Segro Plc · LSE:SGRO
Segro — Slough Estates — FY2005 Earnings Presentation
68 slides from Segro's earnings presentation, Mar 22, 2006
Slide 1: 2005 Preliminary Results: Strong Focused Performance
2005 Preliminary Results Flexible Business Space Strong Focused Performance
Slide 2: Ian Coull, Chief Executive
Internationa lan Coull Chief Executive
Slide 3: Agenda
Agenda • Summary • Financial Review • Strategy and Operating Review • Conclusions 3
Slide 4: Strong Focused Performance Highlights
Strong Focused Performance Highlights • Delivering Change • Creating Value • Building Momentum 4
Slide 5: Delivering Change
Delivering Change Implementing the Strategy Highlights • Flexible business space now firmly in place – 94% of portfolio in flexible business space – Significant non-core disposals in 2005 – Emphasis has moved to growth – organic & by acquisition • New management structure working well – UK regions –
Slide 6: Creating Value
Creating Value Implementing the Strategy Highlights • Aggressively managing our assets for value – £1.8bn transactions in 2 yrs – locking in gains & re-investing – £136m profit on disposals • Strong growth in NAV – 22% uplift – Valuation gains from completion of developments – Valuation uplift from
Slide 7: Building Momentum
Building Momentum Implementing the Strategy Highlights • Good progress on target voids – UK vacancy down from 12.1% to 10.9% – Underlying 2005 vacancy down from 9.8% to 8.1% – Further reductions to the end of February • Record performance in lettings – Over 364,000 sq m – £14.5m of new income – 100,
Slide 8: David Sleath, Finance Director
David Sleath Finance Director
Slide 9: Strong Financial Performance
Strong Financial Performance Creating Value • Excellent headline earnings & NAV growth • Underlying earnings unchanged as a result of active asset recycling • Strong balance sheet to support future growth • 9.4% increase in total dividend to 17.5p 9
Slide 10: 22% Growth in NAV per Share
22% Growth in NAV per Share Creating Value Adjusted Profit After Currency Bond Tax Translation Other Loss Exceptional Dividends Gains Paid 6.1p 680.4p Valuation 7.9p (18.8)p 2005 Gains (14.7)p 22.0p 24.9p 558.4p 99.6p 2004 10
Slide 11: Group Income Statement
Group Income Statement Reported PBT up 50.1 per cent 2005 2004 £m £m Adjusted profit before tax 120.4 120.1 Revaluation gains on investment properties 419.6 182.1 Exceptional gains 172.5 76.6 Cost of bond refinancing (126.0) - Net losses on derivatives (1.0) - Tax in joint ventures (3.2) (4.0) Notio
Slide 12: Exceptional Gains
Exceptional Gains Exited Non-core Whilst Maximising Value Creating Value 2005 £m Sale of investment properties 20.3 Sale of Tipperary 99.7 Sale of Quail West 16.1 Exceptional lease surrender premium 36.4 Exceptional Gains 172.5 12
Slide 13: Strong Valuation Surpluses
Strong Valuation Surpluses Creating Value Acquisitions £43m Development Programme £48m Existing Portfolio £366m (80%) Total Surplus £457m 13
Slide 14: Strong Valuation Surpluses
Strong Valuation Surpluses Creating Value £m % UK: Slough Trading Estate 145.8 12.5 Acquisitions 23.0 7.8 Rest of UK - Industrial 137.9 11.4 - Offices 16.2 7.4 - Land (9.2) (3.4) - Retail 7.7 11.6 Total UK 321.4 10.0 Continental Europe: 8.6 2.3 USA: - Existing 107.9 18.0 - Acquisitions 19.6 9.7 Tota
Slide 15: Group Income Statement
Group Income Statement* 2005 2004 £m £m Net rental income - investment properties 221.2 225.0 Property trading 9.7 6.8 Utilities & gas (0.9) (7.4) Other investment income 5.5 6.1 Administration expenses (20.7) (14.7) Joint ventures (pre-tax) 6.2 12.7 Operating income 221.0 228.5 Net finance costs (1
Slide 16: Net Rental Income
Net Rental Income Year to 31 December By Geography 2005 2004 £m £m UK 154.7 145.8 USA / Canada 46.4 58.9 Continental Europe 20.1 20.3 Total – Investment Properties 221.2 225.0 Trading properties 2.7 3.1 Joint ventures 8.6 16.3 Total including share of JV’s 232.5 244.4 Exceptional lease surrender pre
Slide 17: Net Rental Income
Net Rental Income £14.5m income from new lettings and rent reviews Lettings & rent Other reviews disposals Acquisitions Pfizer/ £14.5m Sugen Space £(26.3)m returned Operating £244.4m Expenses Other £232.5m £(14.3)m £28.9m £(9.2)m £(4.9)m £(0.6)m Income 2005 Income 2004 Net Rental Net Rental 17
Slide 18: Reversionary Potential
Reversionary Potential Potential for Significant Rental Growth 31 December 2005 £m Investment Portfolio Rent passing 275 ERV of vacant space 43 Reversionary potential (excluding over-rented) 9 ERV of investment portfolio 327 Developments Income contracted not yet being received 27 Potential developm
Slide 19: Security of Global Income
Security of Global Income Resilient Profile of income Weighted average lease length: 11.4 years before breaks, 10.1 years including breaks £275m £275m £252m £222m 2005 2006 2007 2008 2009 2010 Total contracted Rent - Before Breaks Total contracted rent assuming breaks exercised 1,639 tenants (up 5.7
Slide 20: Strong Balance Sheet
Strong Balance Sheet 31 December 2005 2004 £m £m Property assets - Group 5,000 3,855 - Joint ventures 138 133 Total property assets 5,138 3,988 Net debt - Group (1,984) (1,325) - Preference shares (108) - - Joint ventures (30) (38) Total debt (2,122) (1,363) Deferred tax (636) (448) Other net assets
Slide 21: Summary
Summary Creating Value • Strong financial results – Total return 24.8% – Diluted adjusted NAV per share up 21.8% • Well positioned for future growth – Gearing of 62% – Reversionary potential £52m – Substantial development pipeline of 2.5 million sq m 21
Slide 22: Dividend Record
Dividend Record Consistent Track Record of Growth 17.5p UP 9.4% 16.0p 15.0p 14.0p 2002 2003 2004 2005 22
Slide 23: Ian Coull, CEO
lan Coull CEO Internationa
Slide 24: Flexible Business Space: Building on Our Position
Building on Our Position The Leading European Provider of Flexible Business Space 24
Slide 25: Strong Focused Performance Highlights
Strong Focused Performance Highlights • Delivering Change • Creating Value • Building Momentum 25
Slide 26: Scale of Change Since 2003
Scale of Change Since 2003 Continues Apace Delivering Change New FD Sold Tipperary Outsourced US Non Core Construction IT Director Role Sold Quail West New Acquisitions Communications US Non Core Director for UK (IR) Director Role Exited Retail New UK Organisation New Head appointed Land Sec Swap -
Slide 27: Strategic Actions in 2005
Strategic Actions in 2005 And 2006 To Date Delivering Change • UK Regional Structure - Closer to the Customer • Bought Woodside & Heywood - Major UK Business Parks • Set up Mainland BV - Dutch JV – Local Expertise • Sold Quail West - Non Core US - Residential • Sold Tipperary - Non Core US - Utility
Slide 28: 2005 Acquisitions & Disposals
2005 Acquisitions & Disposals £597m of acquisitions, £187m of property disposals Delivering Change & Creating Value • Acquired: • UK: Woodside & Heywood £276m – SEI now has five of the largest industrial parks in the UK • N America: Shoreline & Seaport £168m – Key portfolio additions in capacity con
Slide 29: 2005 Acquisitions By Geography
2005 Acquisitions By Geography £597m of Acquisitions Delivering Change & Creating Value USA 1,150k 137k Sq M’s sq m UK 420k sq m Belgium 6k Germany sq m 521k France sq m 66 k sq m 29
Slide 30: 2005 Disposals By Geography
