SEGRO plc · LSE:SGRO
SEGRO — Slough Estates — H1 2006 Earnings Presentation
60 slides from SEGRO's earnings presentation, Aug 23, 2006
Slide 1: The European Leader in Flexible Business Space - Interim Results 2006
The European Leader In Flexible Business Space Interim Results 2006
Slide 2: The Leading European Provider of Flexible Business Space
The Leading European Provider of Flexible Business Space Ian Coull Chief Executive 2 Le Blanc Mesnil, France
Slide 3: Focused on Flexible Business Space
FOCUSED ON FLEXIBLE BUSINESS SPACE Industrial sites and business parks put to multiple uses: • Light industrial • Warehousing •“small” storage facilities •“big box” distribution • R&D/Lab space • Suburban offices 3
Slide 4: Delivering on Our Promises
DELIVERING ON OUR PROMISES •Performed Strongly Again in First Half of 2006 •Driving Growth •Maximising the REIT Opportunity 4
Slide 5: Financial Highlights
Financial Highlights Positive Momentum Continues • Adjusted profit before tax £68.1m (£55.8m) Up 22.0% – Adjusted diluted EPS 12.3p (10.1p) Up 21.8% – Net rental income £125.5m (£108.3m) Up 15.9% • Adjusted NAV per share 730.8p (680.4p) UP 7.4% – Total return of 9.1% – Valuation surplus 5.9% (6.7% i
Slide 6: Business Highlights
Business Highlights UK Intensive work programme delivering results CONTINENTAL EUROPE Excellent performance from expanded business USA Biotech business continues building on its strong platform 6
Slide 7: Financial Review
Financial Review David Sleath Finance Director Strong financial results Adjusted pre-tax profit up 22% Adjusted diluted NAV per share up 7.4% Financial strength Adjusted gearing of 61% Significant headroom with available facilities Well positioned for REIT conversion Heywood Distribution Park, Manch
Slide 8: Group Income Statement
Group Income Statement Six months to 30th June 2006 2005 £m £m Net rental income - investment properties 119.7 102.6 Property trading 2.5 7.1 Utilities, oil & gas 0.5 (1.0) Other income 5.7 3.3 Administration expenses (10.7) (10.0) Joint ventures (pre-tax) 1.3 3.1 Operating income 119.0 105.1 Net fi
Slide 9: Group Income Statement
Group Income Statement Six months to 30th June Adjusted PBT up 22 per cent 2006 2005 £m £m Adjusted profit before tax 68.1 55.8 Revaluation gains on investment properties 265.2 140.0 Exceptional surrender premiums - 36.6 Sale of Quail West - 17.0 Loss on sale of investment properties (0.8) (3.0) Cos
Slide 10: Net Rental Income
Net Rental Income Six months to 30 June 2006 2005 £m £m UK 79.0 73.1 USA / Canada 28.3 19.5 Continental Europe 12.4 10.0 Total – Investment Properties 119.7 102.6 Trading properties 2.3 1.2 Joint ventures 3.5 4.5 Total including share of JV’s 125.5 108.3 Exceptional lease surrender premiums - 36.6 1
Slide 11: Net Rental Income
Net Rental Income £10.4m Income from Lettings, Rent Reviews and Developments Developments lettings & rent Space reviews returned £10.4m £(5.0m) Disposals Acquisitions £(6.4)m £18.2m £125.5m £108.3m H1 2005 H1 2006 11
Slide 12: Valuation Surpluses
Valuation Surpluses On investment properties Growth Across All Built Space As at 30 June 2006 Portfolio Valuation Change Valuation Surplus £m £m % UK: - Industrial 2,763 180 7.0 - Offices 496 27 5.7 - Retail 229 13 6.0 Total UK 3,488 220 6.7 Continental Europe 356 10 3.0 USA 669 23 3.5 Total excludi
Slide 13: NAV per Share
NAV per Share 7.4% Growth Valuation Currency Gains Translation Dividends Paid 57.5p (7.7)p (11.0)p 730.8p Adjusted Profit After Tax 11.6p 680.4p 31 December 2005 30 June 2006 13
Slide 14: Analysis of Currency Exposure
