SEGRO PLC: Results for the Six Months Ended 30 June 2022

Strong, broad and deep occupier demand supports continued growth in our business

LONDON–(BUSINESS WIRE)–Regulatory News:

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

“SEGRO has delivered both operationally and financially in the first half of 2022. Our prime portfolio of modern, sustainable warehouses focused on key urban markets and logistics corridors across the UK and Europe is in high demand from a diverse range of customers. This strong demand combined with low levels of supply in our key markets, particularly in the urban locations where two-thirds of our assets are located, has helped us to increase rents, capture reversion and indexation, and expand our development programme – resulting in inflation-beating earnings growth.

“Our focus on maintaining close relationships with our customers, our well-located land bank and our prudent capital structure, provide significant opportunities for further profitable growth arising from the ongoing structural changes in our customers’ markets.

“We are confident that by continuing to follow our well-proven strategy of disciplined capital allocation and operational excellence, with Responsible SEGRO at its core, we will be able to navigate the more challenging current macroeconomic environment and drive further sustainable compound growth in rental income, earnings and dividends over the coming years.”

HIGHLIGHTS^A:

• Adjusted pre-tax profit of £216 million up 29 per cent compared with the prior year (H1 2021: £168 million). Adjusted EPS is 16.9 pence, up 22 per cent (H1 2021: 13.8 pence) including 1.3 pence relating to recognition of performance fees from our SELP joint venture.
• Adjusted NAV per share is up 10 per cent to 1,249 pence (31 December 2021: 1,137 pence) driven by a 7.2 per cent increase in the valuation of the portfolio, reflecting asset management initiatives, a 5.9 per cent estimated rental value (ERV) growth and profitable development activity.
• Our customer focus and active management of the portfolio, supported by strong and diverse occupier demand, generated £55 million of new headline rent commitments during the period (H1 2021: £38 million), including £28 million of new pre-let agreements, and a 24 per cent average reletting spread on rent reviews and renewals.
• Further growth in the development pipeline with 1.3 million sq m of projects under construction or in advanced pre-let discussions equating to £118 million of potential rent (31 December 2021: £82 million), of which 70 per cent is associated with pre-lets, substantially de-risking the 2022-2023 pipeline.
• Delivering on our Responsible SEGRO commitments including progress with our renewable energy strategy; the formation of our first Community Investment Plan in Slough; and the enhancement of our early careers programme to help improve diversity within our business.

• £2.1 billion of new financing, including a €1.15 billion Green bond and €225 million US private placement helping to maintain our long-term debt structure and providing high visibility on funding costs with no significant debt maturities until 2026. 94 per cent of our debt is fixed or capped.

• Balance sheet positioned to support further, development-led growth with access to over £2 billion of available liquidity (including the US private placement debt signed in July) and a low level of gearing reflected in an LTV of 23 per cent at 30 June 2022 (31 December 2021: 23 per cent).
• Interim dividend increased by 9 per cent to 8.1 pence (2021: 7.4 pence), in line with our usual practice of setting the interim dividend at one-third of the previous full year dividend.

FINANCIAL SUMMARY

	6 months to 30 June 2022	6 months to 30 June 2021	Change per cent
Adjusted1 profit before tax (£m)	216	168	28.6
IFRS profit before tax (£m)	1,375	1,413	–
Adjusted2 earnings per share (pence)	16.9	13.8	22.5
IFRS earnings per share (pence)	110.7	110.3	–
Dividend per share (pence)	8.1	7.4	9.5
Total Accounting Return (%)3	11.3	13.5
	30 June 2022	31 December 2021	Change per cent
Assets under Management (£m)	23,756	21,286
Portfolio valuation (SEGRO share, £m)	20,480	18,377	7.24
Adjusted5 6 net asset value per share (pence, diluted)	1,249	1,137	9.8
IFRS net asset value per share (pence, diluted)	1,212	1,115	–
Net debt (SEGRO share, £m)	4,764	4,201
Loan to value ratio including joint ventures at share (per cent)	23	23

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 4 in the Supplementary Notes for a NAV reconciliation).

^A Figures quoted on pages 1 to 15 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.

