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
Total other reserves         165.8      114.1         -     (86.7)        -    5.0          -      (2.0)         196.2 
Retained earnings          2,050.3          -     417.7       15.0        -      -    (118.5)      (1.1)       2,363.4 
======================  ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
Total equity 
 attributable 
 to equity 
 shareholders              3,489.9      114.1     417.7     (71.7)    318.4    2.7     (89.0)          -       4,182.1 
======================  ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
Non-controlling 
 interests(2)                (1.8)      (0.4)       1.0          -        -      -          -          -         (1.2) 
======================  ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
Total equity               3,488.1      113.7     418.7     (71.7)    318.4    2.7     (89.0)          -       4,180.9 
======================  ==========  =========  ========  =========  =======  =====  =========  =========  ============ 
 

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

2 Non-controlling interests relate to Vailog Sarl 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 six months ended 30 June 2017

 
                                                    Half year     Half year 
                                                           to            to       Year to 
                                                      30 June       30 June   31 December 
                                                         2017          2016          2016 
                                                  (unaudited)   (unaudited)     (audited) 
                                          Notes          GBPm          GBPm          GBPm 
========================================  =====  ============  ============  ============ 
Cash flows from operating activities         15         116.2          98.8         156.7 
Interest received                                        32.8          32.6          69.8 
Dividends received                                       16.2          14.8          26.5 
Interest paid                                          (73.8)        (75.9)       (140.9) 
Cost of early close out of debt                        (10.3)             -             - 
Tax paid                                                (0.2)        (10.1)        (10.9) 
========================================  =====  ============  ============  ============ 
Net cash received from operating 
 activities                                              80.9          60.2         101.2 
========================================  =====  ============  ============  ============ 
 
Cash flows from investing activities 
Purchase and development of investment 
 properties                                           (202.3)       (146.1)       (429.7) 
Acquisition of APP(1)                                 (217.2)             -             - 
Sale of investment properties                           143.6         391.2         614.0 
Acquisition of other interests 
 in property                                            (2.5)        (36.7)        (36.7) 
Purchase of plant and equipment                         (0.4)         (3.7)         (3.5) 
Sale of available-for-sale investments                    0.6             -             - 
Investment in joint ventures                           (32.0)        (73.6)       (184.3) 
Divestment in joint ventures                             23.8           1.6         120.9 
========================================  =====  ============  ============  ============ 
Net cash (used in)/received from 
 investing activities                                 (286.4)         132.7          80.7 
========================================  =====  ============  ============  ============ 
 
Cash flows from financing activities 
Dividends paid to ordinary shareholders                (70.4)        (46.4)        (89.0) 
Proceeds from borrowings                                186.1          36.7          42.5 
Repayment of borrowings                               (408.1)       (170.4)       (267.7) 
Net settlement of foreign exchange 
 derivatives                                           (26.6)        (18.8)       (168.4) 
Proceeds from issue of ordinary 
 shares                                                 556.8           0.2         318.4 
Purchase of ordinary shares                             (1.7)             -         (2.3) 
========================================  =====  ============  ============  ============ 
Net cash received from/(used 
 in) financing activities                               236.1       (198.7)       (166.5) 
========================================  =====  ============  ============  ============ 
 
Net increase/(decrease) in cash 
 and cash equivalents                                    30.6         (5.8)          15.4 
Cash and cash equivalents at 
 the beginning of the period                             32.0          16.4          16.4 
Effect of foreign exchange rate 
 changes                                                  0.2           0.3           0.2 
========================================  =====  ============  ============  ============ 
Cash and cash equivalents at 
 the end of the period                    13             62.8          10.9          32.0 
========================================  =====  ============  ============  ============ 
 1 Acquisition of APP includes 
  GBP1.2 million of transaction 
  costs. 
 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The condensed set of financial statements for the six months ended 30 June 2017 were approved by the Board of Directors on 24 July 2017.

The condensed set of financial statements for the six months ended 30 June 2017 is unaudited and does not constitute statutory accounts within the meaning of S434 of the Companies Act 2006. The financial information contained in this report for the year ended 31 December 2016 does not constitute statutory accounts within the meaning of S434 of the Companies Act 2006 and has been extracted from the statutory accounts, which were prepared in accordance with EU-endorsed International Financial Reporting Standards (IFRSs) and were delivered to the Registrar of Companies. The auditor's opinion on these accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement made under S498(2) or S498(3) of the Companies Act 2006. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest financial statements. A number of amendments to IFRSs became effective for the financial year beginning on 1 January 2017, however the Group did not have to change its accounting policies or make material retrospective adjustments as a result of adopting these new standards. These amendments are listed below:

-- Amendment to IAS 12, 'Income taxes', regarding recognition of deferred tax assets for unrealised losses (Not yet EU endorsed)

-- Amendment to IAS 7, 'Cash flow statements', regarding the Disclosure initiative (Not yet EU endorsed)

-- Annual improvements 2014-2016 IFRS 12, 'Disclosure of interest in other entities' (Not yet EU endorsed)

The condensed set of financial statements has been prepared on a going concern basis. This is discussed in the Financial Review.

The principal exchange rates used to translate foreign currency denominated amounts are:

Balance sheet: GBP1 = EUR1.14 (30 June 2016: GBP1 = EUR1.20; 31 December 2016: GBP1 = EUR1.17)

Income statement: GBP1 = EUR1.16 (30 June 2016: GBP1 = EUR1.28; 31 December 2016: GBP1 = EUR1.22)

The Group's business is not seasonal and the results relate to continuing operations unless otherwise stated.

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. 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. No non-EPRA adjustments to underlying profit were made in the current or comparative periods.

The following table provides a reconciliation of Adjusted profit to IFRS profit:

 
                                              Half year  Half year 
                                                     to         to 
                                                30 June    30 June            Year to 
                                                   2017       2016   31 December 2016 
                                                   GBPm       GBPm               GBPm 
============================================  =========  =========  ================= 
Gross rental income                               127.3      110.7              225.5 
Property operating expenses                      (23.9)     (22.1)             (44.9) 
============================================  =========  =========  ================= 
Net rental income                                 103.4       88.6              180.6 
Joint venture management fee income                16.5        9.1               18.6 
Administration expenses                          (17.5)     (15.5)             (31.4) 
Share of joint ventures' adjusted 
 profit after tax                                  22.1       25.5               55.4 
============================================  =========  =========  ================= 
Adjusted operating profit before 
 interest and tax                                 124.5      107.7              223.2 
Net finance costs                                (33.3)     (33.5)             (68.7) 
============================================  =========  =========  ================= 
Adjusted profit before tax                         91.2       74.2              154.5 
============================================  =========  =========  ================= 
 
Adjustments to reconcile to IFRS: 
Adjustments to the share of profit 
 from joint ventures after tax(1)                  14.2       37.9               29.7 
Profit on sale of investment properties             7.7        6.4               16.4 
Valuation surplus on investment properties        302.9       76.0              231.3 
(Loss)/gain on sale of trading properties             -      (0.1)                0.3 
Increase in provision for impairment 
 of trading properties                            (0.7)      (1.2)              (2.0) 
Goodwill and other amounts written 
 off on acquisitions and amortisation 
 of 
intangibles                                       (0.6)      (0.1)              (0.2) 
Cost of early close out of debt                  (10.6)      (1.0)              (1.0) 
Net fair value (loss)/profit on interest 
 rate swaps and other derivatives                 (7.0)        8.6              (2.6) 
Total adjustments                                 305.9      126.5              271.9 
============================================  =========  =========  ================= 
Profit before tax                                 397.1      200.7              426.4 
============================================  =========  =========  ================= 
Tax 
On Adjusted profit                                (0.7)      (0.8)              (1.8) 
In respect of adjustments                         (8.9)      (5.1)              (5.9) 
============================================  =========  =========  ================= 
                                                  (9.6)      (5.9)              (7.7) 
 