Analysis of Currency Exposure Assets Liabilities 1,414 895 881 £m’s 531 529 364 4 0 Total * US Dollars * Euros Other £519m £350m £165m £4m * Further $500m sold in July 2006 at 1.85 to hedge a further £270m of the net US dollar position. 14
Slide 15: Financial Strength to Support Growth Programme
Financial Strength to Support Growth Programme • Total property assets £5.6 billion • Gross borrowings £2,185m Net Debt £2,080m • Cash balances £105m • Adjusted gearing 61% (38% LTV ratio) • Available undrawn bank facilities £666m • Weighted average cost of debt 5.8% – 87% at fixed rates – Average m
Slide 16: Cash Flow Summary
Cash Flow Summary Six Months to 30 June 2006 2005 £m £m Cash flow from operations 81.8 154.1 Finance costs, net (59.9) (58.5) Dividends received from joint ventures 31.6 2.8 Tax paid (net) (6.6) (49.8) Additional pension scheme contributions (1.0) (15.0) Other 1.3 (3.2) Free cash flow 47.2 30.4 Ordi
Slide 17: REITs
REITs SEI is Well Positioned for REIT Conversion • Entry charge (£78m) • Balance of business test (75% rule) • Gearing restrictions (1.25 ratio) • Shareholding limit (10%) • Minimum distribution requirement (90% of relevant profits) • Ongoing compliance requirements 17
Slide 18: REITs
REITs There are Clear Benefits for SEI from REIT Conversion • Elimination of CGT liability on £3.9 billion UK investment portfolio – More flexibility to undertake asset disposals – £460m deferred tax add-back • Exemption from corporation tax on UK property rental income • Development gains on UK inv
Slide 19: What will a Slough REIT look like?
What will a Slough REIT look like? Slough Estates Plc UK tax-exempt business Continental US Other assets / Europe (liabilities) -All property trading activ ities (UK & overseas) - Property rental income - Property rental income - Property rental income -Slough Heat & Power (including J-Puts) -Tesco
Slide 20: What will a Slough REIT look like?
What will a Slough REIT look like? Slough Estates Plc UK tax-exempt Continental US Other assets/ business Europe (liabilities) Asset value1 £3.7bn Asset value1 £0.5bn Asset value1 £1.1bn Asset value1 £0.1bn Tax-exempt business (TEB) Residual business Notes: 1 Figures bas ed on 2005 year end assets l
Slide 21: Dividend Policy as a REIT
Dividend Policy as a REIT • Dividend policy will blend mandatory “PID” element with “normal” dividends from non-REIT activities – PID’s not as attractive to certain shareholders • Board formulating dividend policy in run up to conversion – Acknowledging general market expectations of higher dividend
Slide 22: Financial Review - Summary
Financial Review - Summary Strong financial results Adjusted pre-tax profit up 22% Adjusted diluted NAV per share up 7.4% Financial strength Adjusted gearing of 61% Significant headroom with available facilities Well positioned for REIT conversion Heywood Distribution Park, Manchester, UK 22
Slide 23: Strategy & Operations
Strategy & Operations Ian Coull Chief Executive 23 Slough Trading Estate, Slough, UK
Slide 24: Excellent Portfolio with Strong Growth Prospects
EXCELLENT PORTFOLIO WITH STRONG GROWTH PROSPECTS • Quality assets: prime sites, diversified tenants, secure income • 2.7m sq m development pipeline – 81% of projects in next 12 months have full or outline planning approval N America UK Continental 11% 62% N America Europe 12% UK 27% Continental 39%
Slide 25: Delivering on Our Promises: Performed Strongly Again in H1
DELIVERING ON OUR PROMISES Performed Strongly Again in H1 Driving Growth Maximising the REIT Opportunity Location for Major US Company in Str ykow, Poland 25
Slide 26: Performed Strongly Again in H1
