SEGRO has published its trading update for the period from 1 January to 18 April 2017.
David Sleath, Chief Executive, said: “SEGRO has had an excellent start to 2017. We have signed GBP16 million of new headline rent, including almost GBP11 million of pre-let agreements relating to 300,000 sq m of new projects which have been approved or are underway. We were delighted to acquire full ownership of our Heathrow assets during the quarter and with the shareholder support for the associated rights issue, which also secured the necessary funding for our high quality development pipeline.
Investor demand for warehouse and industrial assets remains strong across our markets and this may lead to further yield compression and capital growth in the first half of the year.”
In the first quarter, they contracted GBP16.3 million of new rent (Q1 2016: GBP8.6 million), including GBP10.6 million of pre-lets (Q1 2016: GBP3.6 million).
The vacancy rate remains low at 5.6 per cent (31 December 2016: 5.7 per cent), mainly reflecting the impact of acquisitions and disposals (+0.3 per cent), offset by development lettings (-0.3 per cent) and by net take-up of existing space (-0.1 per cent).
32,500 sq m of speculative developments were completed in the first quarter, capable of generating headline rent of GBP1.6 million (SEGRO share) when fully let, of which 40 per cent had been secured at 31 March 2017. No pre-let developments were completed in the period.
During the first quarter, they approved or commenced the development of 291,200 sq m of space, most of which were projects categorised in the near-term development pipeline at the end of 2016. These projects represent GBP13.6 million of potential headline rent, of which 76 per cent is pre-let, and include a 46,000 sq m extension to the Leroy Merlin facility in Milan and a 46,600 sq m facility for a discount supermarket chain in Lyon; in addition, they have agreed to construct a 46,300 sq m warehouse near Milan, also for a discount supermarket chain, which was not in the near-term pipeline at 31 December 2016.
At 31 March 2017, 799,200 sq m of new space was approved or under development, of which 68 per cent (by headline rent) is pre-let (31 December 2016: 540,480 sq m, 61 per cent pre-let). These projects equate to potential headline rent of GBP39.0 million (31 December 2016: GBP26.6 million), reflecting a projected yield on total development cost of approximately 8 per cent.
Investment activity focused on development and Airport Property Partnership (“APP”) acquisition – They took full ownership of the APP in March, acquiring Aviva’s 50 per cent interest in the GBP1.1 billion vehicle. The net consideration paid was GBP365 million after taking account of the debt and other liabilities assumed within APP. During the first quarter, they have seen encouraging levels of occupational demand for space within the APP portfolio and continued to make progress in re-gearing peppercorn leases at the Heathrow Cargo Centre due to expire in 2019.
At 31 March 2017, the passing rent of SEGRO’s standing assets (including share of assets in joint ventures) was GBP310.9 million and the ERV (based on the 31 December 2016 valuation) was GBP380.3 million (31 December 2016: GBP287.8 million and GBP354.0 million respectively).
Since 31 March 2017, they have completed the disposal of the Northfields Industrial Estate to St George, a member of the Berkeley Group.
In the UK, the CBRE Monthly Index showed 3.2 per cent growth in industrial property capital values during the first quarter, outperforming the All Property growth rate of 1.3 per cent.
Net debt reduced by GBP0.1 billion during the quarter; LTV ratio approximately 29 per cent
They raised GBP556 million of (net) new equity in a rights issue to fund the cash element of the APP acquisition and to invest in future development projects.
Net debt (including their share of debt in joint ventures) at 31 March 2017 was GBP2.0 billion (31 December 2016: GBP2.1 billion). The decrease principally reflects receipt of the net proceeds from the rights issue, offset by the GBP216 million cash consideration for, and the GBP170 million net debt assumed with, the acquisition of the 50 per cent interest in APP, and by GBP80 million of development capex.
The look-through loan to value ratio at 31 March 2017 was approximately 29 per cent, based on asset values at 31 December 2016. We continue to expect to invest in excess of GBP300 million in our development pipeline during 2017.
SGRO : Upbeat trading statement from SEGRO