TIDMSGRO
RNS Number : 1399V
SEGRO PLC
05 August 2020
5 august 2020
RESULTS FOR THE six monthsED 30 june 2020
Prime warehousing portfolio showing growth and resilience
with the outlook strengthened by the acceleration of structural
trends
Commenting on the results, David Sleath, Chief Executive,
said:
"SEGRO's strong and resilient business has continued to grow in
the first half of 2020 despite the unprecedented disruption caused
by Covid-19, in no small part thanks to the dedication and
commitment of our people. Our focus on our customers, suppliers and
local communities has allowed us to offer targeted support where
needed.
"The impacts of the pandemic are accelerating the adoption of
technology, particularly e-commerce, across society and have
resulted in a renewed focus by many occupiers on the critical
importance of efficient, resilient logistics supply chains. These
factors play to the quality of our portfolio and should continue to
support and enhance occupier and investor demand for our prime
warehouses, both in the UK and, increasingly, on the Continent.
"Our existing portfolio has performed well and our development
programme has expanded, with a pipeline of additional near-term
pre-let projects which is approximately twice the size of a year
ago. This, combined with our well-located land bank, means we are
in a strong position to make further progress in the second half of
the year and beyond."
Highlights:
-- Adjusted pre-tax profit of GBP140.4 million up 6.5 per cent
compared with the prior year (H1 2019: GBP131.8 million). A djusted
EPS is 12.5 pence (H1 2019: 12.2 pence) and Adjusted NAV per share
up 2.6 per cent to 718 pence (31 December 2019: 700 pence), in part
due to a 0.7 per cent (H1 2019: 3.5 per cent) increase in the
valuation of the portfolio.
-- Good lettings and asset management performance supported by
continued high levels of occupier demand. GBP33.7 million of new
headline rent captured in the period, including GBP18.8 million of
new pre-let agreements, tracking in line with 2019 levels.
-- Continuing to invest for growth with net capital expenditure
of GBP631 million in the period through asset acquisitions,
development projects and land purchases. Future earnings prospects
underpinned by 1.3 million sq m of development projects under
construction or in advanced pre-let discussions, equating to an
additional GBP78 million of potential rent, 86 per cent of which
relates to pre-lets.
-- Over GBP1 billion of new equity and debt financing, helping
to strengthen the balance sheet for further, development-led
growth. LTV of 22 per cent at 30 June 2020.
-- The GBP10 million SEGRO Centenary Fund, launched in April,
has already awarded GBP771,000 to projects across the UK and
Continental Europe with GBP465,000 of additional support to help
alleviate pressures caused by the pandemic.
-- Interim dividend increased by 9.5 per cent to 6.9 pence (2019
interim dividend: 6.3 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
30 June 6 months to Change
Income statement metrics 2020 30 June 2019 per cent
-------- -------------
Adjusted(1) profit before tax (GBPm) 140.4 131.8 6.5
IFRS profit before tax (GBPm) 220.9 410.8 (46.2)
Adjusted(2) earnings per share (pence) 12.5 12.2 2.5
IFRS earnings per share (pence) 19.5 37.1 (47.4)
Dividend per share (pence) 6.9 6.3 9.5
----------------------------------------- -------- ------------- ---------
30 June 31 December Change
Balance sheet metrics 2020 2019 per cent
------- -----------
Portfolio valuation (SEGRO share, GBPm) 11,246 10,251 0.7(3)
Adjusted net asset value per share (4
5) (pence, diluted) 718 700 2.6
IFRS net asset value per share (pence,
diluted) 716 697 2.7
Net debt (SEGRO share, GBPm) 2,511 2,484 -
Loan to value ratio including joint
ventures at share
(per cent) 22 24 -
------------------------------------------ ------- ----------- ---------
FINANCIAL AND OPERATING HIGHLIGHTS(A)
Strong occupier demand continues to support operational
performance
-- Secured GBP33.7 million of new headline rent in the period
(H1 2019: GBP33.3 million). This was driven by new pre-lets of
GBP18.8 million (H1 2019: GBP15.2 million), net rent roll growth of
GBP2.3 million on existing space (H1 2019: GBP8.4 million) and
lettings of recently completed speculatively developed space.
-- Potential rent of GBP22 million from development completions,
64 per cent of which have been leased as at 30 June 2020. All
developments designed to achieve high standards of sustainability
(BREEAM Very Good or better, or equivalent local standard).
-- Rents agreed in reviews and renewals were on average 10.4 per
cent higher than previous passing rents. Like-for-like net rental
income growth was 2.0 per cent (UK: 2.9 per cent; Continental
Europe: 0.5 per cent) excluding provisions for potential bad debts
of GBP3.0 million against rent billed but not yet paid.
-- Vacancy rate remains low at 5.2 per cent (31 December 2019:
4.0 per cent), a slight and anticipated increase since year end due
mainly to a number of recently completed speculatively developed
schemes.
-- Customer retention remains high at 88 per cent, reflecting
both the quality of our product and customer service.
Valuation gains across the portfolio despite the uncertainty
caused by the Covid-19 pandemic
-- Portfolio capital valuation surplus of 0.7 per cent (UK: 0.1
per cent; Continental Europe: 1.8 per cent). Valuation gains
primarily driven by asset management, development gains and some
rental value growth (UK: 1.0 per cent; Continental Europe: 0.4 per
cent) with yields generally flat.
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. 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.
4. 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.
5. Adjusted net asset value is in line with EPRA Net Tangible
Assets (NTA) which was introduced for accounting periods starting
from 1 January 2020 (see Table 4 in the Supplementary Notes for a
NAV reconciliation). The 31 December 2019 adjusted net asset value
has been restated to align with the definition of EPRA NTA.
Calculations for EPRA performance measures are shown in the
Supplementary Notes to the condensed financial information.
A. Figures quoted on pages 1 to 15 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.
Acceleration of the mostly pre-let development pipeline,
together with tactical acquisitions, resulting in higher net
capital investment
-- Net capital investment of GBP631 million, comprising GBP223
million of asset acquisitions, GBP467 million of new land and
development capital expenditure, offset by GBP59 million of
proceeds from disposals.
-- GBP303 million of further capex to be invested in completing
development projects under construction, representing GBP45 million
of potential rent, of which 85 per cent has been secured. Expected
completions in the second half of 2020 will generate GBP25 million
of potential rent, of which GBP22 million has been secured.
-- 'Near-term' pre-let projects are expected to commence in the
coming months, with potential capex of GBP311 million and GBP33
million of associated rent. Our landbank is capable of supporting
another 2.3 million sq m of space, equating to a further estimated
GBP129 million of future additional rent.
-- Total spend on development capex and infrastructure for the
year is expected to be in excess of GBP800 million , comprising
land acquisitions and infrastructure of more than GBP300 million
and development capex of more than GBP500 million.
Balance sheet positioned for further development-led growth,
following equity placing and debt refinancing.
-- Equity placing of GBP680 million completed in June 2020,
providing capacity to continue to invest in the accretive
development pipeline and future land acquisitions.
-- EUR450 million of US Private Placement notes with a blended
coupon of 1.6 per cent and average maturity of 17 years agreed in
July, to be drawn down in the fourth quarter.
-- LTV ratio of 22 per cent (31 December 2019: 24 per cent) and
GBP1.5 billion of cash and undrawn facilities.
OUTLOOK
The Covid-19 pandemic and resulting lockdown measures enforced
by governments across Europe have had wide-ranging implications for
our diverse customer base. Many have seen demand for their products
and services rise sharply, whilst some others have suffered
short-term cash flow challenges.
It remains to be seen how long these immediate effects will last
but it is clear that the structural trends that have been
contributing to occupier demand for our space over recent years
have strengthened as a result of the pandemic. This is already
starting to show in elevated take-up levels: for example UK
logistics take-up hit record highs in the first six months of the
year, 44 per cent higher than in the same period last year
according to data recently published by CBRE.
E-commerce penetration has accelerated markedly across all our
markets, there is a renewed focus on the efficiency and resilience
of supply chains, and the demand for data centre space is
increasing as a result of the need for additional data storage to
support remote working and video streaming services. These themes
should drive both occupier and investor demand for high quality
warehousing in core logistics and urban locations.
Our development programme has increased during the period with
over 800,000 sq m of developments under construction, the majority
of which have been pre-let, and a near-term pipeline of potential
pre-lets that is roughly twice the size as at the same stage last
year. This increase in pre-letting activity is in contrast to a
reduction in speculative development starts across our markets
which should be positive for the future supply situation.
Whilst we remain cognisant of the macro-economic risks resulting
from the Covid-19 pandemic and are alert to the possibility of
further measures to combat the spread of the virus, we remain
confident of the prospects for our business. We anticipate that our
strong development pipeline and our active approach to asset
management will continue to drive sustainable earnings and dividend
growth in the years ahead.
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available
from 08:30 (UK time) at:
https://edge.media-server.com/mmc/p/6r6bccii
The webcast will be available for replay at SEGRO's website at:
http://www.segro.com/investors by the close of business.
A conference call facility will be available at 08:30 (UK time) on
the following number:
Dial-in: +44 (0) 207 1928 338
Access code: 4180559 - SEGRO Half Year Results
A video interview with David Sleath and Soumen Das discussing
the results is now available to view on www.segro.com , together
with this announcement, the H1 2020 Property Analysis Report and
other information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Mob: +44 (0) 7771 773
(Chief Financial Officer) 134
Tel: + 44 (0) 20 7451
9110
Claire Mogford Mob: +44 (0) 7710 153
(Head of Investor Relations) 974
Tel: +44 (0) 20 7451
9048
FTI Consulting Richard Sunderland / Claire Turvey Tel: +44 (0) 20 3727
and 1000
Eve Kirmatzis
-------------- ---------------------------------- ------------------------
FINANCIAL CALAR
2020 interim dividend ex-div date 13 August 2020
2020 interim dividend record date 14 August 2020
2020 interim dividend scrip dividend price announced 20 August 2020
Last date for scrip dividend elections 3 September 2020
2020 interim dividend payment date 24 September 2020
2020 Third Quarter Trading Update 21 October 2020
Full Year 2020 Results 19 February 2021
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), and a leading
owner, manager and developer of modern warehouses and light
industrial property. It owns or manages 8.1 million square metres
of space (88 million square feet) valued at GBP13.3 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.
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
performances, 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 SEGRO's shareholders 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. Other than in accordance
with its legal or regulatory obligations (including under the
Financial Conduct Authority's Disclosure Guidance and Transparency
Rules), SEGRO does not undertake to update forward-looking
statements to reflect any 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
forecast. The information in this announcement does not constitute
an offer to sell or an invitation to buy securities in SEGRO or an
invitation or inducement to engage in any 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
Overview
The Covid-19 pandemic has had a profound effect on the world in
which we live and work. The lockdown measures introduced by
governments to contain the spread of the virus caused wide-spread
disruption which initially resulted in short-term cashflow issues
for some of our customers and the temporary suspension of certain
development projects and investment markets.
Our half year performance is a testament to the hard work of
everyone at SEGRO, not just over the past few months in dealing
with the immediate impacts of the virus, but also over the past
decade as we have re-positioned our portfolio into one which we
believed would be, and thus far has been, resilient in challenging
times.
Our portfolio of high-quality, modern warehouses in strategic
locations and our robust balance sheet meant that our business was
well positioned at the start of the pandemic. 2020 had begun well
with momentum continuing from last year and our key metrics
tracking ahead of our expectations.
During the second quarter our teams spent a lot of time dealing
with the immediate effects of the lockdown measures. Our priority
was to initially ensure the safety and security of own our people
and after that to support customers most negatively impacted. We
also worked closely with our suppliers, most notably our
development contractors, to ensure that they were able to safely
resume the construction of our development pipeline once lockdown
measures were lifted.
Despite the focus on these necessary actions, we have continued
to find opportunities to grow the business, taking advantage of the
enduring strong occupier demand as well as attractive investment
opportunities.
The main highlights include:
-- A very strong performance in securing new rent of GBP33.7
million in the period, slightly ahead of our H1 2019
performance.
-- Further investment to support future growth with net capital
expenditure of GBP631 million through asset acquisitions,
development projects and land purchases. This included an
off-market acquisition of a large urban warehouse estate in West
London that offers the opportunity to drive value from the existing
warehouses alongside medium-term development and redevelopment
potential.
-- Continued progress in improving the environmental
sustainability of our portfolio with the completion of SEGRO Park
Enfield which has been designed to be operationally carbon neutral.
It has achieved a BREEAM Excellent certification and will be, we
believe, the UK's first WELL Gold-certified industrial
building.
-- A near-term pipeline of 451,000 sq m of pre-let developments,
equating to roughly GBP33 million of potential headline rent, more
than double the size of a year ago. This is in addition to the
GBP45 million of potential rent from projects already under
construction, of which 85 per cent has been secured.
-- The raising of GBP680 million of new equity and, after the
period end, EUR450 million of new debt, giving us the capacity to
continue to develop new warehousing to satisfy occupier demand and
help us to grow our rental income organically.
Whilst, understandably, rental collection rates are currently
attracting a lot of attention we believe that supporting those
customers whose businesses are fundamentally sound is the right
thing to do and is in the best interests of all our stakeholders in
the longer-term.
Two-thirds of our portfolio is in urban warehouses and, in
addition to 'last-mile' distribution used for online order
fulfilment, these also attract small and medium sized businesses
from a wide range of industries which provide goods and services to
urban conurbations. The unique nature of the Covid-19 pandemic
meant that the requirement for some of these goods and services was
temporarily put on hold, but as we emerge from lockdown the
majority of these businesses are resuming their operations.
Supply of modern warehouse space remains constrained in London
and in our other urban markets and whilst rental growth in 2020 may
not be quite as strong as in previous years, we continue to see the
strongest long-term return potential from urban warehousing.
Over the past few years there has been clear occupier and
investor demand for high-quality warehouse space as a result of
structural changes such as the rise of e-commerce, and these are
only being strengthened by the pandemic, with changes in consumer
behaviour that had been expected to take years happening in a
matter of weeks. The impacts of this are already starting to show
in the growth of our development pipeline and pre-lets under
negotiation.
Overall, we are very pleased with the results that our business
has produced during an exceptionally challenging time and believe
that we enter the second half of the year well-positioned to take
advantage of the opportunities that lie ahead of us.
Covid-19 impacts and response
The immediate priority at the start of the Covid-19 outbreak was
to ensure the health, safety and well-being of our people. Our
presence in markets such as Italy and Spain, where the impacts in
Europe were felt earliest, meant that we had an early indication of
what the pandemic might mean for our business.
We were quick to move to a working from home model and the
investments that we have made into technology over the past years
to facilitate flexible working enabled us to transition rapidly
with minimal disruption to day-to-day operations. Throughout the
past months we have been able to use these technologies to keep in
close contact with employees and we have encouraged team
interaction to ensure our people feel connected and supported.
We have not furloughed any of our employees, nor have we taken
up any other government support measures.
The diversity of our customer base means that the impacts were
wide-ranging, many benefitting from a sudden increase in demand for
their goods and services and others finding that their revenues
stopped overnight or having to shut down their operations
temporarily as employees were no longer able to travel to their
premises. We acted swiftly to help those businesses who were
fundamentally sound but suffering short-term cash flow issues by
re-profiling rents to alleviate some of the pressure that they were
facing.
Our development programme was also impacted by the crisis with
most of our projects in Southern Europe and some in the UK
temporarily suspended. We worked closely with our contractors to
monitor the situation and, as soon as it was feasible, safe, and
permitted by regulation, sites were re-opened with the appropriate
social distancing and other necessary measures in place. All of our
development projects have now resumed with only minor delays to
completion dates and, in some cases, are expected to finish ahead
of schedule.
SEGRO's 100(th) birthday, on 19 May 2020, was intended to be the
focal point of our Centenary-related events. However, due to the
pandemic, we marked the occasion in a very different way, with a
virtual event for all our employees including a message from each
of our offices across Europe. We also made the decision to bring
forward the launch of our GBP10 million Centenary Fund as the
impacts of Covid-19 have been felt not just by our customers and
suppliers but also by the communities in close proximity to our
assets. SEGRO is contributing to the Fund from corporate resources,
and in addition, all Board Directors have donated 25 per cent of
their salary and fees for the past three months to the Fund. We
decided to allocate the first year of funds to causes and projects
designed specifically to alleviate pressures resulting from the
pandemic. So far, we have awarded GBP771,000 of grants to projects
across the UK and Continental Europe, in addition to the provision
of warehouse space on heavily discounted, or zero, rents amounting
to assistance in kind of GBP465,000.
The Board is very proud of the dedication and professionalism
that our people have shown in recent months, particularly given the
implications that the pandemic has also had for their personal
lives, and I would like to thank every colleague for their ongoing
contribution to the success of SEGRO.
A Strategy to generate attractive, sustainable returns
Our goal is to be the best owner-manager and developer of
warehouse properties in Europe and a leading income-focused
REIT.
