TIDMSGRO
Commenting on the results, David Sleath, Chief Executive,
said:
"SEGRO has delivered another strong set of results, which
reflect the high quality of our portfolio and increased demand from
a diverse range of occupiers and investors. Together with our
active approach to asset management, rental growth and further
progress with our development pipeline, these factors have driven
significant valuation increases and earnings growth.
"We have also made important progress on our Responsible SEGRO
priorities, putting the necessary framework in place to enable us
to deliver on our long-term commitments, whilst continuing to work
with our local teams and partners to embed our approach into our
day-to-day business.
"SEGRO is well-placed to continue benefitting from the
structural tailwinds driving the industrial property sector with
our unique portfolio of prime warehouses, two-thirds of which are
located in the most supply constrained urban markets, and an
enviable land bank capable of supporting our profitable and
expanding development programme. The combination of our established
pan-European, customer-focused operating platform and our
relationships and reputation with other key stakeholders, give us a
significant competitive advantage which further enhances our
ability to secure opportunities for future growth."
HIGHLIGHTS(A) :
-- Adjusted pre-tax profit of GBP168 million up 19 per cent compared with
the prior year (H1 2020: GBP141 million). Adjusted EPS is 13.8 pence, up
10 per cent (H1 2020: 12.5 pence).
-- Adjusted NAV per share is up 12 per cent to 909 pence (31 December 2020:
814 pence) driven by portfolio asset management initiatives, yield
compression, rental growth and our development activity delivering a 10
per cent increase in the valuation of the portfolio.
-- Strong occupier demand, our customer focus and active management of the
portfolio generated GBP38 million of new headline rent commitments during
the period, including GBP21 million of new pre-let agreements, and a 12
per cent average uplift on rent reviews and renewals (UK: 16 per cent,
CE: 2 per cent).
-- Further growth in the development pipeline with 1.3 million sq m of
projects under construction or in advanced pre-let discussionsequating to
GBP96 million of potential rent, of which 75 per cent has been pre-let,
substantially de-risking the 2021-2022 pipeline.
-- Balance sheet positioned to support further, development-led growth with
access to over GBP1.2 billion of available liquidity and a low level of
gearing reflected in an LTV of 21 per cent at 30 June 2021 (31 December
2020: 24 per cent).
-- Interim dividend increased by 7 per cent to 7.4 pence (2020: 6.9 pence),
in line with our usual practice of setting the interim dividend at
one-third of the previous full year dividend.
FINANCIAL SUMMARY
6 months to 6 months to Change
30 June 2021 30 June 2020 per cent
Adjusted(1) profit before tax
(GBPm) 168 141 19.1
IFRS profit before tax (GBPm) 1,413 221 -
Adjusted(2) earnings per share
(pence) 13.8 12.5 10.4
IFRS earnings per share (pence) 110.3 19.5 -
Dividend per share (pence) 7.4 6.9 7.2
Total Accounting Return (%)(3) 13.5 4.6
31 December Change
30 June 2021 2020 per cent
Portfolio valuation (SEGRO
share, GBPm) 14,446 12,995 10.2(4)
Adjusted(5 6) net asset value
per share (pence, diluted) 909 814 11.7
IFRS net asset value per share
(pence, diluted) 897 809 10.9
Net debt (SEGRO share, GBPm) 3,092 3,088
Loan to value ratio including
joint ventures at share (per
cent) 21 24
1. A reconciliation between Adjusted profit before tax and IFRS profit before
tax is shown in Note 2 to the condensed financial information.
2. A reconciliation between Adjusted earnings per share and IFRS earnings per
share is shown in Note 11 to the condensed financial information.
3. Total Accounting Return is calculated based on the opening and closing
adjusted NAV per share adding back dividends paid during the period.
4. Percentage valuation movement during the period based on the difference
between opening and closing valuations for all properties including buildings
under construction and land, adjusting for capital expenditure, acquisitions
and disposals.
5. A reconciliation between Adjusted net asset value per share and IFRS net
asset value per share is shown in Note 11 to the condensed financial
information.
6. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA)
(see Table 4 in the Supplementary Notes for a NAV reconciliation).
(A) Figures quoted on pages 1 to 17 refer to SEGRO's share,
except for land (hectares) and space (square metres) which are
quoted at 100 per cent, unless otherwise stated. Please refer to
the Presentation of Financial Information statement in the
Financial Review for further details.
OUTLOOK
SEGRO continues to be positioned well for further growth,
benefiting from a unique portfolio of assets and a development
pipeline located in areas which are highly sought after and where
land is in increasingly short supply. Our ability to provide our
customers with modern, sustainable premises in prime locations,
two-thirds of which are in Europe's major cities, combined with the
extensive experience and networks of our local teams, give us a
strong competitive advantage.
Our buildings are adaptable to many different uses and serve a
wide range of customers and sectors. A significant portion of
occupier demand continues to arise from the increased use of
digital channels by retailers and consumers which, in turn, is
driving increased e-commerce penetration and consumption of data
across Europe. Although internet sales penetration levels have
understandably fallen from their highs as physical retail has
reopened, they remain significantly higher than pre-pandemic levels
as cultural barriers have been overcome and habits have changed. We
believe that the long-term trend towards increased on-line shopping
has been amplified and accelerated by the pandemic and this has
given a new impetus to demand for space.
Coupled with that, many customers and logistics suppliers are
placing renewed emphasis on supply chain resilience, near-shoring
and local sourcing, improved customer service and cost or inventory
efficiency which are fuelling increased demand for modern,
well-located warehouses -- both urban and big box. We expect these
themes to continue for some time. More recently we have also seen
demand arising from emerging new sectors including creative
industries and q-commerce (including rapid food delivery
providers).
Record levels of take-up across Europe have resulted in low
vacancy rates and in most of our markets supply currently equates
to less than a year of take-up. This is resulting in rental growth
in our core markets, most notably in urban areas where the
combination of a shortage of modern warehouse space, a shortage of
land suitable for development and the diversity of the occupier
base is most prevalent.
Given these strong market dynamics investor demand for
well-located, modern industrial assets is likely to continue to
grow, putting further upward pressure on asset values.
These factors, combined with our active approach to asset
management, are enabling us to drive strong returns from the
existing portfolio, supplemented by our profitable, de-risked
development programme which generates additional rental income and
allows us to further modernise the portfolio to help our customers
meet their own sustainability requirements.
We remain confident in the outlook for the remainder of 2021 and
beyond given the strong levels of occupier demand and the
competitive position of our business, but remain alert to macro
risks, not least the ongoing Covid-19 pandemic.
SUMMARY & KEY METRICS
H1 2021 H1 2020 FY2020
STRONG PORTFOLIO PERFORMANCE (see page
8):
Valuation increase driven by yield compression, rental value growth and active
asset management of the standing portfolio, supplemented by development
gains.
Portfolio valuation uplift (%) 10.2 0.7 10.3
Like-for-like portfolio valuation growth
(%) UK 8.6 0.1 9.2
CE 8.3 0.8 10.2
Estimated rental value (ERV) growth (%) UK 3.6 1.0 3.1
CE 1.5 0.4 1.5
ACTIVE ASSET MANAGEMENT DRIVING OPERATIONAL
PERFORMANCE (see page 9):
Strong performance in capturing new rent, including leases signed with
customers from new sectors, highlighting the versatility of our urban
portfolio. Our approach to asset management and customer focus has also
resulted in continued capture of reversionary potential.
Total new rent contracted during the period
(GBPm) 38 34 78
Pre-lets signed during the period (GBPm) 21 19 41
Like-for-like net rental income growth
(%): Group 4.7 (0.2) 2.1
UK 4.8 0.6 0.9
CE 4.6 (0.7) 4.3
Uplift on rent reviews and renewals (%) 12.1 10.4 19.1
Vacancy rate (%) 4.3 5.2 3.9
Customer retention (%) 83 88 86
INVESTMENT ACTIVITY CONTINUES TO FOCUS ON
DEVELOPMENT (see page 14):
Investment continues to focus on the development and we sourced further land
to secure future opportunities. Development capex for 2021, including
infrastructure, expected to be c.GBP750 million.
Development capex (GBPm) 364 265 531
Acquisitions (GBPm) 92 426 889
Disposals (GBPm) 154 59 139
EXECUTING ON AND GROWING OUR DEVELOPMENT
PIPELINE (see page 12):
Continuing to add to our development pipeline with a further 770,000 sq m
expected to complete by year end and GBP96m of potential rent from
developments under construction or in advanced discussions.
Development completions:
-- Space completed (sq m) 104,000 358,500 835,900
-- Potential rent (GBPm) (Rent secured, %) 8 (75%) 22 (64%) 47 (84%)
Current development pipeline potential rent
(GBPm) (Rent secured, %) 74 (72%) 45 (85%) 54 (66%)
Near-term development pipeline potential rent
(GBPm) 22 33 27
FINANCING (see page 15):
Strong balance sheet and low cost of debt provides significant capacity to
invest for future growth.
Cost of debt (%) 1.5 1.7 1.6
Average debt maturity (years) 9.7 9.4 9.9
Cash and available facilities (GBPm) 1,230 1,541 1,189
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available
from 08:30am (UK time) at:
https://www.investis-live.com/segro/60e718e680fc931000313c84/hy21
The webcast will be available for replay at SEGRO's website at:
http://www.segro.com/investors shortly after the live
presentation.
A conference call facility will be An audio recording of the conference
available at 08:30 (UK time) on the call will be available until 5 August
following number: Dial-in: +44 (0)800 2021 on: UK: +44 (0) 203 936 3001
640 6441 +44 (0) 203 936 2999 Access Access code: 713190
code: 933901
A video of David Sleath, Chief Executive discussing the results
will be available to view on www.segro.com, together with this
announcement, the Half Year 2021 Property Analysis Report and other
information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Tel: + 44 (0) 20 7451 9110
(Chief Financial Officer) (after 11am)
Claire Mogford Mob: +44 (0) 7710 153 974
(Head of Investor Relations) Tel: +44 (0) 20 7451 9048
(after 11am)
FTI Consulting Richard Sunderland / Claire Tel: +44 (0) 20 3727 1000
Turvey / Eve Kirmatzis
FINANCIAL CALAR
2021 interim dividend ex-div date 12 August 2021
2021 interim dividend record date 13 August 2021
2021 interim dividend scrip dividend price announced 19 August 2021
Last date for scrip dividend elections 3 September 2021
2021 interim dividend payment date 24 September 2021
2021 Third Quarter Trading Update 20 October 2021
Full Year 2021 Results (provisional) 18 February 2022
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), listed on the
London Stock Exchange and Euronext Paris, and is a leading owner,
manager and developer of modern warehouses and industrial property.
It owns or manages 8.8 million square metres of space (95 million
square feet) valued at GBP17.1 billion serving customers from a
wide range of industry sectors. Its properties are located in and
around major cities and at key transportation hubs in the UK and in
seven other European countries.
For over 100 years SEGRO has been creating the space that
enables extraordinary things to happen. From modern big box
warehouses, used primarily for regional, national and international
distribution hubs, to urban warehousing located close to major
population centres and business districts, it provides high-quality
assets that allow its customers to thrive.
A commitment to be a force for societal and environmental good
is integral to SEGRO's purpose and strategy. Its Responsible SEGRO
framework focuses on three long-term priorities where the company
believes it can make the greatest impact: Championing Low-Carbon
Growth, Investing in Local Communities and Environments and
Nurturing Talent.
See www.SEGRO.com for further information.
Forward-Looking Statements: This announcement contains certain
forward-looking statements with respect to SEGRO's expectations and
plans, strategy, management objectives, future developments and
performance, costs, revenues and other trend information. These
statements are subject to assumptions, risk and uncertainty. Many
of these assumptions, risks and uncertainties relate to factors
that are beyond SEGRO's ability to control or estimate precisely
and which could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements. Certain statements have been made with reference to
forecast process changes, economic conditions and the current
regulatory environment. Any forward-looking statements made by or
on behalf of SEGRO are based upon the knowledge and information
available to Directors on the date of this announcement.
Accordingly, no assurance can be given that any particular
expectation will be met and you are cautioned not to place undue
reliance on the forward-looking statements. Additionally,
forward-looking statements regarding past trends or activities
should not be taken as a representation that such trends or
activities will continue in the future. The information contained
in this announcement is provided as at the date of this
announcement and is subject to change without notice. Other than in
accordance with its legal or regulatory obligations (including
under the UK Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority), SEGRO does
not undertake to update forward-looking statements, including to
reflect any new information or changes in events, conditions or
circumstances on which any such statement is based. Past share
performance cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
estimate or profit forecast. The information in this announcement
does not constitute an offer to sell or an invitation to buy
securities in SEGRO plc or an invitation or inducement to engage in
or enter into any contract or commitment or other investment
activities.
Neither the content of SEGRO's website nor any other website
accessible by hyperlinks from SEGRO's website are incorporated in,
or form part of, this announcement.
CHIEF EXECUTIVE'S REVIEW
INTRODUCTION
SEGRO has delivered another strong set of results, which reflect
the high quality of our portfolio and increased demand from a
diverse range of occupiers and investors. Together with our active
approach to asset management, rental growth and further progress
with our development pipeline, these factors have driven
significant valuation increases and earnings growth.
Our business is well-placed to continue benefitting from the
structural tailwinds driving the industrial property sector with
our unique portfolio of prime warehouses, two-thirds of which are
located in the most supply constrained urban markets, and an
enviable land bank capable of supporting our profitable and
expanding development programme. The combination of our established
pan-European, customer-focused operating platform and our
relationships and reputation with other key stakeholders, give us a
significant competitive advantage which further enhances our
ability to secure opportunities for future growth.
IMPORTANT PROGRESS WITH RESPONSIBLE SEGRO PRIORITIES
Earlier this year we launched our new Responsible SEGRO
ambitions and commitments which address the key areas where we
believe we can make the greatest environmental and social
contribution, helping to position SEGRO for another 100 years of
success.
Our three priorities are:
-- Championing low-carbon growth -- we recognise the world faces a climate
emergency and are committed to playing our part in tackling climate
change.
-- Investing in our local communities and environments -- as a long-term
investor we are committed to contributing to the vitality of the
communities in which we operate.
-- Nurturing talent -- our people are vital to and inseparable from our
success and we are committed to attracting, creating and retaining
talented individuals from a wide range of backgrounds.
We have been working on these focus areas throughout the first
half of the year, alongside and as part of the management of our
property portfolio, and engaging with our stakeholders to gain
their feedback, which has been overwhelmingly positive.
We have made good progress in Championing Low-Carbon Growth,
particularly in the area of our Scope 3 carbon emissions. One of
our key challenges in reducing and eliminating operational carbon
emissions is for us to gain visibility over, and then influence,
our customers' energy usage and sources of supply. We are gathering
more data than we have ever done before and now have visibility
over significantly more data than we did at the end of 2020. We
have also moved our Polish portfolio, which is one of the few parts
of the portfolio where we directly source energy on behalf of our
customers, onto a renewable energy tariff. This represents an
important step forward as Poland has a highly coal-based power
network and accounted for almost half of our known total carbon
emissions in 2020. All of the markets where we procure energy (for
ourselves and on behalf of our customers) are now on renewable
energy targets. Finally, we have also signed our first Green lease
on a data centre on the Slough Trading Estate which requires the
customer to procure certified renewable energy.
We are addressing embodied carbon in our development pipeline by
undertaking full lifetime carbon assessments for most developments
and we continue to test and introduce leading sustainability
features in our developments and refurbishments such as solar
panels, LED lighting, living walls, battery storage, rainwater
harvesting and sensors to measure air quality, energy usage and
other day to day operational metrics.
In terms of Investing in our Local Communities and Environments,
we have been working hard to put the necessary framework in place
to launch our first Community Investment Plans (CIPs) in the second
half of 2021. We have identified eight key markets and started to
accept proposals for an initial set of projects.
The SEGRO Centenary Fund, which supports our Responsible SEGRO
goal of improving employment prospects of the individuals within
the communities in our major markets, has now committed its third
and fourth rounds of funding. These two rounds contributed to 23
programmes supporting over 3,000 beneficiaries, with a focus on
employability and skills training. Finally, we have continued our
work with LandAid and Pathways to Property on projects aligned with
our areas of focus.
We also continue to work to improve the physical environments
within and around our estates, including the introduction of
biodiversity features such as beehives and green spaces. For
example, we recently funded the creation of Tree Trails in Slough
and in Germany are working with Plant-My-Tree to support forest
conservation and plant 1,430 trees near Hamburg.
