TIDMSGRO
SEGRO plc (LSE:SGRO) (Paris:SGRO):
Commenting on the results, David Sleath, Chief Executive,
said:
"SEGRO delivered another strong set of financial results in
2020, with record lettings driven by our customer focus and the
increasing demand for prime industrial properties from a wide
occupier base.
"The pandemic has reinforced the importance of efficient and
resilient distribution networks to facilitate the provision of a
wide variety of goods and services, leading to increased demand for
warehouse space. 2020 saw a record level of investment for SEGRO as
we seek to capitalise on these favourable trends, giving us
confidence in our ability to drive further growth in rental income,
earnings and dividends over the coming years.
"We have also reviewed, challenged and refreshed our approach to
sustainability. Today we are re-launching our Responsible SEGRO
framework, with three long-term priorities that outline our
commitment to society and position us to truly deliver on our
Purpose of 'creating the space that enables extraordinary things to
happen'."
HIGHLIGHTS(A) :
-- Adjusted pre-tax profit of GBP296.5 million up 10.8 per cent compared
with the prior year (2019: GBP267.5 million). Adjusted EPS is 25.4 pence
(2019: 24.4 pence).
-- Adjusted NAV per share is up 16.3 per cent to 814 pence (2019: 700 pence)
mainly due to a 10.3 per cent increase in the valuation of the portfolio
driven by asset management, our development activity and yield
compression.
-- A record leasing and asset management performance with GBP77.9 million of
new headline rent in 2020, including GBP41.1 million of new pre-let
agreements.
-- Net capital investment of GBP1.3 billion through key strategic asset
acquisitions, development projects and land purchases.
-- Near-term earnings prospects underpinned by 1.2 million sq m of
development projects under construction or in advanced pre-let
discussions equating to GBP81 million of potential rent, of which 75 per
cent has been pre-let, substantially de-risking the 2021 pipeline.
-- Over GBP1 billion of new equity and debt financing, helping to strengthen
the balance sheet for further, development-led growth. LTV of 24 per cent
at 31 December 2020.
-- 2020 full year dividend increased by 6.8 per cent to 22.1 pence (2019:
20.7 pence). Final dividend increased by 5.6 per cent to 15.2 pence
(2019: 14.4 pence).
RE-LAUNCHING OUR RESPONSIBLE SEGRO FRAMEWORK: NEW FOCUS AREAS
AND MORE AMBITIOUS GOALS
Today we also re-launch our Responsible SEGRO framework with
three new long-term focus areas where we believe we can make the
greatest business, environmental and social impact and where we are
setting challenging and ambitious goals.
-- We will Champion low-carbon growth and will be net-carbon neutral by 2030
driven by changes in our development activity and the operation of our
existing buildings.
-- We will Invest in our local communities and environments through the
creation and implementation of Community Investment Plans for every key
market in our portfolio. These will focus on supporting local business
and economies, the development of training and employment opportunities
and enhancing the local environment.
-- We will Nurture talent and will provide a healthy and supportive working
environment, develop fulfilling and rewarding careers, foster an
inclusive culture and build a more diverse workforce.
FINANCIAL SUMMARY
Change
Income statement metrics 2020 2019 per cent
Adjusted(1) profit before tax (GBPm) 296.5 267.5 10.8
IFRS profit before tax (GBPm) 1,464.1 902.0 62.3
Adjusted(2) earnings per share (pence) 25.4 24.4 4.1
IFRS earnings per share (pence) 124.1 79.3 56.5
Dividend per share (pence) 22.1 20.7 6.8
31 December 31 December Change
Balance sheet metrics 2020 2019 per cent
Portfolio valuation (SEGRO share,
GBPm) 12,995 10,251 10.3(3)
Adjusted(4 5) net asset value per
share (pence, diluted) 814 700 16.3
IFRS net asset value per share
(pence, diluted) 809 697 16.1
Net debt (SEGRO share, GBPm) 2,325 1,811 --
Loan to value ratio including
joint ventures at share (per
cent) 24 24 --
1. A reconciliation between Adjusted profit before tax and IFRS profit before
tax is shown in Note 2 to the condensed financial information.
2. A reconciliation between Adjusted earnings per share and IFRS earnings per
share is shown in Note 11 to the condensed financial information.
3. 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 5 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 19 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.
FINANCIAL AND OPERATING HIGHLIGHTS
Strong valuation gains driven by rental value growth,
development gains, yield compression and active asset management of
the standing portfolio.
-- Portfolio capital valuation surplus of 10.3 per cent driven by a 9.2 per
cent increase in the like-for-like value of our UK portfolio (2019: 2.5
per cent) and 10.2 per cent in Continental Europe (2019: 13.5 per cent).
-- 2.5 per cent rental value growth across the portfolio (UK: 3.1 per cent,
Continental Europe: 1.5 per cent)
Portfolio benefiting from increased customer demand for modern
warehouse space whilst proving resilient to the impacts of the
pandemic.
-- 18.3 per cent increase in annualised new rent commitments during the
period to GBP77.9 million (2019: GBP65.8 million), of which GBP41.1
million (2019: GBP33.2 million) is from new development.
-- 2.1 per cent like-for-like net rental income growth (0.9 per cent in the
UK, 4.3 percent in Continental Europe) aided by an average 19.1 per cent
uplift on rent reviews and renewals. The UK figures include the
significant impact of the final lease re-gear at the Heathrow Cargo
Centre.
-- Vacancy rate remains low at 3.9 per cent (31 December 2019: 4.0 per cent)
and customer retention high at 86 per cent (2019: 88 per cent), due to
increased demand for space in our high-quality, well located portfolio
and focus on excellent customer service inherent within our platform.
Growing the rent roll through the active development pipeline
with significant additions to the land bank securing opportunities
for further growth.
-- 835,900 sq m of development completions during 2020, potentially adding
GBP47 million of rent, of which GBP39 million has been secured. We are
targeting BREEAM 'Excellent' or 'Very Good' (or local equivalent) on 93
per cent of the eligible completions.
-- GBP54 million of potential rent from current development pipeline, 66 per
cent of which has been secured. A further GBP27 million of potential rent
from 'near-term' pre-let projects which are in advanced stages of
negotiation.
-- GBP286 million added to our land bank during the period across key
markets.
GBP1.3 billion of net investment to position the business to
respond to the acceleration of structural drivers.
-- GBP603 million of asset acquisitions in key strategic markets as well as
GBP817 million invested in development capex, infrastructure and land.
Partially offset by GBP139 million of asset and land sales.
-- Development capex for 2021, including infrastructure, expected to exceed
GBP700 million.
Strong balance sheet provides significant capacity to invest for
future growth.
-- SEGRO continues to be appropriately and efficiently financed. The average
cost of debt remains attractive at 1.6 per cent (2019: 1.7 per cent),
with long average debt maturity of 9.9 years (2019: 10.0 years) and low
look-through LTV ratio of 24 per cent (31 December 2019: 24 per cent).
-- Equity placing of GBP680 million completed in June 2020 and issuance of
EUR450 million US Private Placement notes ensures the balance sheet is
positioned for further development-led growth.
-- SEGRO has GBP1.2 billion of cash and available facilities at its
disposal.
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available
from 08:30am (UK time) at:
https://edge.media-server.com/mmc/p/f45hpvpp
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 An audio recording of the conference
available at 08:30 (UK time) on the call will be available until 26
following number: Dial-in: +44 February 2021 on: UK & International:
(0)2071 928 338 Access code: 2663737 +44 (0) 3333 009785 Access code:
2663737
A video of David Sleath, Chief Executive and Soumen Das, Chief
Financial Officer discussing the results will be available to view
on www.segro.com, together with this announcement, the Full Year
2020 Property Analysis Report and other information about
SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Mob: +44 (0) 7771 773 134
(Chief Financial Officer) Tel: + 44 (0) 20 7451 9110
(after 11am)
Claire Mogford Mob: +44 (0) 7710 153 974
(Head of Investor Relations) Tel: +44 (0) 20 7451 9048
(after 11am)
FTI Consulting Richard Sunderland / Claire Tel: +44 (0) 20 3727 1000
Turvey / Eve Kirmatzis
FINANCIAL CALAR
2020 final dividend ex-div date 18 March 2021
2020 final dividend record date 19 March 2021
2020 final dividend scrip dividend price announced 25 March 2021
2020 final dividend payment date 4 May 2021
2021 First Quarter Trading Update 22 April 2021
Half Year 2021 Results (provisional) 29 July 2021
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), listed on the
London Stock Exchange and Euronext Paris, and is a leading owner,
manager and developer of modern warehouses and industrial property.
It owns or manages 8.8 million square metres of space (95 million
square feet) valued at GBP15.3 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.
For over 100 years SEGRO has been creating the space that
enables extraordinary things to happen. From modern big box
warehouses, used primarily for regional, national and international
distribution hubs, to urban warehousing located close to major
population centres and business districts, it provides high-quality
assets that allow its customers to thrive.
See www.SEGRO.com for further information.
Forward-Looking Statements: This announcement contains certain
forward-looking statements with respect to SEGRO's expectations and
plans, strategy, management objectives, future developments and
performance, costs, revenues and other trend information. These
statements are subject to assumptions, risk and uncertainty. Many
of these assumptions, risks and uncertainties relate to factors
that are beyond SEGRO's ability to control or estimate precisely
and which could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements. Certain statements have been made with reference to
forecast process changes, economic conditions and the current
regulatory environment. Any forward-looking statements made by or
on behalf of SEGRO are based upon the knowledge and information
available to Directors on the date of this announcement.
Accordingly, no assurance can be given that any particular
expectation will be met and you are cautioned not to place undue
reliance on the forward-looking statements. Additionally,
forward-looking statements regarding past trends or activities
should not be taken as a representation that such trends or
activities will continue in the future. The information contained
in this announcement is provided as at the date of this
announcement and is subject to change without notice. Other than in
accordance with its legal or regulatory obligations (including
under the UK Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority), SEGRO does
not undertake to update forward-looking statements, including to
reflect any new information or changes in events, conditions or
circumstances on which any such statement is based. Past share
performance cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
estimate or profit forecast. The information in this announcement
does not constitute an offer to sell or an invitation to buy
securities in SEGRO plc or an invitation or inducement to engage in
or enter into any contract or commitment or other investment
activities.
Neither the content of SEGRO's website nor any other website
accessible by hyperlinks from SEGRO's website are incorporated in,
or form part of, this announcement.
CHIEF EXECUTIVE'S REVIEW
Our business is driven by a clear purpose 'to create the space
that enables extraordinary things to happen' and 2020 has certainly
been a year of the extraordinary. We started the year confident in
the outlook for our business, believing that our prime portfolio of
modern industrial properties in key strategic markets and our
pan-European platform would continue to perform well. At the same
time we were looking forward to celebrating our Centenary year.
The onset of the Covid-19 pandemic caused widespread disruption
and brought with it much uncertainty in the early months of 2020
but, despite all of this, our business has proved to be strong and
resilient. We have been pleased to be able to use this relative
strength to support those stakeholders who needed it most, from the
customers to whom we've been able to offer targeted support, to our
local communities who we were able to help through the launch of
our GBP10 million Centenary Fund.
The pandemic has highlighted the importance of modern,
efficient, resilient logistics supply chains and has also
accelerated the digitalisation of our economies, most notably
through e-commerce. This has resulted in increased occupier and
investor demand for our asset class and has helped to drive another
year of strong financial and operational performance by SEGRO.
Looking back on 2020, the main highlights included:
-- The professionalism shown by all of our people in the keeping the
business running as everyone at SEGRO adapted to the new working from
home environment.
-- Being able to offer additional support to our customers and other
stakeholders through these challenging times and particularly bringing
forward the launch of our GBP10 million Centenary Fund. We dedicated the
first year's funding to support those in our local communities most
negatively impacted by the pandemic.
-- A record performance in securing new rents, aided by the strength of our
customer relationships. GBP77.9 million (2019: GBP65.8 million) was
signed in the period, including GBP41.1 million (2019: GBP33.2 million)
of rent from new pre-lets.
-- Continued growth of our portfolio with the addition of prime, sustainable
warehouses through our development programme. Despite the disruption
caused by the pandemic we completed 835,900 sq m of space, just short of
our 2019 record (2019: 871,800 sq m). When fully occupied this space will
generate GBP47 million of new income and it was 84 per cent let at 31
December 2020. We are targeting BREEAM 'Very Good' or 'Excellent' (or
local equivalent) for 93 per cent of the eligible development
completions.
-- Acquisitions of urban warehouse parks in prime locations such as London
and Paris, adding further space with the potential to generate attractive
returns through our platform's active asset management and development
capabilities.
-- Successful pilots of Smart technology and photo-voltaic panels on assets
across Europe, helping us to develop our strategy in these areas to help
with our aim of being net carbon zero by 2030.
-- Securing over GBP1 billion of new funding which has given us the capacity
to continue to add to our development pipeline and help us to grow our
rental income organically.
This activity has been reflected in significant growth across
the board in all of our key operating metrics and our balance sheet
remains in good shape and is positioned to support further
growth.
The combination of a strong set of financial results in 2020 and
our confident outlook for 2021 and beyond means that we are
recommending a 5.6 per cent increase in final dividend to 15.2
pence per share, resulting in a total distribution of 22.1 pence
for 2020 as a whole (2019: 20.7 pence).
I will now turn to focus on some of the key themes that have
emerged in 2020, to provide you with a deeper understanding of how
we think about our business today, what it might look like tomorrow
and how we intend to continue to 'create the space that enables
extraordinary things to happen'.
LONGER TERM IMPACTS OF COVID-19
The Covid-19 pandemic has had a profound impact on all of our
lives and it will likely change the way that our world functions.
The Board and I would first like to thank all of our colleagues at
SEGRO for the dedication and commitment that they have shown
throughout this very difficult period. The fact that our business
has come through such an event so well is a real testament to all
of the hard work that has been done this year and in the past
decade to anticipate and respond to our customers' needs.
Positioning our portfolio to benefit from the structural changes
to society which have been driving demand for our asset class has
been a key part of our strategy for a number of years, and in 2020
we have seen an acceleration of these trends.
The increase in e-commerce penetration has been much talked
about and there has some debate over where it will settle once the
pandemic has passed. We believe there has been a step-change in
consumer behaviour. Some of the factors that were considered as
barriers to increased levels of online sales penetration (for
example concerns about the quality of food bought online and
reluctance to share financial information over the internet) have
been overcome and habits have potentially changed irrevocably. Our
customers certainly do not expect there to be a significant retreat
and are already preparing to adapt their businesses to respond to
levels of online sales that are well ahead of previous
expectations.
