SEGRO has announced its annual results for the year ended 31 December 2015. The company describes the year as one of strong operating and portfolio performance and they say the results reflect the active management of their assets, positive market dynamics and the strategic repositioning of the company’s portfolio, which is now almost exclusively focused on industrial and logistics properties. During the year, the company’s EPRA NAV increased by 21% to 463p per share. The company says this reflects capital value increases from the portfolio which has benefited from yield shift and rental growth, particularly in the UK, as well as gains from developments and profits on disposal. IFRS profit before tax has increased by 4.9% to £686.5m (2014: £654.4m), whilst Adjusted EPS of 18.4 pence represents a 7 per cent increase from 2014 (17.2 pence), driven by improving like-for-like rental income, a record low vacancy rate of 4.8 per cent, new developments, acquisitions and lower financing and operating costs. The company is increasing the final dividend by3.9% to 10.6p per share (2014: 10.2p ).
In terms of rental income, the company has reported like-for-like net rental income growth of 4.2%. This includes growth of 5.2% in the UK and 1.2% in Continental Europe. There was also an 11% increase in in new rent contracted to £39.3m (2014: £35.4m), including £18.7m from standing stock and £14.1m from new development pre-let agreements.
The company says that completed developments added £9.9m of annualised rental income (£11.8m when fully leased). Additionally, they say that the committed development pipeline is 61% pre-let and they expect this to deliver £26.1m of annualised rental income when completed and fully leased.the company’s vacancy rate improved during the year – 4.8% as at 31 December 2015 (31 December 2014: 6.3 per cent). The company says that this was largely due to strong net absorption of existing space and development lettings. Furthermore, approximately a quarter of the company’s current vacant space is in newly completed developments, which they expect to lease in the near future.
The portfolio benefitted from positive asset revaluations across all of the company’s main markets (a combined 11.1%). The UK completed portfolio increased by 13.1% (outperforming the MSCI-IPD UK All Industrial Quarterly Index capital return of 10.6%). The Continental European completed portfolio increased by 7.9%.
The company says that, in their view, the outlook for occupational demand remains encouraging and the new year has started well, with a healthy pipeline of lettings and new development opportunities. Whilst there are a number of broader economic and geopolitical uncertainties, management say that they are confident that the portfolio is well positioned to be able to deliver growth and outperform the wider property market. Furthermore, they say that Occupier and investor appetite for modern warehouses in prime locations continues to be underpinned by a favourable macro-economic environment, limited supply of new space and structural changes in the nature of consumer demand towards online and convenience retailing. Retailers, parcel delivery companies and third party logistics providers are responding to these changes by restructuring their supply chains, in which modern storage and distribution warehouses in the right places play a vital role.
In terms of future development, the company says that its current construction programme and medium term development projects are capable of delivering annual rental income of approximately £109m, equivalent to 38 per cent of SEGRO’s current income stream, over the next five years. The company has made £719 million of investment in its portfolio, which has been focused on developing new assets (£164 million) and adding to the land bank (£221 million), as well as £334 million of acquisitions in a number of markets where they wish to build scale (Northern Italy, the Netherlands and the UK). There have been £661 million of disposals of assets that are non-core including offices in Milan and (post year-end) in Slough which resulted in a pro forma look-through LTV ratio of 34% (31 December 2014: 40%).
In terms of outlook, the company says that occupational market conditions remain favourable, particularly in the UK, principally reflecting the structural changes in consumer demand from e-commerce driving retailers to review and re-design their supply chains and fuelling demand for last mile delivery space. They say that the supply of modern, flexible warehouse space has also remained limited, and there are no signs of an impending over-supply.
In their view, the investment market appetite remains healthy but is becoming increasingly selective, focused on prime buildings in prime locations, where rental growth prospects can justify current yield levels. The managers see the potential for further capital growth across the company’s markets, but expect that the pace is likely to slow, in the UK in particular, and be based more on the prospects for rental growth than on further yield compression.
Reflecting this they say that the group’s priorities remain focused on disciplined capital allocation and operational excellence. Notwithstanding broader economic and geopolitical uncertainties, they will continue to actively manage the company’s existing assets and develop modern warehousing on the land bank to take advantage of what they see as favourable supply-demand dynamics in our markets and to drive attractive risk-adjusted returns for our shareholders.
A strong year for SEGRO sees NAV growth of 21% : SGRO