Profit after tax before non-controlling 
 interests                                        387.5      194.8              418.7 
============================================  =========  =========  ================= 
Non-controlling interests: 
Less: share of adjusted profit attributable 
 to non-controlling interests                         -          -              (0.1) 
       : share of adjustments attributable 
        to non-controlling interests              (1.8)      (0.7)              (0.9) 
============================================  =========  =========  ================= 
Profit after tax and non-controlling 
 interests                                        385.7      194.1              417.7 
Of which: 
Adjusted profit after tax                          90.5       73.4              152.6 
Adjustments                                       295.2      120.7              265.1 
============================================  =========  =========  ================= 
Profit after tax                                  385.7      194.1              417.7 
============================================  =========  =========  ================= 
 
 

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

3. SEGMENTAL REPORTING

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

 
                                                    Share                  Total 
                                                 of joint               directly 
                            Gross               ventures'    Adjusted      owned  Investments 
                           rental  Net rental    Adjusted   operating   property     in joint          Capital 
                           income      income      profit        PBIT     assets     ventures   expenditure(2) 
                             GBPm        GBPm        GBPm        GBPm       GBPm         GBPm             GBPm 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
                                                           30 June 
                                                            2017 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
 
Greater London(3)            51.3        47.2       (1.8)        53.7    2,866.9            -          1,144.3 
Thames Valley 
 and National Logistics      49.2        45.7           -        45.6    2,115.8          9.3             45.2 
Northern Europe              10.6         6.0        10.4        18.5      381.4        424.5             28.5 
Southern Europe              13.5         9.7         7.6        18.6      628.6        265.8            110.6 
Central Europe                2.7         1.7         8.2        11.4      129.9        324.6              6.9 
Other(1)                        -       (6.9)       (2.3)      (23.3)          -      (262.9)              0.2 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
Total                       127.3       103.4        22.1       124.5    6,122.6        761.3          1,335.7 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
                                                           30 June 
                                                            2016 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
 
Greater London               38.5        33.5         7.1        44.2    1,740.9        355.9             15.5 
Thames Valley 
 and National Logistics      47.3        43.6           -        43.5    1,805.5         12.5             79.5 
Northern Europe              11.2         7.8         7.5        16.5      402.6        247.5             24.0 
Southern Europe              11.2         7.9         5.0        13.0      358.5        189.4             47.6 
Central Europe                2.5         1.3         6.1         8.8      120.0        230.8              5.8 
Other(1)                        -       (5.5)       (0.2)      (18.3)          -         14.6              0.9 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
Total                       110.7        88.6        25.5       107.7    4,427.5      1,050.7            173.3 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
                                                           31 December 
                                                            2016 
------------------------  -------  ----------  ----------  ---------------------  -----------  --------------- 
 
Greater London               76.7        67.5        14.5        88.5    1,777.5        363.4             28.6 
Thames Valley 
 and National Logistics      95.6        88.7       (0.1)        88.5    1,991.7         12.6            230.2 
Northern Europe              25.0        17.5        16.5        36.5      378.8        396.9             88.4 
Southern Europe              22.9        15.5        12.6        28.9      474.6        222.3            179.5 
Central Europe                5.3         2.9        13.2        19.1      117.2        319.5             10.3 
Other(1)                        -      (11.5)       (1.3)      (38.3)          -      (248.5)              0.8 
========================  =======  ==========  ==========  ==========  =========  ===========  =============== 
Total                       225.5       180.6        55.4       223.2    4,739.8      1,066.2            537.8 
========================  -------  ----------  ----------  ----------  ---------  -----------  --------------- 
 

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. This includes the bond issued and revolving credit facility both held by SELP Finance SARL, a Luxembourg entity, during 2016. This replaced debt held by SELP entities within the business units.

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.

3 Greater London includes the impact of the acquisition of the APP property portfolio during 2017 as discussed further in Note 6.

4. REVENUE

 
                                                                                 Half year  Half year 
                                                                                        to         to       Year to 
                                                                                   30 June    30 June   31 December 
                                                                                      2017       2016          2016 
                                                                                      GBPm       GBPm          GBPm 
===============================================================================  =========  =========  ============ 
Rental income from investment 
 properties                                                                          119.9      103.2         210.6 
Rental income from trading 
 properties                                                                            0.8        0.9           1.8 
Rent averaging                                                                         5.9        6.0          11.8 
Management fees                                                                        0.6        0.6           1.2 
Surrender premiums                                                                     0.1          -           0.1 
Gross rental income                                                                  127.3      110.7         225.5 
Joint venture management fee 
 - property management                                                                 9.0        8.2          17.7 
                                                  - performance and other fees         7.5        0.9           0.9 
Service charge income                                                                 11.2        8.8          19.4 
Proceeds from sale of trading 
 properties                                                                              -        8.1          20.0 
===============================================================================  =========  =========  ============ 
Total revenue                                                                        155.0      136.7         283.5 
===============================================================================  =========  =========  ============ 
 

5. PROPERTY OPERATING EXPENSES

 
                                                     Half year 
                                                            to       Year to 
                                       Half year to    30 June   31 December 
                                       30 June 2017       2016          2016 
                                               GBPm       GBPm          GBPm 
====================================  =============  =========  ============ 
Vacant property costs                           3.0        3.7           5.6 
Letting, marketing, legal and 
 professional fees                              3.7        3.8           7.9 
Bad debt expense                                0.5        0.1           0.2 
Other expenses, net of service 
 charge income                                  4.9        4.2           9.8 
====================================  =============  =========  ============ 
Property management expenses                   12.1       11.8          23.5 
Property administration expenses(1)            13.6       11.8          25.0 
Costs capitalised(2)                          (1.8)      (1.5)         (3.6) 
====================================  =============  =========  ============ 
Total property operating expenses              23.9       22.1          44.9 
====================================  =============  =========  ============ 
 

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 staff costs of those internal employees directly involved in developing the property portfolio.

6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES

6(i) Share of profit from joint ventures after tax

 
                                                            Half year  Half year 
                                                                   to         to       Year to 
                                                              30 June    30 June   31 December 
                                                                 2017       2016          2016 
                                                                 GBPm       GBPm          GBPm 
==========================================================  =========  =========  ============ 
Gross rental income                                              74.5       76.5         165.5 
Property operating expenses 
 -underlying property operating expenses                        (3.0)      (2.3)         (5.7) 
 -vacant property costs                                         (1.1)      (0.9)         (2.1) 
 -property management fees                                      (7.3)      (8.0)        (16.8) 
 -performance and other fees                                    (8.5)      (0.7)         (0.7) 
==========================================================  =========  =========  ============ 
Net rental income                                                54.6       64.6         140.2 
Administration expenses                                         (0.9)      (0.2)         (1.6) 
Net finance costs                                               (6.7)     (12.4)        (24.5) 
==========================================================  =========  =========  ============ 
Adjusted profit before tax                                       47.0       52.0         114.1 
Tax                                                             (2.8)      (1.1)         (3.3) 
==========================================================  =========  =========  ============ 
Adjusted profit after tax                                        44.2       50.9         110.8 
==========================================================  ---------  ---------  ------------ 
At share                                                         22.1       25.5          55.4 
==========================================================  ---------  ---------  ------------ 
 