OUTLOOK

SEGRO has one of the best and most modern pan-European industrial portfolios with a heavy weighting towards major urban markets where the supply-demand dynamics are tightest and where long-term rental growth potential is therefore highest. Over the past decade, we have pro-actively repositioned our portfolio to be resilient and perform at all stages of the cycle, by recycling out of older secondary assets and focusing on prime locations and high quality, sustainable assets for which occupier and investor demand is likely to be greatest and supply is most limited.

Occupier demand for warehouse space is strong, broad and deep and continues to be driven by long-term structural tailwinds particularly in those urban markets where our space is used to provide a wide range of often essential goods and services to consumers and businesses. We are mindful that the coming months will be impacted by heightened macroeconomic risk but, against this backdrop, our portfolio offers considerable inflation protection: almost half of our rents are index-linked and the majority of the remaining leases are exposed to UK upwards-only rent reviews, where we have significant reversionary potential and continue to see strong demand led market rental growth.

Our sizeable, mostly pre-let, current development programme and well-located land bank provide us with both significant potential to grow our rent roll, and optionality due to the short construction periods of our assets. We will continue to be led by customer demand as we make decisions regarding the execution of future projects. The long-standing and strong relationship between our development teams and key construction partners is helping us to de-risk our pipeline by securing materials on a timely basis, whilst the tight occupier supply-demand situation has meant that we have been able to offset increased building costs with higher rents, which is in turn helping to drive further rental growth from our £20 billion portfolio. We will continue to take a disciplined approach to allocating capital to development and investment activity, ensuring that our portfolio should continue to outperform, and expect to invest at least £700 million on development capex in 2022.

Finally, in recent years we have significantly strengthened our balance sheet alongside our property portfolio. We benefit from low leverage and one of the longest debt maturities in the sector with no significant refinancing requirements in SEGRO before 2026. We have demonstrated again this year that we have access to diverse sources of debt finance. 94 per cent of our debt is either fixed rate or capped so we are well protected against interest rate rises and have plenty of capacity to continue to invest capital in the profitable opportunities available to us.

These factors combined mean that we are heading into the second half of the year with confidence in the outlook for our business. Whilst we remain watchful of the world around us and will respond accordingly to any changes in market conditions, we intend to continue to deliver the much-needed modern, sustainable warehouse space in the right locations to enable our customers to make their businesses fit for the future, and at the same time ensure that we continue to create value for all of our stakeholders.

SUMMARY & KEY METRICS

		H1 2022	H1 2021	FY2021
STRONG PORTFOLIO PERFORMANCE (see page 8):
Valuation increase driven by rental value growth and active asset management of the standing portfolio, supplemented by gains recognised on completed developments and buildings under construction.
Portfolio valuation uplift (%)	Group	7.2	10.2	28.8
	UK	8.2	9.6	32.2
	CE	5.2	11.1	22.5
Estimated rental value (ERV) growth (%)	Group	5.9	2.8	13.1
	UK	7.3	3.6	18.8
	CE	3.6	1.5	4.1
ACTIVE ASSET MANAGEMENT DRIVING OPERATIONAL PERFORMANCE (see page 9):
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 portfolio.
Total new rent contracted during the period (£m)		55	38	95
Pre-lets signed during the period (£m)		28	21	49
Like-for-like net rental income growth (%): Group		7.1	4.7	4.9
	UK	8.9	4.8	5.6
	CE	4.1	4.6	3.6
Uplift on rent reviews and renewals (%)	Group	23.5	12.1	13.0
	UK	29.0	16.4	18.7
	CE	1.8	1.8	1.5
Occupancy rate (%)		96.7	95.7	96.8
Customer retention (%)		79	83	77
DISCIPLINED CAPITAL ALLOCATION (see page 14):
Capital investment continues to remain disciplined and is focused 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 at least £700 million.
Development capex (£m)		364	364	649
Asset acquisitions (£m)		145	–	997
Land acquisitions (£m)		220	92	326
Disposals (£m)		181	154	515
EXECUTING AND GROWING OUR DEVELOPMENT PIPELINE (see page 12):
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 £118 million from projects currently on site or expected to commence shortly.
Development completions:
– Space completed (sq m)		329,900	104,000	839,200
– Potential rent (£m) (Rent secured)		15 (87%)	8 (75%)	52 (93%)
Current development pipeline potential rent (£m) (Rent secured)		84 (63%)	74 (72%)	62 (60%)
Near-term pre-let development pipeline potential rent (£m)		34	22	20

