SEGRO reported rental growth across its portfolio of 6.5% during 2023, as occupier demand for logistics space remained strong.
Net rental income grew 12.5% to £587m, including new developments and the rental growth within its existing portfolio.
This was achieved in the backdrop of falling property values in the high interest rate environment. The group’s portfolio fell in value by 4.0% on a like-for-like basis to £17.8bn. As a result, adjusted NAV per share was down 6.1% to 907p (31 December 2022: 966p).
2023 full year dividend increased 5.7% to 27.8p (2022: 26.3p), with the final dividend up 4.9% to 19.1p (2022: 18.2p). This was fully covered by adjusted earnings of 32.7p per share (up 5.5% over the year).
Other highlights
- Capital investment of £931m (2022: £1.3bn) in development projects and land purchases
- £356m of disposals completed during the year significantly ahead of book value
- £50m of potential new headline rent from 625,700 sqm of development completions, delivered at a yield on cost of 7.0% (87% of this is already let to customers from a diverse range of sectors)
- Development pipeline with 623,900 sqm of projects under construction or in advanced negotiations equating to £71m of potential rent, 73% of which has been or is expected to be pre-let. Expected yield on cost for these projects is 7.4%
- LTV of 34% at 31 December 2023 (31 December 2022: 32%). Access to £1.9bn of available liquidity. Average cost of debt of 3.1%, and interest cover of 3.0 times.
Outlook
The company said : “SEGRO has one of the highest quality, best located and most modern pan-European industrial warehouse portfolios, with a diverse customer base. Our strategic focus is to ensure that our properties are located in the most supply constrained locations and are of a standard that makes them highly appealing to occupiers – and are therefore able to generate superior long-term rental growth and overall performance.
“As we progress through 2024, whilst macroeconomic and geopolitical uncertainty remain elevated, we note that inflation has fallen sharply over recent months and capital market pricing is now implying that interest rates have peaked. If sustained, this provides a positive backdrop for a recovery of investment market sentiment as the year progresses.
“Take-up levels are in line with or higher than pre-pandemic levels across our markets, supported by the key structural drivers of occupier demand which remain very much in evidence: data and digitalisation, supply chain optimisation, sustainability and urbanisation. This gives us confidence in the outlook for continued rental growth in line with our medium-term guidance of two to six per cent per annum, particularly as supply remains restricted in the near-term due to low levels of vacancy and limited capital availability for developers; and in the longer-term as public policy, particularly in urban areas, continues to favour housing over industrial usage and severely restricts the use of greenbelt land.
“£137m of our future income growth is underpinned by rent reversion within our existing portfolio, approximately 20% of our current rent roll. Most of this reversion is in the UK and will be captured by the five-yearly open market rent review process, whilst we will continue to benefit from index-linked uplifts on over half of our leases (mostly in Continental Europe).
“Further, our high-quality land bank, with the potential to add over £390m of rental income, provides us with the ability to meet occupier demand through further development. Projects within this land bank, as well as redevelopment opportunities within our existing portfolio such as on the Slough Trading Estate, combine to give the potential for 1.2 GW of new data centre capacity across 24 sites. Our strong balance sheet provides financial flexibility to invest at a time when construction costs are moderating, and supply of new competing product remains low. Development therefore continues to offer a profitable growth opportunity, as demonstrated with improving development yields of seven to eight per cent.
“Overall, we believe the present market environment offers an attractive opportunity for profitable mid-term investment, including the ability to grow passing rents by more than 50% over the next three years. SEGRO is therefore well-placed to deliver attractive returns and continued growth in earnings and dividends.”