Whilst the pandemic may change the way that cities such as
London, Paris and Berlin operate, we continue to believe that they
will act as centres of commerce, innovation and culture and, in our
opinion, that they will continue to attract people to work, live
and 'play'. The nature of our urban warehouses, being mostly
located inside or on the edges of cities, also means that they
attract businesses servicing the commuter belt and beyond. For
example, our Heathrow portfolio has for some time been used to
provide goods and services for those living in the surrounding area
and outside the M25 as well as to service the airport.
Finally, we expect that localisation and the renewed focus on
supply chain resilience will also contribute to occupier demand
over the coming years.
We expect these trends to benefit our entire business in the
years ahead. In the UK we have been seeing their effects for a
number of years as e-commerce has taken off and our customers have
modernised their supply chains and distribution networks to respond
to it. On the Continent however, our customers are much less
advanced in this journey and e-commerce has been lagging in the UK.
The pandemic has accelerated the need for them to make these
changes. We see this as a significant opportunity going forward and
are well-placed to respond to it with our strong operating platform
across France, Germany, Italy, Spain, Poland, the Netherlands and
the Czech Republic.
The pandemic has also impacted the way that we will run our
business going forwards. One of the most significant changes is
that it is now very clear that our people do not need to be based
in an office five days a week to do their jobs efficiently.
Although there are obvious benefits to an office work
environment in terms of ease of communication and collaboration, as
well as supporting company culture, there are also times when it is
more appropriate to work quietly at home. We have always enabled
flexible working, which allowed us to transition from office
working to home working quickly and seamlessly and we have now
formally introduced a company-wide Agile Working Policy that gives
our employees the autonomy to decide where they work. This change
has the potential to enhance everyone's quality of life and also
provides greater flexibility that should help us to increase
diversity in our business and ensure that we continue to retain
talent.
One thing that the pandemic has not changed, and in fact has
reiterated, is the importance of our close relationships with our
customers, our suppliers, our investors, our communities and other
business partners and we continue to place the utmost importance on
developing and growing these partnerships.
NEW RESPONSIBLE SEGRO TARGETS
'ESG', 'Purpose', 'Culture' and other similar terms have all
become more common words in the past couple of years, and rightly
so. Good businesses need to recognise that their actions are far
reaching, and in order to drive sustainable growth, the
considerations of wider stakeholders need to be taken into account
when making decisions that may impact them.
However, this is not something that is new to SEGRO. Throughout
the 100 years that we have been operating as a company we have had
a rich history of making a positive contribution to the society
around us. It is also something that will be just as important to
us for the 100 years to come. We have always prided ourselves on
being a company that people want to work for and with, which is
reflected in our goal of being the partner 'of choice' for our
people, our customers, our suppliers, our investors and all of our
other stakeholders. We believe that this will enable us to create
long-term economic and social value.
What is new to us is talking about it and measuring it -- a
genuine culture is something intangible; something that is embedded
within an organisation. It is integral to the way a business
operates day-to-day and guides our actions and decisions.
Trying to capture it and write it down in black and white can be
challenging, but we recognise that there is a growing interest from
our various audiences to understand how and why we do business
using more than purely financial and quantitative means. In
recognition of this we have, for the first time, integrated our
wider stakeholder considerations into the main body of the 2020
Annual Report & Accounts, reflecting the way that we run our
business and make decisions.
We also launch alongside our Full Year 2020 results our new
Responsible SEGRO focus areas and targets, which address the key
areas where we believe that we can make the greatest business,
environmental and social contribution, and will also help to
position SEGRO for another 100 years of success.
Our three priorities are:
-- Championing low-carbon growth -- we recognise the world faces a climate
emergency and are committed to playing our part in tackling climate
change.
-- Investing in our local communities and environments -- as a long-term
investor we are committed to contributing to the vitality of the
communities in which we operate.
-- Nurturing talent -- our people are vital to and inseparable from our
success and we are committed to attracting, creating and retaining
talented individuals from diverse backgrounds.
Within each area we have also set ambitious new targets,
including being net carbon zero by 2030. We have thought long and
hard about these goals, wanting to make sure that, as with
everything else we do as a business, they are authentic and really
challenge us to make a tangible impact.
What is also important to note in respect of these targets is
that, for us at least, it's how we get there that matters as much
as the end goal itself. For example, we cannot completely eliminate
carbon from our buildings as physical assets inherently produce
carbon, but we intend to reduce those carbon emissions as much as
is physically possible through our own actions before we will
consider offsetting.
This framework is a further stepping-stone in a long journey and
we look forward to sharing more of it with you as we travel through
it, learning from and adapting to the inevitable twists and turns
ahead.
POSITIONING OUR BUSINESS FOR SUSTAINABLE LONG-TERM
PERFORMANCE
The world around us is changing at a great pace and we are in
continuous dialogue with our customers as we strive to understand
and prepare to meet the longer-term trends within our industry. By
doing this we are able to ensure that our portfolio continues to
meet the needs of, and play an integral part in, our customers'
operations and that our business remains relevant.
We have embedded a culture of continuous improvement within
SEGRO and are constantly questioning how and why we do things while
pushing ourselves to do better -- this is reflected in some of our
values such as 'does it make the boat go faster?' and 'if the door
is closed'.
This means we are constantly refining not just our existing
portfolio but also how we design, plan and build our assets, with
sustainability and technology at the heart of our thinking.
The creation of our Strategy, Innovation and Investment team at
the start of 2020 was an important part of this process, reflecting
our belief that we should consider investments in data and
technology in the same way that we consider investments in physical
assets.
The industry within which we operate offers significant
opportunities to make changes that not only help improve
inefficiencies, but also help us make better and more informed
decisions.
Key to this is the use of data and analytics -- just as data
centres are becoming a more significant part of our portfolio, so
the use of data itself is becoming a more important part of the way
that we do business. We are excited about the opportunities we
believe it will present once we are able to fully capture and
understand this data and its potential.
Over the course of 2020 we worked on a number of exciting
projects which we hope will improve the way we do business, enhance
the way our buildings are used and reduce their impact on the
environment, while positioning our business for sustainable long
term success.
OUTLOOK
We remain confident in the outlook for our business, its
resilience and its ability to deliver growth.
We believe that the already prevalent structural drivers, which
have been accelerated by the pandemic, will continue to drive both
occupier and investor demand for our prime portfolio of modern
industrial properties for the foreseeable future. However, we
remain alert to potential macroeconomic headwinds such as the
ongoing Covid-19 pandemic as well as the departure of the UK from
the European Union.
Market rental growth has continued, driven by increased occupier
demand and a shortage of modern warehouse space, particularly in
our urban markets.
Our development pipeline continues to expand, allowing us to
both modernise our portfolio and generate additional rental income,
enhanced by the rental growth from the active asset management of
our existing estate. Whilst structural trends continue to drive
occupier demand we expect to be able to develop to both meet this
elevated level of requirements and maintain our approach of
de-risking the majority of our pipeline through pre-leasing.
We continue to keep one eye on the horizon, staying close to our
customers so that we can anticipate their changing needs and adapt
our portfolio to meet them. We are also very aware of our wider
responsibility to society and believe that our new Responsible
SEGRO targets will position us to make a material difference to the
areas in which we can make the most impact and help us to truly
create the space which enables extraordinary things to happen...
for our people, our customers, our communities, our investors and
our many other stakeholders.
A STRATEGY TO GENERATE ATTRACTIVE, SUSTAINABLE RETURNS
Our goal is to be the leading owner-manager and developer of
industrial properties in Europe and the partner of choice for our
customers and other stakeholders.
While our business model describes what we do as a company, our
strategy describes how we do it.
Our strategy operates within the context of our Purpose, our
culture, our Business Model and our Responsible SEGRO approach to
doing business, with all of these factors influencing both how we
operate on a day-to-day basis and also when making key strategic
decisions on how to position our business for the future.
This ensures not only that we manage risk appropriately but it
also means that the decisions that we make take into account the
interests of all relevant parties. It is this that allows us to
'create the space that enables extraordinary things to happen' and
also ensures that SEGRO is positioned to do so over the longer
term.
At the heart of it are the relationships that we build with our
customers, helped by the fact that we manage the majority of our
portfolio internally and therefore really get to know their
businesses. The insights that we gain from the partnerships that we
build with our customers help us to anticipate longer term trends
and make strategic decisions that shape our portfolio and ensure
the continued success of our business.
Our goal is to be the leading owner-manager and developer of
industrial properties in Europe and the partner 'of choice' for our
customers and other stakeholders. The use of the words 'of choice'
reflects that we recognise that our customers, employees and other
partners have the option to choose whether they work with SEGRO so
we need to continuously improve and adapt to stay relevant and
ensure that they choose to work with us not only today but also in
the future.
On a property level our goal reflects our ambition to create a
portfolio of high-quality industrial properties in the strongest
markets -- a portfolio that generates attractive, low risk,
income-led returns while providing above average growth (both in
terms of rent and capital values) when market conditions are
positive, and that proves to be 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 the returns that we seek:
-- 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. This is
in addition to all of the other value that is created in the
process of managing and building our portfolio.
Our portfolio comprises modern big box and urban warehouses
which are well specified and located, with good sustainability
credentials, and which should benefit from a low vacancy 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.
DELIVERING ON OUR STRATEGY IN 2020
We have continued to follow our strategy during 2020 which has
been a significant contributor to the continued performance of our
business during very challenging times.
OPERATIONAL EXCELLENCE
We have a well-established operating platform that strives for
operational excellence, both in the approach that we take to
managing our existing portfolio as well as in the execution of our
development pipeline.
We pride ourselves on the strength of our customer relationships
and these have been built as a result of the excellent customer
service that our property and asset management teams provide. This
has been extremely important throughout the Covid-19 pandemic and
has meant that we have been able to help our customers respond to
the various challenges that they have faced and it also helped us
to quickly understand the level of risk within our portfolio.
Our long-standing focus on the active asset management of our
portfolio meant that we went into the crisis in good shape in terms
of low vacancy rates and strong customer covenants. As a result of
this the pandemic has had very little impact on our portfolio and
we have been able to continue to grow the rent roll in 2020 helped
by a record lettings performance, as well as the re-gear of leases
and the capture some of the reversionary potential that has built
up over recent years.
Operational Excellence was also important in keeping our
development pipeline on track in 2020 and our strong working
relationships with our contractors meant that we were able to catch
up on delays caused by the lockdown without compromising on safety
measures and all of the projects that were due to complete during
the year have done so, with some even finishing ahead of
schedule.
DISCIPLINED APPROACH TO CAPITAL ALLOCATION
Over recent years we have focused more of our investment into
our development pipeline, as we see better returns from this than
investing our capital in completed assets.
This continued in 2020 and we once again increased our spend on
development capex and made some significant land acquisitions,
helping us to replenish the land bank and ensure that we can
continue to grow our business.
We did, however, also identify opportunities to acquire some
attractive assets in 2020 and as a result have been more active in
the investment markets than in recent years.
This included the purchase of two urban warehouse estates in
London and another in Paris that we believe offer attractive
long-term returns. All three assets complement our existing
portfolio and provide us with a great opportunity to offer our
customers a wider range of choice in these supply constrained
markets.
We have continued with the annual review of our portfolio to
identify assets where we believe have maximised our returns and to
dispose of these when the opportunity arises. As a result of this
we disposed of our remaining assets and land in Austria as well as
making some other stand alone disposals with the proceeds recycled
into our future investment.
EFFICIENT CAPITAL AND CORPORATE STRUCTURE
In a year where we have invested over GBP1.4 billion in the
growth of our business we have also needed to take steps to
maintain our Efficient Capital and Corporate Structure.
We aim to balance operational and financial risk by keeping the
loan to value ratio ('LTV') low, making sure that should the
property cycle turn we can absorb lower valuations and also giving
us the capacity to take advantage of any resulting investment
opportunities. In 2020 this resulted in us raising GBP680 million
of new equity and EUR450 million of US Private Placement debt. Our
LTV at 31 December 2020 was 24 per cent.
In order for us to protect the efficiency of our corporate
structure we also launched a Secondary Listing on Euronext Paris in
November 2020 to ensure that we maintained a listing within the
European Union once the UK left following the end of the Brexit
transition period on 31 December 2020.
STRONG PORTFOLIO GROWTH -- VALUATION UPDATE
Valuation gains from market-driven yield improvement, asset
management and development
Warehouse property values across Europe increased throughout the
year with the UK, France and Germany seeing the strongest growth.
Investment volumes continued to be healthy, with the UK hitting
record levels and Continental Europe almost level with 2019
figures. Both investor and occupier demand for the asset class
remained strong.
The Group's property portfolio was valued at GBP13.0 billion at
31 December 2020 (GBP15.3 billion of assets under management). The
portfolio valuation, including completed assets, land and buildings
under construction, increased by 10.3 per cent on a like-for-like
basis (adjusting for capital expenditure and asset recycling during
the year) compared to 7.5 per cent in 2019.
This primarily comprises a 9.5 per cent increase in the assets
held throughout the year (2019: 5.8 per cent), driven by strong
yield compression in most markets (30 basis points across the whole
portfolio) and a 2.5 per cent increase in our valuer's estimate of
the market rental value of our portfolio (ERV). In total, our
portfolio generated a total property return of 14.6 per cent (2019:
10.5 per cent).
Assets held throughout the year in the UK increased in value by
9.2 per cent (2019: 2.5 per cent), outperforming the MSCI Real
Estate UK All Industrial Quarterly 2020 index which increased by
4.6 per cent. The performance was due to yield compression and the
continued capture of reversionary potential in lease reviews and
renewals, particularly in London. The true equivalent yield applied
to our UK portfolio was 4.3 per cent, 30 basis points lower than at
31 December 2019 (4.6 per cent) reflecting yield compression, the
acquisition of some low yielding assets, rental growth and the
impact of newly completed developments. Rental values improved by
3.1 per cent (2019: 2.6 per cent).
Assets held throughout the year in Continental Europe increased
in value by 10.2 per cent (2019: 13.5 per cent) on a constant
currency basis, reflecting a combination of yield compression to
4.8 per cent (31 December 2019: 5.2 per cent) and rental value
growth of 1.5 per cent (2018: 0.7 per cent).
More details of our property portfolio can be found in the 2020
Property Analysis Report available at www.segro.com/investors.
Valuations: What to expect in 2021
Capital growth forecasts are notoriously difficult given the
multitude of drivers (particularly interest rates and credit
spreads) most of which are outside our direct control.