A crucial element of Nurturing Talent is to ensure that we are a
fully inclusive business which appeals to a wide, diverse and
talented range of people. Our work in the first half has included
working with the National Equality Standards to audit our business,
participating in the Social Mobility Index and building on our
strengths and identifying opportunities for improvement from the
results of our 'Your Say' employee survey. These programmes and
other initiatives will help us prioritise actions and improvements
to ensure that we provide an inclusive culture and a healthy,
supportive working environment.
Alongside the ongoing work on these three focus areas, an
important next step within our Responsible SEGRO framework in the
second half of the year is to identify challenging but achievable
non-financial KPIs to help us measure and report on our progress
and to link these to remuneration as part of our updated
Remuneration Policy which will be presented to shareholders for
approval at the 2022 Annual General Meeting.
PORTFOLIO VALUATION: STRONG GROWTH IN ALL MARKETS
Valuation gains from asset management, market-driven yield
improvement and development
There has been significant growth in property values across all
of our markets in the first six months of 2021 as a result of the
continued strong occupier and investor appetite for industrial
assets.
The Group's property portfolio was valued at GBP14.4 billion at
30 June 2021 (GBP17.1 billion of assets under management). The
portfolio valuation, including completed assets, land and buildings
under construction, increased by 10.2 per cent (adjusting for
capital expenditure and asset recycling during the period) compared
to 0.7 per cent in H1 2020.
This primarily comprises an 8.5 per cent increase in the assets
held throughout the period (H1 2020: 0.3 per cent), driven by
strong yield compression in most markets (the true equivalent yield
fell 30 basis points across the whole portfolio to 4.2 per cent)
and a 2.8 per cent increase in our valuers' estimate of the market
rental value of our portfolio (ERV).
Assets held throughout the period in the UK increased in value
by 8.6 per cent (H1 2020: 0.1 per cent). The true equivalent yield
applied to our UK portfolio was 4.1 per cent (31 December 2020: 4.3
per cent), re ecting yield compression, rental growth and the
impact of newly completed developments. Rental values improved by
3.6 per cent (H1 2020: 1.0 per cent).
Assets held throughout the period in Continental Europe
increased in value by 8.3 per cent (H1 2020: 0.8 per cent) on a
constant currency basis, re ecting a combination of yield
compression to 4.4 per cent (31 December 2020: 4.8 per cent) and
rental value growth of 1.5 per cent (H1 2020: 0.4 per cent).
More details of our property portfolio can be found in the H1
2021 Property Analysis Report available at
www.segro.com/investors.
Property portfolio metrics at 30 June 2021
Portfolio value, GBPm Yield(3)
Topped-up
Lettable Combined Combined Valuation net Net true Vacancy
area sq Land & property property movement(2 3) initial equivalent (ERV)(4)
m Completed development portfolio portfolio % % % %
(AUM) (AUM)
UK
GREATER
LONDON 1,225,704 5,165 184 5,349 5,349 8.4 3.2 3.9 6.6
THAMES
VALLEY 568,337 2,033 216 2,249 2,249 8.5 4.0 4.4 2.4
NATIONAL
LOGISTICS 546,252 911 527 1,438 1,438 9.6 4.3 4.3 -
UK TOTAL 2,340,293 8,109 927 9,036 9,036 8.6 3.5 4.1 4.7
Continental
Europe
Germany 1,478,357 1,323 163 1,486 2,224 6.6 3.7 3.8 2.4
Netherlands 233,193 159 16 175 334 14.2 4.0 4.1 2.5
France 1,420,452 1,419 184 1,603 2,074 6.0 4.1 4.6 6.1
Italy 1,357,237 764 327 1,091 1,612 16.4 4.3 4.2 -
Spain 311,056 219 115 334 507 14.1 4.2 4.3 -
Poland 1,475,328 586 41 627 1,104 6.5 5.6 5.6 6.3
Czech
Republic 169,515 83 11 94 180 10.7 4.8 5.2 2.9
CONTINENTAL
EUROPE
TOTAL 6,445,138 4,553 857 5,410 8,035 8.3 4.2 4.4 3.7
GROUP TOTAL 8,785,431 12,662 1,784 14,446 17,071 8.5 3.8 4.2 4.3
1 Figures reflect SEGRO wholly-owned assets and its share of assets held in
joint ventures unless stated "AUM" which refers to all assets under
management.
2 Valuation movement is based on the difference between the opening and
closing valuations for properties held throughout the period, allowing for
capital expenditure, acquisitions and disposals.
3 In relation to completed properties only.
4 Vacancy rate excluding short term lettings for the Group at 30 June 2021 is
4.3 per cent.
ASSET MANAGEMENT: CREATING VALUE THROUGH OPERATIONAL
EXCELLENCE
Our portfolio comprises two main asset types: urban warehouses
and big box warehouses. The demand-supply dynamics in both asset
classes continue to be positive.
Urban Warehouses
Urban warehouses account for 67 per cent of our portfolio value.
They tend to be smaller warehouses and are located mainly in and on
the edges of major cities where land supply is restricted and there
is strong demand for warehouse space, particularly catering for the
needs of urban logistics and, around London, from data centre
users.
Our urban portfolio is concentrated in London and South-East
England (80 per cent) and major cities in Continental Europe (20
per cent), including Paris, Düsseldorf, Frankfurt, Berlin,
Amsterdam and Warsaw. These locations share similar characteristics
in terms of limited (and shrinking) supply of industrial land and
growing populations, while occupiers are attracted to modern
warehouses with plenty of yard space to allow easy and safe vehicle
circulation. We believe that this enduring occupier demand and
limited supply bodes well for future rental growth.
Big Box Warehouses
Big box warehouses account for 31 per cent of our portfolio
value. They tend to be used for storage, processing and
distribution of goods on a regional, national or international
basis and are, therefore, much larger than urban warehouses.
They are focused on the major logistics hubs and corridors in
the UK (South-East and Midlands regions), France (the logistics
'spine' linking Lille, Paris, Lyon and Marseille), Germany
(Düsseldorf, Berlin, Frankfurt and Hamburg), Italy (Milan, Bologna
and Rome), Poland (Warsaw, ódz, Poznán, and the industrial region
of Silesia) and Spain (Barcelona and Madrid). 27 per cent of our
big box warehouses are in the UK and 73 per cent are in Continental
Europe.
Occupier demand is strong across all of our markets but the
nature (and typical location) of big box warehouses tends to mean
that, over time, supply is able to increase more easily to satisfy
demand, as there is generally more land available in out-of-town
locations. However, record take-up levels over the past 12 months
have meant that most of the markets that we operate in have less
than a year of available space and vacancy levels remain low.
Overall, we believe the prospects for significant rental growth
in big box warehouses are, and have always been, limited but this
asset class brings other benefits including lower asset management
intensity and long leases which help to ensure a sustainable level
of income. In addition, by holding the majority of our Continental
European big box warehouses in the SELP joint venture, we receive
additional income from managing the venture which enhances total
returns.
Customer relationships key to our continued success
Our long-term ownership and internalised management of our
portfolio allows us to focus on developing strong customer
relationships. These relationships proved to be particularly
important last year in helping us to respond quickly to the impacts
of the pandemic on our customer base. This meant that we were able
to alleviate the cash flow pressures that some of our customers
were experiencing and, as a result, help their businesses to
survive an unprecedented period. A small proportion of customers
continue to pay their rents monthly but are paying on time and in
full and, as a result, rental collections have largely reverted to
pre-pandemic levels and patterns.
Our experience last year demonstrates why we believe that an
important part of the role of our asset managers is to build a
knowledge of the businesses that occupy our space. By understanding
their evolving needs and requirements, we can help them through
difficult situations such as the pandemic but also help them to
change and grow in more positive times, whilst also becoming better
able to identify emerging trends and innovate accordingly.
Almost 60 per cent of our headline rent comes from customers
with whom we have multiple leases and over a quarter of our rent
comes from customers with whom we are active in more than one
geography. Additionally, over 20 per cent of our rent comes from
customers with whom we have both a big box and urban warehouse
lease which shows the importance of being able to offer both types
of assets to our customers.
Our customer relationships also help to drive the growth of our
development pipeline and over 80 per cent of the potential rent
from the projects in our near-term pipeline has been secured by a
pre-let with an existing customer.
Partnering with our customers is vital to achieving our
Responsible SEGRO ambitions. Our commitment to be net-zero carbon
by 2030 covers Scope 3 carbon emissions from our portfolio
(including customer energy use). We therefore need to engage with
our customers to get visibility on the amount of energy that they
use and work with them to reduce the operating carbon emissions
from our portfolio (for further detail on the progress made with
this so far in 2021 see page 7).
Growing Rental Income from Letting Existing Space and New
Developments
At 30 June 2021, our portfolio generated passing rent of GBP461
million, rising to GBP503 million once rent free periods expire
('headline rent'). During the period, we contracted GBP38 million
of new headline rent and pre-let agreements contributed GBP21
million to this number.
Our customer base remains well diversified, reflecting the
multitude of uses of warehouse space. Our top 20 customers account
for 30 per cent of total headline rent, and Amazon continues to be
the largest customer, accounting for 4.7 per cent of the total.
Approximately half of our customers are involved in businesses
affected by e-commerce, including third party logistics and parcel
delivery businesses, and retailers. These businesses also accounted
for almost half of our take-up during the period.
Summary of key leasing data for H1 2021 and H1 2020
Summary of key leasing data(1) for the six
months to 30 June H1 2021 H1 2020
Take-up of existing space(2) (A) GBPm 9.5 6.6
Space returned(3) (B) GBPm (9.5) (8.2)
NET ABSORPTION OF EXISTING SPACE(2) (A-B) GBPm - (1.6)
Other rental movements (rent reviews,
renewals, indexation)(2) (C) GBPm 4.4 3.9
RENT ROLL GROWTH FROM EXISTING SPACE GBPm 4.4 2.3
Take-up of pre-let developments completed in
the year (signed in prior years)(2) (D) GBPm 4.8 10.1
Take-up of speculative developments completed
in the past two years(2) (D) GBPm 4.0 6.1
TOTAL TAKE-UP(2) (A+C+D) GBPm 22.7 26.7
Less take-up of pre-lets and speculative
lettings signed in prior years(2) GBPm (5.5) (11.8)
Pre-lets signed in the year for future
delivery(2) GBPm 21.2 18.8
RENTAL INCOME CONTRACTED IN THE PERIOD(2) GBPm 38.4 33.7
Takeback of space for redevelopment GBPm (1.9) (0.5)
Retention rate(4) % 83 88
1 All figures reflect exchange rates at 30 June 2021 and include joint
ventures at share.
2 Headline rent.
3 Headline rent, excluding space taken back for redevelopment.
4 Headline rent retained as a percentage of total headline rent at risk from
break or expiry during the period.
We monitor a number of asset management performance indicators
to assess our performance:
-- Rental growth from lease reviews and renewals. These generated an uplift
of 12.1 per cent (H1 2020: 10.4 per cent) compared to previous headline
rent. During the period, new rents agreed at review and renewal were 16.4
per cent higher in the UK (H1 2020: 16.2 per cent higher) as reversion
accumulated over the past five years was reflected in new rents agreed,
adding GBP3 million of headline rent. In Continental Europe, rents agreed
on renewal were 1.8 per cent higher (H1 2020: 0.9 per cent higher), with
market rental growth slightly ahead of the indexation provisions that
have accumulated over recent years.
-- Vacancy has remained low. The vacancy at 30 June 2021 increased slightly
to 4.3 per cent (31 December 2020: 3.9 per cent) mainly due to some
takebacks of older assets for refurbishment and redevelopment, which we
expect to relet at higher rental levels. The vacancy rate on our standing
stock remains low at 3.0 per cent (31 December 2020: 2.6 per cent). The
vacancy rate remains at the lower end of our target range of between 4
and 6 per cent. The average vacancy rate during the period was 4.3 per
cent (H1 2020: 4.8 per cent).
-- High retention rate of 83 per cent. During the period, space equating to
GBP9.5 million (H1 2020: GBP8.2 million) of rent was returned to us,
including GBP1.4 million of rent lost due to insolvency (H1 2020: GBP1.5
million). We also took back space equating to GBP1.9 million of rent for
redevelopment. Approximately GBP35 million of headline rent was at risk
from a break or lease expiry during the period of which we retained 82
per cent in existing space, with a further 1 per cent retained but in new
premises.
-- Lease terms continue to offer attractive income security. The level of
incentives agreed for new leases (excluding those on developments
completed in the period) represented 6.0 per cent of the headline rent
(H1 2020: 8.0 per cent). The portfolio's weighted average lease length
reduced slightly during the first six months of the year with 7.3 years
to first break and 8.6 years to expiry (31 December 2020: 7.5 years to
first break, 8.8 years to expiry). Lease terms are longer in the UK (8.7
years to break) than in Continental Europe (5.4 years to break),
reflecting the market convention of shorter leases in countries such as
France and Poland.
-- GBP4.4 million of net new rent from existing assets. We generated GBP9.5
million of headline rent from new leases on existing assets (H1 2020:
GBP6.6 million) and GBP4.4 million from rent reviews, lease renewals and
indexation (H1 2020: GBP3.9 million). This was offset by rent from space
returned of GBP9.5 million (H1 2020: GBP8.2 million).
-- Continued strong demand from customers for pre-let agreements. In
addition to increased rents from existing assets, we contracted GBP21.2
million of headline rent from pre-let agreements and lettings of
speculative developments prior to completion (H1 2020: GBP18.8 million).
Included in this within the UK is a sizeable new data centre on the
Slough Trading Estate and a further letting at SEGRO Logistics Park East
Midlands Gateway. On the Continent, we agreed pre-lets in most of our
major markets with the majority being to online retailers or third-party
logistics operators.
-- Net rent roll growth of GBP27.0 million. An important element of
achieving our goal of being a leading income-focused REIT is to grow our
rent roll from both our existing assets and our development pipeline.
Rent roll growth, which reflects net new headline rent from existing
space (adjusted for takebacks of space for development), take-up of
developments and pre-lets agreed during the period, increased to GBP27.0
million in the period, from GBP25.0 million in H1 2020.
DEVELOPMENT: FURTHER GROWTH IN OUR DEVELOPMENT PIPELINE
Development Activity
During the period, we invested GBP456 million in our development
pipeline which comprised GBP364 million (H1 2020: GBP265 million)
in development spend, of which GBP42 million (H1 2020: GBP34
million) was for infrastructure, and a further GBP92 million (H1
2020: GBP202 million) to replenish our land bank to enable future
development.
Development Projects Completed
We completed 104,000 sq m of new space during the first half, a
lower amount than usual as our completion schedule is significantly
weighted towards the second half of the year in 2021. These
projects were 58 per cent pre-let prior to the start of
construction and were 75 per cent let as at 30 June 2021,
generating GBP6 million of headline rent, with a potential further
GBP2 million to come when the remainder of the space is let. This
translates into a yield on total development cost (including land,
construction and finance costs) of 6.7 per cent when fully let.
We completed 54,500 sq m of big box warehouse space, including
pre-lets in Germany, the Netherlands, Poland and Italy to customers
in the e-commerce and logistics space. We also completed 49,500 sq
m of urban warehouses, 66 per cent of which has already been
leased, including a further data centre on the Slough Trading
Estate, phase two of SEGRO Park Rainham and urban warehouse parks
in Paris and Warsaw.
All of the eligible space that we completed in the period has
been, or is in the process of being, accredited as BREEAM
'Excellent' or 'Very Good' (or a local equivalent).
Current Development Pipeline
At 30 June 2021, we had development projects approved,
contracted or under construction totalling 1.1 million sq m,
representing GBP337 million of future capital expenditure to
complete and GBP74 million of annualised gross rental income when
fully let. 72 per cent of this rent has already been secured and
these projects should yield 6.5 per cent on total development cost
when fully occupied.
-- In the UK, we have 216,200 sq m of space approved or under construction.
Within this are three more data centres on the Slough Trading Estate,
developments in East, South and West London as well as four pre-lets at
our big box logistics park SEGRO Logistics Park East Midlands Gateway.
-- In Continental Europe, we have 843,000 sq m of space approved or under
construction. This includes pre-let big box warehouses for a variety of
different occupiers, from retailers to manufacturers, across all of our
European markets. We are also developing further phases of our successful
urban warehouse parks in Berlin, Cologne, Düsseldorf and Ingolstadt
in Germany as well as two projects in Paris.
-- In addition to the above projects that we are developing ourselves, we
also have 72,200 sq m of space under construction as part of
forward-funded agreements with local developers. This is proving to be an
additional and effective method of accessing opportunities in competitive
markets where sourcing land is more difficult.