Adjustments: 
Profit on sale of investment properties                           0.6        4.5           6.9 
Valuation surplus on investment properties                       41.6       51.3          78.6 
Cost of early close out of debt and related derivatives             -      (2.8)        (13.6) 
Goodwill and other amounts written off on acquisitions 
 and amortisation of intangibles                                (0.1)      (0.1)         (2.8) 
Fair value loss realised on interest rate swaps and other 
 derivatives                                                    (6.2)          -             - 
Tax in respect of adjustments                                   (7.5)       22.9         (9.8) 
==========================================================  =========  =========  ============ 
Total adjustments                                                28.4       75.8          59.3 
==========================================================  ---------  ---------  ------------ 
At share                                                         14.2       37.9          29.7 
==========================================================  ---------  ---------  ------------ 
Profit after tax                                                 72.6      126.7         170.1 
==========================================================  ---------  ---------  ------------ 
At share                                                         36.3       63.4          85.1 
==========================================================  ---------  ---------  ------------ 
Other comprehensive income/(loss)                                 6.2      (8.2)         (4.2) 
==========================================================  ---------  ---------  ------------ 
At share                                                          3.1      (4.1)         (2.1) 
==========================================================  ---------  ---------  ------------ 
Total comprehensive income for the year                          78.8      118.5         165.9 
==========================================================  ---------  ---------  ------------ 
At share                                                         39.4       59.3          83.0 
==========================================================  ---------  ---------  ------------ 
 

6(ii) Summarised balance sheet information of the Group's share of joint ventures

 
                                        As at      As at   As at 31 
                                      30 June    30 June   December 
                                         2017       2016       2016 
                                         GBPm       GBPm       GBPm 
=================================    ========  =========  ========= 
Investment properties                 2,307.8    2,966.8    3,210.0 
Other interests in property              14.6       12.8       13.3 
Other investments                           -        0.3        0.2 
===================================  ========  =========  ========= 
Total non-current assets              2,322.4    2,979.9    3,223.5 
===================================  ========  =========  ========= 
 
Trading properties                        1.1        1.1        1.1 
Other receivables                        70.6       76.7       80.9 
Cash                                     76.9      131.5      123.9 
===================================  ========  =========  ========= 
Total current assets                    148.6      209.3      205.9 
===================================  ========  =========  ========= 
Total assets                          2,471.0    3,189.2    3,429.4 
===================================  ========  =========  ========= 
 
Borrowings                            (766.1)    (941.8)  (1,109.1) 
Deferred tax                           (85.6)     (37.8)     (76.0) 
Other liabilities                           -      (1.4)      (5.3) 
===================================  ========  =========  ========= 
Total non-current liabilities         (851.7)    (981.0)  (1,190.4) 
===================================  ========  =========  ========= 
 
Other liabilities                      (96.7)     (95.9)     (99.8) 
Derivative financial instruments            -     (10.8)      (6.9) 
===================================  ========  =========  ========= 
Total current liabilities              (96.7)    (106.7)    (106.7) 
===================================  ========  =========  ========= 
Total liabilities                     (948.4)  (1,087.7)  (1,297.7) 
===================================  ========  =========  ========= 
Net assets                            1,522.6    2,101.5    2,132.3 
===================================  --------  ---------  --------- 
At share                                761.3    1,050.7    1,066.2 
===================================  --------  ---------  --------- 
 

On 9 March 2017 SEGRO acquired the remaining 50 percent interest in the Airport Property Partnership ("APP") joint venture it did not already own. Consequently, the APP share of profit is only included in the above table to 9 March 2017 (the date of acquisition) and no balance sheet in respect of APP is included at 30 June 2017. This asset acquisition transaction has primarily resulted in property acquisitions of GBP1,112.6 million being recognised (see Note 12) and associated net debt of GBP379.2 million (see Note 15).

7. REALISED AND UNREALISED PROPERTY GAIN

 
                                                 Half      Half 
                                                 year      year 
                                                   to        to       Year to 
                                              30 June   30 June   31 December 
                                                 2017      2016          2016 
                                                 GBPm      GBPm          GBPm 
===========================================  ========  ========  ============ 
Profit on sale of investment properties           7.7       6.4          16.4 
Valuation surplus on investment properties      302.9      76.0         231.3 
(Loss)/gain on sale of trading properties           -     (0.1)           0.3 
Increase in provision for impairment 
 of trading properties                          (0.7)     (1.2)         (2.0) 
===========================================  ========  ========  ============ 
Total realised and unrealised property 
 gain                                           309.9      81.1         246.0 
===========================================  ========  ========  ============ 
 

Valuation surpluses are discussed further in the Chief Executive's Review.

8. NET FINANCE COSTS

 
                                                 Half    Half 
                                                 year    year 
                                                   to   to 30       Year to 
                                              30 June    June   31 December 
                                                 2017    2016          2016 
Finance income                                   GBPm    GBPm          GBPm 
===========================================  ========  ======  ============ 
Interest received on bank deposits 
 and related derivatives                         18.3    16.8          32.0 
Fair value gain on interest rate swaps 
 and other derivatives                            6.9    30.1          13.8 
Net interest income on defined benefit 
 obligations                                      0.6     0.5           0.9 
Exchange differences                              0.2     0.3             - 
===========================================  ========  ======  ============ 
Total finance income                             26.0    47.7          46.7 
Finance costs 
===========================================  ========  ======  ============ 
Interest on overdrafts, loans and 
 related derivatives                           (53.5)  (52.1)       (103.4) 
Amortisation of issue costs                     (1.4)   (1.4)         (2.9) 
Net interest expense on defined benefit 
 obligations                                        -       -             - 
Cost of early close out of debt                (10.6)   (1.0)         (1.0) 
Total borrowing costs                          (65.5)  (54.5)       (107.3) 
Less amount capitalised on the development 
 of properties                                    2.5     2.4           5.0 
===========================================  ========  ======  ============ 
Net borrowing costs                            (63.0)  (52.1)       (102.3) 
Fair value loss on interest rate swaps 
 and other derivatives                         (13.9)  (21.5)        (16.4) 
Exchange differences                                -       -         (0.3) 
Total finance costs                            (76.9)  (73.6)       (119.0) 
===========================================  ========  ======  ============ 
Net finance costs                              (50.9)  (25.9)        (72.3) 
===========================================  ========  ======  ============ 
 

9. TAX

9(i) Tax on profit

 
                                                         Half year                 Half year 
                                                                to                        to       Year to 
                                                           30 June                   30 June   31 December 
                                                              2017                      2016          2016 
                                                              GBPm                      GBPm          GBPm 
=======================================================  =========  ========================  ============ 
Tax on: 
Adjusted profits                                             (0.7)                     (0.8)         (1.8) 
In respect of adjustments                                    (8.9)                     (5.1)         (5.9) 
Total tax charge                                             (9.6)                     (5.9)         (7.7) 
=======================================================  =========  ========================  ============ 
 
Current tax 
Current tax charge                                           (3.0)                     (6.4)         (5.6) 
Adjustments in respect of earlier years                        0.1                     (0.1)           0.1 
Total current tax charge                                     (2.9)                     (6.5)         (5.5) 
=======================================================  =========  ========================  ============ 
 
Deferred tax 
Origination and reversal of temporary differences                -                     (0.5)         (1.1) 
Released in respect of property disposals in the 
 year                                                          1.0                         -           4.8 
On valuation movements                                       (7.7)                       1.4         (5.1) 
=======================================================  =========  ========================  ============ 
Total deferred tax in respect of investment properties       (6.7)                       0.9         (1.4) 
Other deferred tax                                               -                     (0.3)         (0.8) 
=======================================================  =========  ========================  ============ 
Total deferred tax                                           (6.7)                       0.6         (2.2) 
=======================================================  =========  ========================  ============ 
Total tax charge on profit on ordinary activities            (9.6)                     (5.9)         (7.7) 
=======================================================  =========  ========================  ============ 
 

9(ii) Deferred tax provision

Movement in deferred tax was as follows:

