SEGRO plc · LSE:SGRO
SEGRO — H1 2007 Earnings Presentation
59 slides from SEGRO's earnings presentation, 2007
Slide 1: Continuing Growth Across Europe: Interim Results 2007
CONTINUING GROWTH ACROSS EUROPE INTERIM RESULTS 2007 WHERE BUSINESS WORKS
Slide 2: Implementation of Strategy on Track
IMPLEMENTATION OF STRATEGY ON TRACK Delivering STRONG PERFORMANCE IN H1 2007 SUCCESSFULLY EXPANDING EUROPEAN PLATFORM through strategic acquisitions and development DRIVING the UK PORTFOLIO RETURNS through asset management, development and capital recycling Ian Coull 2 Chief Executive
Slide 3: What We Said We Would Do
WHAT WE SAID WE WOULD DO The 2007 priorities we set out in March • Complete the US strategic review • Further acquisitions and corporate partnering deals in Continental Europe • Execute the development programme – and acquire new sites • Capital recycling & building critical mass in our clusters thr
Slide 4: What We Have Done
WHAT WE HAVE DONE • US: Sold for $2.9bn, significantly above book value, with £250m special dividend • Continental Europe: Announced c€430m acquisitions (blended initial yield of c7%), including second major corporate partnering deal with KarstadtQuelle • Development programme: 200,000 sq m complete
Slide 5: Post US: The Right Shape, The Right Strategy
POST US: THE RIGHT SHAPE, THE RIGHT STRATEGY Portfolio* As at 30 June 2007 The Development Pipeline By space By space UK UK Continental Continental UK UK 31% 31% Europe Europe 36% 64% 64% 69% 3.9m sq m 2.2m sq m 5 * Investment & Trading Properties and Share of JV’s
Slide 6: Financial Review
FINANCIAL REVIEW 6
Slide 7: Financial Review
FINANCIAL REVIEW David Sleath Finance Director Successful disposal of US business Excellent financial results Financial strength to support further growth 7
Slide 8: Disposal of US – Completed August 2007
Disposal of US – Completed 1 August 2007 Financial Impacts Gain on sale £m Gross proceeds 1,484.8 Debt assumed by buyer (606.9) Estimated expenses (25.0) Net proceeds 852.9 Exchange differences (21.3) Book value at 1 August (419.7) Profit on sale before tax 411.9 Estimated tax (304.5) Profit on sale
Slide 9: Excellent Financial Results
EXCELLENT FINANCIAL RESULTS Adjusted profit before tax £86.5m (£68.1m) Up 27.0% Adjusted diluted EPS 17.0p (12.3p) Up 38.2% Adjusted diluted NAV per share 811p (775p) Up 4.6% Total return 6.6%* (9.1%) Down 2.5% Interim dividend 8.3p (6.9p) Up 20.3% * After adding back the SIIC conversion charge of £
Slide 10: Adjusted Diluted NAV per Share
Adjusted diluted NAV per share Up 4.6% (36 pence) 17.1p 35.4p 810.8p (12.1)p (3.0)p (1.5)p 774.9p Adjusted diluted Property gains Adjusted profit after Ordinary dividends SIIC conversion Other Adjusted diluted NAV per share tax paid charge NAV per share Dec 2006 June 2007 10
Slide 11: Property Gains
Property Gains H1 2007 H1 2006 £m £m Investment properties - UK 61.6 213.5 - Continental Europe 53.6 9.3 - Joint ventures 8.0 2.5 - Realised profits on disposals 3.1 (0.8) Gains taken to income statement – continuing 126.3 224.5 Development properties (SORIE) 10.7 4.4 Total gains - continuing operat
Slide 12: Valuation Surpluses
VALUATION SURPLUSES On completed investment properties* 9.6% 9.6% 7.2% 3.1% 2.1% UK France Germany Rest of Europe Group 12 * Excluding land, including group share of JV properties
Slide 13: Adjusted Profit Before Tax