We continue to focus our speculative developments primarily on
urban warehouse projects, particularly in the UK, France and
Germany, where modern space is in short supply and occupier demand
is strong. In the UK, our speculative projects are concentrated in
London and on the Slough Trading Estate. In Continental Europe, we
continue to build scale in Germany, where projects are underway in
a number of major cities.
Within our Continental European development programme,
approximately GBP22 million of potential gross rental income is
associated with big box warehouses developed outside our SELP joint
venture. Under the terms of the joint venture, SELP has the option,
but not the obligation, to acquire these assets shortly after
completion. Assuming SELP exercises its option, we would retain a
50 per cent share of the rent after disposal. In the period, SEGRO
sold GBP233 million of completed assets to SELP, representing a net
disposal of GBP117 million.
In recent months, there has been media commentary around the
availability and costs of certain materials as economies reopen
post various local Covid lockdowns. We have not experienced any
delays to the completion date of any of our actual or pipeline
development projects, working closely with our construction
partners to ensure that any supply chain interruptions can be
managed within the overall project timetable. In terms of costs,
the majority of our development pipeline is on fixed price
contracts so there has been little impact so far. We anticipate
that rental growth would more than offset any additional costs that
arise on the future pipeline described below, given the compelling
demand from occupiers for new, high-quality, space and the low
level of vacancy across our markets.
We continue to pay attention close to our use of energy,
resources and materials throughout the construction of our
warehouses and are increasingly looking at how we can minimise the
carbon footprint throughout their entire life cycle. It is now a
SEGRO wide policy to undertake BIM (Building Information
Management) modelling on all new developments of 5,000 sq m or
larger, which enables us to do a full lifecycle assessment.
Focusing on the environmental sustainability of our buildings is
important not just for the long-term performance and resilience of
the portfolio, but also because increasingly our customers want to
occupy buildings that align with and help them achieve their own
environmental targets.
Future Development Pipeline
Near-Term Development Pipeline
Within the future development pipeline are a number of pre-let
projects which are close to being approved, awaiting either final
conditions to be met or planning approval to be granted. We expect
to commence these projects within the next six to 12 months.
These projects total 183,100 sq m of space, equating to
approximately GBP186 million (H1 2020: GBP311 million) of
additional capital expenditure and GBP22 million (H1 2020: GBP33
million) of additional rent.
Land Bank
Our land bank identified for future development (including the
near-term projects detailed above) totalled 597 hectares at 30 June
2021, valued at GBP651 million, less than 5 per cent of our total
portfolio value. We invested GBP92 million in acquiring new land
during the period, the majority of which was land associated with
developments already underway or expected to start in the short
term.
We estimate that our land bank (excluding projects currently
under construction) can support over 2.5 million sq m of
development over the next five years. The prospective capital
expenditure associated with the future pipeline is approximately
GBP1.4 billion. It could generate GBP144 million of gross rental
income, representing a yield on total development cost (including
land and notional finance costs) of around 6.9 per cent. These
figures are indicative based on our current expectations and are
dependent on our ability to secure pre-let agreements, planning
permissions, construction contracts and on our outlook for occupier
conditions in local markets.
Conditional Land Acquisitions and Land Held Under Option
Agreements
Land acquisitions (contracted but subject to further conditions)
and land held under option agreements are not included in the
figures above but together represent significant further
development opportunities. These include sites for big box
warehouses in the UK Midlands as well as in Germany and Italy. They
also include urban warehouse sites in East London and close to
Heathrow.
The options are held on the balance sheet at a value of GBP16
million (including joint ventures at share). Those we expect to
exercise over the next two to three years are for land capable of
supporting just over 1.1 million sq m of space and generating
approximately GBP66 million of headline rent (SEGRO share) for a
blended yield of approximately 6 per cent.
INVESTMENT: CONTINUING TO FOCUS ON OUR DEVELOPMENT PIPELINE
We invested GBP456 million in our portfolio during the period:
development capital expenditure of GBP364 million, and GBP92
million on acquisitions. This was partly offset by GBP154 million
of disposals.
Acquisitions: Focused on sourcing land to add to the future
development pipeline
Acquisitions during the period totalled GBP92 million, mainly
land or redevelopment opportunities to further grow our development
pipeline. They included a site in South London on which we have
agreed a forward-funding agreement to build an urban warehouse
park. We also bought land in France, Italy and Spain for a mix of
urban warehouse and big box development projects.
Disposals: Asset Recycling to Improve Portfolio Focus
During the period, we recognised proceeds of GBP154 million from
the disposal of land and assets.
The asset disposals included a recently developed stand-alone
car showroom in the Thames Valley portfolio and, as in previous
years, we sold a portfolio of Continental European big box
warehouses developed by SEGRO to SELP for which we received GBP117
million net proceeds from an effective sale of a 50 per cent
interest. The consideration for these asset disposals was GBP136
million, reflecting a blended topped-up initial yield of 4.3 per
cent.
In addition to the above asset disposals, we also completed the
disposal of a building that we developed on a turnkey basis in our
East London portfolio. The remainder of the disposals were residual
plots of land in Budapest and Warsaw that were not suitable for our
development pipeline.
Since the end of June, we have also agreed the sale of a
portfolio of urban warehouses in Italy that were developed on
behalf of our largest customer to help them expand their
distribution network in the country. As these assets are situated
in locations that are not core to our strategy we took advantage of
the strong investment markets and disposed of this portfolio for
GBP109 million, a price materially ahead of December 2020 book
value.
Disposals completed in H1 2021
Disposal Topped-up net
proceeds (GBPm, Net initial initial yield
Asset type SEGRO share) yield (%) (%)
Big boxes 117 2.7 4.2
Urban warehousing 19 4.6 4.6
Other (including
sale of turnkey
development
site) 16 n/a n/a
Land 2 n/a n/a
Disposals
completed in H1
2021(2) 154 3.0 4.3
1 Yield excludes land transactions.
2. A reconciliation of disposals completed to the Financial Statements is
provided in Note 12 to the condensed financial information.
BALANCE SHEET POSITIONED TO SUPPORT FURTHER GROWTH
Net borrowings, including our share of joint venture net debt,
increased slightly by GBP4 million from 31 December 2020 to
GBP3,092 million. The look-through loan to value ratio reduced to
21 per cent (31 December 2020: 24 per cent). Our intention for the
foreseeable future is to maintain our LTV at around 30 per cent.
This provides the flexibility to take advantage of investment
opportunities arising and ensures significant headroom compared to
our tightest gearing covenants should property values decline. We
were pleased to note the decision by Fitch Ratings to upgrade our
senior unsecured credit rating to 'A' (from 'A-').
During the period we launched our Green Finance Framework,
issued the first SELP Green Bond (8-year tenure, 0.875% coupon) and
extended the bank facilities for both SEGRO and SELP. This activity
helped reduce our weighted average cost of debt to 1.5 per cent and
extended the average duration of debt to 9.7 years.
INTERIM DIVID OF 7.4 PENCE PER SHARE
Consistent with its previous guidance that the interim dividend
would normally be set at one-third of the previous year's total
dividend, the Board has declared an increase in the interim
dividend of 0.5 pence per share to 7.4 pence (H1 2020: 6.9 pence),
a rise of 7.2 per cent. This will be paid as an ordinary dividend
on 24 September 2021 to shareholders on the register at the close
of business on 13 August 2021. The Board will offer a scrip
dividend option for the 2021 interim dividend, allowing
shareholders to choose whether to receive the dividend in cash or
new shares. 39 per cent of the 2020 final dividend was paid in new
shares, equating to GBP66 million of cash retained on the balance
sheet and 7.2 million new shares being issued.
FINANCIAL REVIEW
Like-for-like net rental income growth, income from acquisitions
and new developments were the primary drivers of the 19 per cent
increase in Adjusted profit before tax compared to H1 2020.
Adjusted NAV per share increased by 12 per cent to 909 pence
compared to December 2020, primarily driven by the valuation uplift
on the property portfolio.
Financial highlights
30 June 30 June 31 December
2021 2020 2020
IFRS(1) net asset value (NAV) per share
(diluted) (p) 897 716 809
Adjusted NAV per share(1) (diluted) (p) 909 718 814
IFRS profit before tax (GBPm) 1,413 221 1,464
Adjusted(2) profit before tax (GBPm) 168 141 296
IFRS earnings per share (EPS) (p) 110.3 19.5 124.1
Adjusted(2) EPS (p) 13.8 12.5 25.4
1. A reconciliation between IFRS NAV and Adjusted NAV is shown in Note 11.
2. A reconciliation between IFRS profit before tax and Adjusted profit before
tax is shown in Note 2 and between IFRS EPS and Adjusted EPS is shown in Note
11.
Presentation of financial information
The condensed financial information is prepared under IFRS where
the Group's interests in joint ventures are shown as a single line
item on the income statement and balance sheet and subsidiaries are
consolidated at 100 per cent.
The Adjusted profit measure better reflects the underlying
recurring performance of the Group's property rental business,
which is SEGRO's core operating activity. It is based on the Best
Practices Recommendations of the European Public Real Estate
Association (EPRA) which are widely used alternate metrics to their
IFRS equivalents (further details on EPRA Best Practices
Recommendations can be found at www.epra.com). In calculating
Adjusted profit, the Directors may also exclude additional items
considered to be non-recurring, not in the ordinary course of
business, and significant by virtue of size and nature. There are
no such items reported in the current period or prior periods.
A detailed reconciliation between Adjusted profit after tax and
IFRS profit after tax is provided in Note 2 of the condensed
financial information. The Adjusted NAV per share measure reflects
the EPRA Net Tangible Asset metric and based on the EPRA best
practice reporting guidelines. A detailed reconciliation between
Adjusted NAV and IFRS NAV is provided in Note 11(ii) of the
condensed financial information.
The Supplementary Notes to the condensed financial information
include other EPRA metrics as well as SEGRO's Adjusted income
statement and balance sheet presented on a proportionately
consolidated basis.
SEGRO monitors the above alternative metrics, as well as the
EPRA metrics for vacancy rate, net asset value and total cost
ratio, as they provide a transparent and consistent basis to enable
comparison between European property companies.
Look-through metrics for like-for-like net rental income and
loan to value ratio are also provided, with joint ventures included
at share, in order that our full operations are captured, therefore
providing more meaningful analysis.
Adjusted profit
Adjusted profit
Six months to Six months to
30 June 2021 30 June 2020
GBPm GBPm
Gross rental income 220 187
Property operating expenses (49) (42)
Net rental income 171 145
Joint venture fee income 12 11
Administration expenses (27) (25)
Share of joint ventures' Adjusted profit
after tax(1) 32 29
Adjusted operating profit before interest
and tax 188 160
Net finance costs (20) (19)
Adjusted profit before tax 168 141
Tax on Adjusted profit (3) (2)
Adjusted profit after tax(2) 165 139
1. Comprises net property rental income less administration expenses, net
interest expenses and taxation.
2. A detailed reconciliation between Adjusted profit after tax and IFRS profit
after tax is provided in Note 2 to the condensed financial information.
Adjusted profit before tax increased by 19 per cent to GBP168
million (H1 2020: GBP141 million). The primary driver was a GBP26
million increase in net rental income to GBP171 million, as
discussed further below.
Net rental income (including joint ventures at share)
Six months to Six months to
30 June 2021 30 June 2020 Change(3)
Net rental income GBPm GBPm %
UK 118 112 4.8
Continental Europe 65 63 4.6
Like-for-like net rental
income before other
items(1) 183 175 4.7
Other(2) (3) (3)
Like-for-like net rental
income (after other) 180 172 4.9
Development lettings 15 2
Properties taken back for
development - 2
Like-for-like net rental
income plus developments 195 176
Properties acquired 11 1
Properties sold 2 2
Net rental income before
surrenders, dilapidations
and exchange 208 179
Lease surrender premiums and
dilapidations income 3 1
Other items and rent lost
from lease surrenders 8 7
Impact of exchange rate
difference between periods - 1
Net rental income (including
joint ventures at share) 219 188
SEGRO share of joint venture
management fees (5) (5)
Net rental income after 214
SEGRO share of joining 183
venture fees
1. Includes expected credit losses UK GBP1.3 million (H1 2020: GBP2.4
million); CE GBP0.2 million (H1 2020: GBP0.8 million). Excluding these losses
the like for like change would be: Group 3.7%; UK 3.7%; CE 3.6%.
2. Other includes the corporate centre and other costs relating to the
operational business which are not specifically allocated to a geographical
business unit.
3. Percentage change has been calculated using the figures presented in the
table above in millions accurate to one decimal place.
The like-for-like rental growth metric is based on properties
held throughout both H1 2021 and H1 2020 and comprises wholly owned
assets (net rental income of GBP171 million) and SEGRO's share of
net rental income held in joint ventures (GBP43 million).
Net rental income on this basis increased by GBP31 million to
GBP214 million which mainly reflects GBP13 million of additional
income from development lettings, GBP10 million from properties
acquired (almost entirely during 2020) and GBP8 million of
like-for-like net rental income growth before other items (a growth
rate of 4.7 per cent compared to H1 2020). The growth rate is
calculated based on figures in millions to one decimal place rather
than those rounded to GBP million as presented in the table.
The growth in like-for-like net rental income before other items
was mainly due to rental increases on review and renewal in both
our UK portfolio and Continental Europe portfolios. This includes
the impact of expected credit losses. Excluding such items would
reduce the Group like for like increase to 3.7 per cent, as the
levels of losses have decreased compared to the prior period.
Where a completed property has been sold into SELP, the 50 per
cent share owned throughout the period is included in the
like-for-like calculation, with the balance shown in properties
sold.
Income from joint ventures
Joint venture management fee income increased by GBP1 million to
GBP12 million in line with the growth in activity in the SELP joint
venture.
SEGRO provides certain services, including venture advisory and
asset management, to the SELP joint venture and receives fees for
doing so, including potential performance fees based on the
performance of the portfolio. The next performance fee measurement
date is on the tenth anniversary, in October 2023. No performance
fee was recognised in the current or prior period.
SEGRO's share of joint ventures' Adjusted profit after tax
increased by GBP3 million, mainly reflecting the growth in income
from the SELP joint venture.
Administrative and operating costs
The Total Cost Ratio for H1 2021 improved to 19.8 per cent from
21.2 per cent in H1 2020. Excluding the impact of share based
payments (GBP6 million), the cost of which are directly linked to
the outperformance of the property portfolio, the Cost Ratio
improved to 17.4 per cent in H1 2021 from 18.6 per cent in H1 2020.
The calculations are set out in Table 8 of the Supplementary Notes
to the condensed financial information.
Net finance costs
Net finance costs have increased by GBP1 million during the
period from GBP19 million at H1 2020 to GBP20 million at H1 2021.
Whilst absolute levels of debt are higher than the comparative
period this is mitigated through a reduction in the cost of debt
(as discussed further in the Financial Position and Funding section
below).
Taxation
The tax charge on Adjusted profit of GBP3 million (H1 2020: GBP2
million) reflects an effective tax rate of 1.8 per cent (H1 2020:
1.1 per cent), calculated on figures in millions to one decimal
place. The effective tax rate is consistent with a Group target tax
rate of less than 3 per cent.
The Group's target tax rate reflects the fact that over
three-quarters of its assets are located in the UK and France and
qualify for REIT and SIIC status respectively in those countries.
This status means that income from rental profits and gains on
disposals of assets in the UK and France are exempt from
corporation tax, provided SEGRO meets a number of conditions
including, but not limited to, distributing 90 per cent of UK
taxable profits.
Adjusted earnings per share
Adjusted earnings per share were 13.8 pence (H1 2020: 12.5
pence) reflecting the GBP26 million increase in Adjusted profit
after tax and non-controlling interests, offset by the 8 per cent
increase in the weighted number of shares in issue as a result of
the equity issue in June 2020.
IFRS PROFIT
IFRS profit before tax in H1 2021 was GBP1,413 million (H1 2020:
GBP221 million), equating to post-tax IFRS earnings per share of
110.3 pence compared with 19.5 pence for H1 2020. The increase in
IFRS profits is driven primarily by unrealised and realised gains
on our property portfolio, including joint ventures at share, which
were GBP1,273 million higher in H1 2021 than in the same period a
year ago.
A reconciliation between Adjusted profit before tax and IFRS
profit before tax is provided in Note 2 to the condensed financial
information.
Realised and unrealised gains on wholly owned investment and
trading properties of GBP1,123 million in H1 2021 (H1 2020: GBP57
million) have been recognised in the income statement, mainly
comprising an unrealised valuation surplus on investment properties
of GBP1,118 million (H1 2020: GBP57 million).
