SEGRO plc · LSE:SGRO

SEGRO — H1 2014 Earnings Presentation

56 slides from SEGRO's earnings presentation, Jul 30, 2014

  1. Slide 1: 2014 Half Year Results

    2014 Half Year Results 30th July 2014 SEGRO Logistics Park, Alzenau

  2. Slide 2: Delivering on the strategy; building for the future

    Delivering on the strategy; building for the future  Occupational and investment markets continue to strengthen  Further progress in portfolio reshaping – moving from net divestment to net investment  Well placed to capitalise on future opportunities 1

  3. Slide 3: Financial Review

    Financial Review Justin Read, Group Finance Director Sainsbury’s, Greenford, UK

  4. Slide 4: Financial highlights

    Financial highlights H1 2014 H1 2013 Change  Earnings reduction from 2013 disposals largely EPRA PBT £66.7m £69.0m (3.3)% offset by net investment in 2014 EPRA EPS 8.9p 9.2p (3.3)% Dividend per share 4.9p 4.9p - 30 June 31 Dec Change  Positive growth in NAV 2014 2013 driven by 4.5% portfolio valua

  5. Slide 5: EPRA PBT 3.3% lower vs. H1 2013

    EPRA PBT 3.3% lower vs. H1 2013 H1 2014 H1 2013 £m £m Gross rental income 107.5 144.6 Property operating expenses (20.0) (25.9) Net rental income 87.5 118.7 Share of joint ventures’ EPRA profit1 22.6 11.4 Joint venture fee income 5.4 2.0 Administration expenses (11.7) (12.1) EPRA operating profit 10

  6. Slide 6: Net rental income 13% lower due to disposals; LFL net rental income stable

    Net rental income 13% lower due to disposals; LFL net rental income stable £136.6m JVs at share £17.9m £3.3m £4.9m £1.9m £0.1m £118.9m £(0.7)m £(2.1)m £(25.1)m JVs at share  +1.8% exc. indirect £31.4m  £3.5m Neckermann property admin costs receipt  +5% for UK portfolio  £3m Pegasus Park Group £1

  7. Slide 7: Pro forma net rental income adjusted for the incremental impact of 2014 transactions

    Pro forma net rental income adjusted for the incremental impact of 2014 transactions Group JVs Total £m £m £m H1 2014 net rental income 87.5 31.4 118.9 Incremental impact of: Disposals since 1 Jan 2014 (inc. Pegasus Park) (6.5) (0.2) (6.7) Acquisitions since 1 Jan 2014 (inc. LPP & UK logistics portf

  8. Slide 8: 18% reduction in total costs

    18% reduction in total costs Inc. JVs at share H1 2014 H1 2013 Change £m £m % Gross rental income 144.3 165.3 (12.7) Property operating expenses (20.0) (25.9) Administrative expenses (11.7) (12.1) JV operating expenses (5.8) (2.8) JV management fees 5.8 2.0 Total costs (31.7) (38.8) (18.3) Total cos

  9. Slide 9: Improved cost efficiency by exploiting economies of scale

    Improved cost efficiency by exploiting economies of scale Administrative expenses (less JV management fees) vs. floor space under management £50m 7m sq m 6m sq m £40m 5m sq m £30m 4m sq m 3m sq m £20m 2m sq m £10m 1m sq m £0m 0m sq m FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 1H 2014 Admin expenses (ne

  10. Slide 10: Strong financial position

    Strong financial position 30 June 31 Dec  Net debt (inc. JVs) 2014 2013 increased £201m Group only: reflecting net investment Net borrowings (£m) 1,670 1,459 in H1 2014 Group cash & undrawn facilities (£m) 483 982  Pro forma LTV at c45% Weighted average cost of debt1 (%) 4.5 4.5 after LPP, UK logi