Nevertheless, the prospects for our portfolio of big box and
urban warehouses remain strong, supported by structural drivers of
demand and relatively limited amounts of new supply. This means
that we are optimistic about the potential for further rental value
growth, particularly in our urban warehouse portfolio.
Prime yields continue to appear attractive compared to
government (risk-free) bond yields or most other property types,
and this premium should be supportive for valuations. We believe
that our high-quality portfolio and our focus on asset management
will enable us to outperform the wider market.
Property portfolio metrics at 31 December 2020(1)
Portfolio value, GBPm Yield(3)
Topped-
Lettable Land & Combined Combined Valuation up net Net true Vacancy
area sq develop- property property movement(2 3) initial equivalent (ERV)(4)
m Completed ment portfolio portfolio % % % %
(AUM) (AUM)
UK
Greater
London 1,215,206 4,727.0 140.9 4,867.9 4,867.9 10.0 3.5 4.0 5.2
Thames Valley 572,300 1,856.3 140.4 1,966.7 1,996.7 6.8 4.2 4.7 3.0
National
Logistics 546,252 831.5 391.8 1,223.3 1,223.3 10.2 5.0 4.6 -
UK Total 2,333,758 7,414.8 673.1 8,087.9 8,087.9 9.2 3.8 4.3 4.0
Continental
Europe
Germany 1,499,481 1,277.1 100.6 1,377.7 2,090.9 18.1 3.9 4.1 4.0
Netherlands 219,897 140.0 21.9 161.9 306.1 4.7 4.0 4.7 14.4
France 1,466,481 1,378.8 136.5 1,515.3 1,969.9 9.8 4.5 4.9 4.3
Italy 1,311,999 755.0 151.1 906.1 1,268.5 5.7 4.9 4.8 -
Spain 311,056 199.4 60.9 260.3 398.3 9.4 4.8 4.8 -
Poland 1,453,583 564.2 33.2 597.4 1,050.5 2.1 6.3 6.0 5.2
Czech
Republic 169,515 77.9 10.7 88.6 170.8 0.4 5.3 5.5 3.0
Continental
Europe
Total 6,432,132 4,392.4 514.9 4,907.3 7,255.0 10.2 4.6 4.8 3.7
GROUP TOTAL 8,765,890 11,807.2 1,188.0 12,995.2 15,342.9 9.5 4.1 4.5 3.9
1. Figures reflect SEGRO wholly-owned assets and its share of assets held in
joint ventures unless stated "AUM" which refers to all assets under
management.
2. Valuation movement is based on the difference between the opening and
closing valuations for properties held throughout the period, allowing for
capital expenditure, acquisitions and disposals.
3. In relation to completed properties only.
4. Vacancy rate excluding short term lettings for the Group at 31 December
2020 is 3.9 per cent.
CREATING VALUE THROUGH OPERATIONAL EXCELLENCE -- ASSET
MANAGEMENT UPDATE
Our portfolio comprises two main asset types: urban warehouses
and big box warehouses. The demand-supply dynamics in both asset
classes continue to be positive.
Urban Warehouses
Urban warehouses account for 66 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 and, around London, from data
centre users.
Our urban portfolio is concentrated in London and South-East
England (80 per cent) and major cities in Continental Europe (20
per cent), including Paris, Düsseldorf, Frankfurt, Berlin and
Warsaw. These locations share similar characteristics in terms of
limited (and shrinking) supply of industrial land and growing
populations, while occupiers are attracted to modern warehouses
with plenty of yard space to allow easy and safe vehicle
circulation. We believe that this enduring occupier demand and
limited supply bodes well for future rental growth.
Big Box Warehouses
Big box warehouses account for 32 per cent of our portfolio
value. They tend to be used for storage, processing and
distribution of goods on a regional, national or international
basis and are, therefore, much larger than urban warehouses.
They are focused on the major logistics hubs and corridors in
the UK (South-East and Midlands regions), France (the logistics
'spine' linking Lille, Paris, Lyon and Marseille), Germany
(Düsseldorf, Berlin, Frankfurt and Hamburg) and Poland (Warsaw,
ódz, Poznán, and the industrial region of Silesia). 26 per cent of
our big box warehouses are in the UK and the remaining 74 per cent
are in Continental Europe.
Occupier demand continues to be healthy across all of our
markets but the nature (and typical location) of big box warehouses
tends to mean that, over time, supply is able to increase more
easily to satisfy demand, as there is generally more land available
in out of town locations.
There was a fairly high level of competing supply in the UK big
box market at the start of 2020 but record levels of take-up during
the year have meant that most of this has been absorbed (and as a
result vacancy levels have come down). On the Continent supply has
continued to broadly keep up with occupier demand.
Overall, we believe the prospects for significant rental growth
in big box warehouses are, and have always been, limited but this
asset class brings other benefits including lower asset management
intensity and long leases which help to ensure a sustainable level
of income. In addition, by holding the majority of our Continental
European big box warehouses in SELP, we receive additional income
from managing the joint venture which increases total returns.
Growing Rental Income from Letting Existing Space and New
Developments
At 31 December 2020, our portfolio generated passing rent of
GBP462 million, rising to GBP508 million once rent free periods
expire ('headline rent'). During the year, we contracted GBP77.9
million of new headline rent, a new record level for SEGRO. New
pre-let agreements continue to contribute strongly to this number
but in 2020 we also grew rent on our existing space significantly,
helped by the last of the lease re-gears at the Heathrow Cargo
Centre.
Our customer base remains well diversified, reflecting the
multitude of uses of warehouse space. Our top 20 customers account
for 31 per cent of total headline rent, and Amazon became our
largest customer during 2020, accounting for 5 per cent of the
total.
Just over half of our customers are involved in businesses
affected by e-commerce, including third party logistics and parcel
delivery businesses, and retailers. These businesses accounted for
almost 60 per cent of our take-up during the year.
We monitor a number of asset management performance indicators
to assess our performance:
-- Rental growth from lease reviews and renewals. These generated an uplift
of 19.1 per cent (2019: 17.8 per cent) for the portfolio as a whole
compared to previous headline rent. During the year, new rents agreed at
review and renewal were 28.2 per cent higher in the UK (2019: 25.1 per
cent) as reversion accumulated over the past five years was reflected in
new rents agreed, adding GBP10.5 million of headline rent. In Continental
Europe, rents agreed on renewal were 0.5 per cent higher (2019: 0.7 per
cent lower), turning positive for the first time in a number of years as
market rental growth starts to outpace the indexation provisions that
have accumulated over recent years.
-- High levels of customer satisfaction. Although the quality and location
of our portfolio is important to our customers, we believe that the
service we provide is crucial to maintaining high customer retention and
low vacancy. We carry out a rolling survey of our customer base
throughout the year to identify and rectify issues promptly. In 2020, we
surveyed 200 customers and 99 per cent of the respondents said that they
would recommend SEGRO to others (2019: 96 per cent) and 87 per cent said
they rated their experience with SEGRO as 'Excellent' or 'Very Good'
(2019: 88 per cent).
-- Vacancy has remained low. The vacancy at 31 December 2020 was 3.9 per
cent (31 December 2019: 4.0 per cent). This reduction was mainly due to a
very strong performance in letting recently completed speculatively
developed space, particularly in Germany and Spain. The vacancy rate on
our standing stock remains low at 2.5 per cent (2019: 2.6 per cent). The
vacancy rate is now at the bottom end of our target range of between 4
and 6 per cent. The average vacancy rate during the period was 4.8 per
cent (2019: 4.6 per cent).
-- High retention rate of 86 per cent. During the period, space equating to
GBP12.4 million (2019: GBP11.0 million) of rent was returned to us,
including GBP1.5 million of rent lost due to insolvency (2019: GBP1.1
million). We took back space equating to GBP4.0 million of rent for
redevelopment. Approximately GBP60 million of headline rent was at risk
from a break or lease expiry during the period of which we retained 85
per cent in existing space, with a further 1 per cent retained but in new
premises.
-- 98 per cent of Group rents collected. Rent collection understandably came
into focus during 2020. The diversity of our customer base meant that
whilst some of their businesses benefited from the acceleration of
structural drivers as a results of the pandemic, others whose business
were fundamentally sound suffered cash flow issues and we were pleased to
be able to support them. This mostly took the form of moving them from
quarterly rents in advance, to monthly payment agreements. 98 per cent of
the 2020 rent due has now been paid with the remaining 2 per cent due in
early 2021.
-- Lease terms continue to offer attractive income security. The level of
incentives agreed for new leases (excluding those on developments
completed in the period) represented 6.8 per cent of the headline rent
(2019: 6.6 per cent). The portfolio's weighted average lease length was
maintained with 7.5 years to first break and 8.8 years to expiry (31
December 2019: 7.8 years to first break, 9.2 years to expiry). Lease
terms are longer in the UK (8.8 years to break) than in Continental
Europe (5.9 years to break), reflecting the market convention of shorter
leases in countries such as France and Poland.
-- GBP16.1 million of net new rent from existing assets. We generated
GBP15.6 million of headline rent from new leases on existing assets
(2019: GBP13.2 million) and GBP12.9 million from rent reviews, lease
renewals and indexation (2019: GBP11.9 million). This was offset by rent
from space returned of GBP12.4 million (2019: GBP11.0 million).
-- Continued strong demand from customers for pre-let agreements. In
addition to increased rents from existing assets, we contracted GBP41.1
million of headline rent from pre-let agreements and lettings of
speculative developments prior to completion (2019: GBP33.2 million).
Included in this within the UK are three new data centres on the Slough
Trading Estate, our first letting at SEGRO Park Hayes and two further big
boxes at SEGRO Logistics Park East Midlands Gateway. On the Continent we
signed our largest ever pre-let in Germany for an e-commerce homewares
provider, over 370,000 of space in Southern Europe for customers
including a leading global online retailer and three big box warehouses
in Poznan, helping us to build scale in this attractive market.
-- Rent roll growth increased to GBP60.1 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
then from generating new rent through development. Rent roll growth,
which reflects net new headline rent from existing space (adjusted for
takebacks of space for development), take-up of developments and pre-lets
agreed during the period, increased to GBP60.1 million in 2020, from
GBP54.5 million in 2019.
Asset Management: What to expect in 2021
We are anticipating strong occupier demand in all of our markets
and expect vacancy rates to remain low. The limited supply in most
of our markets, particularly urban warehousing, means that we
expect retention to remain high with further rental growth.
Summary of key leasing data for 2020
Summary of key leasing data(1) for the year to
31 December 2020 2019
Take-up of existing space(2) (A) GBPm 15.6 13.2
Space returned(3) (B) GBPm (12.4) (11.0)
NET ABSORPTION OF EXISTING SPACE(2) (A-B) GBPm 3.2 2.2
Other rental movements (rent reviews, renewals,
indexation)(2) (C) GBPm 12.9 11.9
RENT ROLL GROWTH FROM EXISTING SPACE GBPm 16.1 14.1
Take-up of pre-let developments completed in the
year (signed in prior years)(2) (D) GBPm 32.9 36.3
Take-up of speculative developments completed in
the past two years(2) (D) GBPm 10.2 9.0
TOTAL TAKE-UP(2) (A+C+D) GBPm 71.6 70.4
Less take-up of pre-lets and speculative
lettings signed in prior years(2) GBPm (34.8) (37.8)
Pre-lets signed in the year for future
delivery(2) GBPm 41.1 33.2
RENTAL INCOME CONTRACTED IN THE YEAR(2) GBPm 77.9 65.8
Takeback of space for redevelopment GBPm (4.0) (0.3)
Known Takeback/letting from acquisition GBPm (1.4) --
Retention rate(4) % 86 88
1. All figures reflect exchange rates at 31 December and include joint
ventures at share.
2. Headline rent.
3. Headline rent, excluding space taken back for redevelopment.
4. Headline rent retained as a percentage of total headline rent at risk from
break or expiry during the period.
GROWING THROUGH DEVELOPMENT -- DEVELOPMENT ACTIVITY AND PIPELINE
UPDATE
Development Activity
During 2020, we invested GBP817 million in our development
pipeline which comprised GBP531 million (2019: GBP409 million) in
development spend, of which GBP74 million was for infrastructure,
and a further GBP286 million to replenish our land bank to enable
future development.
Development Projects Completed
We completed 835,900 sq m of new space during the year, with all
of our projects completing on time (or in some cases ahead of
schedule) despite the pandemic. These projects were 71 per cent
pre-let prior to the start of construction and were 84 per cent let
as at 31 December 2020, generating GBP39 million of headline rent,
with a potential further GBP8 million to come when the remainder of
the space is let. This translates into a yield on total development
cost (including land, construction and finance costs) of 6.8 per
cent when fully let.
We completed 652,400 sq m of big box warehouse space, including
a further unit at SEGRO Logistics Park East Midlands Gateway and
our first unit at SEGRO Logistics Park Kettering Gateway. Within
this was also 614,000 sq m of big box warehouses across all of our
major European markets, let to customers such as third party
logistics operators, online retailers, food retailers and
businesses linked to electronic vehicles.
We completed 170,000 sq m of urban warehouses, of which 65 per
cent is already let. This included SEGRO Park Enfield in North
London, which has set a new benchmark for industrial and warehouse
space and has been designed to take the wellness of its occupiers
into account. In the UK we also completed three new data centres on
the Slough Trading Estate and our largest London pre-let in a
decade. On the Continent we completed urban warehouse parks in the
key markets of Frankfurt, Düsseldorf and Paris as well as a number
of delivery stations for a global online retailer in Southern
Europe.
Of the eligible space completed in 2020, 93 per cent has been,
or is in the process of being, accredited as BREEAM 'Excellent' or
'Very Good' (or a local equivalent).
Development also helped us to increase our renewable energy
capacity by 45 per cent in 2020, bringing it to 26.8 MW, enough to
power over 8,000 homes.
Current Development Pipeline
At 31 December 2020, we had development projects approved,
contracted or under construction totalling 838,100 sq m,
representing GBP397 million of future capital expenditure to
complete and GBP54 million of annualised gross rental income when
fully let. 66 per cent of this rent has already been secured and
these projects should yield 6.5 per cent on total development cost
when fully occupied.
-- In the UK, we have 207,300 sq m of space approved or under construction.
Within this are three more data centres on the Slough Trading Estate
(taking the total number to 32), developments in all of our key London
markets and two large pre-lets at our big box logistics park SEGRO
Logistics Park East Midlands Gateway.
