SEGRO PLC: Results for the Year Ended 31 December 2021

PAN-EUROPEAN PLATFORM CAPTURES RECORD DEMAND TO DRIVE OUTPERFORMANCE AND SUPPORT A POSITIVE OUTLOOK

LONDON–(BUSINESS WIRE)–Regulatory News:

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

“2021 was a highly successful year for SEGRO as reflected in our full year results which include a £4.1 billion portfolio valuation uplift and record levels of rental growth. Investor and occupier supply-demand dynamics in the industrial and logistics sector remain very favourable, led by the long-term trends of digitalisation, supply chain resilience and an increasing focus on sustainability.

“Our Responsible SEGRO ambitions have been received positively by our customers, employees and other stakeholders and are becoming well integrated into the way that we run and grow the business. During 2021 we made important progress with our three priority areas of Championing low-carbon growth, Investing in our communities and environments and Nurturing talent.

“Our established and experienced pan-European operating platform remains focused on delivering excellence in customer service which, when combined with the strong relationships and reputation that we have with our stakeholders, provides us with a distinct advantage in an increasingly competitive sector. These capabilities enabled us to invest almost £2 billion in 2021 to further expand our pipeline of opportunities to support future growth. This pipeline, alongside the high quality of our existing portfolio, the compounding effect of rental growth and the strong start we have made in 2022, gives us continued confidence in our ability to drive further sustainable growth in earnings and dividends over the coming years.”

HIGHLIGHTS^A:

• Adjusted pre-tax profit of £356 million up 20 per cent compared with the prior year (2020: £296 million). Adjusted EPS is 29.1 pence, up 15 per cent (2020: 25.4 pence) including 1.1 pence relating to recognition of performance fees from our SELP joint venture.
• Adjusted NAV per share up 40 per cent to 1,137 pence (31 December 2020: 814 pence) driven by portfolio valuation growth of 29 per cent, including ERV growth of 13.1 per cent (2020: 2.5 per cent), yield compression, portfolio asset management initiatives and development profits.
• Strong occupier demand, our customer focus and active management of the portfolio generated £95 million of new headline rent commitments during the period (2020: £78 million) , including £49 million of new pre-let agreements, and a 13 per cent average uplift on rent reviews and renewals
• Net capital investment of £1.5 billion (2020: £1.3 billion) in asset acquisitions, development projects and land purchases, less disposals.
• Continued momentum in the development pipeline with 1.1 million sq m of projects under construction or in advanced pre-let discussionsequating to £82 million of potential rent, of which 70 per cent has been pre-let, providing growth in earnings this year and next.
• Balance sheet well positioned to support further, development-led growth with access to £1.1 billion of available liquidity and an LTV of 23 per cent at 31 December 2021 (31 December 2020: 24 per cent).

• 2021 full year dividend increased 10 per cent to 24.3 pence (2020: 22.1 pence). Final dividend increased by 11 per cent to 16.9 pence (2020: 15.2 pence).

FINANCIAL SUMMARY

	2021	2020	Change per cent
Adjusted1 profit before tax (£m)	356	296	20.3
IFRS profit before tax (£m)	4,355	1,464	–
Adjusted2 earnings per share (pence)	29.1	25.4	14.6
IFRS earnings per share (pence)	339.0	124.1	–
Dividend per share (pence)	24.3	22.1	10.0
Total Accounting Return (%)3	42.5	19.3	–
	2021	2020	Change per cent
Assets under Management (£m)	21,286	15,343	–
Portfolio valuation (SEGRO share, £m)	18,377	12,995	28.84
Adjusted5 6 net asset value per share (pence, diluted)	1,137	814	39.7
IFRS net asset value per share (pence, diluted)	1,115	809	–
Net debt (SEGRO share, £m)	4,201	3,088	–
Loan to value ratio including joint ventures at share (per cent)	23	24	–

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

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

3. Total Accounting Return is calculated based on the opening and closing adjusted NAV per share adding back dividends paid during the period.

4. Percentage valuation movement during the period based on the difference between opening and closing valuations for all properties including buildings under construction and land, adjusting for capital expenditure, acquisitions and disposals.

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

6. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA) (see Table 5 in the Supplementary Notes for a NAV reconciliation).

^A Figures quoted on pages 1 to 19 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.