  11. Slide 11: 6.7% increase in EPRA NAV per share

    6.7% increase in EPRA NAV per share +9p +24p (10)p (2)p 333p 312p EPRA NAV Realised and EPRA EPS 2013 Final FX & other EPRA NAV per share at unrealised Dividend movements per share at 31 Dec 2013 valuation 30 June 2014 movements 10

  12. Slide 12: Positive valuation movement of £175m (UK +6.3%; Continental Europe stable)

    Positive valuation movement of £175m (UK +6.3%; Continental Europe stable) H1 2014 portfolio surplus/(deficit)1 £200m +4.4% £150m £100m +6.2% +6.4% £50m +0.9% £0m (2.5)% (£50m) Greater Thames Valley & Cont. Europe Cont. Europe Total London National Logistics Core Non-core ERV1: +0.9% +0.9% +0.1% (2.

  13. Slide 13: Financial summary

    Financial summary  H1 2014: results reflect progress with strategy implementation o Earnings 3% lower; impact of disposals on NRI largely offset o Positive valuation uplift leading to 6.7% NAV increase  Interim dividend maintained at 4.9 pence  H2 2014: further earnings momentum from committed de

  14. Slide 14: Business Review

    Business Review David Sleath, Chief Executive SEGRO, Gonesse

  15. Slide 15: Continued delivery of our strategic priorities

    Continued delivery of our strategic priorities  £161m of disposals1 in line with Dec-13 valuation Reshape the 1 existing portfolio  Average topped-up initial yield on sale of 8.1%  Non-core assets now only 7% of portfolio1 Deliver profitable  £224m of acquisitions of grade A logistics 2 growth b

  16. Slide 16: Overview of Key Markets

    Overview of Key Markets Marly La Ville, Paris

  17. Slide 17: Slough Trading Estate: Transforming into a modern business park

    Slough Trading Estate Transforming into a modern business park Key portfolio data AUM Value (at share) Value movement1 £1,106m £1,106m +5.8% Average lease2 Vacancy rate Equivalent yield 7.5 years 7.4% 7.0% (-40 bps) Highlights for the period • LFL rental growth +3.5% (Thames Valley); 94% of rent at

  18. Slide 18: Greater London: Exploiting shortage of Grade A stock

    Greater London Exploiting shortage of Grade A stock Key portfolio data AUM Value (at share) Value movement1 £2,208m £1,687m +6.2% Average lease2 Vacancy rate1 Equivalent yield 7.2 years 7.3% 6.6% (-40 bps) Highlights for the period Origin, Park Royal • Very strong occupier demand for new space, seco

  19. Slide 19: Greater London: Continued erosion of industrial land

    Greater London Continued erosion of industrial land Old Oak Common • 155 hectares lost • HS2 station, residential-led, mixed- use White City • 8 hectares lost • Westfield White City extension • Royal Mail, Ocado affected Nine Elms • 195 hectares lost • Residential-led, mixed-use • DHL, Yodel, Royal

  20. Slide 20: UK Logistics: Building scale and creating value

    UK Logistics Building scale and creating value Key portfolio data1 AUM Value (at share) Value movement2 £661m £381m +7.7% Average lease3 Vacancy rate2 Equivalent yield4 6.6 years 4.8% 6.5% (-40 bps) Highlights for the period Magna Park, Lutterworth • Purchased 32,800 sq m logistics warehouse in Magn

  21. Slide 21: Continental Europe Logistics: Building scale in a fragmented market

    Continental Europe Logistics Building scale in a fragmented market Key portfolio data AUM Value (at share) Value movement1 £1,252m £626m +1.3% Average lease2 Vacancy rate1 Equivalent yield 4.9 years 5.5% 7.7% (-20 bps) Highlights for the period Corbas, Lyon • Completed €472m acquisition of logistics

  22. Slide 22: Continental Europe Light Industrial: Anticipating edge-of-town demand

    Continental Europe Light Industrial Anticipating edge-of-town demand Key portfolio data Blanc Mesnil, Paris AUM Value (at share) Value movement1 £343m £343m +0.6% Average lease2 Vacancy rate1 Equivalent yield 3.5 years 11.0% 8.0% (-10 bps) Highlights for the period • 101,200 sq m of development unde