-- In Continental Europe, we have 570,000 sq m of space approved or under
construction. This includes pre-let big box warehouses for a variety of
different occupiers, from retailers to manufacturers, across all of our
European markets. We are also developing further phases of our successful
urban warehouse parks in Berlin, Cologne and Düsseldorf.
-- In addition to the above projects that we are developing ourselves, we
also have 60,800 sq m of space under construction as part of
forward-funded agreements with local developers. This is proving to be a
very effective way to get access to opportunities in competitive markets
where accessing land is more difficult.
We continue to focus our speculative developments primarily on
urban warehouse projects, particularly in the UK, France and
Germany, where modern space is in short supply and occupier demand
is strong. In the UK, our speculative projects are focused in
London and on the Slough Trading Estate. In Continental Europe, we
continue to build scale in Germany, where projects are underway in
a number of major cities. Within our Continental European
development programme, approximately GBP15.5 million of potential
gross rental income is associated with big box warehouses developed
outside our SELP joint venture. Under the terms of the joint
venture, SELP has the option, but not the obligation, to acquire
these assets shortly after completion. Assuming SELP exercises its
option, we would retain a 50 per cent share of the rent after
disposal. In 2020, SEGRO sold GBP93 million of completed assets to
SELP, representing a net disposal of GBP47 million.
FUTURE DEVELOPMENT PIPELINE
Near-Term Development Pipeline
Within the future development pipeline are a number of pre-let
projects which are close to being approved, awaiting either final
conditions to be met or planning approval to be granted. We expect
to commence these projects within the next six to 12 months.
These projects total 385,500 sq m of space, equating to
approximately GBP302 million of additional capital expenditure and
GBP27 million of additional rent.
Land Bank
Our land bank identified for future development (including the
near-term projects detailed above) totalled 654 hectares at 31
December 2020, valued at GBP636 million, roughly 5 per cent of our
total portfolio value. We invested GBP286 million in acquiring new
land during the year, including land associated with developments
already underway or expected to start in the short term.
We estimate that our land bank can support 2.8 million sq m of
development over the next five years. The prospective capital
expenditure associated with the future pipeline is approximately
GBP1.6 billion. It could generate GBP157 million of gross rental
income, representing a yield on total development cost (including
land and notional finance costs) of around 6-7 per cent. These
figures are indicative based on our current expectations and are
dependent on our ability to secure pre-let agreements, planning
permissions, construction contracts and on our outlook for occupier
conditions in local markets.
Conditional Land Acquisitions and Land Held Under Option
Agreements
Land acquisitions (contracted but subject to further conditions)
and land held under option agreements are not included in the
figures above but together represent significant further
development opportunities. These include sites for big box
warehouses in the UK Midlands as well as in Germany and Italy. They
also include urban warehouse sites in East London and close to
Heathrow.
The options are held on the balance sheet at a value of GBP16
million (including joint ventures at share). Those we expect to
exercise over the next two to three years are for land capable of
supporting just under 1.0 million sq m of space and generating
approximately GBP62 million of headline rent (SEGRO share) for a
blended yield of approximately 6-7 per cent.
Development: What to expect in 2021
We have 838,100 sq m of development projects under way, capable
of generating GBP54 million of new headline rent, of which 66 per
cent has been secured.
We expect to invest in excess of GBP700 million in development
capex, including approximately GBP90 million of infrastructure
expenditure.
A RECORD YEAR OF INVESTMENT IN OUR BUSINESS -- INVESTMENT
UPDATE
We invested GBP1.4 billion in our portfolio during 2020:
development capital expenditure of GBP531 million, GBP603 million
of assets and GBP286 million of land. This was partly offset by
GBP139 million of disposals.
Acquisitions Focused on Building Scale in Urban Warehousing
We found a number of compelling acquisition opportunities in
2020 and as a result were more active on the investment front than
we have been in recent years.
We bought two very attractive urban warehouse parks in London,
one close to our existing assets in Park Royal and the other that
complements our East Plus portfolio and is now our most centrally
located asset in London.
We also acquired a further 75 per cent of the shares of the
listed French urban warehouse company Sofibus Patrimoine SA whose
main asset is a large industrial warehouse estate close to the
centre of Paris.
Other acquisitions included an urban warehouse park that adjoins
the Slough Trading Estate and a big box warehouse in ódz.
The consideration for the asset acquisitions was GBP603 million,
reflecting a blended topped-up initial yield of 4.0 per cent.
Acquisitions completed in 2020
Purchase price Topped-up net
(GBPm, SEGRO Net initial initial yield
Asset type share) yield (%) (%)
Big box logistics 9.3 6.7 6.7
Urban warehousing 556.2 3.9 4.0
Other 37.5 3.5 3.5
Land(2) 285.9 -- --
Acquisitions
completed in
2020(3) 888.9 3.9 4.0
1. Yield excludes land transactions.
2. Land acquisitions are discussed in Future Development Pipeline.
3. A reconciliation of acquisitions completed to the Financial Statements is
provided in the EPRA capital expenditure analysis on page 24.
Asset Recycling to Improve Portfolio Focus
During 2020, we sold GBP139 million of land and assets, taking
advantage of strong investor demand to realise profits and release
capital to reinvest in our business.
These disposals included our land and assets in Austria, some
older big box warehouses in France and an urban warehouse in West
London where we believe we had maximised the potential returns and
could take advantage of a strong investor market to crystalise some
profits.
As in previous years, we sold a portfolio of Continental
European big box warehouses developed by SEGRO to SELP for which we
received GBP47 million net proceeds from an effective sale of a 50
per cent interest.
The consideration for the asset disposals was GBP123 million,
reflecting a blended topped-up initial yield of 4.7 per cent. The
disposals generated a modest gain on sale compared to book values
at 31 December 2019.
Additionally, we disposed of GBP16 million of land, primarily
comprising plots in non-core markets (including the land mentioned
in Austria above).
Disposals completed in 2020
Disposal Topped-up net
proceeds (GBPm, Net initial initial yield
Asset type SEGRO share) yield (%) (%)
Big box logistics 49.7 5.0 5.0
Urban warehousing 73.5 4.2 4.2
Land 15.6 -- --
Disposals
completed in
2020(2) 138.8 4.7 4.7
1. Yield excludes land transactions.
2. A reconciliation of disposals completed to the Financial Statements is
provided in Table 3 of the Supplementary Notes.
Investments: What to expect in 2021
We will continue to look for acquisitions of income-producing
assets in line with our strategy and which offer attractive risk
adjusted returns. However, the majority of our investment is likely
to remain focused on development.
While investor demand for industrial properties remains strong,
we expect to continue to recycle assets where we believe we can
generate better returns from deploying our capital in other
opportunities A typical run rate would be GBP150-250 million per
year.
FINANCE REVIEW: AN ACTIVE YEAR OF FINANCING AND STRONG FINANCIAL
RESULTS
Financial highlights
31 December 31 December
2020 2019
IFRS(1) net asset value (NAV) per share
(diluted) (p) 809 697
Adjusted(1) NAV per share (diluted) (p) 814 700
IFRS profit before tax (GBPm) 1,464.1 902.0
Adjusted(2) profit before tax (GBPm) 296.5 267.5
IFRS earnings per share (EPS) (p) 124.1 79.3
Adjusted(2) EPS (p) 25.4 24.4
1. A reconciliation between IFRS NAV and its Adjusted NAV equivalent 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 statements are 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 reflects the underlying financial
performance of the Group's property rental business, which is our
core operating activity. It is based on EPRA earnings as set out
the Best Practices Recommendations Guidelines of the European
Public Real Estate Association (EPRA) which are widely used
alternate metrics to their IFRS equivalents within the European
real estate sector (further details can be found at www.epra.com).
In calculating Adjusted profit, the Directors may also exclude
additional items considered to be non-recurring, unusual, or
significant by virtue of size and nature. In the current and prior
periods there have been no such adjustments and therefore Adjusted
profit and EPRA earnings are the same.
A detailed reconciliation between Adjusted profit after tax and
IFRS profit after tax is provided in Note 2 to the condensed
financial statements. This is not on a proportionally consolidated
basis. 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 Note 11.
Reconciliations between SEGRO Adjusted metrics and EPRA metrics
are provided in the Supplementary Notes to the condensed financial
statements, which also include EPRA metrics as well as SEGRO's
Adjusted income statement and balance sheet presented on a
proportionally consolidated basis.
SEGRO monitors these alternative metrics, as well as the EPRA
metrics for vacancy rate, net asset value, capital expenditure and
total cost ratio, as they provide a transparent and consistent
basis to enable comparison between European property companies.
ADJUSTED PROFIT
Adjusted profit
2020 2019
GBPm GBPm
Gross rental income 392.9 362.0
Property operating expenses (88.3) (80.7)
Net rental income 304.6 281.3
Joint venture fee income 21.6 20.4
Administration expenses (51.5) (51.5)
Share of joint ventures' Adjusted profit(1) 61.5 54.0
Adjusted operating profit before interest and tax 336.2 304.2
Net finance costs (including adjustments) (39.7) (36.7)
Adjusted profit before tax 296.5 267.5
Tax on Adjusted profit (4.0) (3.2)
Non-controlling interests share of Adjusted profit (0.2) (0.2)
Adjusted profit after tax 292.3 264.1
1. Comprises net property rental income less administration expenses, net
interest expenses and taxation.
Adjusted profit before tax increased by 10.8 per cent to
GBP296.5 million (2019: GBP267.5 million) during 2020 as a result
of the movements described below (see Note 2).
Net rental income
Net rental income increased by GBP23.3 million to GBP304.6
million (or by GBP32.7 million to GBP385.1 million including joint
ventures at share), reflecting the positive net impact of
like-for-like rental growth, development completions and investment
activity during the period, offset by the impact of disposals.
Rent collection levels across the real estate industry were
significantly impacted by the Covid-19 pandemic. Within our
business, rent collections in the second quarter were initially
lower than typical levels as our customers reacted to the lockdown,
and we offered help on a case-by-case basis to those customers who
most required support. However, collection levels increased during
the year, and 98 per cent of 2020 rent has been collected so far.
Much of the remainder is expected to be collected through payment
plans during 2021, but having assessed the unpaid balance, a
provision for bad debts (being loss allowance and impairment of
receivables) including joint ventures at share of GBP4.1 million (1
per cent of the total rent roll) has been made.
On a like-for-like basis, before other items (primarily
corporate centre and other costs not specifically allocated to a
geographic Business Unit), net rental income increased by GBP6.7
million, or 2.1 per cent, compared to 2019 (increased by GBP9.3
million, or 2.9 per cent before the impact of bad debts). This is
due to strong rental performance across our portfolio in the UK:
0.9 per cent increase and Continental Europe: 4.3 per cent increase
(or UK: 2.0 per cent increase and Continental Europe: 4.6 per cent
increase before bad debts).
Like-for-like net rental income (including JVs at 2020 2019 Change
share) GBPm GBPm %
UK 205.8 204.0 0.9
Continental Europe 119.9 115.0 4.3
Like-for-like net rental income before other
items(1) 325.7 319.0 2.1
Other(2) (5.9) (5.9)
Like-for-like net rental income (after other) 319.8 313.1 2.1
Development lettings 46.0 15.0
Properties taken back for development 2.3 3.3
Like-for-like net rental income plus developments 368.1 331.4
Properties acquired 9.5 2.1
Properties sold 3.1 14.0
Net rental income before surrenders, dilapidations
and exchange 380.7 347.5
Lease surrender premiums and dilapidations income 1.0 0.5
Other items and rent lost from lease surrenders 13.0 14.1
Impact of exchange rate difference between periods -- (1.1)
Net rental income (including joint ventures at
share) 394.7 361.0
Share of joint venture management fees (9.6) (8.6)
Net rental income after SEGRO share of joint
venture fees 385.1 352.4
1. Includes expense for loss allowance and impairment receivables for the
Group of GBP3.8 million (2019: GBP1.2 million); UK GBP2.7 million (2019:
GBP0.5 million); CE GBP1.1 million (2019: GBP0.7 million). Excluding these
expenses, the like-for-like change would be Group 2.9%; UK 2.0%; CE 4.6%.
2. Other includes the corporate centre and other costs relating to the
operational business which are not specifically allocated to a geographical
Business Unit.
Income from joint ventures
Joint venture fee income increased by GBP1.2 million to GBP21.6
million. This increase is due to an increase in the SELP management
fee as the size of the portfolio has grown.
In 2018 SEGRO received a performance fee from SELP, of which
GBP26.2 million is subject to possible clawback and consequently
has been not been recognised as income but deferred until such time
that the risk of clawback becomes less likely (see Note 6 for
further details). The performance fee is calculated and receivable
on the fifth and tenth year anniversaries of the joint venture,
should the SELP property portfolio meet certain performance
criteria. It does not meet the recognition criteria in this period
due to the volatility and uncertainty around its measurements.
SEGRO's share of joint ventures' Adjusted profit after tax
increased by GBP7.5 million from GBP54.0 million in 2019 to GBP61.5
million in 2020 almost entirely from the growth in the SELP joint
venture.
Administrative and operating costs
The Group is focused on managing its cost base and uses a Total
Cost Ratio (TCR) as a key measure of cost management. The TCR for
2020 has improved to 21.1 per cent compared to 22.9 per cent in
2019, but still above our 20 per cent target. The calculation is
set out in Table 8 of the Supplementary Notes to the condensed
financial statements.
Excluding share-based payments, the cost ratio would be 18.8 per
cent, an improvement from 19.9 per cent in 2019.
The cost ratio calculation is detailed in Table 8, which shows
that the reduction in the ratio has been primarily caused by the
increase in gross rental income by GBP33.5 million to GBP448.4
million reflecting the growth through development and like-for-like
income discussed in the Net Rental Income section above. Total
costs in respect of the TCR remained relatively stable at GBP94.8
million compared to GBP95.2 million in 2019. Whilst wholly-owned
administration expenses have remained flat at GBP51.5 million,
property operating expenses have increased by GBP7.6 million to
GBP88.3 million in 2020, primarily from the increase in service
charge expenses, which are netted against service charge income in
the cost ratio calculation (as detailed in Table 8). Costs grew
less than anticipated as a result of our response to the pandemic,
with lower levels of travel and a slowdown in the pace of
recruitment.
Total costs (see Note 5) have decreased by GBP19.6 million to
GBP104.3 million. This balance includes trading property cost of
sales which have decreased by GBP27.2 million.
Net finance costs
Net finance costs (including adjustments) increased by GBP3.0
million in 2020 to GBP39.7 million primarily as a result of higher
debt levels compared to the prior period primarily funding our
development programme.