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/62bab8c3299ad30e000907aa/smnbb

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: 584512

An audio recording of the conference call will be available until 4 August 2022 on: UK: +44 (0) 203 936 3001 Access code: 876113

A video of David Sleath, Chief Executive discussing the results will be available to view on www.segro.com, together with this announcement, the Half Year 2022 Property Analysis Report and other information about SEGRO.

FINANCIAL CALENDAR

2022 interim dividend ex-div date 11 August 2022

2022 interim dividend record date 12 August 2022

2022 interim dividend scrip dividend price announced 18 August 2022

Last date for scrip dividend elections 2 September 2022

2022 interim dividend payment date 23 September 2022

2022 Third Quarter Trading Update 20 October 2022

Full Year 2022 Results (provisional) 17 February 2023

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 9.7 million square metres of space (104 million square feet) valued at £23.8 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. 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 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

INTRODUCTION

SEGRO has delivered another strong set of results, which reflect the high quality of our portfolio and increased demand from a diverse range of occupiers. Together with our active approach to asset management, rental growth and further progress with our development pipeline, these factors have driven valuation increases and earnings growth.

Our business is well-placed to continue benefitting from the structural tailwinds driving the industrial property sector. The long-term consumer trends of digitalisation and urbanisation, alongside the increased focus from our customers on the resilience and sustainability of their supply chains, continue to create demand for our space despite the well-documented macro and geopolitical uncertainties. The combination of our unique portfolio of prime warehouses, two-thirds of which are located in the most supply constrained urban markets; an enviable land bank capable of supporting our profitable development programme; our established pan-European, customer-focused operating platform; and our relationships and reputation with other key stakeholders, provide us with what we believe is a significant competitive advantage which enhances our ability to secure opportunities for future growth.

PORTFOLIO UPDATE – VALUATION GROWTH FROM INCREASED RENTS AND DEVELOPMENT PROFITS

Our portfolio comprises two main asset types: urban warehouses and big box warehouses. The demand-supply dynamics in both asset classes continue to be positive.

Urban Warehouses

Urban warehouses account for 67 per cent of our portfolio value. They tend to be smaller warehouses, and are located mainly in and on the edges of major cities where land supply is restricted and there is strong demand for warehouse space. They are often used by businesses providing essential goods and services for the urban conurbations in which they operate, as well as catering for the needs of last mile delivery and data centre operators.

Our urban portfolio is concentrated in London and South-East England (81 per cent) and major cities in Continental Europe (19 per cent), including Paris, Düsseldorf, Frankfurt, Berlin and Warsaw. These locations share similar characteristics in terms of limited supply of industrial land and growing populations, while occupiers are attracted to modern warehouses with plenty of yard space to allow easy and safe vehicle circulation. We believe that this enduring, diverse occupier demand and limited supply bodes well for future rental growth.

Big Box Warehouses

Big box warehouses account for 31 per cent of our portfolio value. They tend to be used for storage, processing and distribution of goods on a regional, national or international basis and are, therefore, much larger than urban warehouses.

They are focused on the major logistics hubs and corridors in the UK (South-East and Midlands regions), France (the logistics ‘spine’ linking Lille, Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin, Frankfurt and Hamburg) and Poland (Warsaw, Łódz, Poznań, and the industrial region of Silesia). 29 per cent of our big box warehouses are in the UK and the remaining 71 per cent are in Continental Europe. Almost all our Continental European big box warehouses are owned by our 50-50 joint venture, the SEGRO European Logistics Partnership (SELP).

Occupier demand has stayed at elevated levels during the first half of 2022 and into the second, vacancy has remained low, and this is resulting in continued rental growth in most of our markets. However, the nature (and typical location) of big box warehouses tends to mean that, over time, supply is able to increase more easily to satisfy demand, as there is more land available in out of town locations. We therefore continue to believe that the prospects for significant rental growth in big box warehouses on a longer-term basis are, and have always been, more limited than for urban locations.