Performed Strongly Again in H1 • Strong financial performance – NAV per share up 7.4% – PBT up 22.0% • Very strong performance in UK – Lettings at 109,000 sq m – including over 10,000 sq m of pre-lettings • Lettings in H1 contributing £6.6m to rental income pa – Treforest integration on plan – Exten
Slide 27: Lettings and Space Returned
Lettings1 and Space Returned Six months to 30 June Positive Momentum Continued In H1 By Area 000’s sq m By Rent (2) pa Six months to £m’s 30.06.06 30.06.05 30.06.06 30.06.05 30.06.06 Lettings Space Lettings Space Returned Returned UK: Lettings of new developments 20 11 1.7 Existing vacant 71 50 4.7
Slide 28: Major Lettings in H1 2006
Major Lettings in H1 2006 Healthy Tenant Demand in all Three Geographies Customer Location Sq M Rent pa £000’s Jacobs UK Winnersh, UK 1,268 560 Bibby Distribution Heywood, UK 13,313 500 Agilent Technologies Winnersh, UK 2,400 330 Modular Heating Basildon, UK 3,967 260 Conseil General Nanterre, Franc
Slide 29: Major Pre-Lettings in H1 2006
Major Pre-Lettings in H1 2006 New European Locations Capturing Eastward Migration Customer Location Sq M Rent pa £000’s IX Europe Slough, UK 7,222 850 Agilent Technologies Winnersh, UK 1,858 460 Safestore Slough, UK 1,725 210 Major US Company Strykow, Poland 43,012 1,140 Azymut Strykow, Poland 9,642
Slide 30: Vacancy Rates
Vacancy Rates End H1 2006 Vs Year End 2005 Another Good Result Yr End 2005 End H1 2006 19.5% 17.0% 10.9% 10.8% 11.0% 9.3% UK Continental Europe North America NB Excludes Trading Properties. Where properties have been reclassified as between trading and investment 30 status the prior period is restat
Slide 31: Underlying Vacancy Rate
Underlying Vacancy Rate End H1 2006 Vs Year End 2005 Another Good Result Yr End 2005 End H1 2006 55.5% 45.7% 15.0% 15.1% 10.9% 10.8% 8.1% 7.4% UK Completed Major UK Headline Developments Acquisitions Underlying 31 < 18 Months
Slide 32: Driving Growth
Driving Growth • Development programme at record level (2.7m sq m) • 33,000 sq m construction completed in H1, 67% let or sold • 279,000 sq m under construction, 76% pre-let or pre-sold • Pace of capital recycling sustained – Around £300m of acquisition and disposal transactions in 2006 so far – Acq
Slide 33: 2006 Acquisitions & Disposals
2006 Acquisitions & Disposals Active Capital Recycling Continues Acquisitions Announced Disposals Announced • £39m completions re Karstadt portfolio • Elstree, Centennial Park • £63m Treforest Business Park, Cardiff – Latest phase sold for £16m • HelioSlough – Followed £35m sale to Morley – Lymdale
Slide 34: Strong Development Pipeline
Strong Development Pipeline • 2.7m sq m total development pipeline – 33,000 sq m construction completed in H1 2006 – 279,000 sq m under construction at 30 June 2006 – 654,000 sq m expected starts in 12 months to 30 June 2007 • Total development expenditure of £2.8bn – £0.9bn book value as of 30 June
Slide 35: Development Pipeline – By Geography
Development Pipeline – By Geography Work in Progress Anticipated Starts – next 12 months Future Developments Space – 2,702,000 Sq M Future Expenditure - £1.9bn 1,328 944 Sq M’s £m’s 1,065 974 624 517 639 450 395 159 309 96 343 252 155 237 58 101 195 101 83 21 82 96 Continental Continental 35 UK Euro
Slide 36: Development Projects
Development Projects Thales, Crawley, UK Strykow, Poland Britannia Oyster Point II, USA Safestore, Slough, UK Rumst, Belgium Genentech Campus, USA 36
Slide 37: Potential for Significant Rental Growth
Potential for Significant Rental Growth 30 June 2006 £m Total Portfolio 1 Current rent passing 289 ERV of vacant space 38 Reversionary potential (excluding over-rented) 8 ERV of existing portfolio as at 30 June 2006 2 335 Developments Income contracted not yet being received 37 Potential income from