Adjusted Profit Before Tax* Up 27% H1 2007 H1 2006 £m £m Continuing Operations Net rental income 96.9 93.7 Joint ventures 1.2 0.4 Trading property disposals 16.9 0.2 Utilities, oil & gas 0.8 0.5 Other income 6.2 5.7 Administration expenses (13.4) (9.0) Operating profit 108.6 91.5 Net finance costs (
Slide 14: 3.4% Increase in Net Rental Income
3.4% INCREASE IN NET RENTAL INCOME £10.2 m £(5.3) m £(6.5) m £5.9 m £(1.1) m £96.9 m £93.7 m Net rental income - Acquisitions New developments, Disposals Space returned Other Net rental income - H1 2006 re-lettings & rent H1 2007 reviews 14
Slide 15: Taxation
Taxation H1 2007 H1 2006 £m % £m % Underlying tax charge - Current 0.6 1 3.1 7 - Deferred 0.8 1 7.4 16 Total tax on adjusted profit 1.4 2 10.5 23 before tax SIIC conversion charge 14.2 - SIIC deferred tax reversal (29.8) - Other deferred tax 15.6 14 61.0 27 Total tax charge 1.4 71.5 15
Slide 16: Cash Flow
Cash Flow H1 2007 H1 2006 £m £m Cash flow from operations 110.9 80.8 Finance costs (net, excluding capitalised interest) (57.9) (53.2) Dividends received 1.7 32.9 Tax paid (net) (1.7) (6.6) Free cash flow 53.0 53.9 Property sales (including joint ventures) 203.9 51.7 Capital expenditure (266.7) (191
Slide 17: Significant Capacity to Support Growth
Significant Capacity to Support Growth Pro-forma Group post US sale Capital expenditure £m plans Total property assets £5.1bn Gross debt £1.9bn Development expenditure - weighted average interest rate 5.7% - H2 2007 c. 200 - proportion at fixed rates 88% - 2008 c. 300 – 400 - average maturity 11.7 y
Slide 18: Financial Review
FINANCIAL REVIEW David Sleath Group Finance Director Successful disposal of US business Excellent financial results Financial strength to support further growth 18
Slide 19: Strategy & Operations
STRATEGY & OPERATIONS 19
Slide 20: Well Placed to Deliver Superior Returns
WELL PLACED TO DELIVER SUPERIOR RETURNS Delivering STRONG PERFORMANCE IN H1 2007 SUCCESSFULLY EXPANDING EUROPEAN PLATFORM through strategic acquisitions and development DRIVING the UK PORTFOLIO RETURNS through asset management, development and capital recycling Ian Coull 20 Chief Executive
Slide 21: Implementing Structural Change in Continental Europe Presence
IMPLEMENTING STRUCTURAL CHANGE IN SCALE OF PRESENCE IN CONTINENTAL EUROPE Portfolio As at 31 Dec 2004 Portfolio As at 30 June 2007 By space By space US US 12% 12% UK UK Continental UK UK Continental Europe 17% 71% 71% Europe 36% 64% 64% 3.0m sq m 3.9m sq m 21
Slide 22: Trebled Scale of Operations in Continental Europe
TREBLED SCALE OF OPERATIONS IN CONTINENTAL EUROPE - SINCE 2004 11 1,443 714 74 276 503 3 24 Countries Employees Lettable Space (000's sq m) Capital Value (£m) 22 June 2004 June 2007
Slide 23: On Course for Equal Weighting Between UK and Continental Europe
ON COURSE FOR EQUAL WEIGHTING BETWEEN UK AND CONTINENTAL EUROPE Portfolio* As at 30 June 2007 Portfolio*: By space By space - post pipeline but before acquisitions Continental UK Europe 36% 64% Continental UK Europe 48% 52% 3.9m sq m = + The Development Pipeline UK Continental 31% Europe 69% c.6 m s
Slide 24: Continuing Momentum Behind Growth in Continental Europe
CONTINUING MOMENTUM BEHIND SUCCESSFUL GROWTH IN CONTINENTAL EUROPE Rapid growth and capital deployment – strong occupier demand • c€430m of acquisitions announced in 2007, blended initial yield c7% • 80 ha of purchases for land bank • Development completions of 131,000 sq m (76% let or sold) • Const
Slide 25: Good Progress in Managing UK Assets