Our strategy for achieving this goal is to create a portfolio of
high quality warehouses in the strongest markets which generate
attractive, low risk, income-led returns with above average rental
and capital growth when market conditions are positive and are
resilient in a downturn. We seek to enhance returns through
development, while ensuring that the short-term income 'drag'
associated with holding land does not outweigh the long-term
potential benefits.
Fundamental to our strategy are three key pillars of activity
which should combine to deliver an attractive, income-led total
property return:
-- Disciplined Capital Allocation
-- Operational Excellence
-- Efficient Capital and Corporate Structure.
The combination of these elements should translate into
sustainable, attractive returns for our shareholders in the form of
progressive dividends and net asset value growth over time.
Embedded in this strategy is the long-term approach that we take
to running our business. This requires:
-- An understanding and assessment of the risks facing the
business and the actions we can take to mitigate those risks
-- Engagement with our key stakeholders to understand and
respond to their priorities, including regarding the
environment.
Our portfolio comprises predominantly modern assets which are
well specified and located, with good sustainability credentials,
and which should benefit from a low structural void rate and
relatively low intensity asset management requirements. Our assets
are concentrated in the strongest European submarkets which display
attractive property market characteristics, including good growth
prospects, limited supply availability and where we already have
critical mass, or believe we will be able to achieve it in a
reasonable timeframe.
DISCIPLINED capital allocation - ACQUISITION ACTIVITY
During the first half of the year we acquired GBP426 million of
assets and land. The asset acquisitions totalled GBP223 million,
reflecting a topped-up net initial yield of 3.5 per cent.
Our largest acquisition during the period was an urban warehouse
park in a key West London location, Perivale Park. This was a rare
opportunity to build further scale and drive value in an area where
we already have considerable expertise and knowledge of the local
market and customer base. It also offers medium-term development
and redevelopment potential in one of London's prime, and most
supply-constrained, industrial clusters. We also acquired a big box
warehouse near ód in Poland, expanding our presence in a market
displaying strong occupier demand for logistics.
In March, as a result of the pandemic, the valuation industry
introduced a Material Uncertainty clause on all its valuations
citing to a lack of observable market activity. However, these have
now been removed for property types, including warehouses, where
market activity levels have improved. Accordingly, the external
valuer has not included the clause in respect of virtually all of
the Group's assets (98 per cent). The clause has been noted for the
remaining 2 per cent (GBP236 million) of the portfolio which mainly
comprises certain retail, office and leisure assets. Note 12
includes further detail on this.
We acquired GBP202 million of land for development, two-thirds
of which is associated with our plans to create two new major
flagship UK logistics parks in Coventry and Northampton.
The sites have planning consent for over 800,000 sq m of space
which we expect to develop on a mostly pre-let basis over the
coming years. The remainder of the land acquired was for immediate
or near-term development on sites in London and across Continental
Europe.
Acquisitions completed in H1 2020
Asset location / type Purchase price Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
------------------------------------------- -------------------- ----------------- ----------------------
UK: Urban warehousing 220.4 3.5 3.5
Continental Europe: Big box logistics 2.9 6.4 6.4
UK: Land 168.1 n/a n/a
Continental Europe: Land 34.3 n/a n/a
Total acquisitions completed in H1 2020(1) 425.7 3.5(2) 3.5(2)
------------------------------------------- -------------------- ----------------- ----------------------
1. A reconciliation of acquisitions completed to the Financial
Statements is provided in the EPRA capital expenditure analysis on
page 22.
2. Yield excludes land transactions.
disciplined capital allocation - asset recycling
During the first half of 2020, we disposed of GBP59 million of
land and assets.
The disposals totalled GBP58.7 million and included our only
estate in Austria, a market that we have decided to exit, as well
as stand-alone assets in the Netherlands and on the outskirts of
Paris.
The large-scale portfolio repositioning undertaken in the past
eight years means that our portfolio is well positioned for the
current market and there are no non-core assets to sell. We expect
to undertake further disposals to our SELP joint venture as well as
to third parties as part of our ongoing active portfolio
management. We expect disposals in 2020 to be in the region of
GBP100 million for the year as a whole.
Disposals completed in H1 2020
Asset location / type Gross proceeds Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
---------------------------------------- -------------------- ----------------- ----------------------
Continental Europe: Urban warehousing 57.0 4.1 4.1
Continental Europe: Big box logistics 1.7 Vacant on disposal
Total disposals completed in H1 2020(2) 58.7 4.1(1) 4.1(1)
---------------------------------------- -------------------- ----------------- ----------------------
1. Yield excludes land transactions
2. A reconciliation of disposals completed to the Financial
Statements is provided in Note 12
PORTFOLIO VALUATION GAINS FROM DEVELOPMENT ACTIVITY AND ASSET
MANAGEMENT
The Group's property portfolio was valued at GBP11.2 billion at
30 June 2020 (GBP13.3 billion of assets under management). The
portfolio valuation, including completed assets, land and buildings
under construction, increased by 0.7 per cent on a like-for-like
basis (i.e. adjusted for capital expenditure and asset recycling
during the year), a gain of GBP80 million.
This primarily comprises a 0.3 per cent increase in the standing
assets held throughout the period (H1 2019: 2.5 per cent), due to
asset management initiatives and a 0.8 per cent increase in the
external valuer's estimate of the market rental value of our
portfolio (ERV). Transaction costs arising from the acquisitions
described above had a negative impact of GBP20.5 million. Yields
were mostly unchanged apart from some modest yield compression in
Germany. The external valuer has slightly increased yields on
certain non-industrial assets due to the impact of Covid-19 but
these are a very minor part of the portfolio.
In March, as a result of the pandemic, the valuation industry
introduced a Material Uncertainty clause on all its valuations
citing a lack of observable market activity. However, these have
now been removed for property types where market activity levels
have improved, including warehouses. Accordingly, the external
valuer has only applied the clause to 2 per cent (GBP236 million)
of the portfolio which mainly comprises certain retail, office and
leisure assets. Note 12 includes further detail on this.
Assets held throughout the period in the UK increased in value
by 0.1 per cent (H1 2019: 1.3 per cent), outperforming the MSCI UK
All Industrial Monthly Index which decreased by 2.5 per cent. The
outperformance reflects the prime nature of our portfolio and our
success in capturing reversionary potential in lease reviews and
renewals. The equivalent yield applied to our UK portfolio was 4.6
per cent (31 December 2019: 4.6 per cent), while UK rental values
improved by 1.0 per cent (H1 2019: 1.4 per cent).
Assets held throughout the period in Continental Europe
increased in value by 0.8 per cent (H1 2019: 5.4 per cent) on a
constant currency basis. Yields were stable at 5.2 per cent (31
December 2019: 5.2 per cent), and rental growth was 0.4 per cent
during the period (H1 2019: 3.0 per cent).
More details of our property portfolio can be found in the H1
2020 Property Analysis Report available at
www.segro.com/investors.
Property portfolio metrics at 30 June 2020
Portfolio value, GBPm Yield, %(3)
---------------------------------------------- ---------------------
Combined Combined Topped up
Lettable Land & property property Valuation net Net true Vacancy
area sq m Completed development portfolio portfolio movement(2) initial equivalent (ERV)(4)
(AUM) (AUM) % %
------------ --------- --------- ----------- --------- ----------- ----------- --------- ---------- ---------
UK
Greater
London 1,169,886 4,094.2 140.9 4,235.1 4,235.1 (0.2) 3.6 4.4 6.1
Thames
Valley 568,490 1,737.0 46.9 1,783.9 1,783.9 0.2 4.5 5.0 2.9
National
Logistics 529,693 741.8 352.6 1,094.4 1,094.4 1.1 5.3 4.9 -
UK Total 2,268,069 6,573.0 540.4 7,113.4 7,113.4 0.1 4.0 4.6 4.5
Continental
Europe
Germany 1,485,973 1,105.8 84.7 1,190.5 1,801.1 2.5 4.2 4.7 8.6
Netherlands 233,166 131.5 20.6 152.1 287.0 (1.6) 4.3 5.0 16.3
France 1,313,987 1,052.2 95.0 1,147.2 1,559.2 0.1 4.7 5.0 6.6
Italy 989,322 480.1 283.5 763.6 1,064.6 0.1 4.8 5.3 -
Spain 267,660 153.1 55.7 208.8 314.5 2.8 4.7 5.3 10.3
Poland 1,412,482 538.2 44.1 582.3 1,022.3 (0.8) 6.3 6.2 4.8
Czech
Republic(5) 169,515 77.7 10.8 88.5 170.4 (1.4) 5.3 5.7 3.0
Continental
Europe
Total 5,872,105 3,538.6 594.4 4,133.0 6,219.1 0.8 4.8 5.2 6.4
GROUP TOTAL 8,140,174 10,111.6 1,134.8 11,246.4 13,332.5 0.3 4.3 4.8 5.2
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 assets only.
4. Vacancy rate excluding short term lettings for the Group at 30 June 2020 is 5.5 per cent.
5. Czech Republic includes land in Hungary identified for disposal
OPERATIONAL EXCELLENCE - active asset management
We contracted GBP33.7 million of new headline rent during the
first half of the year. Rent roll growth on existing space was
GBP2.3 million, with an average 10.4 per cent uplift on rent
reviews and renewals. New pre-let agreements totalled GBP18.8
million.
Our portfolio comprises of two main asset types: urban
warehouses and big box warehouses, which offer slightly different
but complimentary benefits to our business.
-- Urban warehouses account for 65 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 last mile delivery companies
and a wide range of businesses providing goods and services,
including from data centre users. Our urban portfolio is
concentrated in London and South-East England (82 per cent) and
major cities in Continental Europe (18 per cent), including Paris,
Düsseldorf, Frankfurt, Berlin and Warsaw. These locations share
similar characteristics in terms of a 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
sustained rental growth.
-- Big box warehouses, account for 32 per cent of our portfolio
value. They tend to be used for bulk storage, processing and
distribution of goods on a regional, national or international
basis and tend, therefore, to be 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) and Poland (Warsaw, ódz, Poznán, and
the industrial region of Silesia). 29 per cent of our big box
warehouses are in the UK and 71 per cent are in Continental Europe.
The nature (and typical location) of big box warehouses tends to
mean that, whilst demand is strong, supply is able to increase more
easily to over time to satisfy it, as there is generally more land
available in out of town locations. Accordingly, we expect
long-term rental growth to be more muted than for urban
markets.
We have continued to see good occupier demand for both types of
warehouses throughout the Covid-19 pandemic and believe that it
will be strengthened by the acceleration of e-commerce penetration
across Europe and a renewed focus on the resilience of supply
chains.
Speculative supply continues to be disciplined across our key
markets (and remains very limited in urban areas) and a cautious
reaction since the start of the pandemic by many investors and
developers appears to have slowed down a number of planned
speculative big box warehouse schemes, which should be positive for
the future supply-demand dynamic.
Customer relationships key to our continued success
As long-term owners of warehouses and given that we manage our
portfolio internally, we seek to develop strong customer
relationships.
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 not only to
change and grow, but it also means that we are better able to
predict coming 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. Within our current development pipeline over 80 per cent
of the potential rent has been secured through a pre-let agreement
with an existing customer.
Another important aspect of developing strong customer
relationships is supporting them in more difficult times and we
have sought to do this throughout the Covid-19 pandemic. We have
worked closely with those most negatively impacted, helping to
alleviate some of the pressure that they are facing by temporarily
re-profiling rents. We have provided further detail on the impact
of this on our rental income on page 18 of the Finance Review.
Growing rental income from letting existing space and new
developments
At 30 June 2020, our portfolio generated passing rent of GBP410
million, rising to GBP462 million once rent-free periods expire
("headline rent").
During the first half of the year, we contracted GBP33.7 million
of new headline rent (H1 2019: GBP33.3 million). There was a
positive contribution from rent reviews and renewals on existing
space and good take up of recently completed speculatively
developed space. New developments continue to contribute strongly
and during the period we secured GBP18.8 million of rent (H1 2019:
GBP15.2 million) from pre-let agreements and from lettings of
speculatively developed space prior to completion.
Our customer base remains well diversified, reflecting a wide
range of different uses of warehouse space. Our top 20 customers
account for 31 per cent of total headline rent, and our largest
customer, Deutsche Post DHL, accounts for 4.2 per cent.
Approximately half of our rent roll is from customers whose
businesses are at least in part related to the rise of e-commerce,
including third party logistics and parcel delivery businesses, and
retailers (both pure-play on-line retailers and more traditional
retailers developing their own multi-channel capability). Such
businesses accounted for more than half of our take-up during the
period.
We continue to see good demand from data centre operators and
signed another lease on the Slough Trading Estate, meaning that
data centre occupiers now account for 6 per cent of Group headline
rent.
Summary of key leasing data for H1 2019 and H1 2020(1)
Summary of key leasing data for the six months to 30 H1 2020 H1 2019
June(1)
---------------------------------------------------------------- ------ -------- --------
Take-up of existing space(2) (A) GBPm 6.6 6.7
Space returned(3) (B) GBPm (8.2) (4.3)
Other rental movements (rent reviews, renewals, indexation)(2)
(C) GBPm 3.9 6.0
RENT ROLL GROWTH FROM EXISTING SPACE (A+B+C) GBPm 2.3 8.4
Take-up of developments completed in the period - pre-let
space(2) (D) GBPm 10.1 24.1
Take-up of speculative developments completed in the
past two years(2) (D) GBPm 6.1 6.1
TOTAL TAKE UP(2) (A+C+D) GBPm 26.7 42.9
Less take-up of pre-lets and speculative lettings signed
in prior periods(2) GBPm (11.8) (24.8)
Pre-lets and lettings on speculative developments signed
in the period for future delivery(2) GBPm 18.8 15.2
RENTAL INCOME CONTRACTED IN THE PERIOD(2) GBPm 33.7 33.3
Take-back of space for redevelopment GBPm 0.5 -
Retention rate(4) % 88 94
---------------------------------------------------------------- ------ -------- --------
1. All figures reflect exchange rates at 30 June and include
joint ventures at share.
2. Annualised rental income, after the expiry of any rent-free
periods.
3. Annualised rental income, 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 indicators to assess our
performance:
-- Rental growth from lease reviews and renewals. These
generated a blended uplift of 10.4 per cent (H1 2019: 12.8 per
cent) compared to previous headline rent. During the period, new
rents agreed at review and renewal were 16.2 per cent higher in the
UK (H1 2019: 16.8 per cent higher) and 0.9 per cent higher in
Continental Europe (H1 2019: 0.6 per cent higher).
-- Vacancy remains low at 5.2 per cent. The vacancy at 30 June
2020 was 5.2 per cent (31 December 2019: 4.0 per cent), within our
target range of between 4 and 6 per cent, the slight increase
primarily due to the completion of speculative developments since
the start of the year.
-- High customer retention rate of 88 per cent. During the
period, space equating to GBP8.2 million (H1 2019: GBP4.3 million)
of rent was returned to us. This included GBP1.5 million of rent
lost due to insolvencies (H1 2019: GBP0.6 million), the largest of
which related to a 5,000 sq m unit in a prime urban warehouse park
in London which has been taken back from an insolvent customer in
the hospitality sector who was already experiencing some financial
distress prior to the start of the Covid-19 pandemic. Given the
high quality of the space returned and the generally strong demand
in this location, it is expected that the space will be shortly
re-let on terms similar to, or better than, the pre-existing lease.
Space taken back for redevelopment equated to GBP0.5 million of
rent. During the period, GBP22.3 million of rent was subject to
lease renegotiation (a break, renewal or re-gear) of which we
retained 86 per cent in the customer's existing space with a
further 2 per cent retained but in new premises. At 30 June 2020,
GBP23.8 million of rent is at risk from break or expiry during the
remainder of 2020.
-- 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 8.0 per cent of
the headline rent (H1 2019: 6.8 per cent). The portfolio's weighted
average lease length at 30 June 2020 is 7.6 years to first break
and 8.8 years to expiry (31 December 2019: 7.8 years to first
break, 9.2 years to expiry). Weighted average unexpired lease terms
are longer in the UK (9.1 years to break) than in Continental
Europe (5.4 years to break).
-- GBP2.3 million of net new rent from existing assets. We
generated GBP6.6 million of headline rent from new leases on
existing assets (H1 2019: GBP6.7 million) and GBP3.9 million from
rent reviews, lease renewals and indexation (H1 2019: GBP6.0
million), offset by GBP8.2 million of rent lost from space returned
to us (H1 2019: GBP4.3 million), which includes the impact of
insolvencies in the period.
-- GBP18.8 million of rent contracted from pre-let agreements.
We contracted GBP18.8 million of headline rent from pre-let
agreements and lettings of speculative developments prior to
completion (H1 2019: GBP15.2 million).
-- Net rent roll growth of GBP25 million. An important element
of achieving our goal of being a leading income-focused REIT is to
grow our rent roll, primarily through increasing rent from our
existing assets and from generating new rent through development.
