David Sleath, Chief Executive, said:
“Our business has continued to perform well during the first quarter, securing £21 million of new headline rent from a combination of increasing occupancy, uplifts from rent reviews and renewals and our development activity. We currently have 44 projects under construction, which are expected to generate £57 million of annualised rent and are already 72 per cent leased.
“The new equity raised in February provides the capacity to pursue further growth opportunities and we have a number of additional pre-let development projects at advanced stages of negotiation. Whilst we remain mindful of macroeconomic and political risks, we believe that our high quality portfolio of assets in prime locations across the UK and Continental Europe positions us well to continue to benefit from the structural drivers of e-commerce and urbanisation.”
Operational Excellence: Continuing to deliver profitable growth from active asset management and development (Appendix 1)
· In the first quarter, we secured £21.2 million of new headline rent2 (Q1 2018: £27.3 million). Rent roll growth on existing space was particularly strong at £6.0 million (Q1 2018: £0.5 million), significantly benefiting from the re-gearing of a number of leases in our Heathrow portfolio. Within this we have secured new pre-lets of £11.1 million (Q1 2018: £23.3 million), well above the three-year quarterly average run rate of £7 million.
· The vacancy rate has reduced to 4.4 per cent (31 December 2018: 5.2 per cent). The decrease since December reflects strong lettings of both existing and recently completed speculative space as well as the impact of disposals and low take-backs.
· 100,000 sq m of developments were completed in the quarter, capable of generating £3.8 million of headline rent when fully let, of which £2.8 million (75 per cent) has been secured.
· 1.0 million sq m of space was under development or approved for development at 31 March 2019 (31 December 2018: 0.8 million sq m). These projects equate to potential future annualised headline rent of £57 million, 72 per cent of which has been leased (31 December 2018: £46 million, 73 per cent leased), reflecting an estimated, fully-let yield on total development cost of approximately 7 per cent.
· The development pipeline includes pre-lets signed during the period totalling 203,000 sq m. In the UK we secured a pre-let for a new data centre on the Slough Trading Estate and for the rail freight terminal at SEGRO Logistics Park East Midlands Gateway (SLP-EMG). In Italy we have agreed to construct a 103,000 sq m warehouse close to Rome for a global online retail company as well as two warehouses close to Milan for a hypermarket group and a third party logistics operator.
Disciplined Capital Allocation: Investment focused on development (Appendices 2 and 3)
· Net investment during Q1 2019 totalled £40 million, comprising £100 million of development capex and land purchases, £10 million of asset acquisitions and £70 million of asset and land disposals.
· Our investment activity continues to focus on delivering our current development pipeline and securing land to enable further development. We invested £90 million in development capex during the quarter and acquired £10 million of development land in Italy, Poland and the UK, almost all of which is connected to near term pre-let agreements. We continue to expect total investment in our development pipeline to exceed £600 million for 2019 as a whole (comprising approximately £400 million for development capex and the remainder on land acquisitions).
· During the quarter we disposed of £70 million of land and assets, including a vacant big box warehouse in the Midlands and the building completed for Shop Direct at SLP-EMG on a turnkey basis.
· We took the opportunity to acquire a newly-built 28,000 sq m warehouse in Barcelona, leased to a third party logistics operator, helping us to build scale in this attractive location.
Equity placing strengthens the balance sheet and supports further development-led growth
· We raised £451 million of new equity in a placing to enable us to continue to add to our future development pipeline.
· Net debt (including our share of debt in joint ventures) at 31 March 2019 was £2.2 billion (31 December 2018: £2.7 billion). The decrease principally reflects the net proceeds from the equity placing.
· The look-through loan to value (LTV) ratio at 31 March 2019 (based on asset values at 31 December 2018, adjusted for development expenditure, acquisitions and disposals) was 23 per cent (31 December 2018: 29 per cent).
· We estimate that the average number of shares for 2019 will be approximately 1,080 million, taking into account the new shares issued in the Placing and the provisional take-up of the final dividend in scrip form (subject to approval at the Annual General Meeting).
Financial calendar
The 2019 interim results will be published on Tuesday 23 July 2019.