 
                                Balance                                         Balance              Balance 
                              1 January   Exchange  Recognised  Acquisitions/   30 June              30 June 
                                   2017   movement   in income    (disposals)      2017                 2016 
                                   GBPm       GBPm        GBPm           GBPm      GBPm                 GBPm 
===========================  ==========  =========  ==========  =============  ========  =================== 
Valuation                           8.2        0.3         7.7          (1.0)      15.2                  2.9 
Accelerated tax allowances          6.1        0.2           -              -       6.3                  9.3 
Deferred tax asset 
 on revenue losses                (0.3)          -           -              -     (0.3)                (0.2) 
Others                              2.3          -           -              -       2.3                  1.7 
===========================  ==========  =========  ==========  =============  ========  =================== 
Total deferred tax 
 provision                         16.3        0.5         7.7          (1.0)      23.5                 13.7 
===========================  ==========  =========  ==========  =============  ========  =================== 
 

10. DIVIDS

 
                                  Half year  Half year 
                                         to         to       Year to 
                                    30 June    30 June   31 December 
                                       2017       2016          2016 
                                       GBPm       GBPm          GBPm 
================================  =========  =========  ============ 
Ordinary dividends paid 
 
Final dividend for 2016 @ 10.7 
 pence per share(1)                    93.0          -             - 
Interim dividend for 2016 @ 5.0 
 pence per share(1)                       -          -          39.2 
Final dividend for 2015 @ 10.1 
 pence per share(1)                       -       79.3          79.3 
================================  =========  =========  ============ 
                                       93.0       79.3         118.5 
================================  =========  =========  ============ 
 

1 As adjusted by a bonus adjustment factor, see Note 11.

The Board has declared an interim dividend of 5.25 pence per ordinary share (2016: 5.0 pence). This dividend has not been recognised in the condensed financial statements.

11. EARNINGS AND NET ASSETS PER ORDINARY SHARE

The earnings per share calculations use the weighted average number of shares in issue during the period and the net assets per share calculations use the number of shares in issue at the period end. Earnings per share calculations exclude 1.4 million shares (1.5 million for the full year 2016 and 1.5 million for half year 2016) being the average number of shares held on trust during the period for employee share schemes and net assets per share exclude 1.2 million shares (1.4 million for the full year 2016 and 1.5 million for the half year 2016) being the actual number of shares held on trust for employee share schemes at period end.

11(i) Earnings per ordinary share (EPS)

 
                           Half year to               Half year to 30 June              Year to 31 December 
                           30 June 2017                       2016                              2016 
                    ==========================  ================================  ================================ 
                                         Pence                             Pence                             Pence 
                    Earnings    Shares     per  Earnings       Shares        per  Earnings       Shares        per 
                        GBPm   million   share      GBPm   million(3)   share(3)      GBPm   million(3)   share(3) 
==================  ========  ========  ======  ========  ===========  =========  ========  ===========  ========= 
Basic EPS              385.7     934.0    41.3     194.1        782.4       24.8     417.7        809.9       51.6 
Dilution 
adjustments: 
Employee share 
 schemes                   -       5.1   (0.2)         -          3.8      (0.1)         -          4.6      (0.3) 
==================  ========  ========  ======  ========  ===========  =========  ========  ===========  ========= 
Diluted EPS            385.7     939.1    41.1     194.1        786.2       24.7     417.7        814.5       51.3 
==================  ========  ========  ======  ========  ===========  =========  ========  ===========  ========= 
 
Basic EPS              385.7     934.0    41.3     194.1        782.4       24.8     417.7        809.9       51.6 
Adjustments to 
 profit 
 before tax(1)       (305.9)            (32.8)   (126.5)                  (16.2)   (271.9)                  (33.6) 
Deferred tax on 
 investment 
 property 
 which does not 
 crystallise 
 unless sold             6.7               0.8     (0.9)                   (0.1)       1.4                     0.2 
Other tax                2.2               0.2       6.0                     0.8       4.5                     0.5 
Non-controlling 
 interest on 
 adjustments             1.8               0.2       0.7                     0.1       0.9                     0.1 
Adjusted EPS(2)         90.5     934.0     9.7      73.4        782.4        9.4     152.6        809.9       18.8 
==================  ========  ========  ======  ========  ===========  =========  ========  ===========  ========= 
 

1 Details of adjustments are included in Note 2.

2 Based on basic number of shares.

3 Comparative number of shares and pence per share re-presented for a bonus adjustment factor of 1.046.

On 28 March 2017, the Company issued 166,033,133 new ordinary shares of 10 pence each through a rights issue. Further details of the rights issue are provided in Note 14. To reflect the rights issue, the number of shares previously used to calculate basic and diluted and earnings per share and adjusted earnings per share have been amended in the table above. A bonus adjustment factor of 1.046 has been applied, based on the ratio of an adjusted closing share price of 468.6 pence per share on 10 March 2017, the business day before the shares started trading ex-rights and the theoretical ex-rights price at that date of 448.0 pence per share.

Prior to this re-presentation, the EPS for the half year to June 2016 was 25.9 pence (basic), 25.8 pence (diluted) and 9.8 pence (adjusted). The EPS for the full year to December 2016 prior to this re-presentation was 53.9 pence (basic), 53.6 pence (diluted) and 19.7 pence (adjusted).

11(ii) Net asset value per share (NAV)

 
                      As at 30 June                     As at 30 June                     As at 31 December 
                           2017                              2016                                2016 
               ============================  ===================================  ================================== 
                     Equity                        Equity                               Equity 
               attributable                  attributable                         attributable 
                to ordinary           Pence   to ordinary                  Pence   to ordinary                 Pence 
               shareholders   Shares    per  shareholders      Shares        per  shareholders      Shares       per 
                       GBPm  million  share          GBPm  million(1)   share(1)          GBPm  million(1)  share(1) 
=============  ============  =======  =====  ============  ==========  =========  ============  ==========  ======== 
Basic NAV           5,054.1    997.3    507       3,648.9       786.9        464       4,182.1       866.8       482 
Dilution 
adjustments: 
Employee 
 schemes                  -      5.6    (3)             -         3.9        (3)             -         4.7       (2) 
=============  ============  =======  =====  ============  ==========  =========  ============  ==========  ======== 
Diluted NAV         5,054.1  1,002.9    504       3,648.9       790.8        461       4,182.1       871.5       480 
Fair value 
 adjustment 
 in respect 
 of interest 
 rate swap 
 derivatives 
 - Group             (64.1)             (6)        (90.6)                   (11)        (76.5)                   (9) 
Fair value 
 adjustment 
 in respect 
 of interest 
 rate swap 
 derivatives 
 - Joint 
 ventures                 -               -           5.4                      -           3.4                     - 
Deferred tax 
 in 
 respect of 
 depreciation 
 and 
 valuation 
 surpluses 
 - Group               20.4               2          12.2                      2          14.3                     2 
Deferred tax 
 in 
 respect of 
 depreciation 
 and 
 valuation 
 surpluses 
 - Joint 
 ventures              43.1               4          17.9                      2          38.8                     5 
=============  ============  =======  =====  ============  ==========  =========  ============  ==========  ======== 
EPRA NAV            5,053.5  1,002.9    504       3,593.8       790.8        454       4,162.1       871.5       478 
=============  ============  =======  =====  ============  ==========  =========  ============  ==========  ======== 
Fair value 
 adjustment 
 in respect 
 of debt 
 - Group            (325.9)            (32)       (352.7)                   (45)       (359.7)                  (41) 
Fair value 
 adjustment 
 in respect 
 of debt 
 - Joint 
 ventures               0.6               -        (10.7)                    (1)           0.2                     - 
Fair value 
 adjustment 
 in respect 
 of interest 
 rate swap 
 derivatives 
 - Group               64.1               6          90.6                     11          76.5                     9 
Fair value 
 adjustment 
 in respect 
 of interest 
 rate swap 
 derivatives 
 - Joint 
 ventures                 -               -         (5.4)                      -         (3.4)                     - 
Deferred tax 
 in 
 respect of 
 depreciation 
 and 
 valuation 
 surpluses 
 - Group             (20.4)             (2)        (12.2)                    (2)        (14.3)                   (2) 
Deferred tax 
 in 
 respect of 
 depreciation 
 and 
 valuation 
 surpluses 
 - Joint 
 ventures            (43.1)             (4)        (17.9)                    (2)        (38.8)                   (5) 
=============  ============  =======  =====  ============  ==========  =========  ============  ==========  ======== 
EPRA triple 
 net 
 NAV (NNNAV)        4,728.8  1,002.9    472       3,285.5       790.8        415       3,822.6       871.5       439 
=============  ============  =======  =====  ============  ==========  =========  ============  ==========  ======== 
 

1 Comparative number of shares and pence per share re-presented for a bonus adjustment factor of 1.046.

As set out in Note 11(i), the number of shares used to calculate basic and diluted NAV and EPRA and EPRA triple net NAV have been amended in the table above by a bonus adjustment factor of 1.046.