Slide 38: REITs: Attractive REIT Investment
REITs Slough Estates Represents an Attractive REIT Investment: • We are strongly concentrated on a specific asset category (flexible business space) – in locations where we have deep expertise and knowledge • We are focused on our customers – an excellent contracted income profile – rent roll of £28
Slide 39: Market Conditions & Outlook
Market Conditions & Outlook Current View • Stable macro-economic environments in our markets • UK – Improved demand for industrial buildings, secured new customers – Rental levels likely to continue to be constrained, with some signs of edging upwards – More balanced investment market seems inevitab
Slide 40: Delivering on Our Promises
DELIVERING ON OUR PROMISES •Performed Strongly Again in H1 •Driving Growth •Maximising the REIT Opportunity 40
Slide 41: Appendices
Appendices 41 Slough Trading Estate, Slough, UK
Slide 42: Basis of Reporting Adjustments
Basis of Reporting Adjustments Key Definitions • Diluted adjusted net asset value per share: NAV per share adjusted to add back deferred tax associated with investment properties and to reflect the dilution caused by preference shares and shares held in the ESOP trust • Adjusted profit before tax: P
Slide 43: Security of Global Income
Security of Global Income Resilient Profile of income Weighted average lease length: 11.9 years before breaks, 10.1 years including breaks £m’s 305 298 304 287 290 280 279 278 275 268 248 226 2006 2007 2008 2009 2010 2011 Total contracted Rent - Before Breaks Total contracted rent assuming breaks ex
Slide 44: Quality of Income & Covenant
Quality of Income & Covenant As at 30 June 2006 Including Many Major Corporations Annual Annual Rent Rent £m £m 1 Amgen USA 8.8 11 Raven USA 2.7 2 Karstadt Group Germany 7.3 12 Celltech UK 2.7 3 Tesco UK 7.2 13 Agere Systems UK 2.6 4 Rigel USA 7.0 14 FibroGen USA 2.3 5 Mars UK 6.9 15 SkyePharma USA
Slide 45: Balance Sheet
Balance Sheet Strong Financial Position 30.06.06 31.12.05 £m £m Property assets - Group* 5,407 5,000 - Joint ventures* 152 138 Total property assets 5,559 5,138 Net debt - Group (2,080) (1,984) - Preference shares - (108) - Joint ventures (68) (30) Total debt (2,148) (2,122) Deferred tax (716) (636)
Slide 46: Net Assets per Share
Net Assets per Share 30.06.06 31.12.05 £m £m Equity attributable to ordinary shareholders 2,733.0 2,447.3 Less shares held by ESOP (10.3) (6.9) 2,722.7 2,440.4 Add back: Deferred tax on revaluations 478.8 412.1 Deferred tax on capital allowances 234.5 237.1 Dilution adjustment for the preference sha
Slide 47: Triple Net NAV (NNNAV)
Triple Net NAV (NNNAV) As at 30 June 2006 £m p Diluted adjusted NAV 3,436.0 730.8 Fair value of debt, net of tax (54.3) (11.5) Deferred tax on investment properties - In respect of capital allowance (234.5) (49.9) - In respect of revaluation surpluses (478.8) (101.9) - Less unrecognised indexation a
Slide 48: Summary of Portfolio
Summary of Portfolio 30.06.06 31.12.05 £m £m Investment properties - Completed properties 4,381.3 4,304.7 - Under development 232.9 135.4 - Reclassified as assets held for sale 108.3 - Development properties 482.6 436.3 Sub-total: investment and development properties 5,205.1 4,876.4 Trading Propert
Slide 49: Investment Portfolio by Sector
Investment Portfolio As at 30 June 2006 By Value, by Sector UK Overseas Retail 8% Retail 1% Flexible Business Space 92% Flexible Business Space 99% Retail 6% Worldwide Industrial Suburban Office R&D Retail Flexible Business Space 94% Includes net share of joint v entures 49 Excludes land and constru
