SEGRO delivers another year of healthy profits

SEGRO agreements Netherlands

SEGRO’s great run, both financially and on the stock market, continues.

Its annual results released on February 15, confirmed its strength – in terms of warehouse and light industrial property development pipeline – while minimising certain operational risks.

Not only has this logistics property developer delivered for years, but it has just successfully issued new equity – at a negligible discount to market values – to fund growth.

Proceeds will be deployed in expansion-led growth projects – new equity is routinely used to de-risk its capital structure when new capital is needed but there is something remarkable about its successful placing, given latent Brexit risk.

Chief Executive Officer David Sleath – a company man appointed CEO in 2011, who has since contributed to a doubling in the stock price – said the extensive development activity “that has been our focus over the past few years … underpinned by the structural themes of e-commerce and urbanisation driving occupier demand, means we now have portfolio of very high quality and well-located warehouses”.

A prime portfolio and active approach to asset management has enabled SEGRO “to grow rents and maintain high occupancy across markets”.

Adjusted pre-tax profit, up 24.4% to £241.5m, came on the back of development success and careful customer/portfolio management, which helped it deliver high customer retention rates, like-for-like rental growth and a low vacancy rate. This was a very similar performance to 2017, when adjusted pre-tax profit rose 25.7% to £194.2m, thanks to those same factors.

Adjusted earnings per share (24.3p) were 22.2p, excluding certain non-recurring item, rising 11.6% on a comparable annual basis.

The group said net investment amounted to £327m, and was comprised of £688m invested in development capex, infrastructure and land, and £81m of asset acquisitions which were offset by £442m of asset and land disposals (including sales of assets to its SELP joint venture).

(The SEGRO European Logistics Partnership (SELP) was created in October 2013 as a 50/50 joint venture between SEGRO and Public Sector Pension Investment Board, the Canadian pension fund.)

Total development capex for 2019, including infrastructure and land acquisitions, is expected to exceed £600m. The loan-to-value ratio was stable in 2018, while the balance sheet is properly capitalised. 

The market value of its shares is almost £6.5bn, priced slightly below book value at 0.9x, on a forward basis.

Classed as a UK Real Estate Investment Trust (REIT), SEGRO owns and manages 7m sq metres of space valued at £11bn.

Source: Transport Intelligence, February 21, 2019

Author: Alessandro Pasetti

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