Taxation
The tax charge on Adjusted profit of GBP4.0 million (2019:
GBP3.2 million) reflects an effective tax rate of 1.3 per cent
(2019: 1.2 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 are 25.4 pence compared to 24.4
pence in 2019. The lower growth rate compared to Adjusted profit
reflects the increase in the average number of shares (the
denominator in the earnings per share calculation) by 69 million
shares compared to 2019 primarily due to the equity placing
undertaken in June 2020.
IFRS PROFIT
IFRS profit before tax in 2020 was GBP1,464.1 million (2019:
GBP902.0 million), equating to basic post-tax IFRS earnings per
share of 124.1 pence compared with 79.3 pence for 2019, principally
reflecting higher realised and unrealised gains in the property
portfolio.
A reconciliation between Adjusted profit before tax and IFRS
profit before tax is provided in Note 2 to the condensed financial
statements.
Realised and unrealised gains on wholly-owned investment
properties of GBP975.7 million in 2020 (2019: GBP483.9 million) and
realised and unrealised gains on trading and other property
interests of GBP14.1 million (2019: GBP12.2 million) have been
recognised in the Income Statement as the value of our portfolio
increased during the year. These primarily relate to an unrealised
valuation surplus on invested properties of GBP970.6 million (2019:
GBP476.7 million).
SEGRO's share of realised and unrealised gains on properties
held in joint ventures was GBP215.6 million (2019: GBP214.2
million) largely in respect of the SELP portfolio and is further
analysed in Note 6.
The cost of closing out debt in the year was GBP10.9 million
(2019: GBP18.6 million) following the buy-back of the small
outstanding amount of the SEGRO bonds maturing in 2021 and 2022.
IFRS earnings were also impacted by a net fair value gain on
interest rate swaps and other derivatives of GBP13.7 million (2019:
GBP7.9 million) and a tax charge of GBP35.0 million (2019: GBP41.4
million) of which GBP31.0 million (2019: GBP38.2 million) arises in
respect of adjustments, primarily in relation to property valuation
movements.
BALANCE SHEET
Adjusted net asset value
Shares Pence per
GBPm million share
Adjusted NAV attributable to ordinary
shareholders at 31 December 2019 7,712.1 1,102.1 700
Realised and unrealised property gain 1,205.4
Adjusted profit after tax and
non-controlling interests 292.3
Dividend net of scrip shares issued (2019
final and 2020 interim) (179.5)
Early repayment of debt (10.9)
Issue of shares 672.1
Other including exchange rate movement 33.7
Adjusted NAV attributable to ordinary
shareholders at 31 December 2020 9,725.2 1,194.7 814
At 31 December 2020, IFRS net assets attributable to ordinary
shareholders were GBP9,659.2 million (31 December 2019: GBP7,677.6
million), reflecting 809 pence per share (31 December 2019: 697
pence) on a diluted basis.
Adjusted NAV per share at 31 December 2020 was 814 pence (31
December 2019: 700 pence). The 16.3 per cent increase primarily
reflects property gains in the period. Note that the comparative
balance has changed from the amount previously reported of 708
pence in respect of EPRA NAV, following the issuance of new EPRA
guidance applicable in the current period (see Note 11 for further
details). The table above highlights the other principal factors
behind the increase. A reconciliation between IFRS and Adjusted NAV
is available in Note 11 to the condensed financial statements.
Cash flow and net debt reconciliation
Cash flows from operating activities of GBP233.2 million are
GBP58.4 million lower than the prior year. This is primarily due to
the impact of trading properties, for which there was an outflow of
GBP19.6 million in the current year, following an acquisition and
development expenditure, compared to an inflow of GBP30.9 million
in the prior period following a disposal. Excluding trading
properties, which are transaction driven and therefore not
consistent year on year by their nature, the cashflows from
operations is GBP252.8 million in the current year which is GBP7.9
million below the prior year primarily due to the deferral rentals
agreed with certain tenants in light of the Covid-19 pandemic.
The Group made net investments of GBP1,100.7 million of
investment and development properties (including options and loans
to joint ventures) during the year on a cash flow basis (2019:
GBP217.2 million). This is principally driven by expenditure of
GBP1,215.9 million (2019: GBP602.9 million) to purchase and develop
investment properties to deliver our strategy of growth. Disposals
of investment properties reduced by GBP253.2 million to GBP159.2
million compared to the prior period (2019: GBP412.4 million).
The largest financing cash flow arose in respect of net proceeds
from the issue of shares of GBP672.1 million primarily from an
equity placing undertaken in June 2020. Other significant cash
flows include dividends paid of GBP179.5 million (2019: GBP141.7
million) where cash flows are lower than the total dividend due to
the level of scrip uptake.
Overall, net debt has increased in the year from GBP1,811.0
million to GBP2,325.0 million.
Cash flow and net debt reconciliation
2020 2019
GBPm GBPm
Opening net debt (1,811.0) (2,177.0)
Cash flow from operating activities 233.2 291.6
Finance costs (net) (51.6) (44.6)
Debt close out costs (10.9) (23.1)
Dividends received (net) 33.8 33.3
Tax paid (5.2) (46.9)
Net cash received from operating activities 199.3 210.3
Dividends paid (179.5) (141.7)
Acquisitions and development of investment
properties (1,215.9) (602.9)
Sale of investment properties 159.2 412.4
Acquisition of interests in property and other
investments (4.2) (14.5)
Net investment in joint ventures (39.8) (12.2)
Net settlement of foreign exchange derivatives (55.0) 26.9
Proceeds from issue of ordinary shares 672.1 444.0
Other items (4.4) 4.1
Net funds flow (468.2) 326.4
Non-cash movements (2.4) (20.9)
Exchange rate movements (31.3) 60.5
Gross debt acquired (12.1) -
Closing net debt (2,325.0) (1,811.0)
Capital expenditure
The table below sets out analysis of the capital expenditure
during the year. 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 year was GBP1,548.4 million, an increase of
GBP655.6 million compared to 2019.
Development capital expenditure of GBP531.4 million was spent in
the year (2019: GBP408.7 million) across all our Business Units,
particularly Southern Europe and National Logistics, reflecting our
development-led growth strategy.
Development spend incorporates interest capitalised of GBP7.5
million (2019: GBP9.0 million) including joint ventures at
share.
Spend on existing completed properties, totalled GBP40.1 million
(2019: GBP30.8 million), of which GBP24.2 million (2019: GBP17.4
million) was for major refurbishment, infrastructure and fit-out
costs prior to re-letting. The balance mainly comprises more minor
refurbishment and fit-out costs, which equates to 5 per cent of
Adjusted profit before tax and less than 1 per cent of total spend.
Of the total spend GBP2.5 million (2019: GBPnil) increased lettable
space.
EPRA capital expenditure analysis
2020 2019
Wholly Joint Wholly Joint
owned ventures Total owned ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
Acquisitions 858.5(1) 82.0 940.5(7) 233.9 164.1 398.0
Development(4) 484.9(2) 46.5 531.4 345.2 63.5 408.7
Completed
properties(6) 34.0(3) 6.1 40.1 25.2 5.6 30.8
Other(5) 27.0 9.4 36.4 44.7 10.6 55.3
Total 1,404.4 144.0 1,548.4 649.0 243.8 892.8
1. Being GBP824.3 million investment property and GBP34.2 million trading
property (2019: GBP233.9 million and GBPnil respectively) see Note 12.
2. Being GBP471.0 million investment property and GBP13.9 million trading
property (2019: GBP336.8 million and GBP8.4 million respectively) see Note
12.
3. Being GBP34.0 million investment property and GBPnil trading property
(2019: GBP25.2 million and GBPnil respectively) see Note 12.
4. Includes wholly-owned capitalised interest of GBP7.0 million (2019: GBP8.2
million) as further analysed in Note 8 and share of joint venture capitalised
interest of GBP0.5 million (2019: GBP0.8 million).
5. Tenant incentives, letting fees and rental guarantees and other items.
6. Being GBP37.6 million expenditure used for enhancing existing space (2019:
GBP30.8 million) and GBP2.5 million used for creation of additional lettable
space (2019: GBPnil).
7. Total acquisitions completed in 2020 detailed in the Investment Update
above of GBP888.9 million excludes share of assets acquired by SELP from SEGRO
of GBP46.5 million (all of which was completed property, see Note 12) and
certain land acquisitions relating to trading properties of GBP5.1 million.
FINANCING
In May 2020, SEGRO extended the maturity of EUR1.1 billion of
revolving credit facilities for a further year to 2025. This was
followed by amendments to transition the facilities from sterling
LIBOR to SONIA in anticipation of the ending of LIBOR in 2021.
In June 2020, SEGRO issued 83 million new shares, raising GBP680
million of gross proceeds to help to fund our development programme
while also retaining an appropriate capital structure. The shares
were issued at 820.0 pence per share, a 4.5 per cent discount to
the prior day's closing share price.
In July 2020, SEGRO agreed a third US private placement 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 took
place in August 2020 followed by funding in October and December
2020.
In August 2020, SEGRO redeemed its GBP79.3 million 6.75 per cent
sterling bonds due to mature in 2021, followed by redemption in
September of its GBP39.1 million 7.0 per cent sterling bonds due to
mature in 2022. The combined cash settlement for the bonds redeemed
was GBP130.5 million, which included GBP1.4 million of accrued
interest.
In November 2020, SEGRO completed its secondary listing on
Euronext Paris. The Secondary Listing reflects the growth and
importance to the Company of its Continental European investor base
and operations and ensures that SEGRO maintains an optimum and
efficient holding structure following the end of the Brexit
transition period on 31 December 2020.
As 31 December 2020, the gross borrowings of SEGRO Group and its
share of gross borrowings in joint ventures totalled GBP3,201.2
million (31 December 2019: GBP2,637.8 million), of which only
GBP21.1 million (31 December 2019: GBP27.6 million) are secured by
way of legal charges over specific assets. The remainder of gross
borrowings are unsecured. Cash and cash equivalent balances were
GBP113.2 million (31 December 2019: GBP153.5 million). Average debt
maturity was 9.9 years (31 December 2019: 10.0 years) and average
cost of debt (excluding non-cash interest and commitment fees) was
1.6 per cent (31 December 2019: 1.7 per cent).
Funds available to SEGRO Group (including its share of joint
venture funds) at 31 December 2020 totalled GBP1,189.3 (31 December
2019: GBP1,370.0 million), comprising GBP113.2 million cash and
short term investments and GBP1,076.1 million of undrawn revolving
credit facilities of which only GBP11.6 million was uncommitted.
Cash and cash equivalent balances, together with the Group's
interest rate and foreign exchange derivatives portfolio, are
spread amongst a strong group of banks, all of which have a credit
rating of A- or better.
Financial Position and Funding
31 December 2020 31 December 2019
SEGRO Group SEGRO Group
and JVs at and JVs at
SEGRO Group share SEGRO Group share
Net borrowings
(GBPm) 2,325.0 3,088.0 1,811.0 2,484.3
Available cash
and undrawn
facilities
(GBPm) 1,061.4 1,189.3 1,173.2 1,370.0
Balance sheet
gearing (%) 24 N/A 23 N/A
Loan to value
ratio (%) 22 24 22 24
Weighted
average cost
of debt(1)
(%) 1.7 1.6 1.8 1.7
Interest
cover(2)
(times) 6.6 6.5 6.2 6.3
Average
duration of
debt (years) 11.7 9.9 11.6 10.0
1. Based on gross debt, excluding commitment fees and non-cash interest.
2. Net rental income/Adjusted net finance costs (before capitalisation).
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 proportionally
consolidated ('look-through') 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 31 December 2020 on this basis was 24
per cent (31 December 2019: 24 per cent).
SEGRO's 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 31 December 2020, as defined within
the principal debt funding arrangements of the Group, was 24 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 64 per cent
from their 31 December 2020 values to reach the gearing covenant
threshold of 160 per cent. A 64 per cent fall in property values
would equate to an LTV ratio of approximately 66 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 31 December 2020, the Group
comfortably met this ratio at 6.6 times. Net property rental income
would need to fall by around 81 per cent from 2020 levels to reach
the interest cover covenant threshold of 1.25 times. On a
proportionally consolidated basis, including joint ventures, the
interest cover ratio was 6.5 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.
Our intention for the foreseeable future is to maintain our LTV
at around 30 per cent. This provides the flexibility to take
advantage of investment opportunities arising and ensures
significant headroom compared to our tightest gearing covenants
should property values decline.
At 31 December 2020, the only debt maturity falling due within
12 months is a EUR1 million principal repayment on an amortising
loan, acquired with Sofibus Patrimoine SA. The weighted average
maturity of the gross borrowings of the Group (including joint
ventures at share) was 9.9 years. With the majority of the Group's
revolving credit facilities not due to mature until 2025, and no
material Group debt maturities until 2024, this long average debt
maturity translates into a favourable, well spread debt funding
maturity profile which reduces future refinancing risk.
INTEREST RATE RISK
The Group's interest rate risk policy is designed to ensure that
we limit our exposure to volatility in interest rates. The policy
states that between 50 and 100 per cent of net borrowings
(including the Group's share of borrowings in joint ventures)
should be at fixed or capped rates, including the impact of
derivative financial instruments.
At 31 December 2020, including the impact of derivative
instruments, 70 per cent (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 44 per cent at 31 December 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 the year to 31
December 2020, the adjusted net finance cost of the Group would
have increased by approximately GBP12.6 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 its fair value are
taken to the income statement but, in accordance with EPRA Best
Practices Recommendations Guidelines, these gains and losses are
eliminated from Adjusted profit after tax.
FOREIGN CURRENCY TRANSLATION RISK
The Group has minimal 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 its foreign currency gross assets using
either borrowings or derivative instruments. The Group targets a
hedging range of between the last reported LTV ratio (31 December
2020: 24 per cent) and 100 per cent. At 31 December 2020, the Group
had gross foreign currency assets which were 61 per cent hedged by
gross foreign currency denominated liabilities (31 December 2019:
65 per cent).
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 31 December 2020 weakened by 10 per cent against
sterling (to EUR1.23, in the case of euros), net assets would have
decreased by approximately GBP158 million and there would have been
a reduction in gearing of approximately 1.7 per cent and in the LTV
of 1.3 per cent.
The average exchange rate used to translate euro denominated
earnings generated during 2020 into sterling within the
consolidated income statement of the Group was EUR1.13:GBP1. Based
on the hedging position at 31 December 2020, and assuming that this
position had applied throughout 2020, if the euro had been 10 per
cent weaker than the average exchange rate (EUR1.24:GBP1), Adjusted
profit after tax for the year would have been approximately GBP9.7
million (3.3 per cent) lower than reported. If it had been 10 per
cent stronger, Adjusted profit after tax for the year would have
been approximately GBP11.9 million (4.1 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 secured
EUR450 million of new debt as well as extending the term of EUR1.1
billion of revolving credit facilities by one year, significantly
enhancing its liquidity.