GOOD PROGRESS IN MANAGING UK ASSETS - Despite softer investment market - Strong occupier market Prime portfolio, 4.7% initial yield (5.4% equivalent) • 143,000 sq m level of lettings delivered, very strong 46% increase - After take backs results in excellent net £8.4m of new income • Divestments of
Slide 26: Lettings and Space Returned
Lettings and Space Returned Six Months to 30 June 68% INCREASE IN LETTINGS, £20M NEW INCOME By Area By Rent Lettings1 Space Lettings2 Space2 Returned Returned H1 2007 H1 2006 H1 2007 H1 2006 H1 2007 H1 2007 UK: 000’s Sq M 000’s Sq M 000’s Sq M 000’s Sq M £M £M Lettings of new developments 62 20 8.6
Slide 27: Vacancy Rate
Vacancy Rate* In line with expectations in UK Good lettings & low vacancy acquisitions in Europe 11.6% 11.6% Recent acquisitions and completed developments 1.9% 3.6% Underlying 9.7% Underlying 8.2% 8.0% 6.5% End 2006 End H1 2007 End 2006 End H1 2007 UK Continental Europe 27 * Excludes Trading Proper
Slide 28: Current Yields
Current Yields UK France Germany Central Europe % % % % Investment purchases - logistics warehouses 5.0 6.5 7.5 6.75 - light industrial 5.5 7.0 8.0 N/A Developments 7.0 8.5 9.0 9.5 Marginal cost of 6.5 5.0 5.0 5.0 borrowing Yield gap, net of tax - acquisitions (1.0 – 1.5) 1.5 – 2.0 2.0 – 2.5 N/A - d
Slide 29: Current Priorities
Current Priorities • Further acquisitions and corporate partnering deals in Continental Europe • Execute the development programme – and acquire new sites • Capital recycling & building critical mass in our clusters through acquisition & development • Continued customer focus and leasing performance
Slide 30: Development Pipeline: Continuing to Gain Momentum
Development pipeline CONTINUING TO GAIN MOMENTUM 2,176,000 sq m total pipeline • 200,000 sq m construction completed in H1 2007 • 330,000 sq m under construction at 30 June 2007 • 317,000 sq m potential starts in H2 2007 Future development expenditure of £1.6bn on 2.2m sq m • £0.8bn book value as of
Slide 31: Development Pipeline Analysis by Geography
Development Pipeline Analysis by Geography Space – 2.2 M Sq M Future Expenditure - £1.6bn 1,501,000 sq m £877m £688m 1067 600 674,000 sq m 530 461 171 231 50 146 263 108 67 46 UK Continental Europe UK Continental Europe 31 Work in Progress Anticipated Starts – H2 2007 Future Developments
Slide 32: UK: Strong Occupier Market
Market Conditions & Outlook UK: STRONG OCCUPIER MARKET United Kingdom • Occupier enquiry levels continuing in line with encouraging levels of last year • Rental growth trends remain generally modest, but with areas of strength • Yield compression now primarily dependent on good asset management • La
Slide 33: Continental Europe: Encouraging Market Conditions
Market Conditions & Outlook CONTINENTAL EUROPE: ENCOURAGING MARKET CONDITIONS Continental Europe • Yield compression continuing • SEGRO growing network, well positioned to secure the best acquisitions • Good occupier take up in our major markets, underpins major development pipeline • Office rental
Slide 34: Well Placed to Deliver Superior Returns
WELL PLACED TO DELIVER SUPERIOR RETURNS Delivering STRONG PERFORMANCE IN H1 2007 SUCCESSFULLY EXPANDING EUROPEAN PLATFORM through strategic acquisitions and development DRIVING the UK PORTFOLIO RETURNS through asset management, development and capital recycling Ian Coull 34 Chief Executive
Slide 35: Appendices
Appendices 35
Slide 36: Flexible Business Space