SEGRO's share of realised and unrealised gains on properties
held in joint ventures was GBP217 million (H1 2020: GBP10 million)
arising on revaluation gains in the SELP joint venture.
BALANCE SHEET
Adjusted net asset value
Shares Pence per
GBPm million share
Adjusted net assets attributable to
ordinary shareholders at 31 December 2020 9,725 1,194.7 814
Realised and unrealised property gain
(including joint ventures) 1,340
Adjusted profit after tax 165
Dividend net of scrip shares issued (2020
final) (115)
Exchange rate movement (net of hedging) (76)
Tax charge in respect of realised and
unrealised property gain(1) (54)
SIIC entry tax charge (39)
Other (17)
Adjusted net assets attributable to
ordinary shareholders at 30 June 2021 10,929 1,202.5 909
1. Includes 50 per cent of deferred tax charge in respect of depreciation and
valuation surpluses.
At 30 June 2021, IFRS net assets attributable to ordinary
shareholders (on a diluted basis) were GBP10,783 million (31
December 2020: GBP9,659 million), equating to 897 pence per share
(31 December 2020: 809 pence).
Adjusted net asset value per share at 30 June 2021 was 909 pence
measured on a diluted basis (31 December 2020: 814 pence), an
increase of 12 per cent in the period. The table above highlights
the other principal factors behind the increase. The tax charge of
GBP54 million includes both the impact of deferred tax in respect
of valuation surpluses recognised (of which 50 per cent are
recognised in Adjusted net assets) and the tax liability due from
the disposal of a property portfolio in the period. In addition, a
portfolio of properties acquired in France in the prior period has
been entered in to the SIIC regime at a cost of GBP39 million as
discussed further in Note 9.
A reconciliation between IFRS and Adjusted net assets is
available in Note 11 to the condensed financial information.
Cash flow and net debt reconciliation
Cash flow from operations for the period was GBP168 million, an
increase of GBP61 million from H1 2020 (GBP107 million), primarily
due to increased operating profits and improved working capital
cashflows including improved debtor collections and reduced trading
property spend.
The largest cash outflow in the period relates to acquisitions
and developments of investment properties at GBP371 million, which
primarily reflects the Group's investment activity during the
period and ongoing development activity (see Capital Expenditure
section for more details). Cash flows from investment property
sales are GBP350 million, giving a net outflow of GBP21 million
from property investment activity. In addition investment outflows
of GBP56 million to joint ventures was made primarily to fund the
SELP investing activity.
Other significant financing cash flows include dividends paid of
GBP90 million (H1 2020: GBP80 million) reflecting the increased
dividend per share and level of scrip dividend take-up and an
inflow of GBP34 million from the derivatives which are used to
manage the Group's exposure to foreign exchange during the period
as the euro has weakened against sterling.
As a result of these factors there was a net funds outflow of
GBP8 million during the period compared to an inflow of GBP74
million in H1 2020.
Cash flow and net debt reconciliation
Six months to 30 Six months to
June 2021 30 June 2020
GBPm GBPm
Opening net debt (2,325) (1,811)
Cash flow from operations 168 107
Finance costs (net) (25) (27)
Dividends received 4 2
Tax (paid)/received (2) 2
Free cash flow 145 84
Dividends paid (90) (80)
Acquisitions and development of
investment properties (371) (614)
Investment property sales 350 53
Acquisitions of other interests in
property and other investments (3) (4)
Purchase of non-controlling interest (12) -
Net settlement of foreign exchange
derivatives 34 (35)
Proceeds from issue of ordinary shares 1 672
Net investment in joint ventures (56) -
Other items (6) (2)
Net funds flow (8) 74
Non-cash movements (1) (1)
Exchange rate movements 59 (61)
Closing net debt (2,275) (1,799)
Capital expenditure
The table below sets out analysis of the capital expenditure on
property assets during the period on a basis consistent with the
EPRA Best Practices Recommendations. This includes acquisition and
development spend, on an accruals basis, in respect of the Group's
wholly--owned investment and trading property portfolios, as well
as the equivalent amounts for joint ventures at share.
Total spend for the period was GBP490 million, a decrease of
GBP233 million compared to H1 2020. This is primarily driven by a
decreased volume of acquisitions, with significant UK acquisitions
in the prior period. Development capital expenditure increased by
GBP99 million to GBP364 million with particular spend on our
schemes in Italy and the UK National Logistics business unit.
Spend on existing completed properties totalled GBP21 million
(H1 2020: GBP13 million), over half of which was for
value-enhancing major refurbishment and fit-out costs prior to
re-letting.
EPRA capital expenditure analysis
Six months to Six months to
30 June 2021 30 June 2020
Wholly Joint Wholly Joint
owned ventures Total owned ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
Acquisitions 90(1) 2 92(7) 420 10 430
Development(4) 327(2) 37 364 236 29 265
Completed
properties(5) 16(3) 5 21 12 1 13
Other(6) 8 5 13 11 4 15
Total 441 49 490 679 44 723
1. Being GBP90 million investment property and GBPnil trading property (2020:
GBP418 million and GBP2 million respectively) see Note 12.
2. Being GBP318 million investment property and GBP9 million trading property
(2020: GBP229 million and GBP7 million respectively) see Note 12.
3. Being GBP16 million investment property and GBPnil trading property (2020:
GBP12 million and GBPnil respectively) see Note 12.
4. Includes wholly owned capitalised interest of GBP4 million (2020: GBP4
million) as further analysed in Note 8 and share of joint venture capitalised
interest of GBPnil (2020: GBPnil).
5. Being GBP19 million expenditure used for enhancing existing space (2020:
GBP13 million) and GBP2 million used for creation of additional lettable space
(2020: GBPnil).
6. Tenant incentives, letting fees and rental guarantees.
7. Excludes acquisitions of property sold from the Group's wholly owned
portfolio to the SELP joint venture of GBP117 million (2020: GBPnil) and
associated property tax of GBP2 million, which is effectively a net 50 percent
disposal by the Group.
FINANCIAL POSITION AND FUNDING
Financial Key Performance Indicators
30 June 30 June 31 December
GROUP ONLY 2021 2020 2020
Net borrowings (GBPm) 2,275 1,799 2,325
Available Group cash and undrawn
facilities (GBPm) 983 1,319 1,061
Gearing (%) 21 21 24
LTV ratio (%) 19 20 22
Weighted average cost of debt(1) (%) 1.6 1.8 1.7
Interest cover(2) (times) 7.0 6.5 6.6
Average duration of debt (years) 11.3 11.1 11.7
INCLUDING JOINT VENTURES AT SHARE
Net borrowings (GBPm) 3,092 2,511 3,088
Available cash and undrawn facilities
(GBPm) 1,230 1,541 1,189
LTV ratio (%) 21 22 24
Weighted average cost of debt(1) (%) 1.5 1.7 1.6
Interest cover(2) (times) 6.9 6.4 6.5
Average duration of debt (years) 9.7 9.4 9.9
1. Based on gross debt, excluding commitment fees and non-cash interest.
2. Net rental income/adjusted net finance costs (before capitalisation).
At 30 June 2021, the Group's net borrowings (including the
Group's share of borrowings in joint ventures) were GBP3,092
million (31 December 2020: GBP3,088 million) at a weighted average
cost of 1.5 per cent and an average duration of 9.7 years. The loan
to value ratio (including joint ventures at share) was 21 per cent
(31 December 2020: 24 per cent) with GBP1,230 million of cash and
undrawn facilities available for investment.
Gross borrowings of SEGRO Group were GBP2,353 million at 30 June
2021, all but GBP13 million of which were unsecured, and cash and
cash equivalent balances were GBP78 million. SEGRO's share of gross
borrowings in its joint ventures was GBP850 million (all of which
were advanced on a non-recourse basis to SEGRO) and cash and cash
equivalent balances of GBP33 million.
Cash and cash equivalent balances, together with the Group's
interest rate and foreign exchange derivative portfolio, are spread
amongst a strong group of banks, all of which have a credit rating
of A- or better.
In May 2021, SELP consolidated its EUR0.5 billion of revolving
credit facilities and simultaneously extended maturity to 2025.
This was followed, also in May 2021, with SEGRO extending the
maturity of its EUR1.2 billion of revolving credit facilities for a
further year to 2026.
In May 2021, SEGRO published its Green Finance Framework,
building on the Responsible SEGRO strategy launched in February
2021. The framework, which applies to SEGRO, its subsidiaries and
joint ventures including SELP, integrates financial strategy with
the Responsible SEGRO commitments.
In May 2021, SELP issued a EUR500 million, 8.0 year unsecured
green bond at a coupon of 0.875 per cent. The proceeds were used to
refinance existing bank borrowings as well as provide additional
liquidity to the venture.
MONITORING AND MITIGATING FINANCIAL RISK
The Group monitors a number of financial metrics to assess the
level of financial risk being taken and to mitigate that risk.
Treasury policies and governance
The Group Treasury function operates within a formal policy
covering all aspects of treasury activity, including funding,
counterparty exposure and management of interest rate, currency and
liquidity risks. Group Treasury reports on compliance with these
policies on a quarterly basis and policies are reviewed regularly
by the Board.
Gearing and financial covenants
The key leverage metric for SEGRO is its loan to value ratio
(LTV), which incorporates assets and net debt on SEGRO's balance
sheet and SEGRO's share of assets and net debt on the balance
sheets of its joint ventures. The LTV at 30 June 2021 on this
'look-through' basis was 21 per cent (31 December 2020: 24 per
cent).
Our borrowings contain gearing covenants based on Group net debt
and net asset value, excluding debt in joint ventures. The gearing
ratio of the Group at 30 June 2021, as defined within the principal
debt funding arrangements of the Group, was 21 per cent (31
December 2020: 24 per cent). This is significantly lower than the
Group's tightest financial gearing covenant within these debt
facilities of 160 per cent. Property valuations would need to fall
by around 66 per cent from their 30 June 2021 levels to reach the
gearing covenant threshold of 160 per cent.
The Group's other key financial covenant within its principal
debt funding arrangements is interest cover, requiring that net
interest before capitalisation be covered at least 1.25 times by
net property rental income. At 30 June 2021, the Group comfortably
met this ratio at 7.0 times. On a look-through basis, including
joint ventures, this ratio was 6.9 times.
We mitigate the risk of over-gearing the Company and breaching
debt covenants by carefully monitoring the impact of investment
decisions on our LTV and by stress-testing our balance sheet to
potential changes in property values. We also expect to continue to
recycle assets which would also provide funding for future
investment.
Our intention for the foreseeable future is to maintain our LTV
at around 30 per cent. This provides the flexibility to take
advantage of investment opportunities arising and ensures
significant headroom compared to our tightest gearing covenants
should property values decline.
At 30 June 2021, the only debt maturities within 12 months are
EUR1 million of principal repayments on an amortising loan,
acquired with Sofibus Patrimoine SA. The weighted average maturity
of the gross borrowings of the Group was 11.3 years (9.7 years on a
look-through basis). With the majority of the Group's revolving
credit facilities not due to mature until 2026, and no material
Group debt maturities until 2024, this long average debt maturity
translates into a favourable, well spread debt funding maturity
profile which reduces future refinancing risk.
Interest rate risk
The Group's interest rate risk policy is designed to ensure that
we limit our exposure to volatility in interest rates. The policy
states that between 50 and 100 per cent of net borrowings
(including the Group's share of borrowings in joint ventures)
should be at fixed or capped rates, including the impact of
derivative financial instruments.
As at 30 June 2021, including the impact of derivative
instruments, 74 per cent (31 December 2020: 70 per cent) of the net
borrowings of the Group (including the Group's share of borrowings
within joint ventures) were at fixed or capped rates. The
fixed-only level of debt is 49 per cent at 30 June 2021 (31
December 2020: 44 per cent).
As a result of the fixed rate cover in place, if short term
interest rates had been 1 per cent higher throughout the six month
period to 30 June 2021, the adjusted net finance cost of the Group
would have increased by approximately GBP8 million representing
around 5 per cent of Adjusted profit after tax.
The Group elects not to hedge account its interest rate
derivatives portfolio. Therefore, movements in derivative fair
values are taken to the income statement but, in accordance with
EPRA Best Practices Recommendations Guidelines, these gains and
losses are excluded from Adjusted profit after tax.
Foreign currency translation risk
The Group has negligible transactional foreign currency exposure
but does have a potentially significant currency translation
exposure arising on the conversion of its substantial foreign
currency denominated assets (mainly euro) and euro denominated
earnings into sterling in the Group consolidated accounts.
The Group seeks to limit its exposure to volatility in foreign
exchange rates by hedging at a level between the year-end Group LTV
percentage and 100 per cent of its foreign currency gross assets
through either borrowings or derivative instruments. At 30 June
2021, the Group had gross foreign currency assets which were 64 per
cent hedged by gross foreign currency denominated liabilities
(including the impact of derivative financial instruments).
The exchange rate used to translate euro denominated assets and
liabilities as at 30 June 2021 into sterling within the balance
sheet of the Group was EUR1.17:GBP1 (31 December 2020:
EUR1.12:GBP1). Including the impact of forward foreign exchange and
currency swap contracts used to hedge foreign currency denominated
net assets, if the value of the other currencies in which the Group
operates at 30 June 2021 weakened by 10 per cent against sterling
(EUR1.29, in the case of euros), net assets would have decreased by
approximately GBP155 million and there would have been a reduction
in gearing of approximately 1.7 per cent and in the LTV of
approximately 1.5 per cent. The impact if the other currencies in
which the Group operates should strengthen by 10 per cent against
Sterling would be broadly equal and opposite.
The average exchange rate used to translate euro denominated
earnings generated during the six months ending 30 June 2021 into
sterling within the consolidated income statement of the Group was
EUR1.15:GBP1 (H1 2020: EUR1.14:GBP1).
Based on the hedging position at 30 June 2021, and assuming that
this position had applied throughout the 6 month period, if the
euro had been 10 per cent weaker than the average exchange rate
(EUR1.27:GBP1), Adjusted profit after tax for the six month period
would have been approximately GBP5 million (3.2 per cent) lower
than reported. If it had been 10 per cent stronger, adjusted profit
after tax for the period would have been approximately GBP6 million
(3.9 per cent) higher than reported.
GOING CONCERN
As noted in the Financial Position and Funding section above,
the Group has significant available liquidity to meet its capital
commitments, a long-dated debt maturity profile and substantial
headroom against financial covenants.
-- In 2021, the Group has extended the term of its EUR1.2 billion of bank
facilities to 2026.
-- Cash and available facilities at 30 June 2021 were GBP1.0 billion.
-- The Group continuously monitors its liquidity position compared to
committed and expected capital and operating expenses on a rolling
forward 18 month basis. The quantum of committed capital expenditure at
any point in time is typically low due to the short timeframe to
construct warehouse buildings.
-- The Group also regularly stress-tests its financial covenants. As noted
above, at 30 June 2021, property values would need to fall by around 66
per cent before breaching the gearing covenant. In terms of interest
cover, net rental income would need to fall by 82 per cent before
breaching the interest cover covenant. Both would be significantly in
excess of the Group's experience during the financial crisis and its
experience in 2021 to date.
Having made enquiries and having considered the principal risks
facing the Group, including liquidity and solvency risks, and
material uncertainties, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future (a period of at
least 12 months from the date of approval of the financial
statements). Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
STATEMENT OF PRINCIPAL RISKS
The Group recognises that its ability to manage risk effectively
throughout the organisation continues to be central to its success.
Our approach to risk management aims to bring controllable risks
within our appetite, and to enable our decision-making to balance
uncertainty against the objective of creating and protecting, now
and in the long term, value for our shareholders and other
stakeholders.
The Group's risk appetite, its integrated approach to managing
risk, and the governance arrangements in place are described in the
Principal Risks section of the 2020 Annual Report on pages 72 to
81.
Covid-19
The uncertainties and challenges caused by the Covid-19 pandemic
continue to impact our entire risk landscape including the global
economy, our markets and our operations.
The Group's Board, and key committees have overseen the Group's
response to the pandemic throughout the period and taken actions to
mitigate its impacts including on our operations, the health and
wellbeing of our employees and to support our stakeholders.
We have reviewed and updated the Group's risk register during
the period, in particular in light of the continued impact of
Covid-19 which has acted to increase the impact, or probability, or
both in respect of risks already on the risk register, as detailed
further in our Principal Risks section below. No new risks have
been identified in this period as a result of the pandemic.