At the same time, this asset class brings other benefits including lower asset management intensity and long leases which help to ensure a sustainable level of income.

In addition, by holding the majority of our Continental European big box warehouses in SELP, we receive additional income from managing the joint venture which increases total returns.

Valuation gains driven by rental growth, asset management and development

Warehouse property values across Europe increased again during the first half of the year. Investment demand was strong throughout the first months of 2022 across all of our markets but in recent weeks, the uncertainty around high levels of inflation across Europe and the potential central bank response to this has meant that activity levels have reduced as buyers and sellers await more clarity on the outlook.

The Group’s property portfolio was valued at £20.5 billion at 30 June 2022 (£23.8 billion of assets under management). The portfolio valuation, including completed assets, land and buildings under construction, increased by 7.2 per cent (adjusting for capital expenditure and asset recycling during the year) compared to 10.2 per cent in the first half of 2021.

This primarily comprises a 6.3 per cent increase in the assets held throughout the period (H1 2021: 8.5 per cent), mainly driven by strong rental growth (our valuer’s estimate of the market rental value of our portfolio (ERV) increased by 5.9 per cent). The true equivalent yield applied to the portfolio was 3.8 per cent, the same as at 31 December 2021.

Assets held throughout the year in the UK increased in value by 7.5 per cent (H1 2021: 8.6 per cent). The true equivalent yield applied to our UK portfolio was 3.7 per cent, the same as at 31 December 2021. Rental values improved by 7.3 per cent (H1 2021: 3.6 per cent).

Assets held throughout the year in Continental Europe increased in value by 4.2 per cent (H1 2021: 8.3 per cent) on a constant currency basis, reflecting rental value growth of 3.6 per cent (H1 2021: 1.5 per cent). Yields compressed slightly in France, Germany, Spain, the Netherlands and Poland but were flat in other markets resulting in the yield applied to our Continental European portfolio remaining unchanged at 4.0 per cent (31 December 2021: 4.0 per cent)

More details of our property portfolio can be found in the 2022 Half Year Property Analysis Report available at www.segro.com/investors.

Property portfolio metrics at 30 June 2022¹

		Portfolio value, £m					Yield3
	Lettable area sq m (AUM)	Whole portfolio (at share)	Whole portfolio (AUM)		Valuation movement2 %					Topped-up net initial %	Net true equivalent %	ERV %	Occupancy (ERV) %
UK
GREATER LONDON	1,267,680	8,078	8,088		6.3					2.6	3.5	6.3	95.8
THAMES VALLEY	601,619	3,512	3,512		10.0					3.2	4.2	9.8	97.2
NATIONAL LOGISTICS	630,076	2,039	2,039		8.9					3.7	3.8	7.0	100.0
UK TOTAL	2,499,375	13,629	13,639		7.5					2.9	3.7	7.3	96.7
Continental Europe
Germany	1,701,287	1,938	2,854		4.3					3.5	3.5	3.8	98.7
Netherlands	276,006	239	440		7.6					3.6	3.8	4.6	100.0
France	1,568,185	2,111	2,719		3.5					3.4	4.0	3.2	93.5
Italy	1,492,590	1,249	1,874		2.5					3.7	3.8	1.8	97.4
Spain	362,726	412	625		4.9					3.9	3.8	1.4	100.0
Poland	1,625,046	789	1,380		5.2					5.1	5.1	4.6	96.6
Czech Republic	169,514	113	225		17.2					3.9	4.8	19.4	97.3
CONTINENTAL EUROPE TOTAL	7,195,354	6,851	10,117		4.2					3.7	4.0	3.6	96.6
GROUP TOTAL	9,694,729	20,480	23,756		6.3					3.2	3.8	5.9	96.7

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 percentage is based on the difference between the opening and closing valuations for properties held throughout the period, allowing for capital expenditure, acquisitions and disposals.

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 / Ellie Sweeney / Eve Kirmatzis

Tel: +44 (0) 20 3727 1000

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