Rent roll growth, which equates to Rental income contracted, less
Space returned, remained strong at GBP25.0 million (H1 2019:
GBP29.0 million).
DISCIPLINED CAPITAL ALLOCATION AND OPERATIONAL EXCELLENCE -
DELIVERING GROWTH THROUGH DEVELOPMENT
We invested GBP231 million in new developments and GBP34 million
in infrastructure during H1 2020 (H1 2019: GBP184 million and GBP11
million respectively) and GBP202 million (H1 2019: GBP25 million)
in new development land. We expect development capital expenditure
(including on land and infrastructure) to be in the region of
GBP800 million for 2020 as a whole.
Our development programme was impacted by the pandemic with most
of our projects in Southern Europe and some in the UK temporarily
suspended. We worked closely with our contractors to monitor the
situation and, as soon as it was feasible, safe, and permitted by
regulation, sites were re-opened with the appropriate social
distancing and other necessary measures in place. All of our
development projects have now resumed with only minor delays to
completion dates and, in some cases, are expected to finish ahead
of schedule.
Development projects completed
We completed 358,500 sq m of new space during the first six
months of 2020. These projects were 49 per cent pre-let prior to
the start of construction and were 64 per cent let as at 30 June
2020, generating GBP13.8 million of headline rent, with a potential
further GBP7.8 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 7.2 per cent
when fully let.
Amongst the development projects completed in the first half was
the first warehouse at our new UK logistics park, SEGRO Park
Kettering Gateway, and we also completed two further data centres
on the Slough Trading Estate. On the Continent we completed 237,900
sq m of big box warehouses including two pre-let big-box warehouses
in Spain, helping us to build scale in this competitive market. We
also completed further phases of urban warehousing in Germany and
France totalling 49,300 sq m.
Current development pipeline
At 30 June 2020, we had development projects approved,
contracted or under construction totalling 809,500 sq m,
representing GBP303 million of future capital expenditure and GBP45
million of annualised gross rental income when fully let. These
projects, which are expected to complete over the next 18 months,
are 85 per cent pre-let and should yield 6.5 per cent on total
development cost when fully occupied.
-- In the UK, we have 66,300 sq m of space under construction
across eight projects. This includes a further data centre in the
Slough Trading Estate, our fifth warehouse at SEGRO Logistics Park
East Midlands Gateway, our largest ever pre-let in London at a site
close to Purfleet and our second phase at SEGRO Park Rainham.
-- In Continental Europe, we have 743,200 sq m of space under
construction across 26 projects. We have six urban warehouse
schemes in Paris developed on a speculative basis to cater for
increasing demand for modern distribution space, as well as urban
warehouses in Lille, Barcelona and Parma that have been pre-let. We
also have big box projects in Poland, Germany, the Netherlands,
France and Italy. Italy accounts for just over 561,200 sq m of new
space, of which 98 per cent is pre-let.
Within our Continental European development programme,
approximately GBP28.8 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 acquires the assets, the net impact for
SEGRO would be to retain a 50 per cent share of the rent.
We are on track to invest in excess of GBP800 million in our
development pipeline during 2020, comprising in excess of GBP500
million on development capex and the remainder on land acquisitions
and infrastructure costs.
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
contractual conditions to be met or planning approval to be
granted. We expect to commence these projects within the next six
to twelve months.
These projects total 451,000 sq m of space, equating to an
estimated GBP311 million of additional capital expenditure and
GBP33 million of additional headline rent, roughly double the size
of the near-term pipeline at the same time last year (H1 2019:
274,000 sq m of space, GBP14 million of potential rent).
Land bank
Our land bank identified for future development totalled 642
hectares at 30 June 2020, valued at GBP646 million, or around 6 per
cent of our total portfolio. We invested GBP202 million in
acquiring new land during the first half of the year, including two
sites for UK logistics parks that were under option and will be
developed out over the next decade.
We estimate that our land bank, including the near-term projects
above, can support 2.8 million sq m of development, much of which
should be deliverable over the coming five years. We estimate that
the prospective capital expenditure associated with the future
pipeline is just over GBP1.6 billion and that it could generate
GBP162 million of gross rental income. This represents a yield on
total development cost (i.e. including land and notional finance
costs) of approximately 7 per cent and approximately 10 per cent on
the incremental capital expenditure, excluding land already
acquired.
These figures are indicative of our current expectations but are
dependent on our ability to secure pre-let agreements, planning
permissions, construction contracts and on the outlook for occupier
conditions in local markets.
Land with a total value of GBP36 million has been identified as
suited to alternative use or surplus to our short-term
requirements, the majority of which is expected to be sold in due
course.
Conditional land acquisitions and land held under option
agreements
Land acquisitions (contracted but subject to certain 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 and West London.
These options are held on the balance sheet at a value of GBP19
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 million sq m of space and generating
approximately GBP69 million of headline rent (SEGRO share) for a
blended yield on investment of approximately 7 per cent.
Further details of our completed projects, and our current and
future development pipelines are available in the H1 2020 Property
Analysis Report, which is available to download at
www.segro.com/investors .
ENVIRONMENTAL IMPACT
The carbon generated through our development activity is a
significant part of our total carbon footprint and we understand
that, as a developer, we are responsible for minimising the
environmental impact of our activity and making our buildings as
efficient as possible to operate.
We have either received or expect to receive BREEAM 'Excellent'
or 'Very Good' (or local equivalent) certification on all of the
eligible space completed in the first half of 2020, recognising the
high sustainability credentials of these buildings.
We pay attention 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. We now regularly include features such as
LED lighting, transparent panels to improve natural daylight, water
recycling systems and electric vehicle charging points.
We are also investigating ways of improving the sustainability
credentials of our buildings, for example by installing solar
panels to produce renewable energy that our customers can benefit
from to reduce their own carbon footprint. During the first half of
2020 we increased our renewable energy capacity by approximately 8
per cent bringing it to 20 MW, enough to power 4,800 homes.
During the period we completed a flagship development, SEGRO
Park Enfield, London, which sets a new standard in sustainability
and wellbeing for UK warehouse space. It has been registered to
pursue WELL certification and, if successful, we believe it would
be the first WELL certified industrial building in the UK. The
warehouses are surrounded by extensive green space landscaping
(including biodiverse planting) and are designed to maximise
natural light and incorporate break-out areas to enhance the
working environment. They also use photovoltaic solar roof panels,
utilise energy efficient LED lighting and are equipped with
electric vehicle charging points. We are also piloting SMART
technology using sensors to enable occupiers to measure air
quality, water purity, acoustics and temperature, and to make sure
the building is operating as efficiently as possible.
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.
USING THE DEVELOPMENT PROGRAMME TO HELP OUR COMMUNITIES
Our urban warehouse developments typically involve the
regeneration of former, often neglected, 'brownfield' manufacturing
sites and the redevelopment of this land attracts new businesses
and brings jobs and prosperity to the area.
We work closely with local authorities on the section 106
agreements (or equivalent) that form part of the planning process
and often go above and beyond what is required. This can involve
making an investment to improve the local infrastructure, asking
our contractors to source materials from local suppliers and
advocating the recruitment of local workers during the construction
process.
Once our warehouses are occupied, we work with our customers,
local authorities and community groups to provide training. We also
create job networks and other support to help local people find
employment in the buildings we create.
As long-term owners of our assets we are passionate about
helping the communities that we are part of to thrive. Taking this
into consideration from the very start of the development process
is key to maximising the contribution that we can make and the
positive impact that we can have.
BALANCE SHEET POSITIONED TO SUPPORT FURTHER GROWTH
Net borrowings, including our share of joint venture net debt
was GBP2.5 billion at 30 June 2020. The look-through loan to value
ratio (LTV) reduced to 22 per cent (31 December 2019: 24 per cent).
This is consistent with our aim to have an LTV ratio of around 30
per cent, taking into account our investment plans.
The movement in net debt, including our share of debt in joint
ventures, from GBP2,484 million to GBP2,511 million, reflects the
GBP680 million (gross) proceeds of the equity placing that we
carried out in June, net capital investment of GBP633 million and
the impact of exchange rate movements in the period as the majority
of our debt is in Euros.
Since the period end we have agreed a EUR450 million US Private
Placement debt issue with an average maturity of just under 17
years and a blended coupon of 1.6 per cent, to be drawn down in the
fourth quarter and will in part be used to repay the remaining
GBP118 million of 2021 and 2022 sterling bonds which we have given
notice to redeem in full . Proforma for this activity, our weighted
average cost of debt is 1.6 per cent and the average duration of
debt is 10.7 years.
INTERIM DIVID OF 6.9 PENCE PER SHARE
The Board has previously guided that the interim dividend will
be set at one-third of the previous year's total dividend. As a
result, and consistent with this guidance, the Board has declared
an increase in the interim dividend of 0.6 pence per share to 6.9
pence (H1 2019: 6.3 pence), a rise of 9.5 per cent. The Board
currently expects to follow its existing policy of targeting a
pay-out ratio of 85 to 95 per cent of Adjusted profit after tax
when considering the full year 2020 dividend.
This interim dividend of 6.9 pence will be paid as an ordinary
dividend on 24 September 2020 to shareholders on the register at
the close of business on 14 August 2020.
The Board will offer a scrip dividend option for the 2020
interim dividend, allowing shareholders to choose whether to
receive the dividend in cash or new shares. 39 per cent of the 2019
final dividend was paid in new shares, equating to GBP55 million of
cash retained on the balance sheet and 7.6 million new shares being
issued.
FINANCIAL REVIEW
Like-for-like net rental income growth and income from new
developments were the primary drivers of the 6.5 per cent increase
in Adjusted profit before tax compared to H1 2019. Adjusted NAV per
share increased by 2.6 per cent to 718 pence compared to December
2019 driven in part by the valuation uplift on the property
portfolio and equity raise.
Financial highlights
30 June 30 June
2020 2019 31 December 2019
IFRS(1) net asset value (NAV) per share (diluted) (p) 716 665 697
Adjusted NAV per share(1) (diluted) (p) 718 666 700
IFRS profit before tax (GBPm) 220.9 410.8 902.0
Adjusted(2) profit before tax (GBPm) 140.4 131.8 267.5
IFRS earnings per share (EPS) (p) 19.5 37.1 79.3
Adjusted(2) EPS (p) 12.5 12.2 24.4
====================================================== ======= ======= ================
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 updated EPRA
best practice reporting guidelines as discussed further in the
Balance Sheet section below.
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 2020 30 June 2019
GBPm GBPm
====================================================== ============= =============
Gross rental income 187.2 173.4
Property operating expenses (42.1) (36.9)
====================================================== ============= =============
Net rental income 145.1 136.5
Joint venture fee income 10.9 9.4
Administration expenses (24.9) (23.6)
Share of joint ventures' Adjusted profit after tax(1) 29.2 27.7
====================================================== ============= =============
Adjusted operating profit before interest and tax 160.3 150.0
Net finance costs (19.9) (18.2)
====================================================== ============= =============
Adjusted profit before tax 140.4 131.8
Tax on Adjusted profit (1.5) (1.1)
Non-controlling interests share of adjusted profits (0.1) (0.1)
====================================================== ============= =============
Adjusted profit after tax(2) 138.8 130.6
====================================================== ============= =============
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 6.5 per cent to GBP140.4
million (H1 2019: GBP131.8 million). The primary driver was a
GBP8.6 million increase in net rental income to GBP145.1 million,
as discussed further below.
Net rental income (including joint ventures at share)
Six months Six months
to to Variance Change
30 June 30 June GBPm %
2020 2019
Net rental income GBPm GBPm
========== ========== ========== ========
UK 103.9 101.0 2.9 2.9%
Continental Europe 56.8 56.5 0.3 0.5%
=================================================== ========== ========== ========== ========
Like-for-like net rental income before
other items 160.7 157.5 3.2 2.0%
Expected credit losses arising from H1
2020 billings (3.0) - (3.0)
Other(1) (3.0) (2.5) (0.5)
--------------------------------------------------- ---------- ---------- ---------- --------
Like-for-like net rental income 154.7 155.0 (0.3) (0.2%)
Development lettings 21.1 4.2
Properties taken back for development (0.4) 0.3
=================================================== ========== ========== ========== ========
Like-for-like net rental income plus developments 175.4 159.5
Properties acquired 2.9 0.4
Properties sold 0.6 6.1
=================================================== ========== ========== ========== ========
Net rental income before surrenders, dilapidations
and exchange 178.9 166.0
Lease surrender premiums and dilapidations
income 0.7 0.4
Rent lost from lease surrenders and other
items 8.7 9.2
Impact of exchange rate difference between
periods - (0.2)
Net rental income before joint venture
fees 188.3 175.4
=================================================== ========== ========== ========== ========
Share of joint venture fees (4.8) (4.2)
=================================================== ========== ========== ========== ========
Net rental income per income statements 183.5 171.2
=================================================== ========== ========== ========== ========
1. Other includes the corporate centre and other costs relating
to the operational business which are not specifically allocated to
a geographical business unit.
The like-for-like rental growth metric is based on properties
held throughout both H1 2020 and H1 2019 and comprises wholly owned
assets (net rental income of GBP145.1 million) and SEGRO's share of
net rental income held in joint ventures (GBP43.2 million,
excluding joint venture fees paid of GBP4.8 million).
Net rental income on this basis increased by GBP12.9 million to
GBP188.3 million which mainly reflects GBP16.9 million of
additional income from development lettings and GBP3.2 million of
like-for-like net rental income growth before other items (a growth
rate of 2.0 per cent compared to H1 2019).
The growth in like-for-like net rental income before other items
was mainly due to rental increases on review and renewal in our UK
portfolio and, to a lesser extent, across our Continental Europe
portfolio.
Expected credit losses of GBP3.0 million have been recognised in
the period in respect of rent billed but unpaid (1.6 per cent of Q2
and Q3 rent billed), allowing for any security held, as discussed
further below in 'Rent collection'. This is based on an analysis of
various factors, including an assessment of the tenant's default
risk based on their industry and geography and their payment
record, and takes into account the overall impact of Covid-19 on
economic conditions. Specific provisions are also made where
required following a review of tenant debtors' recoverability.
Investment activity had a negative impact on net rental income
when compared to the prior period, with additional income on
acquisitions (GBP2.5 million) being offset by income lost from
disposals (GBP5.5 million), primarily those completed during
2019.
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.
Rent collection
The lockdown measures implemented by governments across Europe
to combat the spread of the virus resulted in widespread disruption
across many sectors of the economy. SEGRO has worked proactively
and constructively to support customers facing genuine cash flow
challenges by, in most cases, offering to reschedule rental
payments, which has affected the level of rent collected in the
second and third quarters.
As at 31 July 2020, 99 per cent of the GBP92 million of rent due
for the second quarter has been paid after adjusting for GBP10
million of re-profiled rent agreed with customers. 1 per cent
(approximately GBP1 million) remains to be paid.
With regards to the third quarter, as at 31 July 2020, taking
into account rent typically billed on a monthly basis in
Continental Europe, 95 per cent of the GBP72 million of rent billed
to date has been collected or is expected to be paid shortly (UK:
98 per cent, CE: 90 per cent), adjusting for GBP12 million of rent
that has been re-profiled, mostly to be paid in the second half of
2020.
Income from joint ventures
Joint venture management fee income increased by GBP1.5 million
to GBP10.9 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.
SEGRO's share of joint ventures' Adjusted profit after tax
increased by GBP1.5 million, mainly reflecting the growth in income
from the SELP joint venture.
Administrative and operating costs
The Total Cost Ratio for H1 2020 improved to 21.2 per cent from
22.0 per cent in H1 2019. Excluding the impact of share based
payments (GBP5.6 million), the cost of which are directly linked to
the outperformance of the property portfolio, the Cost Ratio
improved to 18.6 per cent in H1 2020 from 19.2 per cent in H1 2019.
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 GBP1.7 million during the
period from GBP18.2 million at H1 2019 to GBP19.9 million at H1
2020. This has been driven by lower levels of interest capitalised
during the period (as interest capitalisation rates were lower in
H1 2020 than H1 2019) offsetting favourable impacts following the
refinancing activity in the current and prior periods (as discussed
further in the Financial Position and Funding section below).
Taxation
The tax charge on Adjusted profit of GBP1.5 million (H1 2019:
GBP1.1 million) reflects an effective tax rate of 1.1 per cent (H1
2019: 0.8 per cent), 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 12.5 pence (H1 2019: 12.2
pence) reflecting the GBP8.2 million increase in Adjusted profit
after tax and non-controlling interests, partly offset by a higher
number of shares following the equity placings in February 2019 and
June 2020.
IFRS PROFIT
IFRS profit before tax in H1 2020 was GBP220.9 million (H1 2019:
GBP410.8 million), equating to post-tax IFRS earnings per share of
19.5 pence compared with 37.1 pence for H1 2019. The decrease in
IFRS profits is driven primarily by unrealised and realised gains
on our property portfolio, including joint ventures at share, which
were GBP251.6 million lower in H1 2020 than in the same period a
year ago. The section above on page 8 describes the valuation
movements in more detail.
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 GBP57.3 million in H1 2020 (H1 2019: GBP247.6
million, including GBP6.9 million gain on sale of trading
properties) have been recognised in the income statement, mainly
comprising an unrealised valuation surplus of GBP57.4 million (H1
2019: GBP237.9 million surplus).
SEGRO's share of realised and unrealised gains on properties
held in joint ventures was GBP10.6 million (H1 2019: GBP71.9
million) arising, primarily, in the SELP joint venture.
BALANCE SHEET
Adjusted net asset value
GBPm Shares million Pence per share
---------------------------------------------------------------------------- ------- -------------- ---------------
Adjusted net assets attributable to ordinary shareholders at 31 December
2019 7,712.1 1,102.1 700
Realised and unrealised property gain (including joint ventures) 67.9
Adjusted profit after tax 138.8
Dividend net of scrip shares issued (2019 final) (103.1)
Issue of shares 671.9
Exchange rate movement (net of hedging) 78.5
Other 2.7
Adjusted net assets attributable to ordinary shareholders at 30 June 2020 8,568.8 1,193.3 718
---------------------------------------------------------------------------- ------- -------------- ---------------
At 30 June 2020, IFRS net assets attributable to ordinary
shareholders (on a diluted basis) were GBP8,539.8 million (31
December 2019: GBP7,677.6 million), equating to 716 pence per share
(31 December 2019: 697 pence).
Adjusted net asset value per share at 30 June 2020 was 718 pence
measured on a diluted basis (31 December 2019: 700 pence), an
increase of 2.6 per cent in the period. The table above highlights
the other principal factors behind the increase. A reconciliation
between IFRS and Adjusted net assets is available in Note 11 to the
condensed financial information.
We note the EPRA Best Practices reporting guidelines were
updated in respect of EPRA NAV metrics. Accordingly, the Adjusted
NAV per share metric above adopts the Net Tangible Assets approach
as it is most consistent with the nature of SEGRO's business as a
UK REIT providing long-term progressive and sustainable income
returns. The Adjusted NAV per share as at 31 December 2019 has been
restated from 708 pence to 700 pence as a result of this change.
Note 11 and Table 4 to the condensed financial information includes
further detail on this.
Cash flow and net debt reconciliation
Cash flow from operations for the period was GBP107.2 million, a
decrease of GBP57.6 million from H1 2019 (GBP164.8 million)
primarily due to the inclusion in the prior period of GBP50.5
million proceeds from sale of trading properties. Free cash flow
for the period was GBP84.5 million, which includes GBP26.6 million
net finance costs (broadly consistent with prior period).
The largest cash outflow in the period relates to acquisitions
and developments of investment properties at GBP614.0 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 GBP53.2 million, which is GBP29.7 million lower than in
H1 2019.
The proceeds from issue of ordinary shares of GBP671.9 million
primarily arises as a result of the equity placing undertaken in
June 2020. Other significant financing cash flows include dividends
paid of GBP80.2 million (H1 2019: GBP77.1 million) reflecting the
increased dividend per share and level of scrip dividend take-up
and an outflow of GBP34.4 million from the derivatives which are
used to manage the Group's exposure to foreign exchange during the
period as the euro has strengthened against the pound.
As a result of these factors there was a net funds inflow of
GBP74.3 million during the period compared to an inflow of GBP353.7
million in H1 2019.
Cash flow and net debt reconciliation
Six months Six months
to 30 June to 30 June
2020 2019
GBPm GBPm
Opening net debt (1,811.0) (2,177.0)
Cash flow from operations 107.2 164.8
Finance costs (net) (26.6) (26.3)
Early repayment of debt - (18.5)
Dividends received 1.5 6.2
Tax received/(paid) 2.4 (14.6)
======================================================= ============ ============
Free cash flow 84.5 111.6
Dividends paid (80.2) (77.1)
Acquisitions and development of investment properties (614.0) (197.4)
Investment property sales 53.2 82.9
Acquisitions of other interests in property and
other investments (3.5) (1.7)
Net settlement of foreign exchange derivatives (34.4) 4.5
Proceeds from issue of ordinary shares 671.9 443.8
Net investment in joint ventures - (10.0)
Other items (3.2) (2.9)
======================================================= ============ ============
Net funds flow 74.3 353.7
Non-cash movements (1.1) (1.1)
Exchange rate movements (60.7) 7.6
======================================================= ============ ============
Closing net debt (1,798.5) (1,816.8)
======================================================= ============ ============
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 GBP723.0 million, a significant
increase of GBP389.6 million compared to H1 2019. This is primarily
driven by an increased volume of acquisitions, in particular urban
warehousing in London and the long-term logistics development sites
at Coventry and Northampton. Development capital expenditure
increased by GBP69.6 million to GBP264.6 million with particular
spend on our schemes in Italy and UK National Logistics.
Spend on existing completed properties totalled GBP12.9 million
(H1 2019: GBP18.4 million), of which GBP7.8 million 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 2020 30 June 2019
------------------------ --------------------------------- ------------------------
Joint Wholly Joint
Wholly owned ventures Total owned ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ --------- -------- ------ --------- -----
Acquisitions 420.2(1) 9.6 429.8(7) 21.1 67.4 88.5
Development(4) 235.9(2) 28.7 264.6 163.9 31.1 195.0
Completed properties(5) 11.8(3) 1.1 12.9 15.7 2.7 18.4
Other(6) 10.9 4.8 15.7 28.5 3.0 31.5
Total 678.8 44.2 723.0 229.2 104.2 333.4
------------------------ ------------ --------- -------- ------ --------- -----
1. Being GBP418.4 million investment property and GBP1.8 million
trading property (2019: GBP21.1 million and GBPnil million
respectively) see Note 12.
2. Being GBP228.5 million investment property and GBP7.4 million
trading property (2019: GBP160.1 million and GBP3.8 million
respectively) see Note 12.
3. Being GBP11.8 million investment property and GBPnil trading
property (2019: GBP15.7 million and GBPnil million respectively)
see Note 12.
4. Includes wholly owned capitalised interest of GBP3.8 million
(2019: GBP6.0 million) as further analysed in Note 8 and share of
joint venture capitalised interest of GBP0.3 million (2019: GBP0.5
million).
5. Capital expenditure on completed properties in 2020 and 2019
did not create additional lettable space.
6. Tenant incentives, letting fees and rental guarantees.
7. Includes acquisitions of property sold from the Group's
wholly owned investment property portfolio to the SELP joint
venture of GBPnil (2019: GBP33.3 million). Total acquisitions
completed in H1 2020 of GBP425.7 million shown on page 8 of the
Chief Executive's Review excludes the acquisition of trading
properties by wholly owned and joint ventures (at share) of GBP4.1
million.
FINANCIAL POSITION AND FUNDING
Financial Key Performance Indicators
30 June 30 June
GROUP ONLY 2020 2019 31 December 2019
--------------------------------------------------- ------- ------- ----------------
Net borrowings (GBPm) 1,798.5 1,816.8 1,811.0
Available Group cash and undrawn facilities (GBPm) 1,319.7 1,271.4 1,173.2
Gearing (%) 21 25 23
LTV ratio (%) 20 22 22
Weighted average cost of debt 1 (%) 1.8 1.6 1.8
Interest cover 2 (times) 6.5 5.0 6.2
Average duration of debt (years) 11.1 12.1 11.6
---------------------------------------------------- ------- ------- ----------------
INCLUDING JOINT VENTURES AT SHARE
Net borrowings (GBPm) 2,510.5 2,390.3 2,484.3
Available cash and undrawn facilities (GBPm) 1,541.4 1,614.4 1,370.0
LTV ratio (%) 22 24 24
Weighted average cost of debt 1 (%) 1.7 1.5 1.7
Interest cover 2 (times) 6.4 5.4 6.3
Average duration of debt (years) 9.4 10.5 10.0
---------------------------------------------------- ------- ------- ----------------
1. Based on gross debt, excluding commitment fees and amortised
costs.
2. Net rental income/adjusted net finance costs (before
capitalisation).
At 30 June 2020, the Group's net borrowings (including the
Group's share of borrowings in joint ventures) were GBP2,510.5
million (31 December 2019: GBP2,484.3 million) at a weighted
average cost of 1.7 per cent and an average duration of 9.4 years.
The loan to value ratio (including joint ventures at share) was 22
per cent (31 December 2019: 24 per cent) with GBP1,541.4 million of
cash and undrawn facilities available for investment.
Gross borrowings of SEGRO Group were GBP2,001.9 million at 30
June 2020, all but GBP2.6 million of which were unsecured, and cash
and cash equivalent balances were GBP203.4 million. SEGRO's share
of gross borrowings in its joint ventures was GBP767.8 million (all
of which were advanced on a non-recourse basis to SEGRO) and cash
and cash equivalent balances of GBP55.8 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 2020 to date, SEGRO has carried out GBP1.1 billion of
financing activity to enable it to take advantage of growth
opportunities, particularly from developments, while maintaining
appropriate levels of leverage.
-- GBP680 million of new equity: In June 2020, SEGRO undertook
an equity placing in which we raised GBP680 million of gross
proceeds by issuing 83 million new shares at a price of 820
pence.
-- EUR450 million US Private Placement: In July 2020, SEGRO
agreed a third US PP debt issue of EUR450 million across four
tranches with a number of institutional investors. The notes have
an average maturity of 16.8 years and a weighted average coupon of
1.6 per cent. Closing is due to take place in August 2020 followed
by funding in October and December 2020.
-- GBP118 million early redemption of 2021 and 2022 bonds: In
July 2020, SEGRO gave notice that it intended to redeem the
outstanding GBP79.3 million 6.75 per cent bonds due in 2021 and
GBP39.1 million 7 per cent bonds due in 2022. The bonds will be
redeemed in August and September 2020 for a cash settlement of
GBP131 million.
Pro forma for the position as at 30 June 2020, and taking into
account associated hedging, the impact of these transactions is to
extend SEGRO's average debt maturity (on a look through basis) to
10.7 years and to reduce the average cost of gross debt to 1.6 per
cent (including joint ventures at share, excluding commitment fees
and amortised costs).
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 2020 on this
'look-through' basis was 22 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 2020, as defined within the principal
debt funding arrangements of the Group, was 21 per cent (31
December 2019: 23 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 2020 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 2020, the Group comfortably
met this ratio at 6.5 times. On a look-through basis, including
joint ventures, this ratio was 6.4 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
(including joint ventures at share) at around 25-30 per cent, lower
than our mid-cycle target of 40 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 2020, there were no debt maturities falling due
within 12 months and the weighted average maturity of the gross
borrowings of the Group was 11.1 years (9.4 years on a look-through
basis). With a majority of the Group's bank debt facilities not due
to mature until 2025, and no debt maturities in 2020, 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 2020, including the impact of derivative
instruments, 93 per cent (31 December 2019: 89 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 60 per cent at 30 June 2020 (31
December 2019: 57 per cent).
As a result of the fixed rate cover in place, if short term
interest rates had been 1 per cent higher throughout a 12 month
period to 30 June 2020, the adjusted net finance cost of the Group
would have increased by approximately GBP9.9 million representing
around 4 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
2020, 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 2020 into sterling within the balance
sheet of the Group was EUR1.10:GBP1 (30 June 2019: 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 2020 weakened by 10 per cent against sterling (EUR1.21, in the
case of euros), net assets would have decreased by approximately
GBP116 million and there would have been a reduction in gearing of
approximately 1.9 per cent and in the LTV of approximately 1.8 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 6 months ending 30 June 2020 into
sterling within the consolidated income statement of the Group was
EUR1.14:GBP1 (H1 2019: EUR1.15:GBP1).
Based on the hedging position at 30 June 2020, 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
(EUR1.25:GBP1), Adjusted profit after tax for the six month period
would have been approximately GBP4.5 million (1.6 per cent) lower
than reported. If it had been 10 per cent stronger, adjusted profit
after tax for the period would have been approximately GBP5.5
million (1.9 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 2020, the Group has raised GBP680 million of new equity
and agreed EUR450 million of new debt as well as extending the term
of its main EUR1.1 billion RCF by one year, significantly enhancing
its liquidity.
-- Group cash and available facilities at 30 June 2020 were
GBP1.3 billion; adjusting for US Private Placement arranged in
July, the Group has total liquidity available of GBP1.7
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 2020, 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 81 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 2020
after the outbreak of the Covid-19 pandemic to date.
Having made enquiries and having considered the principal risks
facing the Group, including liquidity and solvency risks, and
material uncertainties including those arising from the pandemic,
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 value
for our shareholders.
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 2019 Annual Report on pages 65 to
68.
Covid-19
We have reviewed and updated the Group's risk register during
the period, in particular in light of the current Covid-19 health
pandemic, the impact of which continues to evolve. The speed and
scale of the pandemic are unprecedented in recent memory and the
consequential severity and duration of such impacts risks to our
business remain uncertain. In most cases Covid-19 has acted to
increase the impact, or probability, or both in respect of risks
already on the risk register. The Group's Board, and key Committees
continue to meet regularly and assess the risks as they evolve and
consider appropriate responses accordingly, as detailed further
below.
Our response to Covid-19 through the various phases, prior to
lockdown measures being introduced, during lockdown and the gradual
relaxation of restrictions are as follows:
Prior to lockdown measures
We monitored the fast-changing situation and triggered our
Incident Management Plan in early March. The Incident Management
Team (IMT) was led by the Executive Committee (EC) members, with
support from our Group Health and Safety Manager and received a
daily summary health guidelines and updates for countries in which
we operate. The priority was to ensure the safety and well-being
our people, to ensure that our business continuity plans had been
activated and implemented by each Business Unit in conjunction with
any local regulations.
Operationally the business continued to keep in close contact
with both our tenants and suppliers, being open and responsive to
their needs in light of the changing environment. We also adopted a
more cautious approach to our investment activity while the impacts
of the evolving situation became better understood.
Period of lockdown
Our well-established business continuity plans were triggered
for each office and the IMT closely monitored the fluid situation,
providing regular consistent guidance to employees. Furthermore,
the EC compiled a list key impacts, the 'Covid-19 tracker' which
was reviewed each week. A dedicated Covid-19 risk register was
compiled and reviewed by the IMT regularly.
Face to face meetings were replaced by online interactions and
key processes and controls were adjusted to the new working
practice. Concurrently online training relevant to the new working
environment such as cyber risk was provided to all employees.
During this period, we are also mindful of the well-being of our
people. Regular online employee team meetings were encouraged to
maintain regular contact which was supplemented by regular
Group-wide briefings and internal communications, to ensure the
Group's response to the situation was fully understood. We are
actively monitoring the wellbeing of our employees as a priority as
people adapt to new working environments away from the office.
Gradual relaxation of restrictions
As the business responds to the gradual relaxation of
restrictions and transitions to a post lockdown environment the IMT
team continues to meet regularly to monitor employee issues, local
regulation changes and oversee a return to office process. Each
Business Continuity team has prepared and issued a detailed,
cautious, gradual return to work plan for their office, within
their local regulations.
As restriction measures ease across our geographies we are
mindful of the risk of localised outbreaks and a second wave of
infections in the second half of the year and beyond. Our approach
remains cautious and flexible in order that we can effectively
respond to such circumstances whilst maintaining the operations of
our business. The Covid-19 tracker and risk register is regularly
reviewed and updated.
Brexit
During the period, the UK formally left the EU on 31 January
2020 but any significant impact to the Group is expected once the
transition period ends, which is anticipated to be on 31 December
2020. Whilst the situation remains uncertain, we continue to
actively monitor the Brexit process and how the various possible
outcomes may impact on the Group. Whilst the impact of Covid-19 in
the period has been a major focus, we ensure we do not lose sight
of the potentially imminent additional impact of Brexit on our
macroeconomic and regulatory environment. The EC regularly reviews
our approach and response plans and will continue to do so, for as
long as is necessary.
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, has been a major
focus in the period, its medium and long term impacts are not yet
fully understood, including amongst other things, the way we work
in future and the recovery of air and cargo travel.
Principal Risks and Appetite
A summary of the Group's principal risks including an update for
changes during the period and expected impacts during the second
half of 2020, is provided below. The principal risks remain the
same as reported in the Annual Report for 2019 and the residual
risk for each remains within appetite however each has heightened
risk of volatility in the period.
Our risk appetite depends on the nature of the risk and falls
into 3 broad categories:
Property Risk
These are risks to achieving above average rental and capital
growth from our portfolio, including external market and
competitive conditions, portfolio strategy, and execution of
acquisitions and disposals.
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. As
discussed further below, our investment strategy has been more
cautious in light of the volatility created from the impact of
Covid-19 in the period.
Financial Risk
These are risks to the revenues, costs, cash flows, equity
capital and solvency of the Group resulting from the capital
structure of the Group and changes in external factors such as
interest rates, foreign exchange rates and the creditworthiness of
the Group's major financial counterparties.
The Group maintains a low to moderate appetite for financial
risk in general, with a very low appetite for risks to solvency and
gearing covenant breaches, particularly in light of economic
uncertainty created by the Covid-19 pandemic.
Corporate Risk
These are risks to business performance, legal and regulatory
compliance, health and safety, environmental impact, reputation and
business continuity arising from external factors or inadequate
internal processes, people or systems.
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
- 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 conditions, which
could result in capital being invested or disposals taking place at
the wrong price or time in the cycle.
Update : There is an increased risk of market volatility
currently but we believe this is mitigated by strong structural
drivers in our sector.
- Portfolio Strategy. 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 capital allocation reflects the
current and continuing volatility in the market, prioritising
lower-risk projects due to the economic uncertainty .
- Disruptive Brexit. The uncertainty associated with Brexit may
adversely impact investment, capital, financial, occupier and
labour markets in the UK as the nature and timing of exit and
future relationships are negotiated.
Update: The risk of a disruptive Brexit has increased in the
period with the macroeconomic impacts already exacerbated by the
Covid-19 pandemic. We continue to monitor the potential
macroeconomic impacts of various different Brexit scenarios and
evaluate a number of corporate and regulatory risks in the light of
the increased risk of no deal. Where the risk relates to a specific
technical issue (rather than wider market impact) we have
identified and, where possible and practicable, put in place
mitigation plans to address these risks.
- 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 safety of the workforce whilst working away from the
office as well as the gradual return have been a priority of the
Health and Safety team (as detailed in the Covid-19 section above).
We are undertaking regular checks of our development sites, using
local consultants where necessary, in line with local guidance in
order to ensuring a safe working environment in this current
period.
- Development Plan Execution. The Group has an extensive current
programme and future pipeline of developments. The Group could
suffer significant financial losses from the inability to deliver
projects on time and budget or above-appetite exposure to
non-income producing land, infrastructure and speculatively
developed building.
Update: Whilst some development sites initially experienced
delays, our contractors have implemented Covid-19 compliant working
practices and we continue to work closely with our contractors
regarding supply chains. Consequently, to date, we have currently
not experienced significant delays in delivery of our developments.
We continue to monitor the strength of our contractors and allocate
work to a portfolio to mitigate against the risk of individual
company insolvency.
- Investment Plan Execution. Decisions to buy, hold, sell or
develop assets could be flawed due to uncertainty in analysis,
quality of assumptions, poor due diligence or unexpected changes in
the economic or operating environment.
Update: As detailed in portfolio strategy, the impact of
Covid-19 has been reflected in the Group's approach to capital
allocation. However we continue to be open to transactions which
meet our criteria as demonstrated by the acquisition of Perivale in
June 2020 and further development projects as detailed further on
page 7.
- 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 equity raise of GBP680 million in June and
the EUR450 million US Private Placement in July. Consequently, our
Balance Sheet and covenant headroom position, which are constantly
monitored, remain strong (as detailed further on pages 22 to 25).
Whilst the situation can change rapidly, we believe that we are
well positioned as we enter the second half of the year should such
circumstances arise.
- Political and Regulatory. The Group could fail to anticipate
significant political, legal, tax or regulatory changes, leading to
a significant un-forecasted financial or reputational impact.
Update: Whilst the impacts of Covid-19 and Brexit remain
uncertain it is not possible to fully predict their impact on the
Group however our proactive planning and assessment of various
scenarios leave us well placed to respond accordingly.
- Operational Delivery & Compliance. The Group's ability to
protect its reputation, revenues and shareholder value could be
damaged by operational failures such as: environmental damage;
failing to attract, retain and motivate key employees;
non-compliance with legislation; major customer default; supply
chain failure; the structural failure of one of our assets; a major
high-profile incident involving one of our assets; a cyber-security
breach; or failure to respond to the consequences of climate
change. 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 working life of our people has been significantly
impacted and we continually monitor the organisational resilience
to respond to this including ensuring everyone has the ability and
resources to work away from the office for sustained periods,
including the technology to access our systems remotely. We have
also prioritised the health and well-being of our employees
ensuring they have the support needed to adapt to the new working
environment. With more remote working the risk of cyber security
has increased and we continue to be vigilant against this through
our existing procedures and training. We continue to work closely
with our customers to manage rent collection whilst balancing the
challenges they are facing. Measures taken to combat Covid-19 are
detailed against each significant risk above.
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 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 set of financial statements
Our conclusion
We have reviewed SEGRO plc's condensed set of financial
statements (the "interim financial statements") in the half-yearly
report of SEGRO plc for the 6 month period ended 30 June 2020.
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
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Group Balance Sheet as at 30 June 2020;
-- 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 have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
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
4 August 2020
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2020
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019(1) 2019
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
========================================== ===== ============= ============= ============
Revenue 4 198.1 233.3 432.5
Costs 5 (42.1) (80.5) (123.9)
------------------------------------------ ----- ------------- ------------- ------------
156.0 152.8 308.6
Administration expenses (24.9) (23.6) (51.5)
Share of profit from joint ventures after
tax 6 34.9 56.7 203.1
Realised and unrealised property gain 7 57.3 240.7 489.2
Operating profit 223.3 426.6 949.4
Finance income 8 38.3 40.9 65.3
Finance costs 8 (40.7) (56.7) (112.7)
============
Profit before tax 220.9 410.8 902.0
Tax 9 (3.7) (13.5) (41.4)
============
Profit after tax 217.2 397.3 860.6
========================================== ===== ============= ============= ============
Attributable to equity shareholders 216.2 395.9 857.9
Attributable to non-controlling interests 1.0 1.4 2.7
------------------------------------------ ----- ------------- ------------- ------------
Earnings per share (pence)
Basic 11 19.5 37.1 79.3
Diluted 11 19.4 36.9 78.9
========================================== ===== ============= ============= ============
(1) Certain prior period comparatives have been re-presented to
reflect the presentation adopted in the Group Income Statement for
the year ended 31 December 2019. See Note 1.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2020
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
=================================================== === ============= ============= ============
Profit for the period 217.2 397.3 860.6
-------------------------------------------------------- ------------- ------------- ------------
Items that may be reclassified subsequently
to profit or loss
Foreign exchange movement arising on translation
of international operations 149.4 (10.2) (110.2)
Fair value movements on derivatives and borrowings
in effective hedge relationships (70.9) 4.6 57.6
-------------------------------------------------------- ------------- ------------- ============
78.5 (5.6) (52.6)
Tax on components of other comprehensive income - - --
=================================================== === ============= ============= ============
Other comprehensive income/ (loss) 78.5 (5.6) (52.6)
Total comprehensive income for the period 295.7 391.7 808.0
======================================================== ============= ============= ============
Attributable to - equity shareholders 295.6 390.3 804.7
- non-controlling interests 0.1 1.4 3.3
======================================================== ============= ============= ============
CONDENSED GROUP BALANCE SHEET
As at 30 June 2020
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
====================================== ===== ============= ============= ===========
Assets
Non-current assets
Intangible assets 1.8 2.6 2.5
Investment properties 12 9,208.1 8,244.8 8,401.7
Other interests in property 18.9 16.3 28.3
Property, plant and equipment 24.9 20.2 23.0
Investments in joint ventures 6 1,234.5 1,053.4 1,121.4
Other investments 29.0 27.3 27.5
Other receivables 114.3 27.0 110.6
Derivative financial instruments 66.5 55.2 59.7
10,698.0 9,446.8 9,774.7
Current assets
Trading properties 12 29.2 11.7 20.2
Trade and other receivables 197.2 157.9 146.6
Derivative financial instruments 2.6 1.4 8.7
Cash and cash equivalents 13 203.4 170.0 132.5
432.4 341.0 308.0
Total assets 11,130.4 9,787.8 10,082.7
====================================== ===== ============= ============= ===========
Liabilities
Non-current liabilities
Borrowings 13 2,001.9 1,986.8 1,943.5
Deferred tax liabilities 9 61.6 36.9 53.2
Trade and other payables 108.9 107.7 102.9
Derivative financial instruments 12.8 - -
2,185.2 2,131.4 2,099.6
Current liabilities
Trade and other payables 388.8 318.8 298.6
Derivative financial instruments 11.1 5.8 1.7
Tax liabilities 5.5 29.3 5.2
405.4 353.9 305.5
Total liabilities 2,590.6 2,485.3 2,405.1
====================================== ===== ============= ============= ===========
Net assets 8,539.8 7,302.5 7,677.6
====================================== ===== ============= ============= ===========
Equity
Share capital 14 119.1 109.3 109.6
Share premium 3,271.5 2,529.5 2,554.3
Capital redemption reserve 113.9 113.9 113.9
Own shares held (1.3) (0.9) (2.6)
Other reserves 267.8 240.2 199.5
Retained earnings 4,768.8 4,310.5 4,702.9
====================================== ===== ============= ============= -----------
Total shareholders' equity 8,539.8 7,302.5 7,677.6
Non-controlling interests - - -
====================================== ===== ============= ============= -----------
Total equity 8,539.8 7,302.5 7,677.6
====================================== ===== ============= ============= ===========
Net assets per ordinary share (pence)
Basic 11 717 668 700
Diluted 11 716 665 697
-------------------------------------- ----- ------------- ------------- -----------
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2020
Attributable to owners of the parent
==================================================================================================
Other reserves
-----------------------------------
Total
equity
Translation, attributable
Ordinary Capital Own Share-based hedging to owners
share Share redemption shares payment and other Merger Retained of the Non-controlling Total
capital premium reserve held reserve reserve reserve earnings parent interest(1) equity
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- ------- ---------- ------ ----------- ------------ -------- -------- ------------ --------------- -------
Balance at 1
January
2020 109.6 2,554.3 113.9 (2.6) 28.8 1.6 169.1 4,702.9 7,677.6 - 7,677.6
Profit for the
period - - - - - - - 216.2 216.2 1.0 217.2
Other
comprehensive
income - - - - - 79.4 - - 79.4 (0.9) 78.5
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Total
comprehensive
income
for the period - - - - - 79.4 - 216.2 295.6 0.1 295.7
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Transactions
with owners
of the Company
Issues of shares 8.7 663.2 - - - - - - 671.9 - 671.9
Own shares
acquired - - - (1.6) - - - - (1.6) - (1.6)
Equity-settled
share
based payment
transactions - - - 2.9 (11.1) - - 8.5 0.3 - 0.3
Dividends 0.8 54.0 - - - - - (157.9) (103.1) - (103.1)
Movement in
non-controlling
interest(1) - - - - - - - (0.9) (0.9) (0.1) (1.0)
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Total
transactions
with
owners of the
Company 9.5 717.2 - 1.3 (11.1) - - (150.3) 566.6 (0.1) 566.5
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Balance at 30
June 2020 119.1 3,271.5 113.9 (1.3) 17.7 81.0 169.1 4,768.8 8,539.8 - 8,539.8
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
1. Non-controlling interests relate to Vailog Sàrl and are shown
net of the estimated gross settlement amount of a put option held
by the minority shareholder.
For the six months ended 30 June 2019(2)
Attributable to owners of the parent
==================================================================================================
Other reserves
-----------------------------------
Total
equity
Translation, attributable
Ordinary Capital Own Share-based hedging to owners
share Share redemption shares payment and other Merger Retained of the Non-controlling Total
capital premium reserve held reserve reserve reserve earnings parent interest(1) equity
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- ------- ---------- ------ ----------- ------------ -------- -------- ------------ --------------- -------
Balance at 1
January
2019 101.3 2,047.7 113.9 (2.0) 22.3 54.8 169.1 4,056.9 6,564.0 - 6,564.0
Profit for the
period - - - - - - - 395.9 395.9 1.4 397.3
Other
comprehensive
income - - - - - (5.6) - - (5.6) - (5.6)
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Total
comprehensive
income
for the period - - - - - (5.6) - 395.9 390.3 1.4 391.7
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Transactions
with owners
of the Company
Issues of shares 7.3 436.5 - - - - - - 443.8 - 443.8
Own shares
acquired - - - (1.8) - - - - (1.8) - (1.8)
Equity-settled
share
based payment
transactions - - - 2.9 (0.4) - - 3.3 5.8 - 5.8
Dividends 0.7 45.3 - - - - - (143.7) (97.7) - (97.7)
Movement in
non-controlling
interest(1) - - - - - - - (1.9) (1.9) (1.4) (3.3)
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Total
transactions
with
owners of the
Company 8.0 481.8 - 1.1 (0.4) - - (142.3) 348.2 (1.4) 346.8
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Balance at 30
June 2019 109.3 2,529.5 113.9 (0.9) 21.9 49.2 169.1 4,310.5 7,302.5 - 7,302.5
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
1. Non-controlling interests relate to Vailog Sàrl and are shown
net of the estimated gross settlement amount of a put option held
by the minority shareholder.
2. The format of the statement of changes in equity has been
changed from that disclosed in the condensed set of financial
statements for six months ended 30 June 2019 for better
presentation and to reconcile total comprehensive income for the
period.
For the year ended 31 December 2019
Attributable to owners of the parent
==================================================================================================
Other reserves
-----------------------------------
Total
equity
Translation, attributable
Ordinary Capital Own Share-based hedging to owners
share Share redemption shares payment and other Merger Retained of the Non-controlling Total
capital premium reserve held reserve reserve reserve earnings parent interest(1) equity
(audited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- -------- ------- ---------- ------ ----------- ------------ -------- -------- ------------ --------------- -------
Balance at 1
January
2019 101.3 2,047.7 113.9 (2.0) 22.3 54.8 169.1 4,056.9 6,564.0 - 6,564.0
Profit for the
year - - - - - - - 857.9 857.9 2.7 860.6
Other
comprehensive
income - - - - - (53.2) - - (53.2) 0.6 (52.6)
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Total
comprehensive
income
for the year - - - - - (53.2) - 857.9 804.7 3.3 808.0
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Transactions
with owners
of the Company
Issues of shares 7.3 436.7 - - - - - - 444.0 - 444.0
Own shares
acquired - - - (3.4) - - - - (3.4) - (3.4)
Equity-settled
share
based payment
transactions - - - 2.8 6.5 - - 3.1 12.4 - 12.4
Dividends 1.0 69.9 - - - - - (212.6) (141.7) - (141.7)
Movement in
non-controlling
interest(1) - - - - - - - (2.4) (2.4) (3.3) (5.7)
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Total
transactions
with
owners of the
Company 8.3 506.6 - (0.6) 6.5 - - (211.9) 308.9 (3.3) 305.6
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
Balance at 31
December
2019 109.6 2,554.3 113.9 (2.6) 28.8 1.6 169.1 4,702.9 7,677.6 - 7,677.6
================ ======== ======= ========== ====== =========== ============ ======== ======== ============ =============== =======
1. Non-controlling interests relate to Vailog Sàrl and are shown
net of the estimated gross settlement amount of a put option held
by the minority shareholder.
CONDENSED GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2020
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
================================================ ===== ============ ============ ============
Cash flows from operating activities 15 107.2 164.8 291.6
Interest received 18.2 19.1 47.1
Dividends received 1.5 6.2 33.3
Interest paid (44.8) (45.4) (91.7)
Cost of early close out of interest rate
derivatives and new derivatives transacted - - (11.4)
Proceeds from early close out of interest
rate derivatives - - 6.9
Cost of early close out of debt - (18.5) (18.6)
Tax received/(paid) 2.4 (14.6) (46.9)
================================================ ===== ============ ============ ============
Net cash received from operating activities 84.5 111.6 210.3
================================================ ===== ============ ============ ============
Cash flows from investing activities
Purchase and development of investment
properties (614.0) (197.4) (602.9)
Sale of investment properties 53.2 82.9 412.4
Acquisition of other interests in property (2.6) (0.9) (13.3)
Purchase of plant and equipment and intangibles (2.0) (1.0) (2.7)
Acquisition of other investments (0.9) (0.8) (1.2)
Investment and loans to joint ventures - (33.6) (148.6)
Divestment and repayment of loans from
joint ventures - 23.6 136.4
================================================ ===== ============ ============ ============
Net cash used in investing activities (566.3) (127.2) (219.9)
================================================ ===== ============ ============ ============
Cash flows from financing activities
Dividends paid to ordinary shareholders (80.2) (77.1) (141.7)
Proceeds from borrowings - - 10.2
Repayment of borrowings 15 (2.4) (250.2) (251.1)
Principal element of lease payments (0.8) (0.1) (0.9)
Settlement of foreign exchange derivatives (34.4) 4.5 26.9
Purchase of non-controlling interest - - (7.9)
Proceeds from issue of ordinary shares 671.9 443.8 444.0
Purchase of ordinary shares (1.6) (1.8) (3.4)
================================================ ===== ============ ============ ============
Net cash generated from financing activities 552.5 119.1 76.1
================================================ ===== ============ ============ ============
Net increase in cash and cash equivalents 70.7 103.5 66.5
Cash and cash equivalents at the beginning
of the period 132.5 66.5 66.5
Effect of foreign exchange rate changes 0.2 - (0.5)
================================================ ===== ============ ============ ============
Cash and cash equivalents at the end of
the period 13 203.4 170.0 132.5
================================================ ===== ============ ============ ============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed set of financial statements for the six months
ended 30 June 2020 were approved by the Board of Directors on 4
August 2020.