Looking forward, it is clear there is still much uncertainty
around the future trajectory of the pandemic. Whilst the progress
of the vaccine programme offers a pathway to re-opening of
economies and some degree of normality, the emergence of new
variants puts this at risk both in the near- and longer-term.
Accordingly, we remain vigilant to the rapidly changing environment
and possible prolonged impact of Covid-19 on the locations in which
we operate.
Emerging risks
We continue to identify and monitor emerging risks in our risk
processes. Emerging risks are those which may be evolving rapidly
and whose impact or probability may not yet be fully understood and
whose mitigations are consequently evolving. This process is
supplemented by formal horizon scans with the Executive Committee.
Clearly the impact of Covid-19, discussed above, continues to be a
major focus, as does the long term impact of climate change on our
business.
Risks Appetite
Our risk appetite depends on the nature of the risk and falls
into 3 broad categories:
- Property risk - we recognise that, in seeking outperformance
from our portfolio, the Group must accept a balanced level of
property risk -- with diversity in geographic locations and asset
types and an appropriate mixture of stabilised income producing and
opportunity assets -- in order to enhance opportunities for
superior returns. This is balanced against the backdrop of the
macro economic climate and its impact on the property cycle.
- Financial risk - we maintain a low to moderate appetite for
financial risk in general, with a very low appetite for risks to
solvency and gearing covenant breaches.
- Corporate risk - we have a very low appetite for risks to our
good reputation and risks to being well-regarded by our investors,
regulators, employees, customers, business partners, suppliers,
lenders and by the wider communities and environments in which we
operate.
Principal Risks
A summary of the Group's principal risks including an update for
changes during the period and expected impacts during the second
half of 2021, is provided below. Following the trade agreement with
the EU in December 2020, the risk of a 'Disruptive Brexit' was, at
least in part, mitigated and, as no subsequent material impacts on
the Group have arisen, it has been removed as a Principal Risk. The
relevant consequences of Brexit are now being managed as part of
their applicable risks such as Political and Regulatory. Disruptive
Brexit aside, the other principal risks remain the same as reported
in the Annual Report for 2020 and the residual risk for each
remains within appetite however each continues to have an elevated
probability of volatility in the period.
- Macroeconomic Impact on Market Cycle. The property market is
cyclical and there is a continuous risk that the Group could either
misinterpret the market or fail to react appropriately to changing
market and wider geopolitical conditions, which could result in
capital being invested or disposals taking place at the wrong price
or time in the cycle.
Update: The pandemic continues to cause greater market
volatility and less predictability and in response we have
increased the regularity of our economic outlook assessments.
Whilst we are not entirely immune to these fluctuations, the most
material adverse impacts appear to be focused in sectors where we
do not have significant exposure.
- Portfolio Strategy and Execution. The Group's Total Property
and/or Shareholder Returns could underperform in absolute or
relative terms as a result of an inappropriate portfolio
strategy.
Update: The Group's approach to portfolio management and capital
allocation remains responsive to opportunities that arise, as
detailed further in the Investment and Development sections above.
The attractiveness of the industrial property asset class has led
to increased market competition and the consequent impact on
pricing has led to us being more selective in our investing.
- Major Event / Business Disruption. Unexpected global, regional
or national events result in severe adverse disruption to SEGRO,
such as sustained asset value or revenue impairment, solvency or
covenant stress, liquidity or business continuity challenges. A
global event or business disruption may include, but is not limited
to a global financial crises, health pandemic, civil unrest, act of
terrorism, cyber-attack or other IT disruption. Events may be
singular or cumulative, and lead to acute/systemic issues in the
business and/or operating environment.
Update: As detailed in the Covid-19 section above, the pandemic
continues to cause increased uncertainty to the Group's operations
and stakeholders. The Board and other committees remain vigilant
and responsive in managing the mitigation of risks as they
evolve.
- Health & Safety. Health and safety management processes
could fail, leading to a loss of life, litigation, fines and
serious reputational damage to the Group.
Update: The health and safety of the workforce remains a key
priority whilst working away from the office as well as the
potential gradual return to the office. We continue to closely
monitor our development sites in order to ensuring a safe and
compliant working environment.
- Environmental Sustainability. Failure to anticipate and
respond to the impact of both physical and transitional risks from
climate change on the sustainability of our environment as both a
principal and emerging risk. Changes in social attitudes, laws,
regulations, policies, taxation, obligations, and customer
preferences associated with environmental sustainability could
cause significant reputational damage and impact on our business,
through non-compliance with laws and regulations, increased costs
of tax and energy and loss of value through not meeting stakeholder
expectations in addressing these challenges when reporting.
Update: We refreshed our 'Responsible SEGRO' framework earlier
this year that sets out our key priorities: championing low carbon
growth, investing in local communities and environments and
nurturing talent. This is detailed further in the Responsible SEGRO
Update above.
- Development Plan Execution. The Group could suffer significant
financial losses from its extensive current programme and future
pipeline of developments.
Update: We continue to work with our contractors to ensure
Covid-19 compliant work practices are in place at all work sites on
our major development sites operate effective and efficiently.
During the period we have become aware of possible bottlenecks in
the construction supply chain for certain materials and whilst
these have not currently caused undue delay we look to proactively
work alongside our contractors to manage such issues as they
arise.
- Financing Strategy. The Group could suffer an acute liquidity
or solvency crisis, financial loss or financial distress as a
result of a failure in the design or execution of its financing
strategy.
Update: Currently the Group has strong access to financial
markets as seen by our funding activity as detailed in the
Financial Position and Funding section above leaving us well
positioned, financially, in order to fund activity in the remainder
of the year and beyond.
- Political and Regulatory. The Group could fail to anticipate
significant political, legal, tax or regulatory changes, leading to
a significant unforecasted financial or reputational impact.
Update: Following the UK's exit from the EU the Group has
closely monitored and managed its consequential legal and
regulatory risks through a dedicated internal team and external
advisors ensuring timely remedial actions were taken where
necessary. Whilst the full extent of such risks continue to be
monitored, no significant unexpected issues have currently arisen.
In addition we continue to closely monitor changes in other
legislation, such as tax, to ensure they are understood and
addressed in an appropriate and effective manner.
- Operational Delivery & Compliance. The Group's ability to
protect its reputation, revenues and shareholder value could be
damaged by operational failures such as: failing to attract, retain
and motivate key employees; major customer default; supply chain
failure or the structural failure of one of our assets. Compliance
failures, such as breaches of joint venture shareholders'
agreements, loan agreements or tax legislation could also damage
reputation, revenue and shareholder value.
Update: The pandemic continues to impact working practices with
significant time spent away from the office, although we have seen
an increase in the number of employees in our offices more
recently. In due course, we remain committed to returning to our
agile working approach to promote our strong, positive corporate
culture, ensuring our key employees continue to be motivated and
challenged. We continue to ensure the resilience and security of
our technology, and to engage closely with our customers.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the interim condensed set of financial statements has been
prepared in accordance with IAS 34 'Interim Financial Reporting' as
adopted by the United Kingdom and European Union;
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board,
David Sleath Soumen Das
Chief Executive Chief Financial Officer
Independent review report to SEGRO plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed SEGRO plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
half-yearly report of SEGRO plc for the 6 month period ended 30
June 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority, and
EU adopted International Accounting Standard 34, 'Interim Financial
Reporting'.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Group Balance Sheet as at 30 June 2021;
-- the Condensed Group Income Statement and Condensed Group Statement of
Comprehensive Income for the period then ended;
-- the Condensed Group Cash Flow Statement for the period then ended;
-- the Condensed Group Statement of Changes in Equity for the period then
ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
report of SEGRO plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting', the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority, and
EU adopted International Accounting Standard 34, 'Interim Financial
Reporting'.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the
half-yearly report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 July 2021
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2021
Half year to Half year to Year to
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
Revenue 4 246 198 432
Costs 5 (62) (42) (104)
184 156 328
Administration
expenses (27) (25) (52)
Share of profit
from joint
ventures after
tax 6 210 35 236
Realised and
unrealised
property gain 7 1,122 57 989
Operating profit 1,489 223 1,501
Finance income 8 23 38 50
Finance costs 8 (99) (40) (87)
Profit before tax 1,413 221 1,464
Tax 9 (92) (4) (35)
Profit after tax 1,321 217 1,429
Attributable to
equity
shareholders 1,317 216 1,427
Attributable to
non-controlling
interests 4 1 2
Earnings per share
(pence)
Basic 11 110.3 19.5 124.1
Diluted 11 110.0 19.4 123.6
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2021
Half year to Half year to Year to
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Profit for the period 1,321 217 1,429
Items that may be
reclassified subsequently
to profit or loss
Foreign exchange movement
arising on translation of
international operations (124) 149 112
Fair value movements on
derivatives and borrowings
in effective hedge
relationships 48 (71) (52)
(76) 78 60
Tax on components of other
comprehensive income - - -
Other comprehensive
(loss)/income (76) 78 60
Total comprehensive income
for the period 1,245 295 1,489
Attributable to -- equity
shareholders 1,241 295 1,487
-- non-controlling interests 4 - 2
CONDENSED GROUP BALANCE SHEET
As at 30 June 2021
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
Assets
Non-current assets
Intangible assets 8 2 2
Investment properties 12 11,850 9,208 10,671
Other interests in
property 16 19 16
Property, plant and
equipment 23 25 27
Investments in joint
ventures 6 1,620 1,235 1,423
Other investments 4 29 2
Other receivables 36 114 37
Derivative financial
instruments 58 66 63
13,615 10,698 12,241
Current assets
Trading properties 12 47 29 52
Trade and other
receivables 175 197 270
Derivative financial
instruments 4 3 15
Cash and cash
equivalents 13 78 203 89
304 432 426
Total assets 13,919 11,130 12,667
Liabilities
Non-current
liabilities
Borrowings 13 2,352 2,002 2,413
Deferred tax
liabilities 9 112 61 87
Trade and other
payables 107 109 110
Derivative financial
instruments 41 13 5
2,612 2,185 2,615
Current liabilities
Trade and other
payables 460 389 372
Borrowings 13 1 - 1
Derivative financial
instruments 1 11 5
Tax liabilities 62 5 3
524 405 381
Total liabilities 3,136 2,590 2,996
Net assets 10,783 8,540 9,671
Equity
Share capital 120 119 119
Share premium 3,343 3,271 3,277
Capital redemption
reserve 114 114 114
Own shares held (1) (1) (1)
Other reserves 170 268 253
Retained earnings 7,037 4,769 5,897
Total shareholders'
equity 10,783 8,540 9,659
Non-controlling
interests - - 12
Total equity 10,783 8,540 9,671
Net assets per
ordinary share
(pence)
Basic 11 899 717 811
Diluted 11 897 716 809
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2021
Attributable to owners of the parent
Other reserves
Share- Translation, Total equity
Ordinary Capital Own based hedging and attributable Non-
share Share redemption shares payment other Merger Retained to owners of controlling Total
capital premium reserve held reserve reserve reserve earnings the parent interest(1) equity
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January 2021 119 3,277 114 (1) 22 62 169 5,897 9,659 12 9,671
Profit for the
period - - - - - - - 1,317 1,317 4 1,321
Other
comprehensive
income - - - - - (76) - - (76) - (76)
Total
comprehensive
income for the
period - - - - - (76) - 1,317 1,241 4 1,245
Transactions
with owners of
the Company
Issues of shares - 1 - - - - - - 1 - 1
Own shares
acquired - - - (3) - - - - (3) - (3)
Equity-settled
share-based
payment
transactions - - - 3 (7) - - 5 1 - 1
Dividends 1 65 - - - - - (181) (115) - (115)
Movement in
non-controlling
interest(1) - - - - - - - (1) (1) (16) (17)
Total
transactions
with owners of
the Company 1 66 - - (7) - - (177) (117) (16) (133)
Balance at 30
June 2021 120 3,343 114 (1) 15 (14) 169 7,037 10,783 - 10,783
1. Non-controlling interests relate to Vailog Sàrl and Sofibus Patrimoine
SA. During the period the remaining share capital of Sofibus Patrimoine SA was
acquired and is a 100% subsidiary of the Group at 30 June 2021.
For the six months ended 30 June 2020
Attributable to owners of the parent
Other reserves
Share- Translation, Total equity
Ordinary Capital Own based hedging and attributable Non-
share Share redemption shares payment other Merger Retained to owners of controlling Total
capital premium reserve held reserve reserve reserve earnings the parent interest(1) equity
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January 2020 109 2,554 114 (3) 29 2 169 4,703 7,677 - 7,677
Profit for the
period - - - - - - - 216 216 1 217
Other
comprehensive
income - - - - - 79 - - 79 (1) 78
Total
comprehensive
income for the
period - - - - - 79 - 216 295 - 295
Transactions
with owners of
the Company
Issues of shares 9 663 - - - - - - 672 - 672
Own shares
acquired - - - (1) - - - - (1) - (1)
Equity-settled
share-based
payment
transactions - - - 3 (11) - - 9 1 - 1
Dividends 1 54 - - - - - (158) (103) - (103)
Movement in
non-controlling
interest(1) - - - - - - - (1) (1) - (1)
Total
transactions
with owners of
the Company 10 717 - 2 (11) - - (150) 568 - 568
Balance at 30
June 2020 119 3,271 114 (1) 18 81 169 4,769 8,540 - 8,540
1. Non-controlling interests relate to Vailog Sàrl.
For the year ended 31 December 2020
Attributable to owners of the parent
Other reserves
Share- Translation, Total equity
Ordinary Capital Own based hedging and attributable Non-
share Share redemption shares payment other Merger Retained to owners of controlling Total
capital premium reserve held reserve reserve reserve earnings the parent interest(1) equity
(audited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
January 2020 109 2,554 114 (3) 29 2 169 4,703 7,677 - 7,677
Profit for the
year - - - - - - - 1,427 1,427 2 1,429
Other
comprehensive
income - - - - - 60 - - 60 - 60
Total
comprehensive
income for the
year - - - - - 60 - 1,427 1,487 2 1,489
Transactions
with owners of
the Company
Issues of shares 9 663 - - - - - - 672 - 672
Own shares
acquired - - - (2) - - - - (2) - (2)
Equity-settled
share-based
payment
transactions - - - 4 (7) - - 9 6 - 6
Dividends 1 60 - - - - - (240) (179) - (179)
Movement in
non-controlling
interest(1) - - - - - - - (2) (2) 10 8
Total
transactions
with owners of
the Company 10 723 - 2 (7) - - (233) 495 10 505
Balance at 31
December 2020 119 3,277 114 (1) 22 62 169 5,897 9,659 12 9,671
1. Non-controlling interests relate to Vailog Sàrl and Sofibus Patrimoine
SA.
CONDENSED GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2021
Half year to Year to 31
30 June Half year to December
2021 30 June 2020 2020
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
Cash flows from
operating
activities 14 168 107 233
Interest received 21 18 42
Dividends received 4 2 34
Interest paid (46) (45) (94)
Cost of new interest
rate derivatives
transacted - - (12)
Proceeds from early
close out of
interest rate
derivatives - - 12
Cost of early close
out of debt - - (11)
Tax (paid)/received (2) 2 (5)
Net cash received
from operating
activities 145 84 199
Cash flows from
investing
activities
Purchase and
development of
investment
properties (371) (614) (1,216)
Sale of investment
properties 350 53 159
Acquisition of other
interests in
property - (3) (4)
Purchase of plant and
equipment and
intangibles (5) (2) (5)
Acquisition of other
investments (3) (1) -
Investment and loans
to joint ventures (67) - (40)
Divestment and
repayment of loans
from joint ventures 11 - -
Net cash used in
investing
activities (85) (567) (1,106)
Cash flows from
financing
activities
Dividends paid to
ordinary
shareholders (90) (80) (179)
Proceeds from
borrowings 14 35 - 551
Repayment of
borrowings 14 (34) (2) (122)
Principal element of
lease payments (1) (1) (2)
Settlement of foreign
exchange
derivatives 34 (35) (55)
Purchase of
non-controlling
interest (12) - -
Proceeds from issue
of ordinary shares 1 672 672
Purchase of ordinary
shares (3) (1) (2)
Net cash (used
in)/generated from
financing
activities (70) 553 863
Net
(decrease)/increase
in cash and cash
equivalents (10) 70 (44)
Cash and cash
equivalents at the
beginning of the
period 89 133 133
Effect of foreign
exchange rate
changes (1) - -
Cash and cash
equivalents at the
end of the period 13 78 203 89
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed set of financial statements for the six months
ended 30 June 2021 were approved by the Board of Directors on 28
July 2021.