  23. Slide 23: Building for the future

    Building for the future Marly La Ville, Paris

  24. Slide 24: Growth underpinned by favourable market environment

    Growth underpinned by favourable market environment Total UK logistics availability1  Economic environment improving (m sq m) 5.0  Structural changes in retail supply chain (e-commerce; 4.0 convenience) 3.0 2.0  Supply conditions remain tight 1.0 0.0 1H14 2005 2006 2007 2008 2009 2010 2011 2012 2

  25. Slide 25: Creating value and driving income growth

    Creating value and driving income growth Supportive investment and occupational market conditions  Accretive acquisitions  Improving existing assets  Developing new assets  Building scale in key markets  Strong customer relationships  500 hectare land bank  Modern, sustainable properties  Ex

  26. Slide 26: Accretive acquisitions: Building scale in UK logistics

    Accretive acquisitions Building scale in UK logistics  Acquired remaining 50% share of LPP for SEGRO UK Logistics portfolio £96m o Reflects asset price of £350m (100%) o Topped-up NIY of 6.6% o 12 logistics warehouses (377,000 sq m) o Occupiers include Sainsbury’s, Tesco, Booker, Royal Mail, DHL o

  27. Slide 27: Creating value and driving income growth

    Creating value and driving income growth Supportive investment and occupational market conditions  Accretive acquisitions  Improving existing assets  Developing new assets  Building scale in key markets  Strong customer relationships  500 hectare land bank  Modern, sustainable properties  Ex

  28. Slide 28: Developing new assets: A valuable source of future income & value

    Developing new assets A valuable source of future income & value Current land & development holdings by value (as at 30 June 2014) 28 Current projects (335,000 sq m) Residual  £90m estimated development cost (exc. land) land  Annual rent of £22m (50% pre-let) £47m (143 ha)  9.4% estimated yield o

  29. Slide 29: Developing new assets: Encouraging pipeline of opportunities

    Developing new assets Encouraging pipeline of opportunities Fully-let annualised gross rental income – by year of development completion1 £25m £20m £15m £10m £5m £0m 2011 2013 2015e 2017e 2019e Pre-let Speculative Future pipeline (indicative) 28 1 Including joint ventures at share, excluding rent fr

  30. Slide 30: Driving income growth: Existing assets and potential investment

    Driving income growth Existing assets and potential investment Annualised gross cash passing rent1, £millions 71.2 21.8 24.2 3.9 8.0 (4.0) 391.5 290.5 266.4 30 June 2014 Expiry of Reduction Reversion Potential Potential- Net Current Future pipeline Potential Potential- rent frees in vacancy to ERV c

  31. Slide 31: Delivering on the strategy; building for the future

    Delivering on the strategy; building for the future  Occupational and investment markets continue to strengthen  Further progress in portfolio reshaping – moving from net divestment to net investment  Well placed to capitalise on future opportunities Origin, Park Royal (14,700 sq m) Stockley Clos

  32. Slide 32: Q&A

    Q&A Slough Trading Estate, UK

  33. Slide 33: Appendix I: Portfolio and financial data

    Appendix I Portfolio and financial data

  34. Slide 34: Our strategic priorities

    Our strategic priorities Reshape the  Divesting non-core assets 1 existing portfolio  Improving asset utilisation (land & vacant property) Deliver profitable  Generating attractive returns by building a high quality, 2 growth by reinvesting modern portfolio with critical mass in target markets, t

  35. Slide 35: EPRA performance measures

    EPRA performance measures H1 2014 H1 2013 £m £m EPRA profit after tax 65.8 8.9p 68.1 9.2p EPRA NAV 2,470.3 333p 2,175.0 294p EPRA NNNAV 2,195.4 296p 1,929.3 260p EPRA net initial yield 5.9% 6.6% EPRA “topped-up” net initial yield 6.5% 7.5% EPRA vacancy rate 8.3% 9.5% EPRA cost ratio (including vacan