The condensed set of financial statements for the six months
ended 30 June 2020 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 2019 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 EU-endorsed International Financial Reporting
Standards (IFRSs) 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
International Accounting Standard 34 'Interim Financial Reporting',
as adopted by the European Union and the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
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 in page 25.
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.
Certain new accounting amendments became effective for the
financial year beginning on 1 January 2020, however the Group did
not have to change its accounting policies or make retrospective
adjustments as a result of these amendments.
The format of the Group Income Statement shown in the SEGRO plc
Annual Report and Accounts for the year ended 31 December 2019 was
changed to improve the presentation of the financial statements. As
a result certain prior period comparatives for the six months ended
30 June 2019 have been represented to reflect this change. For
further details on the representation can be found on page 140 of
the SEGRO plc Annual Report and Accounts for the year ended 31
December 2019.
The principal exchange rates used to translate foreign currency
denominated amounts are:
Balance sheet: GBP1 = EUR1.10 (30 June 2019: GBP1 = EUR1.12; 31
December 2019: GBP1 = EUR1.18)
Income statement: GBP1 = EUR1.14 (30 June 2019: GBP1 = EUR1.15;
31 December 2019: GBP1 = EUR1.14)
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 period (30 June 2019:
no adjustments; 31 December 2019: no adjustments).
The following table provides a reconciliation of Adjusted profit
to IFRS profit:
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
Notes GBPm GBPm GBPm
================================================ ===== ========= ========= ============
Gross rental income 4 187.2 173.4 362.0
Property operating expenses 5 (42.1) (36.9) (80.7)
================================================ ===== ========= ========= ============
Net rental income 145.1 136.5 281.3
Joint venture fee income 4 10.9 9.4 20.4
Administration expenses (24.9) (23.6) (51.5)
Share of joint ventures' adjusted profit
after tax 6 29.2 27.7 54.0
================================================ ===== ========= ========= ============
Adjusted operating profit before interest
and tax 160.3 150.0 304.2
Net finance costs (including adjustments) 8 (19.9) (18.2) (36.7)
================================================ ===== ========= ========= ============
Adjusted profit before tax 140.4 131.8 267.5
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from
joint ventures after tax(1) 6 5.7 29.0 149.1
Realised and unrealised property gain 7 57.3 240.7 489.2
Gain on sale of trading properties - 6.9 6.9
Cost of early close out of debt - (18.5) (18.6)
Net fair value gain on interest rate
swaps and other derivatives 8 17.5 20.9 7.9
Total adjustments 80.5 279.0 634.5
================================================ ===== ========= ========= ============
Profit before tax 220.9 410.8 902.0
================================================ ===== ========= ========= ============
Tax
On Adjusted profit 9 (1.5) (1.1) (3.2)
In respect of adjustments 9 (2.2) (12.4) (38.2)
================================================ ===== ========= ========= ============
Total tax adjustments (3.7) (13.5) (41.4)
Profit after tax before non-controlling
interests 217.2 397.3 860.6
================================================ ===== ========= ========= ============
Non-controlling interests:
Less: share of adjusted profit attributable
to non-controlling
interests (0.1) (0.1) (0.2)
: share of adjustments attributable
to non-controlling
interests (0.9) (1.3) (2.5)
================================================ ===== ========= ========= ============
Profit after tax and non-controlling
interests 216.2 395.9 857.9
Of which:
Adjusted profit after tax and non-controlling
interests 138.8 130.6 264.1
Total adjustments after tax and non-controlling
interests 77.4 265.3 593.8
================================================ ===== ========= ========= ============
Profit attributable to equity shareholders 216.2 395.9 857.9
================================================ ===== ========= ========= ============
1. A detailed breakdown of the adjustments to the share of
profit from joint ventures is included in Note 6.
3. SEGMENTAL REPORTING
The Group's reportable segments are the geographical business
units: Greater London, Thames Valley, National Logistics, 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 joint
Gross ventures' Adjusted Total directly Investments
rental Net rental Adjusted operating owned property in joint Capital
income income profit PBIT(2) assets ventures expenditure(3)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======= ========== ========== ========== =============== =========== ===============
30 June
2020
=================== ======= ========== ========== ========== =============== =========== ===============
Thames Valley 41.5 38.6 - 37.3 1,783.8 - 9.8
National Logistics 16.7 18.2 (0.2) 17.9 1,098.1 1.1 216.9
Greater London 75.0 64.8 - 62.9 4,235.3 - 257.4
Northern Europe 14.5 8.8 12.1 23.3 597.2 679.4 14.5
Southern Europe 34.0 19.8 13.3 35.7 1,374.0 796.1 166.3
Central Europe 5.5 2.1 10.2 14.4 148.9 483.5 3.0
Other(1) - (7.2) (6.2) (31.2) - (725.6) 2.0
=================== ======= ========== ========== ========== =============== =========== ===============
Total 187.2 145.1 29.2 160.3 9,237.3 1,234.5 669.9
=================== ======= ========== ========== ========== =============== =========== ===============
30 June
2019
=================== ======= ========== ========== ========== =============== =========== ===============
Thames Valley 38.8 36.0 - 35.1 1,698.4 - 17.3
National Logistics 18.7 17.1 - 17.1 1,085.0 2.7 36.7
Greater London 68.2 62.4 - 61.2 3,773.4 - 36.7
Northern Europe 12.9 7.3 9.9 19.7 537.8 558.0 20.7
Southern Europe 28.6 17.3 12.9 31.8 1,026.7 661.3 81.8
Central Europe 6.2 2.8 9.7 14.3 135.2 428.0 7.5
Other(1) - (6.4) (4.8) (29.2) - (596.6) 1.0
=================== ======= ========== ========== ========== =============== =========== ===============
Total 173.4 136.5 27.7 150.0 8,256.5 1,053.4 201.7
=================== ======= ========== ========== ========== =============== =========== ===============
31 December 2019
------------------- ------- ---------- ---------- --------------------------- ----------- ---------------
Thames Valley 78.9 72.8 - 70.9 1,752.4 - 38.4
National Logistics 40.2 36.8 0.5 37.8 871.6 3.9 50.1
Greater London 142.6 129.7 - 127.0 4,001.0 - 199.5
Northern Europe 26.9 15.6 21.8 42.4 573.4 604.3 53.3
Southern Europe 61.9 35.7 24.4 64.1 1,085.6 735.9 254.8
Central Europe 11.5 4.5 19.6 27.3 137.9 435.9 8.2
Other(1) - (13.8) (12.3) (65.3) - (658.6) 2.7
=================== ======= ========== ========== ========== =============== =========== ===============
Total 362.0 281.3 54.0 304.2 8,421.9 1,121.4 607.0
------------------- ------- ---------- ---------- ---------- --------------- ----------- ---------------
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 SARL, 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. The "Other"
category includes non-property related spend, primarily IT.
4. REVENUE
Half year Half year Year to
to to 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
=========================================================== ============= ============= ============
Rental income from investment and trading
properties 160.8 147.0 306.9
Rent averaging 7.6 12.8 25.1
Service charge income* 16.7 12.1 27.6
Management fees* 1.4 0.7 1.4
Surrender premiums and dividend income
from property related investments 0.7 0.8 1.0
=========================================================== ============= ============= ============
Gross rental income(1) 187.2 173.4 362.0
----------------------------------------------------------- ------------- ------------- ------------
Joint venture fees - management fees 10.9 9.4 20.4
- performance and other fees - - -
----------------------------------------------------------- ------------- ------------- ------------
Joint venture fee income* 10.9 9.4 20.4
Proceeds from sale of trading properties* - 50.5 50.1
=========================================================== ============= ============= ============
Total revenue 198.1 233.3 432.5
----------------------------------------------------------- ------------- ------------- ------------
* The above income streams reflect revenue recognition under
IFRS 15 Revenue from Contracts with Customers and total GBP29.0
million (31 December 2019: GBP99.5 million; 30 June 2019: GBP72.7
million ).
1. Net rental income of GBP145.1 million (31 December 2019:
GBP281.3 million; 30 June 2019: GBP136.5 million) is calculated as
gross rental income of GBP187.2 million (31 December 2019: GBP362.0
million; 30 June 2019: GBP173.4 million) less total property
operating expenses of GBP42.1 million (31 December 2019: GBP80.7
million; 30 June 2019: GBP36.9 million) shown in Note 5.
5. PROPERTY OPERATING EXPENSES
Half year
to Year to
Half year to 30 June 31 December
30 June 2020 2019 2019
GBPm GBPm GBPm
============================================= ============= ========= ============
Vacant property costs 1.9 2.6 4.8
Letting, marketing, legal and professional
fees 4.3 4.0 8.5
Loss allowance and impairment of receivables 3.0 0.3 1.0
Service charge expense 16.7 12.1 27.6
Other expenses 3.0 4.5 10.5
============================================= ============= ========= ============
Property management expenses 28.9 23.5 52.4
Property administration expenses(1) 17.5 17.0 35.6
Costs capitalised(2) (4.3) (3.6) (7.3)
--------------------------------------------- ------------- --------- ------------
Total property operating expenses 42.1 36.9 80.7
Trading properties cost of sales - 43.6 43.2
============================================= ============= ========= ============
Total costs 42.1 80.5(3) 123.9
============================================= ============= ========= ============
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.
3. 30 June 2019 Total costs of GBP80.5 million consists of:
Property operating expenses of GBP24.8 million which was reported
and presented as a line item in the 30 June 2019 Group Income
Statement, service charge expense of GBP12.1 million and trading
properties costs of sales of GBP43.6 million.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Share of profit from joint ventures after tax
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
============================================ ========= ========= ============
Revenue(1) 124.7 108.3 223.5
Gross rental income 117.8 105.1 214.1
Property operating expenses:
-underlying property operating expenses (6.4) (4.0) (8.5)
-vacant property costs (1.4) (0.9) (2.1)
-property management fees (9.7) (8.3) (17.1)
-service charge expense (23.6) (22.5) (44.1)
Net rental income 76.7 69.4 142.3
Administration expenses (1.1) (1.4) (3.3)
Net finance costs (including adjustments) (12.2) (8.8) (20.1)
============================================ ========= ========= ============
Adjusted profit before tax 63.4 59.2 118.9
Tax (5.0) (3.8) (10.9)
============================================ ========= ========= ============
Adjusted profit after tax 58.4 55.4 108.0
============================================ --------- --------- ------------
At share 29.2 27.7 54.0
============================================ --------- ------------
Adjustments:
Loss on sale of investment properties - (1.0) (1.1)
Valuation surplus on investment properties 20.9 153.9 437.0
Impairment of other interests in properties - (9.3) (9.7)
Gain on sale of trading properties 0.2 2.1 2.1
Impairment of trading properties - (2.0) -
Tax in respect of adjustments (9.7) (85.7) (130.2)
============================================ ========= ========= ============
Total adjustments 11.4 58.0 298.1
============================================ --------- --------- ------------
At share 5.7 29.0 149.1
============================================ --------- ------------
Profit after tax 69.8 113.4 406.1
============================================ --------- --------- ------------
At share 34.9 56.7 203.1
============================================ --------- ------------
Total comprehensive income for the period 69.8 113.4 406.1
============================================ --------- --------- ------------
At share 34.9 56.7 203.1
============================================ --------- ------------
1. Total revenue at 100% of GBP124.7 million (31 December 2019:
GBP223.5 million; 30 June 2019: GBP108.3 million) includes: Gross
rental income GBP117.8 million (31 December 2019: GBP214.1 million;
30 June 2019: GBP105.1 million) and proceeds from sale of trading
properties GBP6.9 million (31 December 2019: GBP9.4 million; 30
June 2019: GBP3.2 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.
6(ii) Summarised balance sheet information of the Group's share
of joint ventures
As at As at As at 31
30 June 30 June December
2020 2019 2019
GBPm GBPm GBPm
============================== ========= ========= =========
Investment properties 4,172.2 3,472.9 3,796.7
Other interests in property 1.4 14.1 16.6
Total non-current assets 4,173.6 3,487.0 3,813.3
================================ ========= ========= =========
Trading properties - 1.7 1.9
Other receivables 108.5 101.5 127.3
Cash and cash equivalents 111.6 239.6 42.0
================================ ========= ========= =========
Total current assets 220.1 342.8 171.2
================================ ========= ========= =========
Total assets 4,393.7 3,829.8 3,984.5
================================ ========= ========= =========
Borrowings (1,535.5) (1,386.5) (1,338.4)
Deferred tax liabilities (271.8) (210.2) (243.2)
Total non-current liabilities (1,807.3) (1,596.7) (1,581.6)
================================ ========= ========= =========
Borrowings - - (50.1)
Other liabilities (117.5) (126.4) (110.0)
Total current liabilities (117.5) (126.4) (160.1)
================================ ========= ========= =========
Total liabilities (1,924.8) (1,723.1) (1,741.7)
================================ ========= ========= =========
Net assets 2,468.9 2,106.7 2,242.8
================================ --------- --------- ---------
At share 1,234.5 1,053.4 1,121.4
================================ --------- --------- ---------
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
GBP52.4 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.
No additional 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 2020 (31 December 2019:
GBPnil; 30 June 2019: GBPnil).
7. REALISED AND UNREALISED PROPERTY GAIN
Half year Half year
to to Year to 31
30 June 30 June December
2020 2019 2019
GBPm GBPm GBPm
================================================= ========= ========= ==========
Profit/(loss) on sale of investment properties 1.7 (0.2) 7.2
Valuation surplus on investment properties(1) 57.4 237.9 476.7
(Increase)/decrease in provision for impairment
of trading properties (0.4) - 1.4
Increase in provision for impairment in other
interests in property - - (0.4)
Valuation (deficit)/surplus on other investments (1.4) 3.0 4.3
================================================= ========= ========= ==========
Total realised and unrealised property gain 57.3 240.7 489.2
================================================= ========= ========= ==========
1. Includes GBP57.6 million valuation surplus on investment
properties (31 December 2019: GBP477.1 million; 30 June 2019:
GBP237.9 million) less GBP0.2 million valuation loss on head lease
ROU asset (31 December 2019: GBP0.4 million; 30 June 2019:
GBPnil).
The above table does not include realised gains on sale of
trading properties of GBPnil (31 December 2019: GBP6.9 million; 30
June 2019: GBP6.9 million) 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 Year to 31
30 June to 30 June December
2020 2019 2019
Finance income GBPm GBPm GBPm
====================================================== ========= =========== ==========
Interest received on bank deposits and related
derivatives 18.3 16.5 32.0
Fair value gain on interest rate swaps and other
derivatives 19.9 24.4 33.1
Exchange differences 0.1 - 0.2
Total finance income 38.3 40.9 65.3
Finance costs
====================================================== ========= =========== ==========
Interest on overdrafts, loans and related derivatives (39.4) (38.0) (71.8)
Cost of early close out of debt - (18.5) (18.6)
Amortisation of issue costs (1.1) (1.1) (2.3)
Interest on lease liabilities (1.6) (1.6) (3.0)
Total borrowing costs (42.1) (59.2) (95.7)
Less amount capitalised on the development of
properties 3.8 6.0 8.2
====================================================== ========= =========== ==========
Net borrowing costs (38.3) (53.2) (87.5)
Fair value loss on interest rate swaps and other
derivatives (2.4) (3.5) (25.2)
Total finance costs (40.7) (56.7) (112.7)
====================================================== ========= =========== ==========
Net finance costs (2.4) (15.8) (47.4)
====================================================== ========= =========== ==========
Net finance costs (including adjustments) in Adjusted profit
(see Note 2) are GBP19.9 million (31 December 2019: GBP36.7
million; 30 June 2019: GBP18.2 million). This excludes net fair
value gain on interest rate swaps and other derivatives of GBP17.5
million (31 December 2019: GBP7.9 million; 30 June 2019: GBP20.9
million) and cost of early close out of debt of GBPnil (31 December
2019: GBP18.6 million; 30 June 2019: GBP18.5 million) in the table
above.
