Segro earnings rise in decent 2019 performance
Property investment and development company Segro reported a 10.8% improvement in adjusted pre-tax profit in its full-year results on Friday, which it said reflected a record year of development completions, high customer retention rates, like-for-like rental growth and a low vacancy rate.
The FTSE 100 firm said its adjusted earnings per share were ahead 4.3% for the 12 months ended 31 December at 24.4p, or 9.9% excluding the impact of the ‘SELP’ performance fee received in 2018, which is payable every five years.
It said its IFRS earnings per share stood at 79.3p, down from 105.4p, which reflected the 7.5% increase in the value of its portfolio, compared to a 10.7% increase in 2018.
The company’s EPRA net asset value per share was up 8.9% at 708p, and its IFRS net asset value per share rose to 697p from 644p year-on-year.
Its board said future earnings prospects were underpinned by 1.2 million square metres of development projects either under construction or in advanced pre-let discussions.
That equated to an additional 15% of space and £70m of potential rent, 71% of which related to pre-lets and lettings prior to completion.
Segro’s 2019 full year dividend was up 10.1% at 20.7p, after the board hiked the final dividend by 8.7% to 14.4p.
Looking at its portfolio, the company reported a capital valuation surplus of 7.5%, driven by a 2.5% increase in the like-for-like value of its UK portfolio, down from 12%, and 13.5% in continental Europe, up from 5.1%.
Valuation gains were driven mainly by asset management, rental value growth of 2.6% in the UK and 3% in continental Europe, development gains and further yield compression in continental Europe.
Segro reported £65.8m in annualised new rent commitments in the period, compared to £66.4m in the prior year, of which £33.2m was from new development, down from £41.5m.
Net rental income growth stood at 4.7% on a like-for-like basis, based on growth of 5.7% in the UK and 3.1% in continental Europe, which the directors said was aided by an average 17.8% uplift on rent reviews and renewals.
The UK figures included the “significant” impact of lease re-gears and renewals at the Heathrow Cargo Centre.
Its vacancy rate remained low at 4% at period end, down from 5.2% a year earlier, which the board said reflected “strong” lettings of recently-completed speculative developments, and some vacant asset disposals.
Its continued focus on customer service also kept customer retention high at 88%, compared to 89% in 2018.
The company invested £692m in its portfolio during the period, including £556m in development capital expenditure, infrastructure and land, as well as £136m of asset acquisitions.
That was partially offset by £442m of asset and land disposals, including sales of assets to the SELP joint venture.
Total development capital expenditure for 2020, including infrastructure and land acquisitions, was expected to be more than £600m, Segro said.
It also reported £50m of potential rent from the current development pipeline, 60% of which had already been secured.
That included £10m of potential rent from speculative urban warehouse developments in the “very attractive” London market.
A total of £20m of potential rent was also reported from further 'near-term' pre-let projects which were in advanced stages of negotiation.
The company’s land bank and additional land under its control through option agreements provided “significant potential” for further growth, the directors said.
On the balance sheet, Segro said it was still “appropriately and efficiently” financed, with its average cost of debt remaining “attractive” at 1.7%, down from 1.9% year-on-year.
Its long average debt maturity had been maintained at 10 years, down slightly from 10.2 years, and its look-through loan-to-value ratio had reduced to 24% at period end from 29% at the end of 2018.
An equity placing of £451m was completed in February 2019, providing capacity to continue to invest for growth.
Segro said it had almost £1.4bn of cash and available facilities at its disposal.
“2019 was another successful year for Segro, with our clear strategy delivering excellent financial and operational results,” said chief executive officer David Sleath.
“Our high-quality, well-located portfolio of urban and big box warehouses continues to attract a broad range of customers, benefitting from the structural drivers of e-commerce and urbanisation.
“As anticipated, these trends are now having an increasing impact on the continent as well as in the UK.”
Sleath said the company had started 2020 in a “strong” position.
“Our substantial, mostly pre-leased development pipeline, along with the ongoing results from the active asset management of our existing portfolio, should enable us to drive further sustainable, compound growth in rental income, earnings and dividends over the coming years.
“This year Segro celebrates its one hundred year anniversary.
“We will continue to take a long-term view, reflecting the interests of our financial stakeholders and our wider responsibilities, as we look to position the business for further success in its next century.”
At 0857 GMT, shares in Segro were up 1.15% at 932p.