  36. Slide 36: EPRA Income Statement

    EPRA Income Statement JVs proportionally consolidated H1 2014 H1 2013 Group JVs Total Group JVs Total £m £m £m £m £m £m Gross rental income 107.5 36.8 144.3 144.6 20.7 165.3 Property operating expenses (20.0) (5.4) (25.4) (25.9) (2.8) (28.7) Net rental income 87.5 31.4 118.9 118.7 17.9 136.6 Joint v

  37. Slide 37: EPRA Balance Sheet

    EPRA Balance Sheet JVs proportionally consolidated 30 June 2014 31 December 2013 Group JVs Total Group JVs Total £m £m £m £m £m £m Investment properties 3,069.9 1,302.0 4,371.9 2,910.0 1,079.6 3,989.6 Trading properties 125.7 11.2 136.9 138.7 12.8 151.5 Owner occupied properties 1.3 - 1.3 4.1 - 4.1

  38. Slide 38: Positive valuation drivers across our core markets, especially in the UK

    Positive valuation drivers across our core markets, especially in the UK H1 2014 Outlook H1 2014 Outlook H1 2014 Equiv. ERV Capital Yield1 Growth1 Return1 (34) Greater bps Tightening Rising London +0.9% +6.2% (39) Thames Valley & bps Tightening Rising National Logistics +0.9% +6.4% Germany 0 bps Tig

  39. Slide 39: Continental Europe non-core 5% of total assets

    Continental Europe non-core 5% of total assets1 Key portfolio data1 Value (at share) Income (at share)2 Vacancy rate £237m £21m 12.9% Net Initial Yield3 True Equivalent Yield3 6.4% 9.5% Energy Park, Vimercate, Milan Highlights for the period • Pegasus Park sale agreed in July in line with June 2014

  40. Slide 40: Vacancy reduced from 8.5% to 8.3% due to acquisitions and net absorption

    Vacancy reduced from 8.5% to 8.3% due to acquisitions and net absorption +0.2% +0.1% (0.3)% (0.2)% 8.5% 8.3% 2012 31 Dec 2013 Acquisitions & Developments Existing vacant Valuation 20132014 30 June (Core: 7.6%) Disposals space Movement (Core: 8.2%) 39

  41. Slide 41: Net borrowings profile

    Net borrowings profile 30 June 2014 Weighted average £m cost of gross debt1 Group gross borrowings (1,693.6) 4.5% Group cash & equivalents 23.7 0.3% Group net borrowings (1,669.9) SELP deferred consideration 124.0 5.0%2 Share of JV net borrowings (420.2) 4.3% Total properties 4,510.1 Loan to value 4

  42. Slide 42: Bank facilities restructured to reduce cost, extend maturity and provide strong liquidity

    Bank facilities restructured to reduce cost, extend maturity and provide strong liquidity Group cash & undrawn facilities  Secured/amended £m €460m of bank facilities Undrawn facilities 459 at reduced cost and extended maturity Cash 24 Cash & Undrawn facilities (at 30 June 2014) 483  Attractive ma

  43. Slide 43: Debt Maturity Profile

    Debt Maturity Profile As at 30 June 2014 £750m £500m £250m £0m 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+ SEGRO Bonds SEGRO bank debt Non-recourse JV debt at share SEGRO cash SEGRO Undrawn bank facilities 42

  44. Slide 44: Euro currency exposure and hedging

    Euro currency exposure and hedging Balance Sheet (as at 30 June 2014)  €1.25:£1 as at 30 June 2014  € assets 89% hedged by € liabilities 1,476 Euro gross assets1  €191m (£153m) of residual exposure - 6% of Group NAV 90  NAV sensitivity versus €1.25:£1: Euro debt € million +5% (€1.31) = -c£7m (c.