The condensed set of financial statements for the six months
ended 30 June 2021 is unaudited and does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. The financial information contained in this report for the
year ended 31 December 2020 does not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006 and has
been extracted from the statutory accounts, which were prepared in
accordance with International Accounting Standards (IAS) in
conformity with the requirements of the Companies Act 2006 and
EU-adopted International Financial Reporting Standards (IFRS) and
were delivered to the Registrar of Companies. The auditor's opinion
on these accounts was unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement made
under S498(2) or S498(3) of the Companies Act 2006. The condensed
set of financial statements included in this half-yearly report has
been prepared in accordance with both UK-adopted International
Accounting Standard 34 'Interim Financial Reporting', and the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority as well as EU-adopted International
Accounting Standard 34 'Interim Financial Reporting'.
On 31 December 2020 EU-adopted IFRS was brought into UK law and
became UK-adopted International Accounting Standards, with future
changes to IFRS being subject to endorsement by the UK Endorsement
Board. The consolidated financial statements transitioned to
UK-adopted international accounting standards for the financial
period beginning 1 January 2021. There were no impact or changes in
accounting policies from the transition. UK adopted International
Accounting Standards differs in certain respects from International
Financial Reporting Standards as adopted by the EU. The differences
have no material impact on the Group's condensed financial
statements for the periods presented, which therefore also comply
with International Reporting Standards as adopted by the EU.
The condensed set of financial statements have been prepared on
a going concern basis for a period of at least 12 months from the
date of approval of the financial statements. This is discussed
further in the Financial Review.
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest financial statements.
The following new accounting amendment became effective for the
financial year beginning on 1 January 2021:
- Interest Rate Benchmark Reform -- Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The Group did not have to change its accounting policies or make
retrospective adjustments as a result of this amendment.
The condensed set of financial statements are presented in
pounds sterling to the nearest million. In prior periods the
financial statements were presented in millions to one decimal
place, as a result the comparative figures for the six months ended
30 June 2020 and year ended 31 December 2020 have been represented
to the nearest million.
The principal exchange rates used to translate foreign currency
denominated amounts are:
Balance sheet: GBP1 = EUR1.17 (30 June 2020: GBP1 = EUR1.10; 31
December 2020: GBP1 = EUR1.12)
Income statement: GBP1 = EUR1.15 (30 June 2020: GBP1 = EUR1.14;
31 December 2020: GBP1 = EUR1.13)
The Group's business is not seasonal and the results relate to
continuing operations unless otherwise stated.
2. ADJUSTED PROFIT
Adjusted profit is a non-GAAP measure and is the Group's measure
of underlying profit, which is used by the Board and senior
management to measure and monitor the Group's income
performance.
It is based on the Best Practices Recommendations of European
Public Real Estate Association (EPRA), which calculate profit
excluding investment and development property revaluations and
gains or losses on disposals, changes in the fair value of
financial instruments and associated close-out costs and their
related taxation, as well as other permitted one-off items. Refer
to the Supplementary Notes for all EPRA adjustments.
The Directors may also exclude from the EPRA profit measure
additional items (gains and losses) which are considered by them to
be non-recurring, not in the ordinary course of business and
significant by virtue of size and nature. No non-EPRA adjustments
to underlying profit were made in the current or prior periods.
The following table provides a reconciliation of Adjusted profit
to IFRS profit:
Half year Half year Year to 31
to 30 June to 30 June December
Notes 2021 GBPm 2020 GBPm 2020 GBPm
Gross rental income 4 220 187 393
Property operating
expenses 5 (49) (42) (88)
Net rental income 171 145 305
Joint venture fee income 4 12 11 22
Administration expenses (27) (25) (52)
Share of joint ventures'
adjusted profit after
tax 6 32 29 61
Adjusted operating profit
before interest and tax 188 160 336
Net finance costs
(including adjustments) 8 (20) (19) (40)
Adjusted profit before
tax 168 141 296
Adjustments to reconcile
to IFRS:
Adjustments to the share
of profit from joint
ventures after tax(1) 6 178 6 175
Realised and unrealised
property gain 7 1,122 57 989
Gain on sale of trading
properties 1 - 1
Cost of early close out
of debt - - (11)
Net fair value
(loss)/gain on interest
rate swaps and other
derivatives 8 (56) 17 14
Total adjustments 1,245 80 1,168
Profit before tax 1,413 221 1,464
Tax
On Adjusted profit 9 (3) (2) (4)
In respect of adjustments 9 (50) (2) (31)
In respect of SIIC entry
charge(2) 9 (39) - -
Total tax adjustments (92) (4) (35)
Profit after tax before
non-controlling
interests 1,321 217 1,429
Non-controlling
interests:
Less: share of adjusted
profit attributable to
non-controlling
interest - - -
: share of adjustments
attributable to
non-controlling
interests (4) (1) (2)
Profit after tax and
non-controlling
interests 1,317 216 1,427
Of which:
Adjusted profit after tax
and non-controlling
interests 165 139 292
Total adjustments after
tax and non-controlling
interests 1,152 77 1,135
Profit attributable to
equity shareholders 1,317 216 1,427
1. A detailed breakdown of the adjustments to the share of profit from joint
ventures is included in Note 6.
2. In line with EPRA Best Practices Recommendations guidelines the tax charge
in respect of SIIC entry (detailed further in Note 9) has been excluded from
Tax on adjusted profit in the table above.
3. SEGMENTAL REPORTING
The Group's reportable segments are the geographical business
units: Greater London (UK), Thames Valley (UK), National Logistics
(UK), Northern Europe (principally Germany), Southern Europe
(principally France) and Central Europe (principally Poland), which
are managed and reported to the Board as separate and distinct
Business Units.
Share of Total
joint directly
Gross Net ventures' Adjusted owned Investments
rental rental Adjusted operating property in joint Capital
income income profit PBIT(2) assets ventures expenditure(3)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June
2021
Thames
Valley 43 40 - 39 2,249 - 15
National
Logistics 18 17 - 17 1,438 1 94
Greater
London 90 79 - 77 5,349 - 79
Northern
Europe 15 9 12 24 765 834 27
Southern
Europe 49 29 16 49 1,939 1,116 217
Central
Europe 5 2 11 15 157 517 1
Other(1) - (5) (7) (33) - (848) 5
Total 220 171 32 188 11,897 1,620 438
30 June
2020
Thames
Valley 41 38 - 37 1,784 - 10
National
Logistics 17 18 - 18 1,098 1 217
Greater
London 75 65 - 63 4,235 - 257
Northern
Europe 15 9 12 23 597 680 15
Southern
Europe 34 20 13 36 1,374 796 166
Central
Europe 5 2 10 14 149 484 3
Other(1) - (7) (6) (31) - (726) 2
Total 187 145 29 160 9,237 1,235 670
31 December 2020
Thames
Valley 84 78 - 76 1,997 - 57
National
Logistics 34 34 - 33 1,223 1 267
Greater
London 160 140 - 138 4,867 - 454
Northern
Europe 29 18 25 48 682 803 29
Southern
Europe 75 44 30 79 1,803 914 566
Central
Europe 11 4 22 30 151 496 4
Other(1) - (13) (16) (68) - (791) 5
Total 393 305 61 336 10,723 1,423 1,382
1. Other includes the corporate centre, SELP holding companies and costs
relating to the operational business which are not specifically allocated to a
geographical business unit. This includes the bonds issued by SELP Finance
S.à r.l, a Luxembourg entity.
2. A reconciliation of total Adjusted PBIT to the IFRS profit before tax is
provided in Note 2.
3. Capital expenditure includes additions and acquisitions of investment and
trading properties but does not include tenant incentives, letting fees and
rental guarantees. Part of the capital expenditure incurred is in response to
climate change including the reduction of the carbon footprint of the Group's
existing investment properties and developments. The "Other" category includes
non-property related spend, primarily IT.
4. REVENUE
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Rental income from
investment and
trading properties 190 161 336
Rent averaging 5 7 18
Service charge
income* 21 17 35
Management fees* 2 1 3
Surrender premiums
and dividend income
from property
related investments 2 1 1
Gross rental
income(1) 220 187 393
Joint venture fees -
management fees* 12 11 22
Proceeds from sale of
trading properties* 14 - 17
Total revenue 246 198 432
* The above income streams reflect revenue recognition under
IFRS 15 Revenue from Contracts with Customers and total GBP49
million (31 December 2020: GBP77 million; 30 June 2020: GBP29
million).
1. Net rental income of GBP171 million (31 December 2020: GBP305 million; 30
June 2020: GBP145 million) is calculated as gross rental income of GBP220
million (31 December 2020: GBP393 million; 30 June 2020: GBP187 million) less
total property operating expenses of GBP49 million (31 December 2020: GBP88
million; 30 June 2020: GBP42 million) shown in Note 5.
5. PROPERTY OPERATING EXPENSES
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Vacant property costs 3 2 3
Letting, marketing,
legal and professional
fees 5 4 10
Loss allowance and
impairment of
receivables 1 3 4
Service charge expense 21 17 35
Other expenses 5 3 9
Property management
expenses 35 29 61
Property administration
expenses(1) 19 17 36
Costs capitalised(2) (5) (4) (9)
Total property
operating expenses 49 42 88
Trading properties cost
of sales 13 - 16
Total costs 62 42 104
1. Property administration expenses predominantly relate to the employee staff
costs of personnel directly involved in managing the property portfolio.
2. Costs capitalised relate to staff costs of those internal employees
directly involved in developing the property portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Share of profit from joint ventures after tax
Half year to Half year to Year to 31
30 June 2021 30 June 2020 December 2020
GBPm GBPm GBPm
Revenue(1) 131 125 249
Gross rental income 131 118 242
Property operating
expenses:
-underlying property
operating expenses (6) (6) (12)
-vacant property costs (1) (1) (3)
-property management
fees(2) (10) (10) (19)
-service charge expense (27) (24) (48)
Net rental income 87 77 160
Administration expenses (2) (1) (3)
Net finance costs
(including adjustments) (13) (13) (25)
Adjusted profit before
tax 72 63 132
Tax (8) (5) (10)
Adjusted profit after tax 64 58 122
At share 32 29 61
Adjustments:
Profit on sale of
investment properties - - 2
Valuation surplus on
investment properties 435 21 424
Gain on sale of trading
properties - - -
Other investment income - - 5
Tax in respect of
adjustments (79) (10) (81)
Total adjustments 356 11 350
At share 178 6 175
Profit after tax 420 69 472
At share 210 35 236
Total comprehensive
income for the period 420 69 472
At share 210 35 236
1. Total revenue at 100% of GBP131 million (31 December 2020: GBP249 million;
30 June 2020: GBP125 million) includes: Gross rental income GBP131 million (31
December 2020: GBP242 million; 30 June 2020: GBP118 million) and proceeds from
sale of trading properties GBPnil (31 December 2020: GBP7 million; 30 June
2020: GBP7 million). Proceeds from sale of trading properties is presented net
of cost of sale and shown in the line 'Gain on sale of trading properties' in
the table above.
2. Property management fees paid to SEGRO.
6(ii) Summarised balance sheet information of the Group's share
of joint ventures
As at As at
30 June 2021 30 June 2020 As at 31 December
GBPm GBPm 2020 GBPm
Investment
properties 5,249 4,172 4,695
Other interests in
property - 2 -
Total non-current
assets 5,249 4,174 4,695
Other receivables 173 108 115
Cash and cash
equivalents 66 112 48
Total current assets 239 220 163
Total assets 5,488 4,394 4,858
Borrowings (1,701) (1,535) (1,574)
Deferred tax
liabilities (412) (272) (346)
Total non-current
liabilities (2,113) (1,807) (1,920)
Other liabilities (136) (118) (92)
Total current
liabilities (136) (118) (92)
Total liabilities (2,249) (1,925) (2,012)
Net assets 3,239 2,469 2,846
At share 1,620 1,235 1,423
In May 2021, SELP issued an 8 year, EUR500 million unsecured
bond at an annual coupon of 0.875 per cent as discussed further in
the Finance Review.
SEGRO provides certain services, including venture advisory and
asset management to the SELP joint venture and receives fees for
doing so. Performance fees may also be payable from SELP to SEGRO
based on its IRR subject to certain hurdle rates. The first fee of
GBP52 million was paid on the fifth anniversary of the inception of
SELP, October 2018, but 50 per cent of this is subject to clawback
based on performance over the period to the tenth anniversary,
October 2023. If performance has improved at this point, additional
fees might be triggered.
The IRR calculation to determine whether the hurdle rates will
be met when the performance period ends in October 2023 is an
estimation and sensitive to movements and assumptions in property
valuations over the remaining performance period. Due to the
estimation uncertainties that exist in calculating the IRR
management do not consider it highly probable there will not be a
significant reversal of the fee subject to clawback over the
remaining performance period. For these reasons, no performance fee
has been recognised by SEGRO (and no performance fee expense
recognised by SELP) in the Income Statement for the period ended 30
June 2021 (31 December 2020: GBPnil; 30 June 2020: GBPnil).
7. REALISED AND UNREALISED PROPERTY GAIN
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Profit on sale of
investment
properties 4 2 5
Valuation surplus on
investment
properties 1,118 57 971
Increase in provision
for impairment in
other interests in
property - - (1)
Valuation (deficit)/
surplus on other
investments - (2) 14
Total realised and
unrealised property
gain 1,122 57 989
The above table does not include realised gains on sale of
trading properties of GBP1 million (31 December 2020: GBP1 million;
30 June 2020: GBPnil) as detailed further in Note 2.
Valuation surpluses are discussed further in the Chief
Executive's Review.
8. NET FINANCE COSTS
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
Finance income GBPm GBPm GBPm
Interest received on
bank deposits and
related derivatives 16 18 27
Fair value gain on
interest rate swaps
and other
derivatives 7 20 23
Total finance income 23 38 50
Finance costs
Interest on
overdrafts, loans
and related
derivatives (37) (39) (68)
Cost of early close
out of debt - - (11)
Amortisation of issue
costs (1) (1) (3)
Interest on lease
liabilities (2) (1) (3)
Total borrowing costs (40) (41) (85)
Less amount
capitalised on the
development of
properties 4 4 7
Net borrowing costs (36) (37) (78)
Fair value loss on
interest rate swaps
and other
derivatives (63) (3) (9)
Total finance costs (99) (40) (87)
Net finance costs (76) (2) (37)
Net finance costs (including adjustments) in Adjusted profit
(see Note 2) are GBP20 million (31 December 2020: GBP40 million; 30
June 2020: GBP19 million). This excludes net fair value loss on
interest rate swaps and other derivatives of GBP56 million (31
December 2020: gain of GBP14 million; 30 June 2020: gain of GBP17
million) and cost of early close out of debt of GBPnil (31 December
2020: GBP11 million; 30 June 2020: GBPnil) in the table above.
9. TAX
9(i) Tax on profit
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Tax:
On Adjusted profit (3) (2) (4)
In respect of
adjustments (50) (2) (31)
In respect of SIIC
entry charge (39) - -
Total tax charge (92) (4) (35)
Current tax
Current tax charge (23) (2) (7)
Adjustments in respect
of earlier years - 4 4
SIIC entry charge (39) - -
Total current tax
(charge)/credit (62) 2 (3)
Deferred tax
Origination and
reversal of temporary
differences (2) (1) (3)
Released in respect of
property disposals in
the period 21 - 5
On valuation movements (48) (5) (39)
Total deferred tax in
respect of investment
properties (29) (6) (37)
Other deferred tax (1) - 5
Total deferred tax
charge (30) (6) (32)
Total tax charge on
profit on ordinary
activities (92) (4) (35)
During April 2021, the Group elected Sofibus Patrimoine S.A.
into the SIIC regime in France. The entry cost to the regime was
EUR45 million (GBP39 million) and is payable over a period of four
years, of which the first payment is due to be made during H2 2021.
The entire entry cost has been recognised in the H1 2021 Income
Statement.
The Group believes that its accruals for tax liabilities are
adequate for all open tax years based on its assessment of many
factors, including interpretations of tax laws and prior
experience.
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance
1 Balance Balance
January Exchange Acquisitions/ Recognised 30 June 30 June
2021 movement (disposals) in income 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Valuation surplus and
deficits on
properties/accelerated
tax allowances 84 (5) - 30 109 60
Deferred tax asset on
revenue losses - - - - - (1)
Others 3 - - - 3 2
Total deferred tax
liabilities 87 (5) - 30 112 61
10. DIVIDS
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Ordinary dividends
paid
Final dividend for
2020 @ 15.2 pence
per share 181 - -
Interim dividend for
2020 @ 6.9 pence per
share - - 82
Final dividend for
2019 @ 14.4 pence
per share - 158 158
181 158 240
The Board has declared an interim dividend of 7.4 pence per
ordinary share (2020: 6.9 pence). This dividend has not been
recognised in the condensed financial statements.