OPERATING SUMMARY & KEY METRICS

		2021	2020
STRONG PORTFOLIO PERFORMANCE (see page 9):
Valuation increase driven by rental value growth, yield compression and active asset management of the standing portfolio, supplemented by gains recognised on completed development and buildings under construction.
Portfolio valuation uplift (%):	Group	28.8	10.3
	UK	32.2	9.6
	CE	22.5	11.5
Estimated rental value (ERV) growth (%)	Group	13.1	2.5
	UK	18.8	3.1
	CE	4.1	1.5
RECORD RENTAL GROWTH FROM ACTIVE ASSET MANAGEMENT (see page 11):
Operational performance captured significant new rent, including leases signed with existing and new customers from a wide range of sectors, highlighting the versatility of our urban portfolio.
Total new rent signed during the period (£m)		95	78
Pre-lets signed during the period (£m)		49	41
Like-for-like net rental income growth (%):	Group	4.9	2.1
	UK	5.6	0.9
	CE	3.6	4.3
Uplift on rent reviews and renewals (%):	Group	13.0	19.1
	UK	18.7	28.2
	CE	1.5	0.5
Vacancy rate (%)		3.2	3.9
Customer retention (%)		77	86
Visibility of customer energy use (%)		54	41
Operating carbon emission (tonnes CO2e)		280,575	312,115
RECORD LEVEL OF INVESTMENT ACTIVITY FOCUSED ON SECURING PROFITABLE GROWTH (see page 19):
Capital investment continues to focus on development and acquisition of assets with opportunities for future growth, as well as sourcing land to extend our development pipeline. Development capex for 2022, including infrastructure, expected to be c.£700 million.
Development capex (£m)		649	531
Asset acquisitions (£m)		997	603
Land acquisitions (£m)		326	286
Disposals (£m)		515	139
EXECUTING AND GROWING OUR DEVELOPMENT PIPELINE (see page 14):
Our active and largely pre-let development pipeline continues to be a key driver of rent roll growth with a record year of completions. Potential rent of £82 million from projects currently on site or expected to commence shortly.
Development completions:
– Space completed (sq m)		839,200	835,900
– Potential rent (£m) (Rent secured, %)		52 (93%)	47 (84%)
Embodied carbon emissions (kgCO2e/m2)		391	400
Current development pipeline potential rent (£m) (Rent secured, %)		62 (60%)	54 (66%)
Near-term development pipeline potential rent (£m)		20	27

OUTLOOK

We enter 2022 with considerable confidence in the outlook for the business and its ability to deliver continued growth. The effects of the pandemic are ongoing, and we remain mindful of macroeconomic and geopolitical risks, but the world is adapting quickly and learning how to function alongside Covid-19 with the lasting impacts on the way that we live and work strengthening occupier demand. It has highlighted the importance of global supply chains facilitated by high-quality logistics space and we have positioned our business to take advantage of these structural tailwinds.

Against a backdrop of strong demand from an increasingly diverse range of businesses, combined with historically low vacancy rates across Europe, we expect rental growth to continue across our markets. We believe that the growth rate will be highest where developable land is in short supply, for example in urban markets such as London and Paris. This acute supply-demand imbalance delivered record rental growth during 2021, resulting in significant accumulated rental reversion in the portfolio which we will be working hard to capture during 2022 and the coming years.

Our record levels of capital investment over the past two years have resulted in a significant number of projects currently under construction, with a high level of pre-leasing, and a large pipeline of future projects. This allows us to both provide much-needed modern, sustainable space for our customers and to generate additional rental income. We continue to prioritise further opportunities to grow our development pipeline, positioning SEGRO to benefit from the long-term structural trends within the occupier market.

Inflationary pressures remain but we expect to be able to offset these in our existing portfolio by capturing the significant reversion in lease reviews and renewals, whilst benefiting from indexation provisions in our remaining leases which represent approximately 40 per cent of our rent roll. Rental growth has also allowed us to maintain the profitability of our development programme despite the additional cost pressures arising from increased construction and material costs.

The unique supply-demand dynamics of the industrial sector have attracted increasing competition from both investors and developers, but we are confident in our ability to source profitable new opportunities to grow. As evidenced during 2021, the combination of our significant portfolio of modern assets in the most desirable locations across Europe together with our well-established operating platform provides us with a clear competitive advantage. This, alongside the meaningful and lasting changes we are making through our Responsible SEGRO focus areas will help us to ensure that our business continues to prosper, creating shared value for our customers, employees, shareholders, local communities, investors and all of our other stakeholders.

WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS

A live webcast of the results presentation will be available from 08:30am (UK time) at:

https://www.investis-live.com/segro/61e7ee290ba3f0120025ce33/fy21

The webcast will be available for replay at SEGRO’s website at: http://www.segro.com/investors shortly after the live presentation.

A conference call facility will be available at 08:30 (UK time) on the following number: Dial-in: +44 (0)800 640 6441 +44 (0) 203 936 2999 Access code: 032585

An audio recording of the conference call will be available until 25 February 2022 on: UK: +44 (0) 203 936 3001 Access code: 040051

A video of David Sleath, Chief Executive discussing the results will be available to view on www.segro.com, together with this announcement, the Full Year 2021 Property Analysis Report and other information about SEGRO.

FINANCIAL CALENDAR

2021 full year dividend ex-div date 17 March 2022

2021 full year dividend record date 18 March 2022

2021 full year dividend scrip dividend price announced 24 March 2022

Last date for scrip dividend elections 13 April 2022

2021 full year dividend payment date 4 May 2022

2022 Q1 Trading Update 21 April 2022

Half Year 2022 Results (provisional) 28 July 2022

ABOUT SEGRO

SEGRO is a UK Real Estate Investment Trust (REIT), listed on the London Stock Exchange and Euronext Paris, and is a leading owner, manager and developer of modern warehouses and industrial property. It owns or manages 9.6 million square metres of space (103 million square feet) valued at £21.3 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 seven other European countries.

For over 100 years SEGRO has been creating the space that enables extraordinary things to happen. From modern big box warehouses, used primarily for regional, national and international distribution hubs, to urban warehousing located close to major population centres and business districts, it provides high-quality assets that allow its customers to thrive.

A commitment to be a force for societal and environmental good is integral to SEGRO’s purpose and strategy. Its Responsible SEGRO framework focuses on three long-term priorities where the company believes it can make the greatest impact: Championing Low-Carbon Growth, Investing in Local Communities and Environments and Nurturing Talent.

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 performance, costs, revenues and other trend information. All statements other than historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations and all forward-looking 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 you 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. The information contained in this announcement is provided as at the date of this announcement and is subject to change without notice. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), SEGRO does not undertake to update forward-looking statements, including to reflect any new information or 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 estimate or profit forecast. The information in this announcement does not constitute an offer to sell or an invitation to buy securities in SEGRO plc or an invitation or inducement to engage in or enter into any contract or commitment or other investment activities.

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

2021 was an exceptionally busy year for SEGRO as our teams worked hard to capitalise on the favourable market dynamics that are currently benefitting the industrial property sector. The pandemic brought about the acceleration of already strong structural drivers, resulting in record levels of warehouse take-up across Europe during 2021 and this has attracted increased investment into the sector. We have worked diligently throughout the pandemic, to position our business so that we could emerge in an even stronger position and this is already paying off, resulting in strong rental growth and a high number of development completions.

Responsible SEGRO is the framework that we use to explain how we do business in the best interests of our stakeholders and the long-term success of our business. Last year we set new priorities within this that focus on the key areas where we believe we can make the greatest business, environmental and social contribution. During 2021 we worked hard to integrate these into the management of our portfolio and the day-to-day running of our business to ensure that, as we grow as a company, the value that we create for our stakeholders also increases, and so that we can deliver on our Purpose of ‘creating the space that enables extraordinary things to happen’.

Looking back on 2021, the main highlights included:

• A significant increase in our rent roll, arising from a combination of active asset management of our existing portfolio, our expanded development programme and market rental growth.
• Increased visibility on the carbon emissions from our leased buildings (improving to 54 per cent now monitored from 41 per cent in 2021) and moving the last of our markets onto a certified green energy tariff.
• 839,200 sq m of development completions creating space to be used by a wide variety of industries including those linked to e-commerce, data centres and creative industries.
• Undertaking life cycle assessments on over half of our new development projects, equivalent to 440,000 sq m of new space, an important step in reducing future embodied carbon emissions.
• Achieving the National Equality Standard (NES) accreditation following our first audit, a reflection of our commitment to diversity and inclusion.
• Creating the framework for our Community Investment Plans (CIPs) and the appointment of 41 Community Champions across the business to lead the projects alongside our local community partners.

This activity has been reflected in significant growth across the board in all of our key operating metrics and our balance sheet remains in good shape and is positioned to support further growth.