Prior to this re-presentation, the NAV for the half year to June 2016 was 485 pence (basic), 483 pence (diluted), 475 pence (EPRA) and 435 pence (EPRA triple net). The NAV for the full year to December 2016 prior to this re-presentation was 505 pence (basic), 502 pence (diluted), 500 pence (EPRA) and 459 pence (EPRA triple net).

12. PROPERTIES

12(i) Investment properties

 
                                              Completed  Development    Total 
                                                   GBPm         GBPm     GBPm 
============================================  =========  ===========  ======= 
At 1 January 2017                               4,045.2        597.7  4,642.9 
Exchange movement                                  18.0          9.5     27.5 
Property acquisitions                           1,082.1         61.5  1,143.6 
Additions to existing investment properties         7.9        184.0    191.9 
Disposals                                       (212.9)       (71.0)  (283.9) 
Transfers between completed and development 
 properties                                        47.0       (47.0)        - 
Revaluation surplus during the period             261.0         41.9    302.9 
============================================  =========  ===========  ======= 
At 30 June 2017                                 5,248.3        776.6  6,024.9 
 
Add tenant lease incentives, letting 
 fees and rental guarantees                        72.3            -     72.3 
Total investment properties at 30 June 
 2017                                           5,320.6        776.6  6,097.2 
============================================  =========  ===========  ======= 
 
Total investment properties at 30 June 
 2016                                           3,875.2        519.3  4,394.5 
============================================  =========  ===========  ======= 
 

Investment properties are stated at fair value based on external valuations performed by independent, professionally qualified valuers. The Group's wholly owned property portfolio and all its joint venture properties were performed by CBRE Ltd. The valuations conform to International Valuation Standards and were arrived at by reference to market evidence of the transaction prices paid for similar properties. In estimating the fair value of the properties, the valuers consider the highest and best use of the properties. There has been no change in the valuation technique during the period. The valuation surplus recognised during the period is discussed further in the Chief Executive's Review.

CBRE Ltd also undertake some professional and agency work on behalf of the Group, although this is limited in relation to the activities of the Group as a whole. CBRE Ltd advise us that the total fees paid by the Group represent less than 5 per cent of their total revenue in any year.

Completed properties include buildings that are occupied or are available for occupation. Development properties include land available for development (land bank), land under development and construction in progress.

Property acquisitions include GBP1,112.6 million in respect of the APP property portfolio acquisition, discussed further in Note 6.

At 30 June 2017 investment properties included GBP72.3 million tenant lease incentives, letting fees and rent guarantees (31 December 2016: GBP71.5 million; 30 June 2016: GBP73.6 million).

In July 2017, the Group completed the disposal of a warehouse in France valued at GBP29.6 million.

12(ii) Trading properties

 
                                       Completed  Development   Total 
                                            GBPm         GBPm    GBPm 
=====================================  =========  ===========  ====== 
At 1 January 2017                           15.1          9.9    25.0 
Exchange movement                            0.4          0.3     0.7 
Increase in provision for impairment 
 in the period                             (0.7)            -   (0.7) 
=====================================  =========  ===========  ====== 
At 30 June 2017                             14.8         10.2    25.0 
=====================================  =========  ===========  ====== 
 
Add tenant lease incentives, letting 
 fees and rental guarantees                  0.4            -     0.4 
Total trading properties at 30 June 
 2017                                       15.2         10.2    25.4 
=====================================  =========  ===========  ====== 
 
Total trading properties at 30 June 
 2016                                       15.5         17.5    33.0 
=====================================  =========  ===========  ====== 
 

Trading properties were externally valued resulting in a net increase in the provision for impairment of GBP0.7 million (31 December 2016: GBP2.0 million; 30 June 2016: GBP1.2 million).

At 30 June 2017 trading properties included GBP0.4 million tenant lease incentives, letting fees and rental guarantees (31 December 2016: GBP0.4 million; 30 June 2016: GBP0.3 million).

13. NET BORROWINGS AND FINANCIAL INSTRUMENTS

 
                                           30 June  30 June  31 December 
                                              2017     2016         2016 
                                              GBPm     GBPm         GBPm 
=========================================  =======  =======  =========== 
In one year or less                          320.0        -            - 
=========================================  =======  =======  =========== 
In more than one year but less 
 than two                                        -        -        199.6 
In more than two years but less 
 than five                                 1,063.5    849.9        860.6 
In more than five years but less 
 than ten                                    222.6    669.6        371.9 
In more than ten years                       198.3    198.3        198.3 
=========================================  =======  =======  ----------- 
In more than one year                      1,484.4  1,717.8      1,630.4 
=========================================  =======  =======  =========== 
Total borrowings                           1,804.4  1,717.8      1,630.4 
=========================================  =======  =======  =========== 
Cash and cash equivalents                   (62.8)   (10.9)       (32.0) 
Net borrowings                             1,741.6  1,706.9      1,598.4 
 
Total borrowings is split between 
 secured and unsecured as follows: 
Secured (on land and buildings)              323.8      4.0          3.9 
Unsecured                                  1,480.6  1,713.8      1,626.5 
=========================================  =======  =======  =========== 
Total borrowings                           1,804.4  1,717.8      1,630.4 
=========================================  =======  =======  =========== 
 
Currency profile of total borrowings 
 after derivative instruments 
Sterling                                     651.8    426.4        562.4 
Euros                                      1,168.4  1,305.1      1,083.3 
US dollars                                  (15.8)   (13.7)       (15.3) 
Total borrowings                           1,804.4  1,717.8      1,630.4 
=========================================  =======  =======  =========== 
 
Maturity profile of undrawn borrowing 
 facilities 
In one year or less                            5.0      5.0          5.0 
In more than one year but less 
 than two                                        -        -            - 
In more than two years                       576.2    423.9        529.9 
=========================================  =======  =======  =========== 
Total available undrawn facilities           581.2    428.9        534.9 
=========================================  =======  =======  =========== 
 
Fair value of financial instruments 
Book value of debt                         1,804.4  1,717.8      1,630.4 
Interest rate derivatives                   (64.1)   (90.6)       (76.5) 
Foreign exchange derivatives                  11.6    127.1          9.6 
=========================================  =======  =======  =========== 
Book value of debt including derivatives   1,751.9  1,754.3      1,563.5 
Net fair market value                      2,077.8  2,107.0      1,923.2 
=========================================  =======  =======  =========== 
Mark to market adjustment (pre-tax)          325.9    352.7        359.7 
=========================================  =======  =======  =========== 
 

The Group announced in July 2017 that it had signed a EUR650 million US Private Placement Debt issuance. The weighted average coupon is 1.9 per cent and the weighted average maturity is 11.2 years. Closing and funding of the transaction will occur in August 2017. This is discussed further in the Finance Review.