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average
number of shares in issue during the period and the net assets per
share calculations use the number of shares in issue at the period
end. Earnings per share calculations exclude 0.2 million shares
(0.4 million for the full year 2020 and 0.5 million for half year
2020) being the average number of shares held on trust during the
period for employee share schemes and net assets per share exclude
0.2 million shares (0.3 million for the full year 2020 and 0.3
million for the half year 2020) being the actual number of shares
held on trust for employee share schemes at period end.
11(i) Earnings per ordinary share (EPS)
Half year to 30 June
Half year to 30 June 2021 2020 Year to 31 December 2020
Pence Pence Pence
Earnings Shares per Earnings Shares per Earnings Shares per
GBPm million share GBPm million share GBPm million share
Basic EPS 1,317 1,194.1 110.3 216 1,108.1 19.5 1,427 1,149.8 124.1
Dilution
adjustments:
Employee share
schemes - 2.9 (0.3) - 4.4 (0.1) - 4.7 (0.5)
Diluted EPS 1,317 1,197.0 110.0 216 1,112.5 19.4 1,427 1,154.5 123.6
Basic EPS 1,317 1,194.1 110.3 216 1,108.1 19.5 1,427 1,149.8 124.1
Adjustments to
profit before
tax(1) (1,245) (104.3) (80) (7.3) (1,168) (101.6)
Tax in respect of
Adjustments 50 4.2 2 0.2 31 2.7
Tax in respect to
SIIC entry
charge 39 3.3 - - - -
Non-controlling
interest on
adjustments 4 0.3 1 0.1 2 0.2
Adjusted Basic
EPS 165 1,194.1 13.8 139 1,108.1 12.5 292 1,149.8 25.4
Adjusted Diluted
EPS 165 1,197.0 13.8 139 1,112.5 12.5 292 1,154.5 25.3
1. Details of adjustments are included in Note 2.
11(II) NET ASSET VALUE PER SHARE (NAV)
The EPRA Net Tangible Assets (NTA) metric is considered to be
most consistent with the nature of SEGRO's business as a UK REIT
providing long-term progressive and sustainable returns. EPRA NTA
acts as the primary measure of net asset value and is also referred
to as Adjusted Net Asset Value (or Adjusted NAV).
A reconciliation from IFRS NAV to Adjusted NAV is set out in the
table below along with the net asset per share metrics.
Table 4 of the supplementary notes provides a reconciliation for
each of the three EPRA net asset value metrics.
As at 30 June 2021 As at 30 June 2020 As at 31 December 2020
Equity Equity Equity
attributable Pence attributable Pence attributable Pence
to ordinary Shares per to ordinary Shares per to ordinary Shares per
shareholders million share shareholders million share shareholders million share
GBPm GBPm GBPm
Basic NAV 10,783 1,200.0 899 8,540 1,190.6 717 9,659 1,191.3 811
Dilution
adjustments:
Employee share
schemes - 2.5 (2) - 2.7 (1) - 3.4 (2)
Diluted NAV 10,783 1,202.5 897 8,540 1,193.3 716 9,659 1,194.7 809
Fair value
adjustment in
respect of
interest rate
derivatives
-- Group (1) - (68) (6) (61) (5)
Fair value
adjustment in
respect of
trading
properties --
Group - - 2 - 1 -
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Group(1) 55 5 30 2 42 3
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Joint
ventures(1) 100 8 67 6 86 7
Intangible
assets (8) (1) (2) - (2) -
Adjusted NAV
(EPRA NTA) 10,929 1,202.5 909 8,569 1,193.3 718 9,725 1,194.7 814
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating Adjusted NAV in line with option 3
of EPRA Best Practices Recommendations guidelines.
12. PROPERTIES
12(i) Investment properties
Completed Development Total
GBPm GBPm GBPm
At 1 January 2021 9,397 1,062 10,459
Exchange movement (91) (22) (113)
Property acquisitions 6 84 90
Additions to existing investment
properties 16 318 334
Disposals(2) (248) (2) (250)
Transfers on completion of development 126 (126) -
Revaluation surplus during the period 825 293 1,118
At 30 June 2021 10,031 1,607 11,638
Add tenant lease incentives, letting
fees and rental guarantees 137 - 137
Investment properties excluding head
lease liabilities at 30 June 2021 10,168 1,607 11,775
Add head lease liabilities (ROU
assets)(1) 75 - 75
Total investment properties at 30 June
2021 10,243 1,607 11,850
Total investment properties at 30 June
2020 8,169 1,039 9,208
1. At 30 June 2021 investment properties included GBP75 million (31 December
2020: GBP77 million; 30 June 2020: GBP75 million) for the head lease
liabilities recognised under IFRS 16.
2. Total disposals completed in H1 2021 of GBP154 million shown in the
Investment section of the Chief Executive's Review includes: Carrying value of
investment properties disposed by SEGRO Group of GBP250 million and profit
generated on disposal of GBP4 million (see Note 7); proceeds from the sale of
trading properties by SEGRO Group of GBP14 million (see Note 4); share of
joint venture investment properties disposal proceeds of GBPnil; carrying
value of lease incentives, letting fees and rental guarantees disposed by
SEGRO Group and joint venture (at share) of GBP3 million; and excludes 50 per
cent of the disposal proceeds for assets sold by SEGRO to SELP JV of GBP117m
(further discussed below).
Investment properties are stated at fair value based on external
valuations performed by professionally qualified, independent
valuers. The Group's wholly owned property portfolio and joint
venture properties were performed by CBRE Ltd (apart from two
assets valued by Knight Frank). The valuations conform to
International Valuation Standards and were arrived at by reference
to market evidence of the transaction prices paid for similar
properties. In estimating the fair value of the properties, the
valuers consider the highest and best use of the properties. All
investment property would be classified as level 3 fair value
measurements, there has been no change in the valuation technique
and no significant changes in the assumptions used during the
period. The valuation surplus recognised during the period is
discussed further in the Chief Executive's Review.
CBRE Ltd also undertake some professional and agency work on
behalf of the Group, although this is limited relative to the
activities provided by other advisors to the Group as a whole.
Sensitivity analysis
An increase/decrease to ERV will increase/decrease valuations,
while an increase/decrease to yield will decrease/increase
valuations. Management continue to consider a +/- 25bp change in
yield and a +/- 5% change in ERV to be reasonably possible changes
to the assumptions. A sensitivity analysis showing the impact on
valuations of changes in yields and ERV on the property portfolio
(including joint ventures at share) is shown below.
Impact on
Impact on valuation valuation of 5 %
of 25bp change in change in
nominal equivalent estimated rental
yield value (ERV)
Group total
completed
property
portfolio(1) Increase Decrease Increase Decrease
GBPm GBPm GBPm GBPm GBPm
30 June
2021 12,662 (685) 692 472 467
30 June
2020 10,112 (514) 460 373 (367)
31
December
2020 11,807 (616) 608 436 (431)
1. For further details see Table 6 of the supplementary notes.
There are interrelationships between all these inputs as they
are determined by market conditions. The existence of an increase
in more than one input would be to magnify the impact on the
valuation. The impact on the valuation will be mitigated by the
interrelationship of two inputs in opposite directions, e.g. an
increase in rent may be offset by an increase in yield.
Completed properties include buildings that are occupied or are
available for occupation. Development properties include land
available for development (land bank), land under development and
construction in progress.
At 30 June 2021 investment properties included GBP137 million
tenant lease incentives, letting fees and rent guarantees (31
December 2020: GBP136 million; 30 June 2020: GBP125 million).
The carrying value of investment properties situated on land
held under leaseholds amount to GBP183 million (excluding head
lease ROU assets) (31 December 2020: GBP179 million; 30 June 2020:
GBP168 million).
The disposals of completed properties during the period includes
properties with a carrying value of GBP233 million (31 December
2020: GBP92 million; 30 June 2020: GBPnil) sold to the SELP joint
venture.
12(ii) Trading properties
The carrying value of trading properties at 30 June 2021 was
GBP47 million (31 December 2020: GBP52 million; 30 June 2020: GBP29
million). Based on the fair value at 30 June 2021, the portfolio
has unrecognised surplus of GBPnil (31 December 2020: GBP1 million;
30 June 2020: GBP2 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
As at As at As at 31
30 June 2021 30 June 2020 December 2020
GBPm GBPm GBPm
In one year or less 1 - 1
In more than one year but
less than two 1 121 1
In more than two years
but less than five 210 82 218
In more than five years
but less than ten 909 933 934
In more than ten years 1,232 866 1,260
In more than one year 2,352 2,002 2,413
Total borrowings 2,353 2,002 2,414
Cash and cash equivalents (78) (203) (89)
Net borrowings 2,275 1,799 2,325
Total borrowings is
split between secured
and unsecured as
follows:
Secured (on land and
buildings) 13 3 14
Unsecured 2,340 1,999 2,400
Total borrowings 2,353 2,002 2,414
Currency profile of
total borrowings after
derivative instruments
Sterling (113) (16) 180
Euros 2,466 2,018 2,234
Total borrowings 2,353 2,002 2,414
Maturity profile of
undrawn borrowing
facilities
In one year or less 9 9 19
In more than one year
but less than two - - -
In more than two years 896 1,107 953
Total available undrawn
facilities 905 1,116 972
Fair value of financial
instruments
Book value of debt 2,353 2,002 2,414
Interest rate derivatives (1) (68) (61)
Foreign exchange
derivatives (19) 23 (7)
Book value of debt
including derivatives 2,333 1,957 2,346
Net fair market value 2,655 2,210 2,813
Mark to market adjustment
(pre-tax) 322 253 467
Fair value measurements recognised in the Balance Sheet
The financial instruments that are measured subsequent to
initial recognition at fair value are listed equity investments,
forward exchange and currency swap contracts, interest rate swaps
and interest rate caps. Investments in equity securities traded in
active markets are classified as level 1. All other financial
instruments would be classified as level 2 fair value measurements,
as defined by IFRS 13, being those derived from inputs other than
quoted prices (included within level 1) that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices). There were no transfers between
categories in the current or prior periods.
The fair values of financial assets and financial liabilities
are determined as follows:
-- Forward foreign exchange contracts are measured using quoted
forward exchange rates and yield curves derived from quoted
interest rates with maturities matching the contracts.
-- Interest rate swaps, currency swap contracts and interest
rate caps are measured at the present value of future cash flows
estimated and discounted based on the applicable yield curves
derived from quoted interest rates and the appropriate exchange
rate at the Balance Sheet date.
-- The fair value of non-derivative financial assets and
financial liabilities traded on active liquid markets is determined
with reference to the quoted market prices.
14. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
14(i) Reconciliation of cash generated from operations
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Operating profit 1,489 223 1,501
Adjustments for:
Depreciation of
property, plant and
equipment 2 2 4
Share of profit from
joint ventures after
tax (210) (35) (236)
Profit on sale of
investment
properties (4) (2) (5)
Revaluation surplus
on investment
properties (1,118) (57) (971)
Valuation
deficit/(surplus) on
other investments - 2 (14)
Other provisions 5 (2) 4
164 131 283
Changes in working
capital:
Decrease/(increase)
trading properties 4 (9) (20)
Increase in debtors
and tenant
incentives (1) (26) (52)
Increase in creditors 1 11 22
Net cash inflow
generated from
operations 168 107 233
14(ii) Analysis of net debt
Non-cash movements
At 1 At 30
January Cash Cash Exchange Other non-cash June
2021 inflow(1) Outflow(2) movement adjustments(3) 2021
GBPm GBPm GBPm GBPm GBPm GBPm
Bank loans
and loan
capital 2,431 35 (34) (60) - 2,372
Capitalised
finance
costs (17) - (3) - 1 (19)
Total
borrowings 2,414 35 (37) (60) 1 2,353
Cash in hand
and at bank (89) - 10 1 - (78)
Net debt 2,325 35 (27) (59) 1 2,275
1. Proceeds from borrowings of GBP35 million.
2. Cash outflow of GBP37 million, comprises the repayment of borrowings of
GBP34 million and capitalised costs of GBP3 million.
3. The other non-cash adjustments relate to the amortisation of issue costs
offset against borrowings.
15. RELATED PARTY TRANSACTIONS
There have been no undisclosed material changes in the related
party transactions as described in the last annual report, other
than those disclosed in Note 12 in this condensed set of financial
statements.
16. SUBSEQUENT EVENTS
On 5 July 2021 SEGRO entered into a binding agreement to sell a
portfolio of six Italian urban warehouses for EUR127 million. Five
of the properties were sold on 15 July 2021 and the sale of the
sixth property is expected to complete later this year following
practical completion of additional works.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
Half year to
Half year to 30 June Year to 31
30 June 2021 2020 December 2020
Pence Pence
per per Pence per
Notes GBPm share GBPm share GBPm share
EPRA Earnings Table 2 165 13.8 139 12.5 292 25.4
EPRA NTA (Adjusted
NAV) Table 4 10,929 909 8,569 718 9,725 814
EPRA NRV Table 4 11,868 987 9,282 778 10,571 885
EPRA NDV Table 4 10,432 868 8,290 695 9,155 766
EPRA net initial
yield Table 6 3.5% 3.7% 3.8%
EPRA 'topped up'
net initial yield Table 6 3.8% 4.0% 4.1%
EPRA vacancy rate Table 7 4.3% 5.2% 3.9%
EPRA cost ratio
(including vacant
property costs) Table 8 19.8% 21.2% 21.1%
EPRA cost ratio
(excluding vacant
property costs) Table 8 18.4% 20.0% 20.1%
TABLE 2: INCOME STATEMENT, PROPORTIONALLY CONSOLIDATED
Half year to 30 June Half year to 30 June Year to 31 December
2021 2020 2020
Group JV Total Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Gross rental income 2, 6 220 66 286 187 59 246 393 121 514
Property operating
expenses 2, 6 (49) (18) (67) (42) (16) (58) (88) (31) (119)
Net rental income 171 48 219 145 43 188 305 90 395
Joint venture fee
income(1) 2 12 (5) 7 11 (5) 6 22 (10) 12
Administration expenses 2 (27) (1) (28) (25) (1) (26) (52) (2) (54)
Adjusted operating profit
before interest and tax 156 42 198 131 37 168 275 78 353
Net finance costs
(including adjustments) 2, 6 (20) (6) (26) (19) (6) (25) (40) (12) (52)
Adjusted profit before
tax 136 36 172 112 31 143 235 66 301
Tax on adjusted profit 2, 6 (3) (4) (7) (2) (2) (4) (4) (5) (9)
Adjusted earnings before
non-controlling
interests 133 32 165 110 29 139 231 61 292
Non-controlling interest
on adjusted profit - - - - - - - - -
Adjusted/EPRA earnings
after tax and
non-controlling
interests 133 32 165 110 29 139 231 61 292
Number of shares, million 1,194.1 1,108.1 1,149.8
Adjusted/EPRA EPS, pence
per share 13.8 12.5 25.4
Number of shares, million 1,197.0 1,112.5 1,154.5
Adjusted/EPRA EPS, pence
per share -- diluted 13.8 12.5 25.3
1. Joint venture fee income includes the cost of such fees borne by the joint
ventures which are shown in Note 6 within net rental income.
As discussed in Note 2 there were no non-EPRA adjustments to
underlying profit made in the current period or prior periods,
therefore Adjusted earnings is equal to EPRA earnings in the table
above.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
As at 30 June 2021 As at 30 June 2020 As at 31 December 2020
Group JV Total Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment
properties 12, 6 11,850 2,624 14,474 9,208 2,086 11,294 10,671 2,348 13,019
Trading
properties 12, 6 47 - 47 29 - 29 52 - 52
Total
properties 11,897 2,624 14,521 9,237 2,086 11,323 10,723 2,348 13,071
Investment in
joint
ventures 6 1,620 (1,620) - 1,235 (1,235) - 1,423 (1,423) -
Other net
liabilities (459) (187) (646) (133) (139) (272) (162) (162) (324)
Net borrowings 13,6 (2,275) (817) (3,092) (1,799) (712) (2,511) (2,325) (763) (3,088)
Total
shareholders'
equity(1) 10,783 - 10,783 8,540 - 8,540 9,659 - 9,659
EPRA
adjustments 11 146 29 66
Adjusted NAV 11 10,929 8,569 9,725
Number of
shares,
million 11 1,202.5 1,193.3 1,194.7
Adjusted NAV
pence per
share 11 909 718 814
1. After non-controlling interests.
Loan to value of 21 per cent at 30 June 2021 is calculated as
net borrowings of GBP3,092 million divided by total properties
(excluding head lease ROU asset of GBP75 million) of GBP14,446
million (30 June 2020: 22 per cent, GBP2,511 million net borrowings
and GBP11,248 million total properties; 31 December 2020: 24 per
cent, GBP3,088 million net borrowings and GBP12,994 million total
properties).