The combination of a strong set of financial results in 2021 and our confident outlook for 2022 and beyond means that we are recommending a 10.0 per cent increase in our final dividend to 16.9 pence per share, resulting in a total distribution of 24.3 pence for 2021 as a whole (2020: 22.1 pence).

Reflecting on 2021, there are three things that stand out for me:

• The strength, breadth and depth of occupier demand and the long-term nature of the structural trends that underpin it;
• The ability of our teams to continue to find new opportunities to grow the business in very competitive markets by leveraging their experience, relationships and thinking creatively; and
• The progress that we have made in our Responsible SEGRO focus areas and the alignment towards these goals that we are finding with our customers, suppliers and other stakeholders.

E-commerce is still an important source of occupier demand across Europe and continues to contribute significantly to our lettings performance, but we are seeing new names emerge in the space (for example rapid grocery delivery services and other ‘q-commerce’ businesses) and its impact is now being felt more widely across the portfolio, for example in our urban estates in Germany, France and Spain.

Distribution networks on the Continent still have a long way to go to be able to cope with the increased strain that e-commerce is putting them under. Even in the UK, where e-commerce penetration is significantly ahead of most markets in Europe, retailers and logistics operators need to take additional space to successfully handle e-commerce penetration rates approaching 30 per cent.

Due to the prime location, high quality and flexibility of our space we are also seeing significant demand from other sectors, such as the creative industries. More widely across Europe, take-up by businesses involved in manufacturing has increased during 2021 as a result of a renewed focus on supply chain resilience.

All of this combined is leading to very high levels of occupier demand. For many lettings, there are multiple potential occupiers willing to pay a premium to get the space that is crucial to the success of their business and this is leading to very strong rental growth, particularly in markets where we have carefully built strong positions, such as London, where supply is very limited.

The situation in the occupier market is also attracting more and more investment into our sector and has pushed up asset prices but also resulted in competitive bidding situations for both standing assets and land in every single market that we operate in. Despite this, our teams have been able to find opportunities to acquire unique assets and development opportunities, often in off-market situations, due to our reputation, scale position, relationships and expertise.

A good example of this is the acquisition that we completed in South East London for a complex redevelopment scheme where the vendors only presented to a few potential purchasers who they knew would have the ability and appetite to execute on it.

Our teams are also thinking creatively and finding other ways to source opportunities, for example by doing asset swaps or building relationships with local trader developers who have access to land plots. Once we own the land our development teams consider how they can intensify land use and maximise the value we create from it.

Integrated within the management of our portfolio and development pipeline we have worked hard to progress our Responsible SEGRO ambitions. During 2021 we have taken steps to understand our current position, for example through doing life cycle assessments on over half of our development projects and participating in a NES audit. These have enabled us to put the necessary procedures, processes and frameworks in place to ensure that we achieve the ambitions that we set out within our Responsible SEGRO priorities of Championing low-carbon growth, Investing in our local communities and environments and Nurturing Talent.

As expected, we are finding common ground with our customers, suppliers and other stakeholders and aligning our interests to maximise the value created. For example, many customers decided to lease our space because its environmental credentials also helped them achieve their own sustainability goals. In another case a supplier decided to apply for Living Wage accreditation after we engaged with them in the process of achieving our own accreditation. We also sponsored numerous apprentices to work in local businesses and receive training to enable long-term career progression.

I am very proud to see how everyone within the business has embraced our Responsible SEGRO ambitions and worked hard alongside their already busy jobs to help make them come to life. I would like to thank them for this, and also for the continued focus, dedication and commitment that they have shown over the past two years whilst having to endure the restrictions and limitations that have been put on both their work and personal lives due to the pandemic. Quite simply, our business would not be in the position it is today without their efforts.

It has been a very busy and highly successful year. One that has brought much satisfaction and has really shown how our business delivers on its Purpose of creating the space that enables extraordinary things to happen.

DELIVERING ON OUR STRATEGY IN 2021

Our Strategy has successfully positioned our business to benefit from the structural trends that are driving both occupier and investor demand in our markets. We continue to apply it to maximise our returns in increasingly competitive markets.

Contacts

CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:

SEGRO

Soumen Das

(Chief Financial Officer)

Tel: + 44 (0) 20 7451 9110

(after 11am)

Claire Mogford

(Head of Investor Relations)

Mob: +44 (0) 7710 153 974

Tel: +44 (0) 20 7451 9048

(after 11am)

FTI Consulting

Richard Sunderland / Claire Turvey /

Eve Kirmatzis

Tel: +44 (0) 20 3727 1000

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