Slide 50: Investment Portfolio by Location
Investment Portfolio As at 30 June 2006 By Value, by Location UK Continental Europe North London & Slough The East Trading Germany Estates France West London 13% 13% 38% 41% 16% Midlands & The North South London Thames Valley Belgium 11% & The South & The West 46% 15% 8% Worldwide North America 15%
Slide 51: Investment Portfolio By Space and Location
Investment Portfolio By Space and Location As at 30 June 2006 UK Continental Europe North London & Retail Slough Trading Estate Germany The East France 2% 20% 17% 26% 56% West London 14% Thames Valley Midlands & South London & & The West Belgium The North The South 15% 24% 17% 9% Worldwide North Ame
Slide 52: Indicative REIT Balance Sheet
Indicative REIT Balance Sheet Based on pro-forma 2005 results 30.06.06 REIT Conversion As a REIT Actual £m £m £m Property Rental Business 5,184.9 5,184.9 Own Buildings Occupied 20.1 20.1 Plant & Equipment 45.7 45.7 JV’s 78.9 78.9 Other Assets 383.1 383.1 Cash 105.4 (78.0) 27.4 Gross Assets 5,818.1 5
Slide 53: Analysis of Net Debt
Analysis of Net Debt 30 June 31 December 2006 2005 £m £m Bank loans and overdrafts 542.9 488.5 Bonds & long term unsecured loans 1,564.5 1,582.1 Mortgages & secured loans 77.8 86.6 Gross debt excluding preference shares 2,185.2 2,157.2 Cash balances (105.4) (172.6) Net debt excluding preference shar
Slide 54: Recurring Interest Cover
Recurring Interest Cover Six months to 30 June 2006 Interest £m Income £m Net borrowing cost 68.0 Net Rental Income 119.7 Add back capitalised interest 10.7 Property Trading 2.5 Preference shares charge (4.1) Utilities & Gas 0.5 Interest received (22.7) Admin Charge (10.7) Derivative Fair Value Chan
Slide 55: Debt Analysis
Debt Analysis As at 30 June 2006 GROSS DEBT £2,185.2m Secured Bank Funding Unsecured Bank £77.8m 4% Funding Private Placements £571.3m £251.6m 12% 26% Unsecured Bonds £1,284.5m 58% 55
Slide 56: Development Pipeline – Geographic Segments
Development Pipeline – Geographic Segments As at 30 June 2006 Major Potential to Create Value Space to Land area Current Estimated Estimated Indicative be built book value Future Total ERV spend spend £m 000’s m2 hectares £m £m £m Work In Progress UK 82 15 120 83 203 12 Continental Europe 101 13 8 2
Slide 57: Investment Targets for Developments
Investment Targets for Developments Country / Region Sub-region Building Typical ERV Target * Type per m2 Development Yield £m % UK London & Industrial 70 - 135 7 - 8.5 SE England UK Thames Valley Offices 225 - 270 7-8 Continental Europe Western Europe Industrial 35 - 80 8-9 Continental Europe Weste
Slide 58: Convertible Preference Shares
Convertible Preference Shares • Redemption notice served March 22nd 2006 • 99.9% converted instead • Just £148k redeemed • 47,053,908 new ordinary shares issued at £2.70 • At prevailing share price of £6.50 market cap increased by c£300m • Reduced borrowings by £107.7m compared to year end 2005 • Ca
Slide 59: UK Tenant Retention
UK Tenant Retention Leases renewed and breaks not exercised Expiries Lease Breaks 79% 78% 78% 73% 73% 54% 55% 49% 2003 2004 2005 2006 Latest IPD data related to 2004 ev ents and indicated 76% breaks not operated with 41% leases renewed (Figures exclude cases where tenants relocated to Slough Estates
Slide 60: Forward Looking Statements
Forward Looking Statements This presentation may contain certain forward-looking statements with respect to Slough Estates’ expectations and plans, strategy, management’s objectives, future performance, costs, revenues and other trend information. These statements and forecasts involve risk and unce