9. TAX
9(i) Tax on profit
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
================================================== ========= ========= ============
Tax:
On Adjusted profit (1.5) (1.1) (3.2)
In respect of adjustments (2.2) (12.4) (38.2)
Total tax charge (3.7) (13.5) (41.4)
================================================== ========= ========= ============
Current tax
Current tax charge (1.5) (3.0) (11.7)
Adjustments in respect of earlier years 4.2 - (0.3)
Total current tax credit/(charge) 2.7 (3.0) (12.0)
================================================== ========= ========= ============
Deferred tax
Origination and reversal of temporary differences (1.3) (1.3) (6.1)
Released in respect of property disposals
in the period - - 4.7
On valuation movements (4.9) (9.0) (39.2)
================================================== ========= ========= ============
Total deferred tax in respect of investment
properties (6.2) (10.3) (40.6)
Other deferred tax (0.2) (0.2) 11.2
================================================== ========= ========= ============
Total deferred tax charge (6.4) (10.5) (29.4)
================================================== ========= ========= ============
Total tax charge on profit on ordinary activities (3.7) (13.5) (41.4)
================================================== ========= ========= ============
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Balance Balance
1 January Exchange Acquisitions/ Recognised 30 June 30 June
2020 movement (disposals) in income 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ========== ========= ============= ========== ======== =========
Valuation surplus and deficits
on properties/accelerated
tax allowances 51.4 3.8 (1.8) 6.2 59.6 35.0
Deferred tax asset on revenue
losses (0.5) - - - (0.5) (1.3)
Others 2.3 0.1 (0.1) 0.2 2.5 3.2
=============================== ========== ========= ============= ========== ======== =========
Total deferred tax liabilities 53.2 3.9 (1.9) 6.4 61.6 36.9
=============================== ========== ========= ============= ========== ======== =========
10. DIVIDS
Half year
Half year to Year to
to 30 June 31 December
30 June 2020 2019 2019
GBPm GBPm GBPm
========================================== ============= ========= ============
Ordinary dividends paid
Final dividend for 2019 @ 14.40 pence per
share 157.9 - -
Interim dividend for 2019 @ 6.30 pence
per share - - 68.9
Final dividend for 2018 @ 13.25 pence per
share - 143.7 143.7
========================================== ============= ========= ============
157.9 143.7 212.6
========================================== ============= ========= ============
The Board has declared an interim dividend of 6.9 pence per
ordinary share (2019: 6.3 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 0.5 million shares
(0.4 million for the full year 2019 and 0.5 million for half year
2019) being the average number of shares held on trust during the
period for employee share schemes and net assets per share exclude
0.3 million shares (0.6 million for the full year 2019 and 0.4
million for the half year 2019) 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 Year to 31 December
2020 June 2019 2019
============================== ============================== ==============================
Earnings Shares Pence Earnings Shares Pence Earnings Shares Pence
GBPm million per share GBPm million per share GBPm million per share
================== ======== ======== ========== ======== ======== ========== ======== ======== ==========
Basic EPS 216.2 1,108.1 19.5 395.9 1,067.1 37.1 857.9 1,081.3 79.3
Dilution
adjustments:
Employee share
schemes - 4.4 (0.1) - 5.4 (0.2) - 5.8 (0.4)
================== ======== ======== ========== ======== ======== ========== ======== ======== ==========
Diluted EPS 216.2 1,112.5 19.4 395.9 1,072.5 36.9 857.9 1,087.1 78.9
================== ======== ======== ========== ======== ======== ========== ======== ======== ==========
Basic EPS 216.2 1,108.1 19.5 395.9 1,067.1 37.1 857.9 1,081.3 79.3
Adjustments to
profit
before tax(1) (80.5) (7.3) (279.0) (26.1) (634.5) (58.7)
Tax in respect of
Adjustments 2.2 0.2 12.4 1.1 38.2 3.6
Non-controlling
interest
on adjustments 0.9 0.1 1.3 0.1 2.5 0.2
Adjusted Basic EPS 138.8 1,108.1 12.5 130.6 1,067.1 12.2 264.1 1,081.3 24.4
================== ======== ======== ========== ======== ======== ========== ======== ======== ==========
Adjusted Diluted
EPS 138.8 1,112.5 12.5 130.6 1,072.5 12.2 264.1 1,087.1 24.3
================== ======== ======== ========== ======== ======== ========== ======== ======== ==========
1. Details of adjustments are included in Note 2.
11(ii) Net asset value per share (NAV)
In October 2019, EPRA issued new best practice reporting
guidelines for Net Asset Value (NAV) metrics, these recommendations
are effective for accounting periods starting on 1 January 2020 and
have been adopted by the Group in reporting the 30 June 2020
position.
EPRA have introduced three new NAV metrics: EPRA Net Tangible
Assets (NTA), Net Reinvestment Value (NRV) and Net Disposal Value
(NDV). EPRA NTA is considered to be the most relevant measure for
SEGRO's operating activity and is now the primary measure of net
asset value, replacing the metric EPRA net assets previously
reported.
As EPRA NTA is considered the primary measure of net asset
value, this metric is also referred to as Adjusted Net Asset Value
(or Adjusted NAV).
A reconciliation from IFRS NAV to Adjusted NAV as at 30 June
2020 is set out in the table below along with the net asset per
share metrics. The 30 June 2019 and 31 December 2019 position have
been represented on a comparable basis.
Table 4 of the supplementary notes provides more details of the
changes and the calculation for each of the three new EPRA net
asset value metrics.
As at 30 June 2020 As at 30 June 2019 As at 31 December
2019
=============================== =============================== ================================
Equity Shares Pence Equity Shares Pence Equity Shares Pence
attributable million per attributable million per attributable million per
to ordinary share to ordinary share to ordinary share
shareholders shareholders shareholders
======== ====== ======== ====== ======== =======
GBPm GBPm GBPm
============== ============= ======== ====== ============= ======== ====== ============= ======== =======
Basic NAV 8,539.8 1,190.6 717 7,302.5 1,092.9 668 7,677.6 1,096.1 700
Dilution
adjustments:
Employee
share
schemes - 2.7 (1) - 5.1 (3) - 6.0 (3)
============== ============= ======== ====== ============= ======== ====== ============= ======== =======
Diluted NAV 8,539.8 1,193.3 716 7,302.5 1,098.0 665 7,677.6 1,102.1 697
============== ============= ======== ====== ============= ======== ====== ============= ======== =======
Fair value
adjustment
in respect
of interest
rate
derivatives
- Group (68.1) (6) (55.8) (6) (50.5) (5)
Fair value
adjustment
in respect
of trading
properties
- Group 1.8 - 1.2 - - -
Fair value - - - - 0.9 -
adjustment
in respect
of trading
properties
- Joint
ventures
Deferred tax
in respect
of
depreciation
and
valuation
surpluses -
Group(1) 29.8 2 17.5 2 26.0 2
Deferred tax
in respect
of
depreciation
and
valuation
surpluses -
Joint
ventures(1) 67.3 6 51.7 5 60.6 6
Intangible
assets (1.8) - (2.6) - (2.5) -
-------------- ------------- -------- ------ ------------- -------- ------ ------------- -------- -------
Adjusted NAV
(EPRA NTA) 8,568.8 1,193.3 718 7,314.5 1,098.0 666 7,712.1 1,102.1 700
-------------- ------------- -------- ------ ------------- -------- ------ ------------- -------- -------
1. 50% of deferred tax in respect of depreciation and valuation
surpluses have been excluded in calculating Adjusted NAV.
12. PROPERTIES
12(i) Investment properties
Completed Development Total
GBPm GBPm GBPm
======================================================= ========= =========== =======
At 1 January 2020 7,407.2 807.9 8,215.1
Exchange movement 98.2 31.2 129.4
Property acquisitions 220.5 197.9 418.4
Additions to existing investment properties 11.8 228.5 240.3
Disposals(2) (44.0) (10.2) (54.2)
Transfers on completion of development 245.2 (245.2) -
Transfers from trading properties - 1.5 1.5
Revaluation surplus during the period 30.0 27.6 57.6
======================================================= ========= =========== =======
At 30 June 2020 7,968.9 1,039.2 9,008.1
Add tenant lease incentives, letting fees and rental
guarantees 125.0 - 125.0
======================================================= ========= =========== =======
Investment properties excluding head lease liabilities
at 30 June 2020 8,093.9 1,039.2 9,133.1
======================================================= ========= =========== =======
Add head lease liabilities (ROU assets)(1) 75.0 - 75.0
======================================================= ========= =========== =======
Total investment properties at 30 June 2020 8,168.9 1,039.2 9,208.1
======================================================= ========= =========== =======
Total investment properties at 30 June 2019 7,521.3 723.5 8,244.8
======================================================= ========= =========== =======
1. At 30 June 2020 investment properties included GBP75.0
million (31 December 2019: GBP70.2 million; 30 June 2019: GBP74.5
million) for the head lease liabilities recognised under IFRS
16.
2. Total disposals completed in H1 2020 of GBP58.7 million shown
on page 8 of the Chief Executive's Review includes: Carrying value
of investment properties disposed by SEGRO Group of GBP54.2 million
and profit generated on disposal of GBP1.7 million (see Note 7),
share of joint venture investment properties disposal proceeds of
GBP1.7 million; carrying value of lease incentives, letting fees
and rental guarantees disposed by SEGRO Group and joint venture (at
share) of GBP1.1 million.
Investment properties are stated at fair value based on external
valuations performed by professionally qualified valuers. The
Group's wholly owned property portfolio and all its joint venture
properties were performed by CBRE Ltd (apart from one asset 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. 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. The
firm advises us that the total fees paid by the Group represent
less than 5 per cent of their total revenue in any year.
In respect of certain office, retail and leisure assets
totalling 2.1 per cent (GBP236 million) of the portfolio value (at
share), the external valuer noted a material uncertainty clause
relating to the Covid-19 pandemic in line with current industry
practice. The form of this clause can be found in section 5 of the
document at:
https://www.rics.org/globalassets/rics-website/media/knowledge/impact-of-covid-on-valuation-10-july.pdf
Sensitivity analysis
An increase/decrease to ERV will increase/decrease valuations,
while an increase/decrease to yield will decrease/increase
valuations. In light of the relatively small valuation movement in
the period, 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
valuation of 25bp
change in nominal Impact on valuation of 5
equivalent yield % change in estimated rental value (ERV)
-------------------
Group total completed property
portfolio(1) Increase Decrease Increase Decrease
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------------- -------------------- -------------------- ---------
30 June 2020 10,111.6 (514.1) 460.1 372.6 (366.9)
30 June 2019 9,104.0 (417.3) 442.3 331.0 (336.1)
31 December 2019(2) 9,316.9 (473.5) 425.3 342.1 (337.7)
1. For further details see Table 6 of the supplementary notes.
2. Following a change in methodology, the December 2019
sensitivities have changed from those values disclosed in the SEGRO
plc Annual Report and Accounts for the year ended 31 December 2019
in order to be consistent with the June 2020 position.
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 2020 investment properties included GBP125.0 million
tenant lease incentives, letting fees and rent guarantees (31
December 2019: GBP116.4 million; 30 June 2019: GBP108.5
million).
The carrying value of investment properties situated on land
held under leaseholds amount to GBP168.0 million (excluding head
lease ROU assets) (31 December 2019: GBP151.1 million; 30 June
2019: GBP129.1 million).
The disposals of completed properties during the period includes
properties with a carrying value of GBPnil (31 December 2019:
GBP221.0 million; 30 June 2019: GBP66.6 million) sold to the SELP
joint venture.
12(ii) Trading properties
The carrying value of trading properties at 30 June 2020 was
GBP29.2 million (31 December 2019: GBP20.2 million; 30 June 2019:
GBP11.7 million). Trading properties were externally valued by CBRE
resulting in an increase in the provision for impairment of GBP0.4
million (31 December 2019: decrease in provision of GBP1.4 million;
30 June 2019: GBPnil). Based on the fair value at 30 June 2020, the
portfolio has unrecognised surplus of GBP1.8 million (31 December
2019: GBPnil; 30 June 2019: GBP1.2 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
As at As at As at
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
================================================= ======== ======== ============
In one year or less - - -
================================================= ======== ======== ============
In more than one year but less than two 121.0 - 79.3
In more than two years but less than five 81.8 197.7 120.6
In more than five years but less than ten 933.4 448.4 896.5
In more than ten years 865.7 1,340.7 847.1
================================================= ======== ======== ============
In more than one year 2,001.9 1,986.8 1,943.5
================================================= ======== ======== ============
Total borrowings 2,001.9 1,986.8 1,943.5
================================================= ======== ======== ============
Cash and cash equivalents (203.4) (170.0) (132.5)
Net borrowings 1,798.5 1,816.8 1,811.0
Total borrowings is split between secured and unsecured
as follows:
Secured (on land and buildings) 2.6 3.0 2.6
Unsecured 1,999.3 1,983.8 1,940.9
================================================= ======== ======== ============
Total borrowings 2,001.9 1,986.8 1,943.5
================================================= ======== ======== ============
Currency profile of total borrowings after
derivative instruments
Sterling (15.6) 378.0 184.7
Euros 2,017.5 1,608.8 1,758.8
Total borrowings 2,001.9 1,986.8 1,943.5
Maturity profile of undrawn borrowing facilities
In one year or less 9.1 13.9 8.5
In more than one year but less than two - - -
In more than two years 1,107.2 1,087.5 1,032.2
================================================= ======== ======== ============
Total available undrawn facilities 1,116.3 1,101.4 1,040.7
================================================= ======== ======== ============
Fair value of financial instruments
Book value of debt 2,001.9 1,986.8 1,943.5
Interest rate derivatives (68.1) (55.8) (50.5)
Foreign exchange derivatives 22.9 5.0 (16.2)
================================================= ======== ======== ============
Book value of debt including derivatives 1,956.7 1,936.0 1,876.8
Net fair market value 2,209.7 2,089.0 2,110.1
================================================= ======== ======== ============
Mark to market adjustment (pre-tax) 253.0 153.0 233.3
================================================= ======== ======== ============
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 period.
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. SHARE CAPITAL
Number Par value
of shares of shares
m GBPm
Issued and fully paid ordinary shares at 10p each:
At 1 January 2020 1,096.7 109.6
Issue of shares - placing 82.9 8.3
Issue of shares - scrip dividends 7.6 0.8
Issue of shares - other 3.7 0.4
========== ==========
At 30 June 2020 1,190.9 119.1
========== ==========
At 30 June 2019 1,093.3 109.3
========== ==========
On 9 June 2020 the Company announced the placing of 82.9 million
ordinary shares of 10p each in the capital of the Company at a
price of 820 pence per share. The Company raised GBP680.0 million
before GBP8.7 million of expenses and as a result the Company's
share capital increased by GBP8.3 million and share premium by
GBP663.0 million.
15. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
15(i) Reconciliation of cash generated from operations
Half year
to Year to
Half year to 30 June 31 December
30 June 2020 2019 2019
GBPm GBPm GBPm
=========
Operating profit 223.3 426.6 949.4
Adjustments for:
Depreciation of property, plant and equipment 1.7 1.4 3.4
Share of profit from joint ventures after
tax (34.9) (56.7) (203.1)
Profit/(loss) on sale of investment properties (1.7) 0.2 (7.2)
Revaluation surplus on investment properties (57.4) (237.9) (476.7)
Valuation deficit/(surplus) on other investments 1.4 (3.0) (4.3)
Other provisions (1.3) 2.5 8.2
=========
131.1 133.1 269.7
Changes in working capital:
(Increase)/decrease trading properties (8.7) 40.3 30.9
Increase in debtors and tenant incentives (26.4) (27.1) (59.3)
Increase in creditors 11.2 18.5 50.3
=========
Net cash inflow generated from operations 107.2 164.8 291.6
=========
15(ii) Analysis of net debt
Non-cash movements
At 1 January Exchange Other non-cash At 30 June
2020 Cash flow(1) movement adjustments(2) 2020
GBPm GBPm GBPm GBPm GBPm
========= ==========
Bank loans and loan capital 1,958.3 (2.4) 60.9 - 2,016.8
Capitalised finance costs (14.8) (1.2) - 1.1 (14.9)
Total borrowings 1,943.5 (3.6) 60.9 1.1 2,001.9
Cash in hand and at bank (132.5) (70.7) (0.2) - (203.4)
Net debt 1,811.0 (74.3) 60.7 1.1 1,798.5
1. Net cash outflow from Bank loans and loan capital of GBP2.4
million relates to the repayment of borrowings.
2. The other non-cash adjustments relate to the amortisation of
issue costs offset against borrowings.
16. 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 elsewhere in this condensed set of financial
statements.