  45. Slide 45: Development: Split by geography and building type

    Development Split by geography and building type Current developments - gross rental income1 Future pipeline - gross rental income1 UK Big Box Czech Rep. Greater Spec CE Big Box London UK Higher Pre-let Value Use Pre-let Poland Thames Valley Spec Spec UK Logistics France CE Light Industrial Benelux

  46. Slide 46: Timing of development completions

    Timing of development completions Pre-let annualised gross rental income from completed developments, £ millions1 25.0 Includes £4.1m at Energy £22m potential Park; offset by take-back of 20.0 former premises 15.0 £11m pre-let 6.2 10.0 1.5 7.6 5.0 1.8 5.7 3.4 2.8 0.0 H1 14 H2 14 H1 15 H2 15 Pre-let

  47. Slide 47: Non-core land significantly reduced

    Non-core land significantly reduced Land holdings by value, £ millions 350 6.7% of portfolio 300 250 170 4.9% of portfolio 178 200 176 200 3.3% of 150 198 portfolio 176 100 171 129 1.0% of 50 100 86 portfolio 55 47 0 FY 2011 H1 2012 FY 2012 H1 2013 FY 2013 H1 2014 Residual land (Non-core) Future dev

  48. Slide 48: Appendix II: Supplementary market data

    Appendix II Supplementary market data

  49. Slide 49: European Industrial investment volumes

    European Industrial investment volumes European Industrial investment volumes European Industrial investment volumes By quarter (€bn) By country (€bn) 25.0 25.0 20.0 20.0 15.0 15.0 10.0 10.0 5.0 5.0 0.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 1Q14 Q1

  50. Slide 50: Investment market yield spread vs. 10 year bond yields

    Investment market yield spread vs. 10 year bond yields Prime net yields by major logistics markets 10% 8% Warsaw: 7.1% Paris: 7.0% Dusseldorf: 6.5% 6% London: 5.2% 4% UK 10-year bond: 2.7% 2% German 10-year bond: 1.3% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2Q14 49 Source: CBRE, Bloomberg

  51. Slide 51: IPD UK industrial rental growth history

    IPD UK industrial rental growth history IPD UK industrial Rental Value growth (Rolling Annual) 4.0% Rental growth CAGR 2000-13 3.0% All industrial: 0.2% London industrial: 1.0% 2.0% SE industrial: 0.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar

  52. Slide 52: Improving market outlook for occupational demand

    Improving market outlook for occupational demand European Real GDP growth1 UK industrial rents vs UK GDP growth2 (2008 = 100) (2005 = 100) 130.0 115 Forecast 125.0 110 120.0 115.0 105 110.0 100 105.0 100.0 95 95.0 90.0 90 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 201

  53. Slide 53: Supply of new space remains significantly constrained

    Supply of new space remains significantly constrained Logistics space under construction1 Total UK Logistics availability2 (m sq m) (m sq m) 3.0 5.0 4.5 4.0 3.5 2.0 3.0 2.5 2.0 1.0 1.5 1.0 0.5 0.0 2005 2007 2006 2008 2009 2010 2011 2012 2013 1H14 0.0 UK Germany France Belgium Neth. Poland Pre-let Sp

  54. Slide 54: European logistics take-up

    European logistics take-up UK - Take up1 (m sq m) France - Take up2 (m sq m) 3.0 H1 2014 - rolling 4.0 2.5 annual basis H1 2014 - rolling 3.0 annual basis 2.0 2.0 1.5 1.0 1.0 0.5 0.0 1H14 2005 2006 2007 2008 2009 2010 2011 2012 2013 0.0 1H14 2005 2006 2007 2008 2009 2010 2011 2012 2013 Grade A Other

  55. Slide 55: European logistics availability

    European logistics availability UK - Availability1 (m sq m) France - Availability2 (m sq m) 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 1H14 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 1H14 Grade A Other Space under construction New / Early Marketed

  56. Slide 56: 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

Segro — H1 2014 Earnings Presentation on 6ix