SEGRO’s great run, both financially and on the stock market, continues
Its annual results released on February 15, confirmed its strength – in terms of warehouse and light industrial property development pipeline – while minimising certain operational risks.
Not only has this logistics property developer delivered for years, but it has just successfully issued new equity – at a negligible discount to market values – to fund growth.
Proceeds will be deployed in expansion-led growth projects – new equity is routinely used to de-risk its capital structure when new capital is needed but there is something remarkable about its successful placing, given latent Brexit risk.
Chief Executive Officer David Sleath – a company man appointed CEO in 2011, who has since contributed to a doubling in the stock price – said the extensive development activity “that has been our focus over the past few years … underpinned by the structural themes of e-commerce and urbanisation driving occupier demand, means we now have portfolio of very high quality and well-located warehouses”.
A prime portfolio and active approach to asset management has enabled SEGRO “to grow rents and maintain high occupancy across markets”.
Adjusted pre-tax profit, up 24.4% to £241.5m, came on the back of development success and careful customer/portfolio management, which helped it deliver high customer retention rates, like-for-like rental growth and a low vacancy rate. This was a very similar performance to 2017, when adjusted pre-tax profit rose 25.7% to £194.2m, thanks to those same factors.
Adjusted earnings per share (24.3p) were 22.2p, excluding certain non-recurring item, rising 11.6% on a comparable annual basis.
The group said net investment amounted to £327m, and was comprised of £688m invested in development capex, infrastructure and land, and £81m of asset acquisitions which were offset by £442m of asset and land disposals (including sales of assets to its SELP joint venture).
(The SEGRO European Logistics Partnership (SELP) was created in October 2013 as a 50/50 joint venture between SEGRO and Public Sector Pension Investment Board, the Canadian pension fund.)
Total development capex for 2019, including infrastructure and land acquisitions, is expected to exceed £600m. The loan-to-value ratio was stable in 2018, while the balance sheet is properly capitalised.
The market value of its shares is almost £6.5bn, priced slightly below book value at 0.9x, on a forward basis.
Classed as a UK Real Estate Investment Trust (REIT), SEGRO owns and manages 7m sq metres of space valued at £11bn.
Separately, SEGRO has announced that Worldwide Flight Services, the world’s largest cargo-handling organisation, has signed five-year leases for airside units at 551 Shoreham Road and 552 Shoreham Road, which provide around 60,000 sq ft and 80,000 sq ft of modern warehouse space respectively.
Having been a customer of SEGRO’s for 14 years and occupying 400,000 sq ft across four units, WFS uses its space at Heathrow Cargo Centre for cargo and freight handling. The company’s expansion at Heathrow since 2015 underlines the strategic importance of the airport, which transported over 1.6 million metric tonnes of cargo in 2018.
Alan Holland, Head of the Central London Business Unit at SEGRO said:
"WFS is a key player in cargo handling and we are proud they are one of our customers. Their renewed commitment underlines not only our close working relationship but also the continued demand we are seeing for well-located industrial units that deliver airside and landside access at the UK’s hub airport.
“With Heathrow reporting consistently high levels of cargo being exported and imported, demand for freight handling space around the airport shows no sign of abating.”
Steven Greenhalgh, Finance Director at WFS UK said:
"These airside facilities enable us to deliver a seamless service to our customers and so it was crucial to extend our occupation for a further five years. Heathrow is a key strategic location for our business globally and we look forward to partnering with SEGRO on any future space requirements at the airside Cargo Centre.”
Airworld, Air Canada, DHL Aviation, Air France and Menzies Aviation also occupy space at SEGRO’s assets on Shoreham Road, which offers direct airside access and reduced delivery times.
Source: Transport Intelligence