-- Cash and available facilities at 31 December 2020 were GBP1.1 billion,
well in excess of the Group's capex commitment of GBP0.6 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 31 December 2020, property values would need to fall by around
64 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, its
experience in 2020 and in 2021 to date, and the plausible scenarios
modelled.
-- Customer rent collections remain high, with 98 per cent of rent collected
for the year ending 2020. The results of our Covid-19 stress test
(modelling 20 per cent of customers delaying rent payments and 10 per
cent of customer defaulting on their rent payments) was that the Group
would continue as a going concern.
Having made enquiries and having considered the principal risks
facing the Group, including liquidity and solvency risks, and
material uncertainties, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future (a period of at
least 12 months from the date of approval of the financial
statements). Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
DIVID INCREASE REFLECTS A STRONG YEAR AND CONFIDENCE FOR THE
FUTURE
Under the UK REIT rules, we are required to pay out 90 per cent
of UK-sourced, tax-exempt rental profits as a 'Property Income
Distribution' (PID). Since we also receive income from our
properties in Continental Europe, our total dividend should
normally exceed this minimum level and we target a pay-out ratio of
85 to 95 per cent of Adjusted profit after tax. We aim to deliver a
progressive and sustainable dividend which grows in line with our
profitability in order to achieve our goal of being a leading
income-focused REIT.
The Board has concluded that it is appropriate to recommend an
increase in the final dividend per share by 0.8 pence to 15.2 pence
(2019: 14.4 pence) which will be paid as a PID. The Board's
recommendation is subject to approval by shareholders at the Annual
General Meeting, in which event the final dividend will be paid on
4 May 2021 to shareholders on the register at the close of business
on 19 March 2021.
In considering the final dividend, the Board took into
account:
-- the policy of targeting a pay-out ratio of between 85 and 95 per cent of
Adjusted profit after tax;
-- the desire to ensure that the dividend is sustainable and progressive
throughout the cycle; and
-- the results for 2020 and the outlook for earnings.
The total dividend for the year will, therefore, be 22.1 pence,
a rise of 6.8 per cent versus 2019 (20.7 pence) and represents
distribution of 87 per cent of Adjusted profit after tax.
The Board has decided to retain a scrip dividend option for the
2020 final dividend, allowing shareholders to choose whether to
receive the dividend in cash or new shares. In 2020, 35 per cent of
the 2019 final dividend and 7 per cent of the 2020 interim dividend
was paid in new shares, equating to GBP61 million of cash retained
on the balance sheet.
STATEMENT OF PRINCIPAL RISKS
Dynamic risk management is embedded in our business and ensures
we are able to adapt to the ever-changing environment in which we
do business.
The continually evolving circumstances caused by the Covid-19
pandemic, coupled with the backdrop of geopolitical and
macroeconomic uncertainty, has, and continues to present a rapidly
changing operating environment for the business to navigate.
Despite this, the Group's performance has continued to be positive,
as evidenced by our financial results, and demonstrates the
importance of our risk process which is embedded within our
business to enable effective, responsive decision-making.
Looking forward to 2021, whilst there is still much uncertainty,
it is anticipated that Covid-19 will still be prevalent in society,
notwithstanding the efficacy of the vaccine roll out. Therefore
risk management and controls, and the Group's continued ability to
be flexible in responding to the risks presented, will be
fundamental to our ability to continue to operate successfully.
COVID-19
The impact of the pandemic continues to evolve and impact our
entire risk landscape. We have incorporated commentary into each
relevant principal risk and continue to monitor a new wave of
infections and/or prolonged impact as an emerging risk. In most
cases Covid-19 has acted to increase either the impact, the
probability, or both in respect of risks already identified on the
Risk Register. Major event/business disruption has been
specifically identified and reported as a principal risk this year
(as detailed further below).
During the year, the Group's Board and key Committees continued
to meet regularly to identify, assess and record the Covid-19
related risks as they arose and evolved and to consider appropriate
responses and mitigations accordingly.
Areas of particular concern relate to our people, customers,
development programme, other suppliers, communities and financing
and investor engagement. Some key areas specific to risk management
include:
-- Our people: The top priority was the health and well-being of our people.
A central incident management team oversaw the process to ensure each
local office maintained safe working conditions in line with local
regulations and this was managed and regularly updated. As the working
environment changed, staff were supplied with the necessary tools
including IT equipment to be able to work effectively at home. This is
detailed in the Health and Safety section and Principal Risk sections
below.
-- Customers: We maintained regular communication with our customers to
ensure they were properly supported such as offering financial
flexibility and facilities maintenance. The elevated risk of tenant
default is covered further in the Operational Delivery and Compliance
principal risk below.
-- Our development programme and other suppliers: We worked closely with our
supply chain during the pandemic with many sites subject to closure and
other local regulations in the response to the outbreak. We reopened the
sites as soon as it was possible and have worked collaboratively with our
contractors to ensure a safe, compliant working environment on our sites.
Whilst there were some delays in sourcing labour and raw materials, the
mitigations such as sourcing locally where possible, have meant there
have been no significant delays in delivering the projects. We have also
continued to pay suppliers promptly. This is detailed further in the
Development Plan Execution principal risk below. We have worked closely
with our other suppliers even though face to face interactions have been
less frequent and continue to pay suppliers promptly.
-- Operations and financing: A full, detailed assessment of our key
operations was undertaken to ensure we could continue to operate under
the new working environment and that appropriate process and controls
were in place, including the robustness of our IT systems. For example,
during the year we worked closely with our banks and other providers of
finance in order to undertake various fund raises remotely thanks to the
internal processes in place supported by our IT systems. For more
information please refer to the Operational Delivery and Compliance
principal risk below.
Disciplined Capital Allocation
We have continued to pursue opportunities to invest capital in
line with the Group's investment stance and appetite for risk. In
2020, this focused again on our development pipeline (bearing in
mind our appetite for non-income producing assets -- discussed
further below) but was notably supplemented by a small number of
large acquisitions in our key strategic markets. Relevant Key Risk
Indicators are considered each month by the Investment Committee to
inform its decisions.
We continue to manage our risk exposure by:
-- utilising options on land whenever feasible;
-- maintaining a balanced exposure to speculative development;
-- using a broad range of key contractors and closely managing them during
our developments;
-- maintaining an efficient capital structure and liquidity position to fund
the development activity; and
-- planning for the combined impact of significant decisions -- land
acquisitions, infrastructure commitments and development commitments --
that will be required by our pipeline of development opportunities.
Environmental Sustainability and Climate Change
Environmental sustainability is an ever more important risk for
the business and has been separately reported on as a new Principal
risk in the year.
The risk includes the short to medium-term impacts including
transitional changes (for example legislation and financial) which
we closely monitor and the long-term emerging risk of climate
change (for example physical changes including the increased
likelihood of extreme weather events) for which we have undertaken
extensive research.
The environmental and climate change related risks are managed
by our Group Sustainability Manager and his dedicated
sustainability team, reporting to the Executive Committee and
ultimately the Board.
BREXIT
Brexit and particularly a disruptive Brexit, was a key focus for
the Group during the year. The UK and EU reached a trade agreement
shortly before the end of the transition period, which redefined
the UK's relationship with the EU on trade and other areas of
cooperation. The risk of what might have been the most disruptive
form of Brexit was, at least in part, mitigated. While the new
arrangements bed in and their implications become better understood
and more transparent, the risk that future issues may arise remain
elevated. The Group continue to actively monitor and manage the
identified risks and remain alert to new issues which may
arise.
The responsibility for monitoring and managing the risk of a
disruptive Brexit is the responsibility of a Brexit Committee made
up of senior management from across the business, reporting to the
Executive Committee. This Committee maintains a dedicated Risk
Register to identify and prioritise key risks actions and
mitigations.
Key elements of such risk included macro factors which would
impact the Group's performance which we had to be aware of and
responsive to but could do little to proactively mitigate. A small
number of risks at a corporate level merited further focus,
including compliance with a new regulatory regime, and actions were
taken to mitigate their impact insofar as was possible and
practicable. Other impacts were more indirect, such as those on our
suppliers and customers, with whom we maintain a close and
transparent dialogue.
The risk of a disruptive Brexit continues to be reported as a
principal risk until the situation clarifies further, after which,
it is envisaged the specific risks arising will be reported and
monitored within their relevant areas of impact. To date, whilst we
remain constantly vigilant, no elements of Brexit risk have come to
light which would be outside the Group tolerance.
Financing
The Group's financing strategy is balanced between supporting
investment in our growth, and to enable the Group to be well
positioned and resilient against potential risks faced in both the
short and long term, including the impact of the pandemic. The
Group maintains a low appetite to liquidity and solvency risk.
The Group's management of its capital structure, including
extending debt facilities and maturities, is described in the
Finance Review.
Health and Safety
Health and Safety remains at the very heart of our business. The
Health and Safety Working Group oversees the Health and Safety
Policy and Safety Management System to ensure further proactive
collaboration and communication to mitigate health and safety risk
across the Group. During the year, the Health and Safety team was
instrumental in the Group's response to the pandemic and the
relevant regulations as they evolved, including in respect of
employees as they worked away from the office and on our building
sites.
Technology
The Group remains alert to the risks and opportunities that
potentially disruptive technology could have on the business. We
continued to engage with a number of external organisations -- both
in the property sector and in the wider technology realm -- to
assist us in identifying and assessing potentially disruptive
technologies, none of which currently is believed to present an
imminent significant risk to the Group.
During 2020 we created a Strategy, Investment and Innovation
function to assess the potential impacts of a wide range of
technologies; evolving our digital and technology strategy; and
continuing to invest in this function in order to deliver that
strategy.
OUR RISK APPETITE
The Group recognises that its ability to manage risk effectively
throughout the organisation continues to be central to its success.
Our approach to risk management aims to bring controllable risks
within our appetite, and to enable our decision making to balance
uncertainty against the objective of creating and protecting, now
and in the long-term, value for our shareholders and other
stakeholders.
The Group's risk appetite is reviewed annually and approved by
the Board in order to guide management. As well as qualitative
descriptions, the risk appetite defines tolerances and targets for
key metrics. It is equally applicable to wholly-owned operations
and joint ventures.
While our appetite for risk will vary over time and during the
course of the property cycle, in general the Group maintains a
fairly low appetite for risk, appropriate to our strategic
objectives of delivering sustainable, attractive returns in the
form of progressive dividends and net asset value growth over
time.
Property Risk
We recognise that, in seeking outperformance from our portfolio,
the Group must accept a balanced level of property risk -- with
diversity in geographic locations and asset types and an
appropriate mixture of stabilised income producing and opportunity
assets -- in order to enhance opportunities for superior returns.
This is balanced against the backdrop of the macroeconomic climate
and its impact on the property cycle.
Our target portfolio should deliver attractive, low risk income
returns with strong rental and capital growth when market
conditions are positive and show relative resilience in a downturn.
We aim to enhance these returns through development, but we seek
both to ensure that the 'drag' associated with holding development
land does not outweigh the potential benefits, and to mitigate the
risks -- including letting, construction and contractor risks --
inherent in development.
In line with our income focus, we have a low appetite for risks
to income from customer default or insolvency, and accordingly seek
to maintain a diverse occupier base with strong covenants and avoid
over-exposure to individual occupiers in specialist properties.
Financial Risk
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.
As an income-focused REIT we have a low appetite for risks to
maintaining stable progression in earnings and dividends over the
long term. We are, however, prepared to tolerate fluctuations in
dividend cover as a consequence of capital recycling activity.
We also seek long-term growth in net asset value. Our appetite
for risks to net asset value from the factors within our control is
low, albeit acknowledging that our appetite for moderate leverage
across the cycle amplifies the impact of market driven asset
valuation movements on net asset value.
Corporate Risk
We have a very low appetite for risks to our good reputation and
risks to being well-regarded by our customers and wider
stakeholders, including investors, regulators, employees, business
partners, suppliers, lenders and by the communities in which we
operate.
Our responsibilities to these stakeholders include compliance
with all relevant laws; accurate and timely reporting of financial
and other regulatory information; safeguarding the health and
safety of employees, suppliers, customers and other users of our
assets; our impact on the environment; the impact of new and
evolving technologies; compliance with codes of conduct and ethics;
ensuring business continuity; and making a positive contribution to
the communities in which we operate.
OUR INTEGRATED AND ROBUST APPROACH TO RISK MANAGEMENT
The Board has overall responsibility for ensuring that risk is
effectively and consistently managed across the Group. The Audit
Committee monitors the effectiveness of the Group's risk management
process on behalf of the Board.
The risk management process is designed to identify, evaluate
and mitigate the significant risks (including emerging risks) that
the Group faces. The process aims to understand and mitigate,
rather than eliminate, the risk of failure to achieve business
objectives, and therefore can only provide reasonable and not
absolute assurance.
Identification and review of emerging risks are integrated into
our risk review process. Emerging risks are those risks or
combination of risks which are often rapidly evolving for which the
impact and probability of occurrence have not yet been fully
understood and consequently necessary mitigations have not yet
fully evolved. All risk owners and managers within the business are
challenged to consider emerging risks and this is enhanced through
formal twice-yearly horizon scans with the Executive Committee.
The Board recognises that it has limited control over many of
the external risks it faces, such as the pandemic, as well as the
macroeconomic, geopolitical, and regulatory environment, but it
reviews the potential impact of such risks on the business and
consequential decision making.
The Board also monitors internal risks and ensures that
appropriately designed controls are in place and operate in order
to manage them.
The Board has performed a robust assessment of the principal and
emerging risks facing the Group. The Board has formally reviewed
the principal and emerging risks twice during the year. The Board
has also completed its annual review and approval of the Group's
risk appetite, and the Group's risk management policy. The Audit
Committee reviews the process over how the Group Risk Register has
been compiled twice a year.
The Group adopts the 'three lines of defence' model of risk
management. Operational management, the individual risk manager and
risk owner provide the first line of defence. The Executive
Committee, other monitoring committees, and the risk management
function overseen by the Group Risk Committee provide the second
line of defence.
Finally, Internal Audit provides the third line of defence.
Risks are considered within each area of the business to ensure
that risk management is fully embedded within the Group's
operations, culture and decision-making processes.