17. SUBSEQUENT EVENTS
During July 2020 the Group agreed EUR450 million of US Private
Placement notes. The debt refinancing is discussed in more detail
in the Finance Review on page 23.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
Half year to 30 June
Half year to 30 June 2020 2019 Year to 31 December 2019
Notes GBPm Pence per share GBPm Pence per share GBPm Pence per share
EPRA Earnings Table 2 138.8 12.5 130.6 12.2 264.1 24.4
EPRA NTA (Adjusted
NAV) Table 4 8,568.8 718 7,314.5 666 7,712.1 700
EPRA NRV Table 4 9,281.7 778 7,917.8 721 8,370.7 760
EPRA NDV Table 4 8,290.2 695 7,131.7 650 7,425.8 674
EPRA net initial
yield Table 6 3.7% 3.9% 3.8%
EPRA 'topped up' net
initial yield Table 6 4.0% 4.4% 4.3%
EPRA vacancy rate Table 7 5.2% 4.8% 4.0%
EPRA cost ratio
(including vacant
property costs) Table 8 21.2% 22.0% 22.9%
EPRA cost ratio
(excluding vacant
property costs) Table 8 20.0% 20.5% 21.5%
TABLE 2: INCOME STATEMENT, PROPORTIONALLY CONSOLIDATED
Half year to 30 June Year to 31 December 2019
Half year to 30 June 2020 2019
Group JV Total Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Gross rental income 2, 6 187.2 58.9 246.1 173.4 52.6 226.0 362.0 107.1 469.1
Property operating
expenses 2, 6 (42.1) (15.7) (57.8) (36.9) (13.7) (50.6) (80.7) (27.4) (108.1)
Net rental income 145.1 43.2 188.3 136.5 38.9 175.4 281.3 79.7 361.0
Joint venture fee
income(1) 2 10.9 (4.8) 6.1 9.4 (4.2) 5.2 20.4 (8.6) 11.8
Administration expenses 2 (24.9) (0.6) (25.5) (23.6) (0.7) (24.3) (51.5) (1.6) (53.1)
Adjusted operating
profit before interest
and tax 131.1 37.8 168.9 122.3 34.0 156.3 250.2 69.5 319.7
Net finance costs
(including adjustments) 2, 6 (19.9) (6.1) (26.0) (18.2) (4.4) (22.6) (36.7) (10.0) (46.7)
Adjusted profit before
tax 111.2 31.7 142.9 104.1 29.6 133.7 213.5 59.5 273.0
Tax on adjusted profit 2, 6 (1.5) (2.5) (4.0) (1.1) (1.9) (3.0) (3.2) (5.5) (8.7)
Adjusted earnings 109.7 29.2 138.9 103.0 27.7 130.7 210.3 54.0 264.3
Non-controlling interest
on adjusted profit (0.1) - (0.1) (0.1) - (0.1) (0.2) - (0.2)
Adjusted/EPRA earnings after
tax and non-controlling
interests 109.6 29.2 138.8 102.9 27.7 130.6 210.1 54.0 264.1
Number of shares 1,108.1 1,067.1 1,081.3
Adjusted/EPRA EPS, pence per
share 12.5 12.2 24.4
Number of shares 1,112.5 1,072.5 1,087.1
Adjusted/EPRA EPS, pence per share -
diluted 12.5 12.2 24.3
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 2020 As at 30 June 2019 As at 31 December 2019
Group JV Total Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment
properties 12, 6 9,208.1 2,086.1 11,294.2 8,244.8 1,736.4 9,981.2 8,401.7 1,898.3 10,300.0
Trading
properties 12, 6 29.2 - 29.2 11.7 0.8 12.5 20.2 1.0 21.2
Total
properties 9,237.3 2,086.1 11,323.4 8,256.5 1,737.2 9,993.7 8,421.9 1,899.3 10,321.2
Investment in
joint
ventures 6 1,234.5 (1,234.5) - 1,053.4 (1,053.4) - 1,121.4 (1,121.4) -
Other net
liabilities (133.5) (139.6) (273.1) (190.6) (110.3) (300.9) (54.7) (104.6) (159.3)
Net borrowings 13,6 (1,798.5) (712.0) (2,510.5) (1,816.8) (573.5) (2,390.3) (1,811.0) (673.3) (2,484.3)
Total
shareholders'
equity(1) 8,539.8 - 8,539.8 7,302.5 - 7,302.5 7,677.6 - 7,677.6
EPRA
adjustments 11 29.0 12.0 34.5
Adjusted NAV 11 8,568.8 7,314.5 7,712.1
Number of
shares,
millions 11 1,193.3 1,098.0 1,102.1
Adjusted NAV
pence per
share 11 718 666 700
1. After non-controlling interests.
Loan to value of 22 per cent at 30 June 2020 is calculated as
net borrowings of GBP2,510.5 million divided by total properties
(excluding head lease ROU asset of GBP75.0 million) of GBP11,248.4
million (30 June 2019: 24 per cent, GBP2,390.3 million net
borrowings and GBP9,919.2 million total properties; 31 December
2019: 24 per cent, GBP2,484.3 million net borrowings and
GBP10,251.0 million total properties).
TABLE 4: EPRA NET ASSET MEASURES
In October 2019, the European Public Real Estate Association
('EPRA') published new best practice recommendations (BPR) for
financial disclosures by public real estate companies. The BPR
introduced three new measures of net asset value: EPRA net tangible
assets (NTA), EPRA net reinvestment value (NRV) and EPRA net
disposal value (NDV).
These recommendations are effective for accounting periods
starting on 1 January 2020 and have been adopted by the Group in
reporting the 30 June 2020 position.
EPRA NTA is considered to be the most relevant measure for
SEGRO's operating activities and therefore now acts as the primary
measure of net asset value. To avoid confusion for shareholders, we
intend to refer to this metric as Adjusted Net Asset Value (or
Adjusted NAV).
A reconciliation of the three new EPRA NAV metrics from IFRS NAV
is shown in the table below. The previously reported EPRA NAV and
EPRA NNNAV have also been included for comparative purposes.
Previously reported
Current measures measures
As at 30 June 2020 EPRA
NTA
(Adjusted EPRA EPRA
NAV) NRV EPRA NDV NAV EPRA NNNAV
GBPm GBPm GBPm GBPm GBPm
Equity attributable to ordinary shareholders 8,539.8 8,539.8 8,539.8 8,539.8 8,539.8
Fair value adjustment in respect of
interest rate derivatives - Group (68.1) (68.1) - (68.1) -
Fair value adjustment in respect of
trading properties - Group 1.8 1.8 1.8 1.8 1.8
Fair value adjustment in respect of - - - - -
trading properties - Joint ventures
Deferred tax in respect of depreciation
and valuation surpluses - Group 29.8(1) 59.5 - 59.5 -
Deferred tax in respect of depreciation
and valuation surpluses - Joint ventures 67.3(1) 134.5 - 134.5 -
Intangible assets (1.8) - - - -
Fair value adjustment in respect of
debt - Group - - (253.0) - (253.0)
Fair value adjustment in respect of
debt - Joint ventures - - 1.6 - 1.6
Real estate transfer tax - 614.2 - - -
Net assets 8,568.8 9,281.7 8,290.2 8,667.5 8,290.2
Diluted shares (million) 1,193.3 1,193.3 1,193.3 1,193.3 1,193.3
Diluted net assets per share 718 778 695 726 695
1. 50% of deferred tax in respect of depreciation and valuation
surpluses have been excluded in calculating EPRA NTA.
Previously reported
Current measures measures
As at 30 June 2019 EPRA
NTA
(Adjusted EPRA EPRA EPRA EPRA
NAV) NRV NDV NAV NNNAV
GBPm GBPm GBPm GBPm GBPm
Equity attributable to ordinary shareholders 7,302.5 7,302.5 7,302.5 7,302.5 7,302.5
Fair value adjustment in respect of
interest rate derivatives - Group (55.8) (55.8) - (55.8) -
Fair value adjustment in respect of
trading properties - Group 1.2 1.2 1.2 1.2 1.2
Fair value adjustment in respect of - - - - -
trading properties - Joint ventures
Deferred tax in respect of depreciation
and valuation surpluses - Group 17.5(1) 35.0 - 35.0 -
Deferred tax in respect of depreciation
and valuation surpluses - Joint ventures 51.7(1) 103.3 - 103.3 -
Intangible assets (2.6) - - - -
Fair value adjustment in respect of
debt - Group - - (153.0) - (153.0)
Fair value adjustment in respect of
debt - Joint ventures - - (19.0) - (19.0)
Real estate transfer tax - 531.6 - - -
Net assets 7,314.5 7,917.8 7,131.7 7,386.2 7,131.7
Diluted shares (million) 1,098.0 1,098.0 1,098.0 1,098.0 1,098.0
Diluted net assets per share 666 721 650 673 650
1. 50% of deferred tax in respect of depreciation and valuation
surpluses have been excluded in calculating EPRA NTA.
Previously
Current measures reported measures
As at 31 December 2019 EPRA EPRA
NTA EPRA triple
(Adjusted EPRA EPRA net net
NAV) NRV NDV assets assets
GBPm GBPm GBPm GBPm GBPm
Equity attributable to ordinary shareholders 7,677.6 7,677.6 7,677.6 7,677.6 7,677.6
Fair value adjustment in respect of
interest rate derivatives - Group (50.5) (50.5) - (50.5) -
Fair value adjustment in respect of - - - - -
trading properties - Group
Fair value adjustment in respect of
trading properties - Joint ventures 0.9 0.9 0.9 0.9 0.9
Deferred tax in respect of depreciation
and valuation surpluses - Group 26.0(1) 51.9 - 51.9 -
Deferred tax in respect of depreciation
and valuation surpluses - Joint ventures 60.6(1) 121.1 - 121.1 -
Intangible assets (2.5) - - - -
Fair value adjustment in respect of
debt - Group - - (233.3) - (233.3)
Fair value adjustment in respect of
debt - Joint ventures - - (19.4) - (19.4)
Real estate transfer tax - 569.7 - - -
Net assets 7,712.1 8,370.7 7,425.8 7,801.0 7,425.8
Diluted shares (million) 1,102.1 1,102.1 1,102.1 1,102.1 1,102.1
Diluted net assets per share 700 760 674 708 674
1. 50% of deferred tax in respect of depreciation and valuation
surpluses have been excluded in calculating EPRA NTA.
TABLE 5: EPRA EARNINGS
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
Notes GBPm GBPm GBPm
========= ========= ============
Earnings per IFRS income statement 216.2 395.9 857.9
Adjustments to calculate EPRA Earnings,
exclude:
Valuation surplus on investment properties 7 (57.4) (237.9) (476.7)
(Profit)/loss on sale of investment properties 7 (1.7) 0.2 (7.2)
Gain on sale of trading properties 7 - (6.9) (6.9)
Increase/(decrease) in provision for
impairment of trading properties 12 0.4 - (1.4)
Increase in provision for impairment
of other interests in property 7 - - 0.4
Valuation deficit/(surplus) on other
investments 7 1.4 (3.0) (4.3)
Tax on profits on disposals(1) (4.0) 2.1 9.2
Costs of early close out of debt 8 - 18.5 18.6
Net fair value gain on interest rate
swaps and other derivatives 8 (17.5) (20.9) (7.9)
Deferred tax in respect of EPRA adjustments(1) 6.2 10.3 29.0
Adjustments to the share of profit from
joint ventures after tax 6 (5.7) (29.0) (149.1)
Non-controlling interests in respect
of the above 2 0.9 1.3 2.5
EPRA earnings 138.8 130.6 264.1
Basic number of shares 11 1,108.1 1,067.1 1,081.3
EPRA Earnings per Share (EPS) 12.5 12.2 24.4
Company specific adjustments:
Non-EPRA adjustments 2 - - -
Adjusted earnings 138.8 130.6 264.1
Adjusted EPS 12.5 12.2 24.4
1. Total tax charge in respect of adjustments per Note 2 of
GBP2.2 million (H1 2019: 12.4 million, FY 2019: GBP38.2 million)
comprises tax credit on profits on disposals of GBP4.0 million (H1
2019: charge GBP2.1 million, FY 2019: charge GBP9.2 million) and
deferred tax charge of GBP6.2 million (H1 2019: GBP10.3 million, FY
2019: GBP29.0 million).
TABLE 6: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Continental
Combined property portfolio including joint Notes UK Europe Total
ventures at share - 30 June 2020 GBPm GBPm GBPm
Table
Total properties per financial statements 3 7,117.2 4,206.2 11,323.4
===========
Add valuation surplus not recognised on trading
properties(1) - 1.8 1.8
Other items (3.8)- (3.8)
Less head lease ROU assets 12 - (75.0) (75.0)
Combined property portfolio per external valuers'
report(5) 7,113.4 4,133.0 11,246.4
Less development properties (investment, trading
and joint venture) (540.4) (594.4) (1,134.8)
Net valuation of completed properties 6,573.0 3,538.6 10,111.6
Add notional purchasers' costs 444.7 169.5 614.2
===========
Gross valuation of completed properties including
notional purchasers' costs A 7,017.7 3,708.1 10,725.8
Income
Gross passing rents(2) 261.0 159.9 420.9
Less irrecoverable property costs (3.2) (7.7) (10.9)
====== ===========
Net passing rents B 257.8 152.2 410.0
Adjustment for notional rent in respect of
rent frees 26.1 26.2 52.3
====== ===========
Topped up net rent C 283.9 178.4 462.3
Including fixed/minimum uplifts(3) 10.7 1.7 12.4
Total topped up net rent 294.6 180.1 474.7
====== ===========
Yields - 30 June 2020 %% %
====== ==========
EPRA net initial yield(4) B/A 3.7 4.1 3.8
EPRA topped up net initial yield(4) C/A 4.0 4.8 4.3
True net equivalent yield 4.6 5.2 4.8
====== ===========
1. Trading properties are recorded in the Financial Statements
at the lower of cost and net realisable value, therefore valuations
above cost of GBP1.8 million have not been recognised.
2. Gross passing rent excludes short term lettings and licences.
3. 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).
4. In accordance with the Best Practices Recommendations of EPRA.
5. Total assets under management of GBP13,332.5 million includes
Combined property portfolio (including JV at 50% share) of
GBP11,246.4 million plus 50% of JV properties not owned but under
management of GBP2,086.1 million (Table 3).
TABLE 7: EPRA VACANCY RATE
Half year Half year
to to Year to
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Annualised potential rental value of vacant
premises 27.0 23.0 19.2
Annualised potential rental value for the
completed property portfolio 517.7 477.1 474.2
EPRA vacancy rate 5.2% 4.8% 4.0%
TABLE 8: TOTAL COST RATIO / EPRA COST RATIO
Half year
Half year to Year to
to 30 June 31 December
30 June 2020 2019 2019
Total cost ratio Notes GBPm GBPm GBPm
============= ========= ============
Costs
Property operating expenses(1) 5 42.1 36.9 80.7
Administration expenses 24.9 23.6 51.5
Share of joint venture property operating
and administration expenses(2) 6 21.1 18.6 37.6
Less:
Joint venture property management fee
income, service charge income, management
fees and other costs recovered through
rents but not separately invoiced(3) (42.6) (35.0) (74.6)
========= ============
Total costs (A) 45.5 44.1 95.2
Gross rental income
Gross rental income 4 187.2 173.4 362.0
Share of joint venture property gross
rental income 6 58.9 52.6 107.1
Less:
Service charge income, management fees
and other costs recovered through rents
but not separately invoiced(3) (31.7) (25.6) (54.2)
Total gross rental income (B) 214.4 200.4 414.9
Total cost ratio (A)/(B) 21.2% 22.0% 22.9%
Total costs (A) 45.5 44.1 95.2
Share-based payments (5.6) (5.6) (12.5)
Total costs after share based payments
(C) 39.9 38.5 82.7
Total cost ratio after share based payments
(C)/(B) 18.6% 19.2% 19.9%
EPRA cost ratio
Total costs (A) 45.5 44.1 95.2
Non-EPRA adjustments - - -
EPRA total costs including vacant property
costs (D) 45.5 44.1 95.2
Group vacant property costs (1.9) (2.6) (4.8)
Share of joint venture vacant property
costs (0.7) (0.5) (1.1)
EPRA total costs excluding vacant property
costs (E) 42.9 41.0 89.3
Total gross rental income (B) 214.4 200.4 414.9
Total EPRA costs ratio (including vacant
property costs) (D)/(B) 21.2% 22.0% 22.9%
Total EPRA costs ratio (excluding vacant
property costs) (E)/(B) 20.0% 20.5% 21.5%
1. Property operating expenses are net of costs capitalised in
accordance with IFRS of GBP4.3 million (H1 2019: GBP3.6 million, FY
2019: GBP7.3 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 GBP42.6 million (H1 2019: GBP35.0 million,
FY 2019: GBP74.6 million) from costs includes: joint venture
management fees income of GBP10.9 million (H1 2019: GBP9.4 million,
FY 2019: GBP20.4 million), service charge income including joint
ventures of GBP28.5 million (H1 2019: GBP23.4 million, FY 2019:
GBP49.7 million) and management fees and other costs recovered
through rents but not separately invoiced, including joint
ventures, of GBP3.2 million (H1 2019: GBP2.2 million, FY 2019:
GBP4.5 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 GBP187.2 million (H1 2019:
GBP173.4 million, FY 2019: GBP362.0 million) does not include joint
venture management fees income of GBP10.9 million (H1 2019: GBP9.4
million, FY 2019: GBP20.4 million) and these fees are not required
to be included in the total deduction to income of GBP31.7 million
(H1 2019: GBP25.6 million, FY 2019: GBP54.2 million).
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 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FLFEDTAISIII
(END) Dow Jones Newswires
August 05, 2020 02:00 ET (06:00 GMT)
Segro (LSE:SGRO)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Segro (LSE:SGRO)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024