2005 Disposals By Geography £187m of Property Disposals Delivering Change & Creating Value 137k Sq M’s UK 41k sq m France USA 3k sq m 81k sq m Germany 12k sq m Plus £111m for Tipperary 30
Slide 31: The Shape of SEI at end of 2005
The Shape of SEI at end of 2005 Specialist focus exploiting management expertise Delivering Change & Creating Value • Total built area increased by 34% to 4,020k sq m • 71% of construction programme is pre-let • 80% of new construction was industrial, 20% office N America UK N America UK 10% 62% 17%
Slide 32: Strong Development Pipeline
Strong Development Pipeline Creating Value & Building Momentum 2005 • 143k sq m of development completions • £48m valuation surplus on developments • 208 ha added to development land bank At 31 December 2005 • 2,541k sq m of potential space to build • Potential income of £176m from investment proper
Slide 33: Anticipated Developments
Anticipated Developments By Geography in 2006 Building Momentum 568k USA Sq M’s Central 22k UK Europe sq m 259k 78k sq m sq m Germany 91k sq m France 32k sq m Belgium 86k sq m 33
Slide 34: Development Pipeline
Development Pipeline As at 31 December Building Momentum 2006 2007 Thereafter £m £m £m Construction in progress and approved future 225 110 55 developments Potential developments - not yet approved 185 270 960 Total Potential Expenditure 410 380 1,015 NOTE: All above amounts excludes any new site ac
Slide 35: Record Lettings
Record Lettings Year to 31 December 2005 Building Momentum Rent Passing Area Per Annum 000’s m2 £m Vacant let first time 25.6 4.2 New construction 2005 16.4 1.8 Existing vacant 146.9 9.0 Licences 35.2 0.8 Total UK 224.2 15.8 Continental Europe * 107.4 9.7 North America 32.8 3.1 Total SEI 364.4 28.6
Slide 36: Major UK Lettings in 2005
Major UK Lettings in 2005 Evolving Tenant Profile Building Momentum Customer Building Type Location Rent £m Research in Motion Offices Slough 1.7 Next Warehouse Manchester 1.6 Bank Data Centre Slough 1.0 Viglen Warehouse Radlett 0.6 LG Electronics Offices Slough 0.6 SR Technics Warehouse Feltham 0.5
Slide 37: Group Vacancy Rate
Group Vacancy Rate Headline - includes development sites & Acq’s Building Momentum As at 31 December 2005 US (19.5%) UK Germany 81k sq m (10.9%) (0.6%) 357k sq m 23k sq m France Group (9.8%) Total 44k sq m 524k Belgium Sq M’s (15.2%) 19k sq m UK down from 12.1 % to 10.9% Excludes Trading Properties
Slide 38: UK Vacancy Rate
UK Vacancy Rate Good Working Level Building Momentum As at 31 December 56.4% 45.7% 22.5% 9.8% 15.0% 12.1% 10.9% 8.1% 2005 2004 2005 2004 2005 2004 2005 2004 Completed UK Developments Recent UK Underlying < 18 Mnths Acquisitions Headline 38
Slide 39: REITs
REIT’s • SEI is generally positive about recent developments but awaits the details of the governments final proposals • Key areas of interest: – Interest cover test – 10% shareholding limit – Treatment of overseas subsidiaries – Conversion charge 39
Slide 40: Market Conditions & Outlook
Market Conditions & Outlook Current View • Good momentum in 2006 – Enquiries up and vacancies down in UK – Major lettings in Europe – Significant letting negotiations in USA • Rental levels remain basically flat – Some limited evidence they are edging up • Further yield compression – But indications
Slide 41: Summary
Summary Strong Focused Performance • Delivering change – Now firmly focused on flexible business space – Building on position as European leader – Acquiring development opportunities combined with secure income streams • Creating value – Managing our assets, locking in gains and reinvesting – Major
Slide 42: Appendices
Appendices Internationa
Slide 43: 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: :
Slide 44: Key Data
Key Data 2005 2004 Diluted adjusted NAV per share (p) 680.4 558.4 NNNAV per share (p) 519.6 427.3 Adjusted Gearing (net borrowings/equity) % 62 51 Loan to value ratio % 42 34 Average cost of debt % 5.8 6.4 WACC % 5.9 6.8 Recurring interest cover (times) 2.0 2.0 Total return* % 24.8 14.7 * Total incr
Slide 45: Profile of Future Rental Income
Profile of Future Rental Income Current rent passing subject to review, expiry or break* As at 31 December 2005 2006 2007 2008 £m £m £m Rent reviews 22 27 42 Lease expiries 10 9 8 Potential breaks 9 4 9 Investment properties only 45
Slide 46: Quality of Income & Covenant
Quality of Income & Covenant Year ended 31 December 2005 Blue Chip Top 20 Annual Annual Rent Rent £m £m 1 Amgen USA 10.3 11 NTL UK 2.6 2 Rigel Pharmaceuticals USA 7.5 12 Geodis France 2.5 3 Tesco UK 7.2 13 FibroGen USA 2.4 4 Mars UK 6.8 14 Karstadt Retail Germany 2.2 5 Exelixis Pharmaceuticals USA 4
Slide 47: Adjusted Diluted Earnings per Share
Adjusted Diluted Earnings per Share Year to 31 December Calculation 2005 2004 £m £m Attributable profit 385.1 285.8 Interest dividends on preference shares 13.2 11.2 Earnings attributable to ordinary shareholders 398.3 297.0 Revaluation surplus including joint ventures (419.6) (182.1) Exceptional lo
Slide 48: Profit Reconciliation to UK GAAP
Profit Reconciliation to UK GAAP Adjusted profit Year ended 31 December 2005 2004 £m £m IFRS adjusted profit before tax 120.4 120.1 Exchange differences arising from using 2004 average rates - Change in basis of overhead capitalisation 3.1 2.1 Fair value of trade investments 3.9 - Rent averaging & m
Slide 49: Profit Reconciliation to UK GAAP
Profit Reconciliation to UK GAAP Reported profit Year ended 31 December 2005 2004 £m £m IFRS profit before tax 582.3 388.0 Revaluation gains on investment properties reported as income (419.6) (166.7) Share of Joint Ventures (net of deferred tax) 3.2 (10.7) Fair value of trade investments 3.9 - Long
Slide 50: Net Assets per Share
Net Assets per Share As at 31 December Calculation 2005 2004 £m £m Equity attributable to ordinary shareholders 2,447.3 2,034.3 Less shares held by ESOP (6.9) (5.2) 2,440.4 2,029.1 Add back: Deferred tax on revaluations 412.1 256.6 Deferred tax on capital allowances 237.1 200.7 Dilution adjustment f
Slide 51: Triple Net NAV (NNNAV)
Triple Net NAV (NNNAV) As at 31 December 2005 £m p Diluted adjusted NAV 3,197.3 680.4 Fair value of debt, net of tax (106.0) (22.5) Deferred tax on investment properties - In respect of capital allowance (237.1) (50.5) - In respect of revaluation surpluses (412.1) (87.8) - Less unrecognised indexati
Slide 52: Summary of Portfolio
Summary of Portfolio 31 December 2005 2004 £m £m Investment properties - Completed properties 4,304.7 3,413.1 - Under development 135.4 39.6 Development properties 436.3 276.8 Sub-total: investment and development properties 4,876.4 3,729.5 Trading Properties - Completed properties 61.4 88.7 - Prope
Slide 53: Investment Portfolio by Sector
Investment Portfolio As at 31 December 2005 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 ventures Excludes land and constru
Slide 54: Investment Portfolio by Location
Investment Portfolio As at 31 December 2005 By Value, By Location UK Continental Europe North London & The East Germany France Heathrow & The West 14% Slough 15% 39% 15% 38% Midlands & The North Other South Thames Valley 12% Belgium 8% 13% 46% Worldwide North America 17% UK Continental Europe 75% 8%
Slide 55: Debt Profile
Debt Profile • Weighted average cost of debt 5.8% • 87% at a fixed rate (average rate 6.4%) • Average maturity 11.8 years • Gross borrowings (excluding preference shares) £2,157m • Cash balances £173m • Available undrawn bank facilities £534m
Slide 56: Analysis of Net Debt
Analysis of Net Debt As at 31 December 2005 2004 £m £m Bank loans and overdrafts 488.5 362.2 Bonds & long term unsecured loans 1,582.1 1,185.0 Mortgages & secured loans 86.6 175.5 Gross debt excluding preference shares 2,157.2 1,722.7 Cash balances (172.6) (397.4) Net debt excluding preference share
Slide 57: Recurring Interest Cover
Recurring Interest Cover Year to 31 December 2005 Interest £m Income £m Net borrowing cost 111.7 Net Rental Income 252.9 Add back capitalised interest 19.1 Surrenders (36.4) Preference shares charge (13.2) Property Trading 9.7 Interest received (9.9) Utilities & Gas (0.9) Admin Charge (16.0) JV Inco
Slide 58: Debt Analysis
Debt Analysis As at 31 December 2005 96% Unsecured, 87% Fixed GROSS DEBT £2,264.9m Preference Private Shares 4.8 Unsecured Bank Placements Funding 22.9% 11.8% Secured Bank Funding 3.8% Unsecured Bonds 56.7% 58
Slide 59: Bond Refinancing
Bond Refinancing Significant Reduction in Interest Costs Nominal value Weighted Annual of bonds average interest coupon £m % £m Old bonds 321.9 10.9 35.1 New bonds 300.0 5.6 (16.8) Bank drawings refinanced by new bond 146.2 5.6 (8.2) Annual interest saving 10.1 Market value of old bonds 437.2 Incent
Slide 60: Development Pipeline - Summary
Development Pipeline - Summary As at 31 December 2005 Major Potential to Create Value Space to be Development Current Estimated Estimated built Land area book Future spend total spend * Hectares value £m 000’s m2 £m £m Investment Properties Work in progress 125 18 227 122 350 Future developments 1,0
Slide 61: Investment Properties
Investment Properties As at 31 December Development Pipeline Space to Land area Current Future Estimated Indicative be built hectares book value spend total spend ERV 000’s m2 £m £m £m £m Work In Progress UK 38 6 54 46 100 5 Continental Europe 0 0 0 0 0 0 USA 87 12 173 76 250 28 Total 125 18 227 122
Slide 62: Trading Properties
Trading Properties As at 31 December Space to Land area Current Future Estimated Indicative be built hectares book value spend total spend Development 000’s m2 £m £m £m profit £m Work In Progress UK 0 0 0 0 0 0 Continental Europe 0 0 0 0 0 0 USA 0 0 0 0 0 0 Total 0 0 0 0 0 0 Land Bank - Future Devel
Slide 63: Development Pipeline: Planning Status
Development Pipeline As at 31 December Planning Status – Land Bank Under Pending Discussion 22% 12% Outline 34% Full 33% 63
Slide 64: Development Pipeline: Investment Criteria
Development Pipeline Investment Criteria Increasing Disclosure Target Returns from Development Programme Country / Region Sub-region Building Typical ERV per Typical * Type m2 Development £m Yield % UK London & Industrial 70 - 135 7 - 8.5 SE England UK Thames Valley Offices 225 - 270 7-8 Continental
Slide 65: Capital Recycling
Financial Results Capital Recycling 2005 2003 2001 1999 -400 -300 -200 -100 0 100 200 300 400 500 600 700 800 £m A c qui si t i ons D e v e l opme nt D i sposa l s 65
Slide 66: Leasing vs Space Required
Leasing vs Space Required Year ended 31 December 2005 Leases renewed and breaks not exercised 90% 80% IPD; Breaks 70% not operated 75% 60% 50% 40% IPD; Leases renewed 41% 30% 20% 10% 0% 2003 2004 2005 Expiries Breaks (Figures exclude cases where tenants relocated to Slough Estates buildings, ceased
Slide 67: Cash flow
Cash flow Year to 31 December 2005 2004 £m £m Cash flow from operations 237.3 202.4 Finance costs, net (116.3) (108.3) Tax paid (net) (91.8) (15.3) Additional pension scheme contributions (16.2) - Free Cash flow 13.0 78.8 Ordinary dividends (69.0) (64.1) Cash cost of bond exchange (40.8) Capital exp
Slide 68: Forward Looking Statement
Forward Looking Statement 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 uncer