We have put risk appetite at the heart of our risk management
processes. Risk appetite is integral both to our consideration of
strategy and to our medium-term planning process. Risk appetite
also defines specific tolerances and targets for key metrics and
the criteria for assessing the potential impact of risks and our
mitigation of them.
The most significant risks and mitigating controls are detailed
in the Group Risk Register. Risks are assessed in both unmitigated
(assuming that no controls are in place) and residual (with
mitigating controls operating normally) states. This assessment
directly relates potential impact to risk appetite so that it is
clear whether each risk is comfortably within appetite, tolerable,
intolerable or below appetite. We also formally assess the velocity
of the most significant risks to determine how quickly they might
become intolerable.
A Key Risk Indicator (KRI) dashboard is produced and monitored
regularly to show actual and forecast performance against risk
appetite metrics, allowing informed decision-making. KRIs are
considered regularly by the relevant monitoring committees as well
as being integral to the Group's Medium Term Plan.
Mitigations for each risk are documented and monitored in the
Group Risk Register. The Register is used as a key input to
determine priorities for the Group's internal audit assurance
programme. Furthermore, management's annual assessment of control
effectiveness is driven by the Group's Risk Register.
PRINCIPAL RISKS
The principal risks have the potential to affect SEGRO's
business materially. Risks are classified as 'principal' based on
their potential to intolerably exceed our appetite (considering
both inherent and residual impact) and cause material harm to the
Group.
Some risks that may be unknown at present, as well as other
risks that are currently regarded as immaterial and therefore not
detailed here, could turn out to be material in the future.
The current principal risks facing the Group are described
across the following pages.
The descriptions indicate the potential areas of impact on the
Group's strategy; the time-horizon and probability of the risk; the
principal activities that are in place to mitigate and manage such
risks; the committees that provide second line of defence
oversight; changes in the level of risk during the course of 2020;
whether the risk is within our appetite (after the application of
our mitigations); and links to further relevant information in this
report.
Management has actively considered emerging risks during the
year. To this end, the Executive Committee undertakes a risk
'horizon scan' twice a year, and the risk management function
undertakes an annual survey of peers and other listed companies to
identify potential risks for consideration.
Two principal risks have been added in 2020 being the Major
Event/Business Disruption risk in response to the pandemic arising
during the year and Environmental Sustainability in light of its
significance to the Group. Both risks have been specifically
identified as standalone principal risks whereas previously they
were part of the Operational Delivery and Compliance risk.
Two previously reported principal risks, Portfolio Strategy and
Investment Plan Execution, have been combined below (called
Portfolio Strategy and Execution) to recognise the congruent nature
of the original risks as part of one contiguous process. The Market
Cycle risk now also includes reference to macroeconomic impacts in
order to highlight the external aspect of this risk. Furthermore,
two of our risks, Political and Regulatory and Operational Delivery
and Compliance have increased, as discussed further below, whilst
the others have remained in line with the prior year.
PRINCIPAL RISK MITIGATIONS AND IMPACT AND
CURRENT YEAR CHANGE IN
ACTIVITY 2020
1. The property market The Board, Executive Impact on
Macroeconomic is cyclical and Committee and strategy:
impact on there is a Investment Committee Disciplined
Market Cycle continuous external monitor the property Capital
risk that the Group market cycle on a Allocation
could either misread continual basis and Change in
the market or fail adapt the Group's 2020: Similar
to react investment/divestment risk Risk is
appropriately to stance in within
changing market and anticipation of appetite.
wider related changing market
geopolitical conditions. Multiple,
conditions, which diverse investment
could result in and occupier market
capital being intelligence is
invested or regularly reviewed
disposals taking and considered --
place at the wrong both from internal
price or time in the 'on the ground'
cycle. sources and from
independent external
sources. Upside and
downside scenarios
are incorporated into
Investment Committee
papers to assess the
impact of differing
market conditions.
During the year, the
pandemic has led to
greater market
volatility and less
predictability and in
response we have
increased the
regularity of our
economic outlook
assessments. Whilst
we are not entirely
immune to these
fluctuations, the
most material adverse
impacts appear to be
focussed in sectors
where we do not have
significant
exposures.
2. Portfolio The Group's Total The Group's portfolio Impact on
Strategy and Property and/or strategy is subject strategy:
Execution Shareholder Returns to regular review by Disciplined
could underperform the Board to consider Capital
in absolute or the desired shape of Allocation
relative terms as a the portfolio in Change in
result of an order to meet the 2020: Similar
inappropriate Group's overall risk Risk is
portfolio strategy. objectives and to within
This could result determine our appetite.
from: Holding the response to changing
wrong balance of opportunities and
prime or secondary market conditions.
assets; Holding the The Group's
wrong amounts or Disciplined Capital
types of land, Allocation is
leading to diluted informed by
returns and/or comprehensive asset
constraints on plans and independent
development external assessments
opportunities; of market conditions
Holding the wrong and forecasts.
mix of risk assets Regular portfolio
(for example between analysis enables the
higher risk portfolio to be
'opportunity' assets correctly positioned
and lower risk in terms of location
'core' assets) or and asset type, and
too many old or retains the right mix
obsolete assets of core and
which dilute opportunity assets.
returns; and Holding The annual asset
assets in the wrong planning exercise
geographical provides a bottom-up
markets; missing assessment of the
opportunities in new performance and
markets or lacking potential for all
critical mass in assets to identify
existing markets. underperforming
assets that are
considered for sale.
Asset plans are
prepared annually for
all estates to
determine where to
invest capital in
existing assets and
to identify assets
for disposal. Locally
based property
investment and
operational teams
provide market
intelligence and
networking to source
attractive
opportunities.
Policies are in place
to govern evaluation,
due diligence,
approval, execution
and subsequent review
of investment
activity. Investment
hurdle rates are
regularly reappraised
taking into account
estimates of our
weighted average cost
of capital. Major
capital investment
and disposal
decisions are subject
to Board approval in
line with portfolio
strategy. During the
year, the potential
market volatility
caused by the
pandemic, discussed
in the Macroeconomic
Impact on Market
Cycle risk, has led
to a degree of
caution in our
approach to portfolio
management and
capital allocation.
We do, however,
continue to closely
monitor the situation
and take advantage of
opportunities as they
arise.
3. Major Unexpected global, In "normal" Impact on
event/business regional or national circumstances, the strategy:
disruption events result in Group positions Disciplined
severe adverse itself to withstand a Capital
disruption to SEGRO, global event and Allocation,
such as sustained business disruption Operational
asset value or through its financing Excellence
revenue impairment, strategy (see and Efficient
solvency or covenant separate principal Capital and
stress, liquidity or risk); diverse Corporate
business continuity portfolio strategy Structure
challenges. A global (see separate Change in
event or business principal risk) 2020: New
disruptor may including a diverse risk
include, but is not portfolio, staying identified
limited to a global close to customers to following
financial crisis, understand their pandemic
health pandemic, changing needs, impact during
civil unrest, act of property insurance the year Risk
terrorism, and strong customer is within
cyber-attack or base; organisational appetite.
other IT disruption. resilience of the
Events may be work force; and
singular or detailed business
cumulative, and lead continuity and
to acute/systemic disaster recovery
issues in the plans. Going concern
business and/or and viability is
operating assessed through a
environment. detailed bottom up
medium-term planning
process including a
business stress test
and downside
scenarios. During the
year, the pandemic
was a significant
factor in the risks
facing the Group, as
detailed further
above. This includes
the instigation of
our incident
management team to
oversee our initial
response to the
pandemic; ensuring
employees were
working in safe and
secure conditions
with the appropriate
equipment; our Health
and Safety team
working closely with
local teams to ensure
compliance with local
regulations both at
our offices and
building sites;
working closely with
our customers and
being flexible for
their requirements in
both providing safe
space and
financially; working
closely with our
contractors to
maintain safe
building sites and
reviewing our core
processes in light of
the new working
conditions in order
to maintain
appropriate internal
controls and
operational
resilience.
4. Disruptive The agreement of the The Group is mindful Impact on
Brexit trade deal between of continuing strategy:
the UK and the EU in political and Disciplined
December 2020 economic Capital
provided clarity uncertainties but Allocation
around the future remains focused on and
trade relationship controlling what it Operational
between the EU and can within its own Excellence
UK and consequently business. Much of the Change in
reduced but not potential short-term 2020: Similar
fully mitigated the economic impact has risk Risk is
risk of disruption been overshadowed by within
caused by Brexit. the pandemic. We appetite.
Ongoing risks around continue to engage in
how this trade deal dialogue with key
and the wider customers, and with
implications of key suppliers to
Brexit may impact understand labour and
investment, capital, material supply
financial (including risks. To date, we
exchange rates), have not observed
occupier and labour significant adverse
markets in the UK factors. Structural
are yet to be fully drivers of demand
understood. In the appear to have
long-term, exit from continued to outweigh
the EU could impact any Brexit-related
levels of investor uncertainties. The
and occupier demand Group has, however,
as a result of continued to adopt a
reduced trade, in disciplined approach
particular those in to land acquisition
industries more at and speculative
risk to the impact development. The
of a disruptive Group's strategy
Brexit, and/or the provides resilience
relocation of through the market
corporations and cycle. As well as the
financial underlying quality
institutions away and diversity (in
from the UK. terms of both asset
Nevertheless, the type and location) of
likelihood of severe the portfolio,
adverse impact on mitigations include
the Group is judged substantial covenant
to be low headroom, access to
diverse sources of
funding, exchange
rate and interest
rate hedging, and
short development
lead-times. During
the year, the Brexit
Committee has
continued to meet
regularly to monitor
risks and associated
mitigating actions
arising using a
dedicated Brexit Risk
Register. This
includes a limited
number of corporate
level actions in
response to the new
regulatory regime.
Whilst the Trade
Agreement signed in
December 2020 averted
the most disruptive
outcome, the
Committee and wider
business continue to
monitor the position
to ensure issues
arising are
appropriately
identified and
mitigated.
5. Health and Health and safety The Group manages an Impact on
Safety management processes active health and strategy:
could fail, leading safety management Operational
to a loss of life, system, with a Excellence
litigation, fines particular focus on Change in
and serious managing the quality 2020: Similar
reputational damage and compliance to risk Risk is
to the Group. This good health and within
risk is somewhat safety practice of appetite.
increased by the all our suppliers. A
scale of the Group's published Health and
development Safety policy is
activity supported by annual
site inspections of
existing assets, as
part of proactive
management, and
development project
inspections against
SEGRO's Health &
Safety Construction
Standard. We continue
to improve health and
safety standards on
our development sites
and work more closely
with our suppliers
and health and safety
consultants to
increase
understanding and
implementation of
SEGRO's requirements.
The Health and Safety
Working Group is
responsible for
overseeing the
implementation of,
and compliance with,
the Health and Safety
Policy and Safety
Management System. We
undertake continuous
monitoring of health
and safety practices,
including incidents,
inspections and
training tracked
across the Group.
Legal guidance and
further support is
provided through
local health and
safety consultants
who provide
regulatory assurance
support to the Group.
During the year, the
pandemic has meant
the safety of the
internal workforce in
working away from the
office and the
management of
available office
space to the extent
permitted by local
regulations, has been
a priority for the
Health and Safety
team. Furthermore,
the team has also
worked with our
contractors to ensure
that work on our
development sites was
undertaken in a safe
and compliant
manner.
6. Failure to A dedicated Impact on
Environmental anticipate and sustainability team strategy:
Sustainability respond to the is in place who Disciplined
impact of both regularly update the Capital
physical and Executive Committee Allocation
transitional risks and Board, including and
from climate change monitoring against Operational
on the our stated Excellence
sustainability of sustainability Change in
our environment as targets. We actively 2020: This is
both a principal and participate and a new risk
emerging risk. engage in several rating which
Changes in social Real Estate and reflects the
attitudes, laws, Sustainability increased
regulations, organisations (such environmental
policies, taxation, as EPRA and the World challenges
obligations, and Green Building facing the
customer preferences Council) to ensure we business and
associated with are aware of future wider
environmental initiatives and communities
sustainability could challenges. We set Risk is
cause significant minimum standards for within
reputational damage developments to appetite.
and impact on our ensure all are
business, through undertaken to
non-compliance with achieve, if not
laws and exceed, the highest
regulations, environmental
increased costs of standards. All
tax and energy and acquisitions include
loss of value an assessment for
through not meeting climate related risk.
stakeholder The portfolio is
expectations in reviewed against
addressing these future climate
challenges when related metrics such
reporting. as increasing
temperature to
mitigate against
future obsolescence.
Group and local teams
are constantly kept
up to date with new
laws and regulations
as they become
relevant through
regular training and
use of a panel of
expert advisors.
During the year, we
have launched our
"Responsible SEGRO"
framework which
details how we will
rise to this
challenge. We will
lead a low carbon
transformation in our
industry to address
climate change,
working with our
customers in order to
achieve this. We have
reviewed our targets
including seeking to
be Net Zero Carbon by
2030.
7. Development The Group has an Our appetite for Impact on
Plan extensive current exposure to strategy:
execution programme and future non-income producing Disciplined
pipeline of assets (including Capital
developments. The land, infrastructure Allocation
Group could suffer and speculative and
significant developments) is Operational
financial losses monitored closely, Excellence
from: Cost over-runs for example when Change in
on larger, more acquisition decisions 2020: Similar
complex projects, are being made by the risk Risk is
including for Investment Committee. within
example, due to We retain a high appetite.
contractor default level of optionality
or poor performance in our future
and management. development programme
Increased including at the
competition and/or point of land
construction costs acquisition,
(from labour market commitment to
changes or supply infrastructure and
chain pressures) commitment to
leading to reduced building. The
or uneconomic development programme
development yields. remains weighted
Above-appetite towards pre-let
exposure to opportunities. The
non-income producing risk of cost-overruns
land, infrastructure is mitigated by our
and speculatively experienced
developed buildings development teams and
arising from a sharp the use of trusted
deterioration in advisors and
occupier demand. contractors. The risk
of contractor default
is mitigated by using
a diversified
selection of
companies who have
been through a
rigorous onboarding
process and closely
monitoring their
financial strength.
Our short development
lead-times enable a
quick response to
changing market
conditions. During
the year, development
sites initially
experienced delays
following shutdowns
due to the pandemic.
As discussed above in
our Health and Safety
risk, our teams
worked closely with
contractors to ensure
working practices on
all sites complied
with local
regulations and were
operated in a safe
and compliant manner.
We continue to
regularly monitor the
performance and
financial strength of
our contractors as
contracts are awarded
through the year.