Furthermore, on 6 July 2017 SEGRO gave notice to the lenders of its intention to repay its GBP320 million syndicated term loan, which was acquired through the Airport Property Partnership transaction. On 17 July 2017 the loan was prepaid, prior to its contractual maturity date. This liability has been shown in current liabilities in the balance sheet. This is discussed further in the Finance Review.

Fair value measurements recognised in the Balance Sheet

The financial instruments that are measured subsequent to initial recognition at fair value are available-for-sale investments, forward exchange and currency swap contracts and interest rate swaps. All of these financial instruments would be classified as level 2 fair value measurements, as defined by IFRS 13, being those derived from inputs other than quoted prices (included within level 1) that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). There were no transfers between categories in the current or prior year.

The fair values of financial assets and financial liabilities are determined as follows:

- Forward foreign exchange contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates with matching maturities of the contracts.

- Interest rate swaps and currency swap contracts are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates and the appropriate exchange rate at the Balance Sheet date.

- The fair value of non-derivative financial assets and financial liabilities traded on active liquid markets is determined with reference to the quoted market prices. Unlisted investments, such as those classified as available-for-sale investments, are typically valued by the Fund Manager based on the amount at which the asset would be exchanged between knowledgeable, willing parties in an arm's length transaction. The methodology used to estimate fair value will depend on the nature and facts and circumstances of the investment but will use one of the following bases: transaction value, earnings multiple, net assets, price of recent investment and sale price, where appropriate a marketability discount will be applied.

14. SHARE CAPITAL

 
                                               Number   Par value 
                                            of shares   of shares 
                                                 GBPm        GBPm 
=========================================  ==========  ========== 
Issued and fully paid ordinary shares at 
 10p each: 
At 1 January 2017                               830.1        83.0 
Issue of shares - rights issue                  166.0        16.6 
Issue of shares - scrip dividends                 2.1         0.2 
Issue of shares - other                           0.3           - 
=========================================  ==========  ========== 
At 30 June 2017                                 998.5        99.8 
=========================================  ==========  ========== 
 
At 30 June 2016                                 753.7        75.4 
=========================================  ==========  ========== 
 

On 10 March 2017 the Company announced a 1 for 5 rights issue of 166,033,133 ordinary shares of 10 pence each in the capital of the Company at a price of 345 pence per share. The combined impact was that the Company raised a total of GBP572.8 million, before GBP16.3 million expenses, and as a result on 28 March 2017 the Company's share capital increased by GBP16.6 million and share premium by GBP539.9 million.

On 4 May 2017 the Company issued 2,098,735 shares relating to the scrip dividend in respect of the 2016 final dividend.

15. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT

15(i) Reconciliation of cash generated from operations

 
                                            Half year  Half year                          Year 
                                                   to         to                            to 
                                              30 June    30 June                   31 December 
                                                 2017       2016                          2016 
                                                 GBPm       GBPm                          GBPm 
==========================================  =========  =========  ============================ 
Operating profit                                448.0      226.6                         498.7 
Adjustments for: 
  Depreciation of property, plant 
   and equipment                                  1.0        1.5                           3.1 
  Share of profit from joint ventures 
   after tax                                   (36.3)     (63.4)                        (85.1) 
  Profit on sale of investment properties       (7.7)      (6.4)                        (16.4) 
  Goodwill and other amounts written 
   off on acquisitions and amortisation 
   of intangibles                                 0.6        0.1                           0.2 
  Revaluation surplus on investment 
   properties                                 (302.9)     (76.0)                       (231.3) 
  Pension settlement costs                          -          -                         (2.3) 
  Pensions and other provisions                     -      (3.2)                         (1.2) 
==========================================  =========  =========  ============================ 
                                                102.7       79.2                         165.7 
Changes in working capital: 
Decrease in trading properties                    0.7        9.0                          17.6 
Decrease/(increase) in debtors                    7.9     (15.3)                        (31.2) 
Increase in creditors                             4.9       25.9                           4.6 
==========================================  =========  =========  ============================ 
Net cash inflow generated from 
 operations                                     116.2       98.8                         156.7 
==========================================  =========  =========  ============================ 
 

15(ii) Analysis of net debt

 
                                                             Non-cash adjustments 
                                                           ========================= 
                                                                               Other 
                      At 1 January                   Cash   Exchange        non-cash  At 30 June 
                              2017  Acquired(2)      flow   movement   Adjustment(1)        2017 
                              GBPm         GBPm      GBPm       GBPm            GBPm        GBPm 
====================  ============  ===========  ========  =========  ==============  ========== 
Bank loans and loan 
 capital                   1,642.8        390.4   (221.6)        3.9               -     1,815.5 
Capitalised finance 
 costs                      (12.4)            -     (0.4)          -             1.7      (11.1) 
 
Total borrowings           1,630.4        390.4   (222.0)        3.9             1.7     1,804.4 
Cash in hand and 
 at bank(3)                 (32.0)       (11.2)    (19.4)      (0.2)               -      (62.8) 
====================  ============  ===========  ========  =========  ==============  ========== 
Net debt                   1,598.4        379.2   (241.4)        3.7             1.7     1,741.6 
====================  ============  ===========  ========  =========  ==============  ========== 
 

1 The other non-cash adjustment relates to the amortisation of issue costs offset against borrowings and the cost of early close out of debt.

2 Acquired represents cash and debt assumed from the APP asset acquisition as detailed further in Note 6.

3 Total increase in cash and cash equivalents of GBP30.6 million as detailed in the cash flow statement compromise an increase in cash of GBP19.4 million and cash acquired in the APP property transaction of GBP11.2 million.

16. RELATED PARTY TRANSACTIONS

There have been no undisclosed material changes in the related party transactions as described in the last annual report, other than those disclosed elsewhere in this condensed set of financial statements.

SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL INFORMATION

TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY

 
 
                             Half year to 30 June 2017  Half year to 30 June 2016  Year to 31 December 2016 
                             =========================  =========================  ========================= 
                      Notes      GBPm  Pence per share      GBPm  Pence per share      GBPm  Pence per share 
==================  =======  ========  ===============  ========  ===============  ========  =============== 
EPRA Earnings       Table 2      90.5              9.7      73.4              9.4     152.6             18.8 
EPRA NAV            Table 3   5,053.5              504   3,593.8              454   4,162.1              478 
EPRA NNNAV               11   4,728.8              472   3,285.5              415   3,822.6              439 
EPRA net initial 
 yield              Table 4                       4.7%                       4.9%                       4.8% 
EPRA 'topped up' 
 net initial yield  Table 4                       5.0%                       5.4%                       5.3% 
EPRA vacancy rate   Table 5                       5.5%                       4.8%                       5.7% 
Total EPRA cost 
 ratio (including 
 vacant property 
 costs)             Table 6                      22.9%                      23.2%                      23.0% 
Total EPRA cost 
 ratio (excluding 
 vacant property 
 costs)             Table 6                      20.7%                      20.4%                      20.8% 
==================  =======  ========  ===============  ========  ===============  ========  =============== 
 
 

TABLE 2: EPRA INCOME STATEMENT, PROPORTIONAL CONSOLIDATION

 
 