FLEXIBLE BUSINESS SPACE Industrial sites and business parks Developed Light and optimised Industrial for our customers… Warehousing & Logistics Suburban Offices 36
Slide 37: Excellent Portfolio with Strong Growth Prospects
EXCELLENT PORTFOLIO* WITH STRONG GROWTH PROSPECTS Pro-forma excluding US Business • Quality assets - prime sites - diversified occupiers: over 1,600 tenants, top 20 = 25 % of rent roll - secure income: 8.6 year average lease length • 2.2m sq m development potential (478 ha) - > 647,000 sq m under co
Slide 38: Adding Value
ACTIVE APPROACH TO ASSET MANAGEMENT RECYCLE ACQUISITIONS Sell or Redevelop £33m at Heathrow Sold £171m UK investment properties £11m near Schiphol & £9m land Sold £46m of Traders in UK and £7m Gonesse, Paris Continental Europe £14m Bondoufle, Paris - £17m of profit £12m in Belgium £2m in Poland & £7
Slide 39: The UK Portfolio
The UK Portfolio * HelioSlough property 39
Slide 40: The Portfolio in Continental Europe
The Portfolio in Continental Europe 40
Slide 41: Investment Portfolio by Value, by Location
Investment Portfolio* As at 30 June 2007 By Value, by Location UK Continental Europe 33% South London & The South Central Europe Slough Trading Netherlands Estates North London & 3% 3% France The East Belgium 12% 7% 11% 37% 31% 33% 11% Midlands & The North 13% 20% 16% Thames Valley West London 3% Ge
Slide 42: Investment Portfolio by Space, and Location
Investment Portfolio* As at 30 June 2007 By Space, and Location UK Continental Europe North London & Retail Slough Trading The East Estate Germany France 2% 16% 27% West 30% 31% London 14% 10% 15% 16% 3% 20% 10% 3% 3% Netherlands Thames Valley Central Europe Belgium Midlands & & The West Italy Spain
Slide 43: Quality of Income & Covenant
Quality of Income & Covenant As at 30 June 2007 Major Corporate Occupiers Annual Annual Rent Rent £m £m 1. Mars 7.0 11. W H Smith 1.9 2. Tesco 6.7 12. Deutsche Post 1.9 3. KarstadtQuelle 6.5 13. Lonza 1.8 4. Thales 5.9 14. Argos 1.8 5. Antalis 5.1 15. Intel 1.8 6. Cisco 4.1 16. Regus 1.8 7. UCB 2.6
Slide 44: Lettings in H1 2007
Lettings in H1 2007 Healthy Occupier Demand Customer Location Sq M Rent pa £000’s Thales Crawley, UK 34,462 4,960 Interconnect Exchange Slough, UK 7,222 847 Rackspace Slough, UK 4,694 543 Agilent Technologies Winnersh, UK 1,858 460 Red Hat Farnborough, UK 2.032 437 Premier Cables Dunstable, UK 4,940
Slide 45: Pre-Lettings Signed in H1 2007
Pre-Lettings Signed in H1 2007 SIGNIFICANT PROGRESS IN POLAND Customer Location Sq M Rent pa £000’s O2 Slough, UK 10,220 2,970 Harris Systems Winnersh, UK 6,735 1,813 Investa Lodz, Strykow, Poland 9,993 256 Pregis Silesia, Gliwice, Poland 16,100 409 Masterlink Poznan, Komorniki, Poland 7,100 190 Dec
Slide 46: Net Rental Income Continuing Operations
Net Rental Income Continuing Operations Up 3.4% H1 2007 H1 2006 £m £m Gross rental income - UK 97.5 92.2 - Continental Europe 21.6 17.9 119.1 110.1 Property operating expenses (22.2) (16.4) Net rental income – continuing operations 96.9 93.7 Discontinued operations (US) 33.8 28.3 Total net rental in
Slide 47: Like-For-Like Rents
Like-For-Like Rents Up 7.6% on H1 2006 Rental Income for the Half Year UK Continental Europe Total H1 2007 H1 2006 H1 2007 H1 2006 H1 2007 H1 2006 £m £m £m £m £m £m Like-for-like rents on properties owned 85.5 85.0 10.5 11.0 96.0 96.0 Properties acquired 3.7 0.6 4.9 2.1 8.6 2.7 Properties sold 0.2 4
Slide 48: Profit Adjustments – Continuing Operations
