Slough: Industrial strategy pays off for SEGRO with strong results
Full-year results for the period to end December 2017 reported this morning included a 16.3% EPRA NAV growth to 556p and a portfolio valuation gain of 13.6%, driven particularly by the UK, but with Europe also improving. It also posted 3% like for like rental growth led by the UK, with Continental Europe negative.
SEGRO will see the results as vindication of its the decision around two years ago to move from an acquisition-led to a development-led approach.
Profits have almost doubled to £976 million, with underlying profits up 25% (to £194m) and a 13.6% valuation gain. The value of the portfolio now stands at over £9 billion.
In 2017, SEGRO completed a record level of development projects. It also reported its highest customer retention rates at over 80%.
There was a 19% increase in new rent contracted in the period to £53.5m (2016: £44.9m) and 2.6% like-for-like net rental income growth (5.15 increase in the UK, 2.5% decrease in Continental Europe).
SEGRO completed £2.7b of financing activity for SEGRO and SELP, reducing the average cost of debt to 2.1% and improving the efficiency and strength of the balance sheet.
Future earnings prospects were underpinned by 1.2m sq m of development projects under construction or in advanced prelet discussions, equivalent to almost one-fifth of its portfolio.
The development pipeline is capable of generating £43m of rent, equating to a yield on cost of nearly 8%, over half of which has been secured through prelets and lettings prior to completion.
The final dividend increased by 6.1% to 11.35p (2016 final dividend: 10.7p).
David Sleath, chief executive, said: “SEGRO has delivered another strong set of results in 2017 with some of our best ever operating metrics, underpinned by record levels of development completions (almost all of which is pre-leased) our active investment and asset management, as well as further portfolio valuation growth.
“Occupier demand in early 2018 is strong across all our markets and supply of modern warehouse space remains constrained. The prospects for rental growth, particularly in the UK, remain good, and rental values are improving in our Continental Europe urban warehouse portfolio. Investor appetite for prime warehouses remains unsated, attracted by the occupational market fundamentals.
“The structural drivers of demand in our sector (urbanisation, growth of the digital economy and e-commerce) are likely to underpin occupier demand for some time to come and these, coupled with our modern, well-located assets, our current development pipeline and our land bank all offer significant opportunities for future growth.”
Source: CoStar