                         Half year to June 2017            Half year to June 2016                Year to December 2016 
                         ======================  ==========================================  ============================== 
                          Group      JV   Total              Group         JV         Total           Group      JV   Total 
                  Notes    GBPm    GBPm    GBPm               GBPm       GBPm          GBPm            GBPm    GBPm    GBPm 
================  =====  ======  ======  ======  =================  =========  ============  ==============  ======  ====== 
Gross rental 
 income            2, 6   127.3    37.3   164.6              110.7       38.3         149.0           225.5    82.7   308.2 
Property 
 operating 
 expenses          2, 6  (23.9)  (10.0)  (33.9)             (22.1)      (6.0)        (28.1)          (44.9)  (12.6)  (57.5) 
================  =====  ======  ======  ======  =================  =========  ============  ==============  ======  ====== 
Net rental 
 income                   103.4    27.3   130.7               88.6       32.3         120.9           180.6    70.1   250.7 
Joint venture 
 management fee 
 income               2    16.5       -    16.5                9.1          -           9.1            18.6       -    18.6 
Administration 
 expenses             2  (17.5)   (0.4)  (17.9)             (15.5)      (0.1)        (15.6)          (31.4)   (0.8)  (32.2) 
EPRA operating 
 PBIT                     102.4    26.9   129.3               82.2       32.2         114.4           167.8    69.3   237.1 
Net finance 
 costs             2, 6  (33.3)   (3.4)  (36.7)             (33.5)      (6.2)        (39.7)          (68.7)  (12.2)  (80.9) 
================  =====  ======  ======  ======  =================  =========  ============  ==============  ======  ====== 
EPRA PBT                   69.1    23.5    92.6               48.7       26.0          74.7            99.1    57.1   156.2 
Tax on EPRA 
 profit            2, 6   (0.7)   (1.4)   (2.1)              (0.8)      (0.5)         (1.3)           (1.8)   (1.7)   (3.5) 
================  =====  ======  ======  ======  =================  =========  ============  --------------  ------  ------ 
EPRA profit 
 after tax                 68.4    22.1    90.5               47.9       25.5          73.4            97.3    55.4   152.7 
                                                                                             --------------  ------  ------ 
Non-controlling 
 interest on 
 EPRA profit                  -       -       -                  -          -             -           (0.1)       -   (0.1) 
                                                                                             ==============  ======  ====== 
EPRA profit 
 after tax and 
 non-controlling 
 interests                 68.4    22.1    90.5               47.9       25.5          73.4            97.2    55.4   152.6 
Number of shares                          934.0                                       782.4                           809.9 
EPRA EPS, pence 
 per share                                  9.7                                         9.4                            18.8 
================  =====  ======  ======  ======  =================  =========  ============  ==============  ======  ====== 
 
 

For the period presented EPRA EPS is the same as Adjusted EPS.

TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION

 
 
                            Half year to June 2017      Half year to June 2016            Year to December 2016 
                     =============================  ===============================  =============================== 
                         Group       JV      Total      Group         JV      Total      Group         JV      Total 
              Notes       GBPm     GBPm       GBPm       GBPm       GBPm       GBPm       GBPm       GBPm       GBPm 
============  =====  =========  =======  =========  =========  =========  =========  =========  =========  ========= 
Investment 
 properties   12, 6    6,097.2  1,153.9    7,251.1    4,394.5    1,483.4    5,877.9    4,714.4    1,605.0    6,319.4 
Trading 
 properties   12, 6       25.4      0.5       25.9       33.0        0.5       33.5       25.4        0.6       26.0 
                                                                                     =========  =========  ========= 
Total 
 properties            6,122.6  1,154.4    7,277.0    4,427.5    1,483.9    5,911.4    4,739.8    1,605.6    6,345.4 
Investment 
 in joint 
 ventures         6      761.3  (761.3)          -    1,050.7  (1,050.7)          -    1,066.2  (1,066.2)          - 
Other net 
 liabilities            (88.2)   (48.5)    (136.7)    (122.4)     (28.0)    (150.4)     (25.5)     (46.8)     (72.3) 
Net debt      13, 6  (1,741.6)  (344.6)  (2,086.2)  (1,706.9)    (405.2)  (2,112.1)  (1,598.4)    (492.6)  (2,091.0) 
============  =====  =========  =======  =========  =========  =========  =========  =========  =========  ========= 
Net asset 
 value                 5,054.1        -    5,054.1    3,648.9          -    3,648.9    4,182.1          -    4,182.1 
EPRA 
 adjustments     11                          (0.6)                           (55.1)                           (20.0) 
============  =====  =========  =======  =========  =========  =========  =========  =========  =========  ========= 
EPRA net 
 asset value                               5,053.5                          3,593.8                          4,162.1 
Number of 
 shares                                    1,002.9                            790.8                            871.5 
============  =====  =========  =======  =========  =========  =========  =========  =========  =========  ========= 
EPRA NAV, 
 pence per 
 share                                         504                              454                              478 
============  =====  =========  =======  =========  =========  =========  =========  =========  =========  ========= 
 
 

TABLE 4: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL YIELD

 
                                                              Continental 
Combined property portfolio - 30              Notes       UK       Europe    Total 
 June 2017                                              GBPm         GBPm     GBPm 
==========================================  =======  =======  ===========  ======= 
                                              Table 
Total properties per financial statements         3  4,982.8      2,294.2  7,277.0 
==========================================  =======  =======  ===========  ======= 
Adjustments                                                --                    - 
Combined property portfolio per 
 external valuers' report                            4,982.8      2,294.2  7,277.0 
===================================================  =======  ===========  ======= 
Less development properties (investment, 
 trading and joint venture)                          (364.2)      (516.4)  (880.6) 
Less other properties                                      --                    - 
Net valuation of completed properties                4,618.6      1,777.8  6,396.4 
Add notional purchasers' costs                         311.1         89.1    400.2 
===================================================  =======  ===========  ======= 
Gross valuation of completed properties 
 including notional purchasers' costs             A  4,929.7      1,866.9  6,796.6 
Income 
==========================================  =======  =======  ===========  ======= 
Gross passing rents(1)                                 209.6        115.0    324.6 
Less irrecoverable property costs                      (2.9)        (5.2)    (8.1) 
===================================================  =======  ===========  ======= 
Net passing rents                                 B    206.7        109.8    316.5 
Adjustment for notional rent in 
 respect of rent frees                                  14.2         11.1     25.3 
===================================================  =======  ===========  ======= 
Topped up net rent                                C    220.9        120.9    341.8 
Including fixed minimum uplifts 
 received in lieu of rental growth(2)                    8.8          0.9      9.7 
===================================================  =======  ===========  ======= 
Total topped up net rent                               229.7        121.8    351.5 
===================================================  =======  ===========  ======= 
 
Yields - 30 June 2017                                      %%                    % 
==========================================  =======  =======   ==========  ======= 
EPRA net initial yield                          B/A      4.2          5.9      4.7 
EPRA topped up net initial yield                C/A      4.5          6.5      5.0 
True net equivalent yield                                5.4          6.4      5.7 
===================================================  =======  ===========  ======= 
 

1 Gross passing rent excludes short term lettings and licences.

2 Certain leases contain clauses which guarantee future rental increases, whereas most leases contain five yearly, upwards-only rent review clauses (UK) or indexation clauses (Continental Europe).