TABLE 4: EPRA NET ASSET MEASURES
The European Public Real Estate Association ('EPRA') best
practice recommendations (BPR) for financial disclosures by public
real estate companies sets out three net asset value measures: EPRA
net tangible assets (NTA), EPRA net reinstatement value (NRV) and
EPRA net disposal value (NDV).
The EPRA Net Tangible Assets (NTA) metric is considered to be
most consistent with the nature of SEGRO's business as a UK REIT
providing long-term progressive and sustainable returns. EPRA NTA
acts as the primary measure of net asset value and is also referred
to as Adjusted Net Asset Value (or Adjusted NAV).
A reconciliation of the three EPRA NAV metrics from IFRS NAV is
shown in the table below.
EPRA measures
EPRA NTA
As at 30 June 2021 (Adjusted NAV) EPRA NRV EPRA NDV
GBPm GBPm GBPm
Equity attributable to ordinary
shareholders 10,783 10,783 10,783
Fair value adjustment in respect of
interest rate derivatives --
Group (1) (1) -
Deferred tax in respect of
depreciation and valuation
surpluses -- Group(1) 55 110 -
Deferred tax in respect of
depreciation and valuation
surpluses -- Joint ventures(1) 100 200 -
Intangible assets (8) - -
Fair value adjustment in respect of
debt -- Group - - (322)
Fair value adjustment in respect of
debt -- Joint ventures - - (29)
Real estate transfer tax(2) - 776 -
Net assets 10,929 11,868 10,432
Diluted shares (million) 1,202.5 1,202.5 1,202.5
Diluted net assets per share 909 987 868
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
EPRA measures
EPRA NTA
As at 30 June 2020 (Adjusted NAV) EPRA NRV EPRA NDV
GBPm GBPm GBPm
Equity attributable to ordinary
shareholders 8,540 8,540 8,540
Fair value adjustment in respect of
interest rate derivatives --
Group (68) (68) -
Fair value adjustment in respect of
trading properties -- Group 2 2 2
Deferred tax in respect of
depreciation and valuation
surpluses -- Group(1) 30 60 -
Deferred tax in respect of
depreciation and valuation
surpluses -- Joint ventures(1) 67 134 -
Intangible assets (2) - -
Fair value adjustment in respect of
debt -- Group - - (253)
Fair value adjustment in respect of
debt -- Joint ventures - - 1
Real estate transfer tax(2) - 614 -
Net assets 8,569 9,282 8,290
Diluted shares (million) 1,193.3 1,193.3 1,193.3
Diluted net assets per share 718 778 695
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
EPRA measures
EPRA NTA
As at 31 December 2020 (Adjusted NAV) EPRA NRV EPRA NDV
GBPm GBPm GBPm
Equity attributable to ordinary
shareholders 9,659 9,659 9,659
Fair value adjustment in respect of
interest rate derivatives --
Group (61) (61) -
Fair value adjustment in respect of
trading properties -- Group 1 1 1
Deferred tax in respect of
depreciation and valuation
surpluses -- Group(1) 42 84 -
Deferred tax in respect of
depreciation and valuation
surpluses -- Joint ventures(1) 86 171 -
Intangible assets (2) - -
Fair value adjustment in respect of
debt -- Group - - (467)
Fair value adjustment in respect of
debt -- Joint ventures - - (38)
Real estate transfer tax(2) - 717 -
Net assets 9,725 10,571 9,155
Diluted shares (million) 1,194.7 1,194.7 1,194.7
Diluted net assets per share 814 885 766
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
TABLE 5: EPRA EARNINGS
Half year to Half year to Year to 31
30 June 2021 30 June 2020 December
Notes GBPm GBPm 2020 GBPm
Earnings per IFRS
income statement 1,317 216 1,427
Adjustments to
calculate EPRA
Earnings,
exclude:
Valuation surplus
on investment
properties 7 (1,118) (57) (971)
Profit on sale of
investment
properties 7 (4) (2) (5)
Gain on sale of
trading
properties 7 (1) - (1)
Increase in
provision for
impairment of
other interests in
property 7 - - 1
Valuation
deficit/(surplus)
on other
investments 7 - 2 (14)
Tax on profits on
disposals(1) 29 (4) -
Costs of early
close out of debt 8 - - 11
Net fair value
loss/(gain) on
interest rate
swaps and other
derivatives 8 56 (17) (14)
Deferred tax in
respect of EPRA
adjustments(1) 21 6 31
Tax charge in
respect of SIIC
entry 9 39 - -
Adjustments to the
share of profit
from joint
ventures after
tax 6 (178) (6) (175)
Non-controlling
interests in
respect of the
above 2 4 1 2
EPRA earnings 165 139 292
Basic number of
shares, million 11 1,194.1 1,108.1 1,149.8
EPRA Earnings per
Share (EPS) 13.8 12.5 25.4
Company specific
adjustments:
Non-EPRA
adjustments 2 - - -
Adjusted earnings 165 139 292
Adjusted EPS 13.8 12.5 25.4
1. Total tax charge in respect of adjustments per Note 2 of GBP50 million (H1
2020: GBP2 million, FY 2020: GBP31 million) comprises tax charge on profits on
disposals of GBP29 million (H1 2020: credit GBP4 million, FY 2020: GBPnil) and
deferred tax charge of GBP21 million (H1 2020: GBP6 million, FY 2020: GBP31
million).
TABLE 6: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Combined property portfolio Continental
including joint ventures at UK Europe Total
share -- 30 June 2021 Notes GBPm GBPm GBPm
Total properties per financial
statements Table 3 9,036 5,485 14,521
Less head lease ROU assets 12 - (75) (75)
Combined property portfolio per
external valuers' report(4) 9,036 5,410 14,446
Less development properties
(investment, trading and joint
venture) (928) (856) (1,784)
Net valuation of completed
properties 8,108 4,554 12,662
Add notional purchasers' costs 549 227 776
Gross valuation of completed
properties including notional
purchasers' costs A 8,657 4,781 13,438
Income
Gross passing rents(1) 288 189 477
Less irrecoverable property
costs (5) (7) (12)
Net passing rents B 283 182 465
Adjustment for notional rent in
respect of rent frees 22 21 43
Topped up net rent C 305 203 508
Including fixed/minimum
uplifts(2) 10 - 10
Total topped up net rent 315 203 518
Yields -- 30 June 2021
EPRA net initial yield(3) B/A 3.3% 3.8% 3.5%
EPRA topped up net initial
yield(3) C/A 3.5% 4.2% 3.8%
True net equivalent yield 4.1% 4.4% 4.2%
1. Gross passing rent excludes short term lettings and licences.
2. Certain leases contain clauses which guarantee future rental increases,
whereas most leases contain five yearly, upwards-only rent review clauses (UK)
or indexation clauses (Continental Europe).
3. In accordance with the Best Practices Recommendations of EPRA.
4. Total assets under management of GBP17,071 million includes Combined
property portfolio (including JV at 50% share) of GBP14,446 million plus 50%
of JV properties not owned but under management of GBP2,625 million.
TABLE 7: EPRA VACANCY RATE
Half year to Half year to Year to
30 June 2021 30 June 2020 31 December 2020
GBPm GBPm GBPm
Annualised potential
rental value of
vacant premises 24 27 22
Annualised potential
rental value for the
completed property
portfolio 567 518 561
EPRA vacancy rate(1) 4.3% 5.2% 3.9%
1. EPRA vacancy rate has been calculated using the figures presented in the
table above in millions accurate to one decimal place.
TABLE 8: TOTAL COST RATIO / EPRA COST RATIO
Half year to Half year to Year to 31
30 June 2021 30 June 2020 December
Total cost ratio Notes GBPm GBPm 2020 GBPm
Costs
Property operating
expenses(1) 5 49 42 88
Administration
expenses 27 25 52
Share of joint
venture property
operating and
administration
expenses(2) 6 24 21 43
Less:
Joint venture
property
management fee
income, service
charge income,
management fees
and other costs
recovered through
rents but not
separately
invoiced(3) (51) (43) (88)
Total costs (A) 49 45 95
Gross rental
income
Gross rental income 4 220 187 393
Share of joint
venture property
gross rental
income 6 66 59 121
Less:
Service charge
income, management
fees and other
costs recovered
through rents but
not separately
invoiced(3) (39) (32) (66)
Total gross rental
income (B) 247 214 448
Total cost ratio
(A)/(B)(4) 19.8% 21.2% 21.1%
Total costs (A) 49 45 95
Share-based
payments (6) (5) (10)
Total costs after
share based
payments (C) 43 40 85
Total cost ratio
after share based
payments
(C)/(B)(4) 17.4% 18.6% 18.8%
EPRA cost ratio
Total costs (A) 49 45 95
Non-EPRA
adjustments - - -
EPRA total costs
including vacant
property costs
(D) 49 45 95
Group vacant
property costs (3) (2) (3)
Share of joint
venture vacant
property costs (1) (1) (2)
EPRA total costs
excluding vacant
property costs
(E) 45 42 90
Total gross rental
income (B) 247 214 448
Total EPRA costs
ratio (including
vacant property
costs) (D)/(B)(4) 19.8% 21.2% 21.1%
Total EPRA costs
ratio (excluding
vacant property
costs) (E)/(B)(4) 18.4% 20.0% 20.1%
1. Property operating expenses are net of costs capitalised in accordance with
IFRS of GBP5 million (H1 2020: GBP4 million, FY 2020: GBP9 million) (see Note
5 for further detail on the nature of costs capitalised).
2. Share of joint venture property operating and administration expenses after
deducting costs related to performance and other fees.
3. Total deduction of GBP51 million (H1 2020: GBP43 million, FY 2020: GBP88
million) from costs includes: joint venture management fees income of GBP12
million (H1 2020: GBP11 million, FY 2020: GBP22 million), service charge
income including joint ventures of GBP35 million (H1 2020: GBP29 million, FY
2020: GBP59 million) and management fees and other costs recovered through
rents but not separately invoiced, including joint ventures, of GBP4 million
(H1 2020: GBP3 million, FY 2020: GBP7 million). These items have been
represented as an offset against costs rather than a component of income in
accordance with EPRA BPR Guidelines as they are reimbursing the Group for
costs incurred. Gross rental income of GBP220 million (H1 2020: GBP187
million, FY 2020: GBP393 million) does not include joint venture management
fees income of GBP12 million (H1 2020: GBP11 million, FY 2020: GBP22 million)
and these fees are not required to be included in the total deduction to
income of GBP39 million (H1 2020: GBP32 million, FY 2020: GBP66 million).
4. Cost ratio percentages have been calculated using the figures presented in
the table above in millions accurate to one decimal place.
GLOSSARY OF TERMS
Completed portfolio: The completed investment properties and the
Group's share of joint ventures' completed investment properties.
Includes properties held throughout the period, completed
developments and properties acquired during the period.
Development pipeline: The Group's current programme of
developments authorised or in the course of construction at the
balance sheet date (current development pipeline), together with
potential schemes not yet commenced on land owned or controlled by
the Group (future development pipeline). Within the future
development pipeline are pre-let development projects which
management expects to approve over the next twelve months or which
have been approved but are subject to final planning approval or
other conditions being met ("near-term" development pipeline).
EPRA: The European Public Real Estate Association, a real estate
industry body, which has issued Best Practices Recommendations
Guidelines in order to provide consistency and transparency in real
estate reporting across Europe.
Estimated cost to completion: Costs still to be expended on a
development or redevelopment to practical completion, including
attributable interest.
Estimated rental value (ERV): The estimated annual market rental
value of lettable space as determined biannually by the Group's
valuers. This will normally be different from the rent being
paid.
Gearing: Net borrowings divided by total shareholders' equity
excluding intangible assets and deferred tax provisions.
Gross rental income: Contracted rental income recognised in the
period in the Income Statement, including surrender premiums and
service charge income. Lease incentives, initial costs and any
contracted future rental increases are amortised on a straight line
basis over the lease term. Service charge expenses are captured in
"Property Operating Expenses".
Headline rent: The annual rental income currently receivable on
a property as at the balance sheet date (which may be more or less
than the ERV) ignoring any rent-free period.
Hectares (Ha): The area of land measurement used in this
analysis. The conversion factor used, where appropriate, is 1
hectare = 2.471 acres.
Investment property: Completed land and buildings held for
rental income return and/or capital appreciation.
Joint venture: An entity in which the Group holds an interest
and which is jointly controlled by the Group and one or more
partners under a contractual arrangement whereby decisions on
financial and operating policies essential to the operation,
performance and financial position of the venture require each
partner's consent.
Loan to value (LTV): Net borrowings divided by the carrying
value of total property assets (investment, owner occupied and
trading properties and excludes head lease ROU asset). This is
reported on a 'look--through' basis (including joint ventures at
share) except where stated.
MSCI: MSCI Real Estate calculates indices of real estate
performance around the world.
Net initial yield: Passing rent less non recoverable property
expenses such as empty rates, divided by the property valuation
plus notional purchasers' costs. This is in accordance with EPRA's
Best Practices Recommendations.
Net rental income: Gross rental income less ground rents paid,
net service charge expenses and property operating expenses.
Net true equivalent yield: The internal rate of return from an
investment property, based on the value of the property assuming
the current passing rent reverts to ERV and assuming the property
becomes fully occupied over time. Rent is assumed to be paid
quarterly in advance, in line with standard UK lease terms.
Passing rent: The annual rental income currently receivable on a
property as at the Balance Sheet date (which may be more or less
than the ERV). Excludes rental income where a rent free period is
in operation. Excludes service charge income.
Pre-let: A lease signed with an occupier prior to commencing
construction of a building.
REIT: A qualifying entity which has elected to be treated as a
Real Estate Investment Trust for tax purposes. In the UK, such
entities must be listed on a recognised stock exchange, must be
predominantly engaged in property investment activities and must
meet certain ongoing qualifications. SEGRO plc and its UK
subsidiaries achieved REIT status with effect from 1 January
2007.
Rent-free period: An incentive provided usually at commencement
of a lease during which a customer pays no rent. The amount of rent
free is the difference between passing rent and headline rent.
Rent roll: See Passing Rent.
SELP: SEGRO European Logistics Partnership, a 50-50 joint
venture between SEGRO and Public Sector Pension Investment Board
(PSP Investments).
SIIC: Sociétés d'investissements Immobiliers Cotées are the
French equivalent of UK Real Estate Investment Trusts (see
REIT).
Speculative development: Where a development has commenced prior
to a lease agreement being signed in relation to that
development.
Square metres (sq m): The area of buildings measurements used in
this analysis. The conversion factor used, where appropriate, is
one square metre = 10.7639 square feet.
Take-back: Rental income lost due to lease expiry, exercise of
break option, surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted to
include notional rent in respect of let properties which are
subject to a rent free period at the valuation date. This is in
accordance with EPRA's Best Practices Recommendations.
Total accounting return (TAR): A measure of the growth in Net
Asset Value (NAV) per share calculated as change in Adjusted NAV
per share in the period plus dividend per share paid in the period,
expressed as a percentage of Adjusted NAV per share at the
beginning of the period.
Total property return (TPR): A measure of the ungeared return
for the portfolio and is calculated as the change in capital value,
less any capital expenditure incurred, plus net income, expressed
as a percentage of capital employed over the period concerned, as
calculated by MSCI Real Estate and excluding land.
Total shareholder return (TSR): A measure of return based upon
share price movement over the period and assuming reinvestment of
dividends.
Trading property: Property being developed for sale or one which
is being held for sale after development is complete.
Yield on cost: The expected gross yield based on the estimated
current market rental value (ERV) of the developments when fully
let, divided by the book value of the developments at the earlier
of commencement of the development or the balance sheet date, plus
future development costs and estimated finance costs to
completion.
Yield on new money: The yield on cost excluding the book value
of land if the land is owned by the Group in the reporting period
prior to commencement of the development.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20210728005971/en/
CONTACT:
SEGRO plc
SOURCE: SEGRO PLC
Copyright Business Wire 2021
(END) Dow Jones Newswires
July 29, 2021 02:00 ET (06:00 GMT)
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