SEGRO PLC - PLACING TO FUND DEVELOPMENT PROGRAMME
David Sleath, Chief Executive of SEGRO, said:
"Since 2016, we have deployed over £1.5 billion into development across the UK and Continental Europe which has generated a cumulative capital value uplift of over 20 per cent and £90 million of new annualised headline rent. Occupier and investment market conditions remain supportive and we continue to experience strong demand for new warehousing.
"We are on course to invest over £600 million in further development projects and additional land purchases this year. We believe using new equity alongside our existing debt facilities and the proceeds from normal course portfolio recycling will ensure that we can continue to deliver the attractive returns from development while retaining a strong balance sheet."
· Proposed Placing of new ordinary shares to raise approximately £450 million of gross proceeds to fund SEGRO's pipeline of development opportunities.
· New equity will allow the Group to take advantage of existing and new, largely pre-let, development opportunities while maintaining a strong balance sheet.
· Development pipeline expected to be accretive in the medium term to both earnings and net asset value per share after taking account of the impact of the Placing.
· Occupier market conditions remain strong, leading to good leasing momentum. Pre-let agreements equating to £41.5 million of headline rent were signed during 2018, all of which are due to complete in 2019.
· On track to invest over £600 million in development capex, infrastructure and land in 2019, following £688 million invested in 2018, £507 million in 2017 and £457 million in 2016. Completions since 2016 have generated an estimated, fully-let gross yield on total development cost of approximately 8 per cent, compared to an investment valuation (net true equivalent) yield of just over 5 per cent.
· Approximately £430 million of future development capital expenditure across the Group already agreed or in advanced discussions. In addition to the £211 million required to complete the current development pipeline as at 31 December 2018, further potential investment of £218 million relates to development projects associated with pre-let agreements subject to planning or in advanced negotiations. Further, mostly pre-let, development projects are expected to be added to the pipeline over the coming months.
· New land acquisitions exchanged or under discussion to sustain future development activity. SEGRO has exchanged contracts to acquire, over the next two years, £200 million of land, subject to receipt of planning permission. In addition, it has another £70 million of land acquisitions under offer, which will enable the Group to sustain its development activity in the years ahead.
· Pipeline largely de-risked through pre-leasing. The current development pipeline, under construction as at 31 December 2018, is expected to generate £45.9 million of headline rent once completed and fully let, of which 73 per cent has been secured. This equates to a yield on total development cost of approximately 7 per cent. The Board intends to continue with this largely pre-let approach to development in the future.
· Continuing focus on disciplined capital management and recycling. £442 million of gross proceeds in 2018 from disposals of land and assets. Disposals of land and assets in 2019, including sales to the SELP joint venture, are expected to total between £150 million and £250 million.
· Placing shares will have the right to receive the 2018 final dividend of 13.25 pence,payable on 2 May 2019 to shareholders on the register as at 21 March 2019.
Use of the proceeds of the Placing
SEGRO is currently building, or has identified, development projects which require capital expenditure of £429 million to complete. Of this amount, £211 million has already been committed to complete the current development pipeline and a further £218 million is associated with a potential pipeline of projects where either a pre-let has been agreed subject to planning or is in advanced negotiations (the near-term development pipeline). Additional development projects are expected to be added to the pipeline over the coming months.
Background to the Placing
Development has always been an important element of SEGRO's growth strategy. Since 1 January 2012, SEGRO has invested £2.4 billion into development capital expenditure, development land and infrastructure, and has completed 2 million sq m of new assets, generating an estimated yield on new money of approximately 11 per cent (i.e. excluding land already on the balance sheet).
Occupier demand for modern warehouse space in Europe's main urban industrial and big box logistics markets has remained strong despite political and economic uncertainties in the UK and Continental Europe. Leasing momentum has continued into 2019, with £4.6 million of additional headline rent generated from lettings of existing space, rent reviews and lease renewals since 1 January 2019 and £1.0 million of new pre-let agreements signed, partly offset by £0.5 million of rent lost from space returned.
Two-thirds of SEGRO's portfolio comprises urban warehouses concentrated in and around Europe's major cities, particularly London, Paris, Düsseldorf, Berlin and Warsaw, where supply of modern warehouse space vital to facilitating rapid "last mile" distribution is particularly constrained. The supply of big box space in the UK and Continental Europe has increased in recent months but vacancy rates remain generally low, reflecting strong demand levels and the largely pre-let nature of supply across most markets.
Benefits of the Placing
The Placing allows SEGRO to continue to build scale in its core markets by executing its development plans, which are a key part of the Company's growth strategy. The Company believes that, once complete and let, the returns from the development pipeline will be accretive in the medium term to both earnings and net asset value per share, more than offsetting the short-term dilutive impact of the Placing.
Details of the Placing
Merrill Lynch International ("BofA Merrill Lynch") and UBS AG London Branch ("UBS", and together with BofA Merrill Lynch, the "Joint Bookrunners") are acting as Joint Bookrunners and Corporate Brokers in connection with the Placing.
The Placing is subject to the terms and conditions set out in the Appendix (which forms part of this announcement, such announcement and the Appendix together being the "Announcement"). The Joint Bookrunners will today commence a bookbuilding process in respect of the Placing (the "Bookbuilding Process"). The price per ordinary share at which the Placing Shares are to be placed (the "Placing Price") will be decided at the close of the Bookbuilding Process. The book will open with immediate effect following this Announcement. The timing of the closing of the book, pricing and allocations are at the discretion of the Joint Bookrunners and SEGRO. Details of the Placing Price and the number of Placing Shares will be announced as soon as practicable after the close of the Bookbuilding Process.
The Placing Shares, when issued, will be fully paid and will rank pari passu in all respects with the existing ordinary shares of the Company, including the right to receive all dividends and other distributions declared, made or paid after the date of issue, including the 2018 final dividend payable on 2 May 2019 to shareholders on the register as at 21 March 2019. The number of Placing Shares shall not exceed 9.9% of the current issued share capital of the Company.
Application will be made for the Placing Shares to be admitted to the premium listing segment of the Official List (the "Official List") of the Financial Conduct Authority (the "FCA") and to be admitted to trading on the main market for listed securities of the London Stock Exchange plc (the "London Stock Exchange") (together, "Admission"). Settlement for the Placing Shares and Admission is expected to take place on or before 8.00 a.m. on 19 February 2019. The Placing is conditional, among other things, upon Admission becoming effective and the placing agreement between the Company and the Joint Bookrunners (the "Placing Agreement") not being terminated in accordance with its terms. The Appendix sets out further information relating to the Bookbuilding Process and the terms and conditions of the Placing.