TABLE 5: EPRA VACANCY RATE

 
                                        Half year  Half year 
                                               to         to       Year to 
                                          30 June    30 June   31 December 
                                             2017       2016          2016 
                                             GBPm       GBPm          GBPm 
======================================  =========  =========  ============ 
Annualised potential rental value 
 of vacant premises                          21.2       16.0          20.3 
Annualised potential rental value 
 for the completed property portfolio       383.5      334.4         354.0 
EPRA vacancy rate                            5.5%       4.8%          5.7% 
======================================  =========  =========  ============ 
 

TABLE: 6 EPRA COST RATIO

 
                                                                         Half year  Half year 
                                                                                to         to       Year to 
                                                                           30 June    30 June   31 December 
                                                                              2017       2016          2016 
                                                                  Notes       GBPm       GBPm          GBPm 
================================================================  =====  =========  =========  ============ 
Costs 
Property operating expenses(1)                                        5       23.9       22.1          44.9 
Administration expenses                                                       17.5       15.5          31.4 
Share of joint venture property 
 operating and administration 
 expenses(2)                                                          6        6.1        5.7          13.1 
Less: 
Joint venture property management 
 income fee and management 
 fees(3)                                                                    (10.0)      (8.8)        (18.9) 
================================================================  =====  =========  =========  ============ 
Total costs (A)                                                               37.5       34.5          70.5 
 
Group vacant property costs                                           5      (3.0)      (3.7)         (5.6) 
Share of joint venture vacant 
 property costs                                                       6      (0.6)      (0.5)         (1.1) 
================================================================  =====  =========  =========  ============ 
Total costs excluding vacant 
 property costs (B)                                                           33.9       30.3          63.8 
 
Gross rental income (excluding 
 management fees) 
Gross rental income                                                          126.7      110.1         224.3 
Share of joint venture property 
 gross rental income                                                          36.9       38.3          82.7 
================================================================  =====  =========  =========  ============ 
Total gross rental income 
 (C)                                                                         163.6      148.4         307.0 
 
                                                                                 %%                       % 
================================================================         =========   ========  ============ 
Total EPRA cost ratio (including 
 vacant property costs) (A)/(C)                                               22.9       23.2          23.0 
================================================================         =========  =========  ============ 
Total EPRA cost ratio (excluding vacant property costs) (B)/(C)               20.7       20.4          20.8 
                                                                                    =========  ============ 
 
Total costs (A)                                                               37.5       34.5          70.5 
Share based payments                                                         (4.2)      (2.6)         (6.1) 
                                                                                    =========  ============ 
Total costs after share based 
 payments (D)                                                                 33.3       31.9          64.4 
Total gross rental income (C)                                                163.6      148.4         307.0 
                                                                                    =========  ============ 
Total cost ratio after share based payments                                  20.4%      21.5%         21.0% 
                                                                                    =========  ============ 
 

1 Property operating expenses are net of costs capitalised in accordance with IFRS of GBP1.8 million (H1 2016: GBP1.5 million, FY 2016: GBP3.6 million) (see Note 5 for further detail on the nature of costs capitalised).

2 Share of joint venture property operating and administration expenses after deducting costs related to performance and other fees.

3 Includes joint venture property management fee income of GBP9.0 million and management fees (including joint ventures) of GBP1.0 million (H1 2016: GBP8.2 million and GBP0.6 million respectively, FY 2016: GBP17.7 million and GBP1.2 million respectively).

GLOSSARY OF TERMS

APP: Airport Property Partnership, a 50-50 joint venture between SEGRO and Aviva Investors, now fully owned by SEGRO.

Bonus adjustment factor: Under IFRS accounting standards, historic per share metrics (primarily earnings, net asset value and dividend) are required to be adjusted for the bonus element of a rights issue so that the history is comparable. The adjustment factor for the bonus element is calculated as the closing share price before the ex-rights date divided by the theoretical ex-rights price of the share. For SEGRO's March 2017 rights issue, the bonus adjustment factor applied is 1.046.

Completed portfolio: The completed investment properties and the Group's share of joint ventures' completed investment properties. Includes properties held throughout the period, completed developments and properties acquired during the period.

Development pipeline: The Group's current programme of developments authorised or in the course of construction at the balance sheet date (current development pipeline), together with potential schemes not yet commenced on land owned or controlled by the Group (future development pipeline). Within the future development pipeline are pre-let and speculative development projects which management expects to approve over the next twelve months or which have been approved but are subject to final planning approval or other conditions being met ("near-term" development pipeline).

EPRA: The European Public Real Estate Association, a real estate industry body, which has issued Best Practices Recommendations Guidelines in order to provide consistency and transparency in real estate reporting across Europe.

Estimated cost to completion: Costs still to be expended on a development or redevelopment to practical completion, including attributable interest.

Estimated rental value (ERV): The estimated annual market rental value of lettable space as determined biannually by the Group's valuers. This will normally be different from the rent being paid.

Gearing: Net borrowings divided by total shareholders' equity excluding intangible assets and deferred tax provisions.

Gross rental income: Contracted rental income recognised in the period in the Income Statement, including surrender premiums. Lease incentives, initial costs and any contracted future rental increases are amortised on a straight line basis over the lease term.

Headline rent: The annual rental income currently receivable on a property as at the balance sheet date (which may be more or less than the ERV) ignoring any rent-free period.

Hectares (Ha): The area of land measurement used in this analysis. The conversion factor used, where appropriate, is 1 hectare = 2.471 acres.

Investment property: Completed land and buildings held for rental income return and/or capital appreciation.

Joint venture: An entity in which the Group holds an interest and which is jointly controlled by the Group and one or more partners under a contractual arrangement whereby decisions on financial and operating policies essential to the operation, performance and financial position of the venture require each partner's consent.

Loan to value (LTV): Net borrowings divided by the carrying value of total property assets (investment, owner occupied and trading properties). This is reported on a 'look--through' basis (including joint ventures at share).

MSCI-IPD: MSCI Real Estate calculates the IPD indices of real estate performance around the world.

Net initial yield: Passing rent less non-recoverable property expenses such as empty rates, divided by the property valuation plus notional purchasers' costs. This is in accordance with EPRA's Best Practices Recommendations.

Net rental income: Gross rental income less ground rents paid, net service charge expenses and property operating expenses.

Net true equivalent yield: The internal rate of return from an investment property, based on the value of the property assuming the current passing rent reverts to ERV and assuming the property becomes fully occupied over time. Rent is assumed to be paid quarterly in advance, in line with standard UK lease terms.

Passing rent: The annual rental income currently receivable on a property as at the Balance Sheet date (which may be more or less than the ERV). Excludes rental income where a rent free period is in operation. Excludes service charge income (which is netted off against service charge expenses).

Pre-let: A lease signed with an occupier prior to commencing construction of a building.

REIT: A qualifying entity which has elected to be treated as a Real Estate Investment Trust for tax purposes. In the UK, such entities must be listed on a recognised stock exchange, must be predominantly engaged in property investment activities and must meet certain ongoing qualifications. SEGRO plc and its UK subsidiaries achieved REIT status with effect from 1 January 2007.

Rent-free period: An incentive provided usually at commencement of a lease during which a customer pays no rent. The amount of rent free is the difference between passing rent and headline rent.

Rent roll: See Passing Rent.

SELP: SEGRO European Logistics Partnership, a 50-50 joint venture between SEGRO and Public Sector Pension Investment Board (PSP Investments).

SIIC: Sociétés d'investissements Immobiliers Cotées are the French equivalent of UK Real Estate Investment Trusts (see REIT).

Speculative development: Where a development has commenced prior to a lease agreement being signed in relation to that development.

Square metres (sq m): The area of buildings measurements used in this analysis. The conversion factor used, where appropriate, is one square metre = 10.7639 square feet.

Take-back: Rental income lost due to lease expiry, exercise of break option, surrender or insolvency.

Topped up net initial yield: Net initial yield adjusted to include notional rent in respect of let properties which are subject to a rent free period at the valuation date. This is in accordance with EPRA's Best Practices Recommendations.

Total property return (TPR): A measure of the ungeared return for the portfolio and is calculated as the change in capital value, less any capital expenditure incurred, plus net income, expressed as a percentage of capital employed over the period concerned, as calculated by MSCI Real Estate and excluding land.

Total shareholder return (TSR): A measure of return based upon share price movement over the period and assuming reinvestment of dividends.

Trading property: Property being developed for sale or one which is being held for sale after development is complete.

Yield on cost: The expected gross yield based on the estimated current market rental value (ERV) of the developments when fully let, divided by the book value of the developments at the earlier of commencement of the development or the balance sheet date plus future development costs and estimated finance costs to completion.

Yield on new money: The yield on cost excluding the book value of land if the land is owned by the Group in the reporting period prior to commencement of the development.

This information is provided by RNS

The company news service from the London Stock Exchange

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