Profit Adjustments – Continuing Operations H1 2007 H1 2006 £m £m EPRA adjustments Property gains 118.3 222.0 Property gains in joint ventures 6.0 2.5 Gains/(losses) on derivatives 3.1 5.6 Total 127.4 230.1 SIIC conversion charge (14.2) - SIIC deferred tax reversal 29.8 - Other deferred tax (15.6) (6
Slide 49: 200,000 Sq M Developments Completed in H1
200,000 SQ M DEVELOPMENTS COMPLETED IN H1 80% LET OR SOLD CENTRAL EUROPE UK 90,000 SQ M 68,000 SQ M 74% 81% BELGIUM 22,000 SQ M 100% GERMANY FRANCE 15,000 SQ M 5,000 SQ M 49 47% 100%
Slide 50: 330,000 Sq M Under Construction at End H1
330,000 SQ M UNDER CONSTRUCTION AT END H1 26% LET OR SOLD CENTRAL EUROPE UK 145,000 SQ M 67,000 SQ M 40% 9% BELGIUM 20,000 SQ M 100% FRANCE 50,000 SQ M -% GERMANY 48,000 SQ M 50 2%
Slide 51: Development Pipeline – Group
Development Pipeline – Group As at 30 June 2007 Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 65 78 335 478 Space: Industrial sq m 280,681 251,155 1,155,334 1,687,170 Offices sq m 49,815 65,431 367,585 482,831 Retail s
Slide 52: Development Pipeline - UK
Development Pipeline - UK As at 30 June 2007 Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 15 32 128 175 Space: Industrial sq m 67,454 80,131 268,281 415,866 Offices sq m 65,431 187,267 252,698 Retail sq m 5,747 5,747
Slide 53: Development Pipeline – Continental Europe
Development Pipeline – Continental Europe As at 30 June 2007 Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 50 46 207 303 Space: Industrial sq m 213,227 171,024 887,053 1,271,304 Offices sq m 49,815 180,318 230,133 Reta
Slide 54: H1 2007 Property Acquisitions & Disposals
H1 2007 Property Acquisitions & Disposals ACTIVE & PROFITABLE CAPITAL RECYCLING Main Acquisitions H1 2007 Main Disposals H1 2007 Investment Investment • UK (17,000 sq m, £37m, incl’ £33m Heston) • £30m, Basildon • Belgium (26,000 sq m, £12m) • £30m, Huddersfield • Netherlands (21,000 sq m, £11m) • £
Slide 55: Investment Targets for Developments
Investment Targets for Developments Country / Region Sub-region Typical Development Target Yield IRR % % UK UK 6–8 9 - 10.5 Continental Europe Western Europe 8–9 9.5 - 12 Continental Europe Central Europe 9 - 10 12 - 14 Development yield represents the net rental income before tax as a percentage of
Slide 56: Translation Exposure
Translation Exposure 30 June 2007 £1,850 £1,706 £m £1,033 £1,063 £817 £643 £174 £143 Euros US Dollars -£31 Total Assets Liabilities Net exposure Net exposure of £143m represents 4% of Group Net Assets 56
Slide 57: Recurring Interest Cover
Recurring Interest Cover* Six months to 30 June 2007 Interest £m Income £m Net borrowing cost 69.5 Net Rental Income 130.7 Property Trading 16.9 Utilities & Gas 0.8 Admin Charge (15.1) JV Income 2.0 Recurring net interest cost 69.5 Recurring Income 135.3 Cover (1.95 times) (2006 :1.94) * Continuing
Slide 58: UK Customer Retention
UK Customer Retention Leases renewed and breaks not exercised Leases renewed Breaks not exercised 79% 78% 78% 73% 72% 67% 55% 56% 2004 2005 2006 2007 Latest IPD data related to 2005 events and indicated 75% breaks not operated with 39% leases renewed, (Figures exclude cases where tenants relocated t
Slide 59: Forward Looking Statements
Forward Looking Statements This presentation may contain certain forward-looking statements with respect to SEGRO’s expectations and plans, strategy, management’s objectives, future performance, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty