SEGRO plc (“SEGRO” or the “Group”) today publishes a trading update for the period from 1 July 2021 to 19 October 20211.
David Sleath, Chief Executive, said:
“SEGRO has had an active and successful third quarter as we continue to capitalise on strong occupier and investment market conditions, with high leasing volumes across the business.
“We have made significant progress with our profitable development programme and have completed projects equivalent to £25 million of potential rent, of which over 90 per cent is already let. We currently have 1 million square meters of space under construction, and during the period have added to the active pipeline and secured further land to extend our bank of future development opportunities.
“We head into the final months of 2021 with confidence in our ability to drive further sustainable growth in rental income, earnings and dividends.”
Strong rent roll growth during the period as a result of a busy period of lettings and the continued capture of reversionary potential (Appendix 1).
- £26 million (Q3 2020: £16 million) of new headline rent2 signed during the quarter, taking the total for the nine months to 30 September 2021 to £64 million (9M 2020: £50 million). This includes £9 million (Q3 2020: £6 million) of new, unconditional pre-let agreements and lettings of speculative developments prior to completion, taking the nine-month figure to £30 million (9M 2020: £25 million).
- New headline rents on review and renewal up more than 13 per cent (UK: 18 per cent, CE: 2 per cent) on previous passing rent in the nine months to 30 September 2021 as ongoing asset management continues to capture reversionary potential from our existing portfolio.
- Vacancy rate reduced further to 3.2 per cent (30 June 2021: 4.3 per cent) predominantly due to strong demand for recently completed speculatively developed space.
- Customer retention is 76 per cent for 2021 to date after we took the opportunity to take back some space in urban estates in London and Paris with a view to executing identified asset management initiatives.
Development programme continues to deliver high-quality growth and returns – potential to increase annualised rent roll by 20 per cent (£92 million) from the pipeline of space under construction and in advanced discussions.
- So far in 2021 we have completed 450,000 sq m (9M 2020: 695,800 sq m) of new developments, capable of generating £25 million (9M 2020: £38 million) of headline rent, 93 per cent which has been let. Developments capable of generating a further £31 million of rent are expected to complete in the fourth quarter, £26 million of which has been secured.
- At 30 September 2021, over 998,000 sq m of space was under construction, equating to potential future headline rent of £68 million (30 June 2021: 1.1 million sq m, £67 million) of which 66 per cent has been secured (30 June 2021: 66 per cent). Once complete and fully let, the pipeline is expected to generate a yield on total development cost of approximately 6.8 per cent.
- Additional pre-let projects in advanced discussions equating to 196,000 sq m of space with potential capex of £211 million and associated rent of £24 million are expected to commence in the coming months.
Superior operating platform and local expertise driving growth through sourcing off-market development and investment opportunities in competitive markets (Appendices 2 and 3).
- In 2021 so far, we have acquired over £260 million of land to top up our land bank and provide further growth opportunities. During the third quarter we acquired £66 million of land for future development, including sites in Italy and Poland, as well as two further plots of land in London acquired in early October.
- We took advantage of strong market conditions to dispose of £98 million of assets including a portfolio of urban warehouses in Italy and a stand-alone big box warehouse in Spain.
- Earlier this month we also completed an asset swap which resulted in the acquisition of a significant urban warehouse estate in West London for £140 million. As part of this transaction we disposed of a portfolio of stand-alone UK big boxes and urban warehouses for £205 million.
- We remain on course to invest in excess of £750 million in our development pipeline (excluding land acquisitions) during 2021.
Disciplined capital management has reduced the cost of debt further and balance sheet is well-positioned to fund further growth.
- We issued the first SEGRO Green bond, a ten-year €500 million senior unsecured bond with a coupon of 0.5 per cent.
- Net debt (including our share of debt in joint ventures) at 30 September 2021 increased to £3.3 billion (30 June 2021: £3.1 billion).
- This equates to a pro forma3 look-through LTV of 23 per cent (30 June 2021: 21 per cent).
Financial calendar
The provisional date for 2021 Full Year results is Friday 18 February 2022.
1 In this statement, space is stated at 100 per cent, whilst financial figures are stated reflecting SEGRO’s share of joint ventures. Financial figures are stated for the period to, or at, 30 September 2021 unless otherwise indicated. The exchange rate applied is €1.16:£1 as at 30 September 2021.
2 Headline rent is annualised gross passing rent receivable once incentives such as rent-free periods have expired.
3 Based on values at 30 June 2021, adjusted for acquisitions, disposals and other capital expenditure during the third quarter.