8. Financing The Group could The Group's financing Impact on
Strategy suffer an acute strategy is aligned strategy:
liquidity or with our long-term Efficient
solvency crisis, business strategy, Capital and
financial loss or the Medium Term Plan Corporate
financial distress and our risk Structure
as a result of a appetite. The Change in
failure in the Treasury policy 2020: Similar
design or execution defines key policy risk Risk is
of its financing parameters and within
strategy. Such an controls to support appetite.
event may be caused execution of the
by: a failure to strategy. The Group
obtain debt or regularly reviews its
equity funding (for changing financing
example, due to requirements in light
market disruption or of opportunities and
rating downgrade); market conditions and
having an maintains a good
inappropriate debt long-term
structure (including relationship with a
leverage level, debt wide range of sources
maturity, interest of finance. Liquidity
rate or currency remains strong and
exposure); poor there is substantial
forecasting; default headroom against all
on loan agreements of our financial
as a result of a covenants. During the
breach of financial year, financing
or other covenants; activity has
or counterparty strengthened the
default. balance sheet,
increased average
debt maturity,
lowered the average
cost of debt, and
demonstrated our
ability to access a
range of debt capital
markets.
9. Political The Group could fail Emerging risks in Impact on
and to anticipate this category are strategy:
Regulatory significant reviewed regularly by Efficient
political, legal, the Executive Capital and
tax or regulatory Committee. Corporate Corporate
changes, leading to heads of function Structure
a significant consult with external Change in
un-forecasted advisers, attend 2020:
financial or industry and Increased
reputational impact. specialist briefings, risk The
In general, and sit on key increased
regulatory matters industry bodies such rating
present medium- to as EPRA and BPF. As reflects
long-term risks with countries respond to levels of
a medium likelihood the economic impact political and
of causing of the pandemic, the regulatory
significant harm to likelihood of changes uncertainty
the Group. Political to taxation in response
risks could impact regulations to the
business confidence increases. We pandemic
and conditions in continue to closely across our
the short and longer monitor the taxation geographies
terms. regulations with our and Brexit in
advisors to ensure the UK. Risk
changes which may is within
impact the Group or appetite.
our customers, are
identified and
addressed accordingly
in a timely fashion.
During the year, as
detailed in the
Brexit risk above,
there has been
heightened
uncertainty around
the future legal and
regulatory
environments. The
situation has been
closely monitored by
the Brexit Committee
who have sought
flexible and
pragmatic mitigations
as the circumstances
evolved.
10. The Group's ability The Group maintains a Impact on
Operational to protect its strong focus on strategy:
delivery and reputation, revenues Operational Operational
compliance and shareholder Excellence. The Excellence
value could be Executive, Change in
damaged by Operations, and 2020:
operational failures Technology Committees Increased
such as: failing to regularly monitor the risk The
attract, retain and range of risks to increased
motivate key staff; property management, rating
major customer construction, reflects the
default; supply compliance, impact of the
chain failure or the organisational pandemic on
structural failure effectiveness and employees
of one of our customer management. resilience in
assets. Compliance The Group's tax light of
failures, such as compliance is managed working
breaches of joint by an experienced conditions
venture internal tax team. and elevated
shareholders' REIT and SIIC tax tenant
agreements, loan regime compliance is default risk.
agreements or tax demonstrated at least Risk is
legislation could bi-annually. within
also damage Compliance with joint appetite.
reputation, revenue venture shareholder
and shareholder agreements is managed
value. by experienced
property operations,
finance and legal
employees. The SELP
joint venture
additionally has
comprehensive
governance and
compliance
arrangements in
place, including
dedicated management,
operating manuals,
and specialist
third-party
compliance support.
During the year, the
working life of staff
has been
significantly
impacted and we have
continually monitored
the organisational
resilience to respond
to this, for example
ensuring that staff
have the ability and
resources to work
away from the office
for sustained
periods, and that the
resilience and
security of our
technology systems is
fully maintained. We
continue to work
closely with our
customers to manage
rent collection
whilst balancing the
challenges they are
facing. The depth of
knowledge of our
customers has abled
us to estimate the
impact on our
customers from the
particular
circumstances of this
global event, based
initially on the
twice-yearly,
customer-by-customer
assessment of default
risk.
RESPONSIBILITY STATEMENT
The Statement of Directors' Responsibilities below has been
prepared in connection with the Company's full Annual Report and
Accounts for the year ended 31 December 2020. Certain parts of the
Annual Report and Accounts have not been included in this
announcement as set out in Note 1 to the condensed financial
information.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess a Company's
position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Governance section of the Annual Report confirm that, to the
best of their knowledge:
1. the Group financial statements, which have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union, give a
true and fair view of the assets, liabilities, financial position and
profit or loss of the Group; and
2. the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group, together with
a description of the principal risks and uncertainties that it faces.
The responsibility statement was approved by the Board of
Directors on 18 February 2021 and signed on its behalf by:
David Sleath
Chief Executive
18 February 2021
Soumen Das
Chief Financial Officer
18 February 2021
CONDENSED GROUP INCOME STATEMENT
For the year ended 31 December 2020
2020 2019
Notes GBPm GBPm
Revenue 4 431.7 432.5
Costs 5 (104.3) (123.9)
327.4 308.6
Administration expenses (51.5) (51.5)
Share of profit from joint ventures after tax 6 236.5 203.1
Realised and unrealised property gain 7 988.6 489.2
Operating profit 1,501.0 949.4
Finance income 8 50.0 65.3
Finance costs 8 (86.9) (112.7)
Profit before tax 1,464.1 902.0
Tax 9 (35.0) (41.4)
Profit after tax 1,429.1 860.6
Attributable to equity shareholders 1,426.9 857.9
Attributable to non-controlling interests 2.2 2.7
Earnings per share (pence)
Basic 11 124.1 79.3
Diluted 11 123.6 78.9
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
2020 2019
GBPm GBPm
Profit for the year 1,429.1 860.6
Items that may be reclassified subsequently to profit
or loss
Foreign exchange movement arising on translation of
international operations 111.9 (110.2)
Fair value movements on derivatives and borrowings in
effective hedge relationships (52.5) 57.6
59.4 (52.6)
Tax on components of other comprehensive
income/(expense) -- --
Other comprehensive income/(expense) 59.4 (52.6)
Total comprehensive income for the year 1,488.5 808.0
Attributable to equity shareholders 1,486.9 804.7
Attributable to non-controlling interests 1.6 3.3
CONDENSED GROUP BALANCE SHEET
As at 31 December 2020
2020 2019
Notes GBPm GBPm
Assets
Non-current assets
Intangible assets 1.6 2.5
Investment properties 12 10,671.4 8,401.7
Other interests in property 16.2 28.3
Property, plant and equipment 26.6 23.0
Investments in joint ventures 6 1,423.0 1,121.4
Other investments 1.6 27.5
Other receivables 37.2 110.6
Derivative financial instruments 63.2 59.7
12,240.8 9,774.7
Current assets
Trading properties 12 52.1 20.2
Trade and other receivables 269.4 146.6
Derivative financial instruments 15.2 8.7
Cash and cash equivalents 13 89.0 132.5
425.7 308.0
Total assets 12,666.5 10,082.7
Liabilities
Non-current liabilities
Borrowings 13 2,413.1 1,943.5
Deferred tax liabilities 9 87.0 53.2
Trade and other payables 109.4 102.9
Derivative financial instruments 5.2 --
2,614.7 2,099.6
Current liabilities
Trade and other payables 372.0 298.6
Borrowings 13 0.9 --
Derivative financial instruments 4.9 1.7
Tax liabilities 2.9 5.2
380.7 305.5
Total liabilities 2,995.4 2,405.1
Net assets 9,671.1 7,677.6
Equity
Share capital 14 119.1 109.6
Share premium 3,277.5 2,554.3
Capital redemption reserve 113.9 113.9
Own shares held (1.1) (2.6)
Other reserves 252.6 199.5
Retained earnings brought forward 4,702.9 4,056.9
Profit for the year attributable to owners of
the parent 1,426.9 857.9
Other movements (232.6) (211.9)
Retained earnings 5,897.2 4,702.9
Total equity attributable to owners of the
parent 9,659.2 7,677.6
Non-controlling interests 11.9 --
Total equity 9,671.1 7,677.6
Net assets per ordinary share (pence)
Basic 11 811 700
Diluted 11 809 697
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Attributable to owners of the parent
Other reserves
Share Translation, Total equity
Ordinary Capital Own based hedging and attributable Non-
share Share redemption shares payments other Merger Retained to equity controlling Total
capital premium reserve held reserves reserves reserve earnings shareholders interests(1) equity
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
year -- -- -- -- -- -- -- 1,426.9 1,426.9 2.2 1,429.1
Other
comprehensive
income -- -- -- -- -- 60.0 -- -- 60.0 (0.6) 59.4
Total
comprehensive
income for the
year -- -- -- -- -- 60.0 -- 1,426.9 1,486.9 1.6 1,488.5
Transactions
with owners of
the Company
Issue of shares 8.7 663.4 -- -- -- -- -- -- 672.1 -- 672.1
Own shares
acquired -- -- -- (2.0) -- -- -- -- (2.0) -- (2.0)
Equity-settled
share-based
transactions -- -- -- 3.5 (6.9) -- -- 8.9 5.5 -- 5.5
Dividends 0.8 59.8 -- -- -- -- -- (240.1) (179.5) -- (179.5)
Movement in
non-controlling
interest(1) -- -- -- -- -- -- -- (1.4) (1.4) 10.3 8.9
Total transaction
with owners of
the Company 9.5 723.2 -- 1.5 (6.9) -- -- (232.6) 494.7 10.3 505.0
Balance at 31
December 2020 119.1 3,277.5 113.9 (1.1) 21.9 61.6 169.1 5,897.2 9,659.2 11.9 9,671.1
1. Non-controlling interests relate to Vailog S.r.l. and Sofibus Patrimoine
SA. During the year non-controlling interests of GBP11.9 million were
recognised upon the acquisition of Sofibus Patrimoine SA, see Note 7 for
further details.
For the year ended 31 December 2019
Attributable to owners of the parent
Other reserves
Share Translation, Total equity
Ordinary Capital Own based hedging and attributable Non-
share Share redemption shares payments other Merger Retained to owners of controlling Total
capital premium reserve held reserves reserves reserve earnings the parent interests(1) equity
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
Issue of shares 7.3 436.7 -- -- -- -- -- -- 444.0 -- 444.0
Own shares
acquired -- -- -- (3.4) -- -- -- -- (3.4) -- (3.4)
Equity-settled
share-based
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 transaction
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 S.r.l.
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 31 December 2020
2020 2019
Notes GBPm GBPm
Cash flows from operating activities 15(i) 233.2 291.6
Interest received 42.6 47.1
Dividends received 33.8 33.3
Interest paid (94.2) (91.7)
Cost of new interest rate derivatives
transacted (12.4) (11.4)
Proceeds from early close out of interest
rate derivatives 12.4 6.9
Cost of early close out of debt (10.9) (18.6)
Tax paid (5.2) (46.9)
Net cash received from operating activities 199.3 210.3
Cash flows from investing activities
Purchase and development of investment
properties(1) (1,215.9) (602.9)
Sale of investment properties 159.2 412.4
Acquisition of other interests in property (3.9) (13.3)
Purchase of plant and equipment and
intangibles (4.9) (2.7)
Acquisition of other investments (0.3) (1.2)
Investment and loans to joint ventures (39.8) (148.6)
Divestment and repayment of loans from joint
ventures -- 136.4
Net cash used in investing activities (1,105.6) (219.9)
Cash flows from financing activities
Dividends paid to ordinary shareholders (179.5) (141.7)
Proceeds from borrowings 550.6 10.2
Repayment of borrowings (122.1) (251.1)
Principal element of lease payments (1.6) (0.9)
Settlement of foreign exchange derivatives (55.0) 26.9
Purchase of non-controlling interest -- (7.9)
Proceeds from issue of ordinary shares 672.1 444.0
Purchase of ordinary shares (2.0) (3.4)
Net cash generated from financing activities 862.5 76.1
Net (decrease)/increase in cash and cash
equivalents (43.8) 66.5
Cash and cash equivalents at the beginning of
the year 132.5 66.5
Effect of foreign exchange rate changes 0.3 (0.5)
Cash and cash equivalents at the end of the
year 13 89.0 132.5
1. Cash payment for the purchase and development of investment properties of
GBP1,215.9 million (2019: GBP602.9 million) represents total costs for
property acquisitions and additions to existing investment properties per Note
12 of GBP1,329.3 million (2019: GBP595.9 million) adjusted for the following
cash and non-cash movements: deducts interest capitalised of GBP6.8 million
(2019: GBP8.2 million); deducts net movement in capital accruals and
prepayments of GBP29.8 million (2019: adds back GBP15.2 million); deducts
other non-cash movements of GBP76.8 million (2019: GBPnil) mainly for
transfers from other interests in properties and investments and the
acquisition of Sofibus Patrimoine SA.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The financial information set out in this announcement does not
constitute the consolidated statutory accounts for the years ended
31 December 2020 and 2019, but is derived from those accounts.
Statutory accounts for 2019 have been delivered to the Registrar of
Companies and those for 2020 (approved by the Board on 18 February
2021) will be delivered following the Company's annual general
meeting. The external auditor has reported on the accounts and
their reports did not contain any modifications.
Given due consideration to the nature of the Group's business
and financial position, including the financial resources available
to the Group, the Directors consider that the Group is a going
concern and this financial information is prepared on that
basis.
The financial information set out in this announcement is based
on the consolidated financial statements which are prepared in
accordance with International Accounting Standards (IAS) in
conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards (IFRS) adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
and complies with the disclosure requirements of the Listing Rules
of the UK Financial Conduct Authority. The financial information is
in accordance with the accounting policies set out in the 2019
financial statements apart from as detailed below.
While the financial information included in these condensed
financial statements has been prepared in accordance with the
recognition and measurement criteria of IAS in conformity with the
requirements of the Companies Act 2006 and IFRS adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union,
this announcement does not itself contain sufficient information to
comply with IASs and IFRSs. The Company expects to publish full
financial statements that comply with IASs and IFRSs by March
2021.
The principal exchange rates used to translate foreign currency
denominated amounts are: Balance sheet: GBP1 = EUR1.12 (31 December
2019: GBP1 = EUR1.18) and Income statement: GBP1 = EUR1.13 (31
December 2019: GBP1 = EUR1.14).
New and amended standards adopted by the Group
A number of new or amended standards become applicable for the
current reporting year.
Amendments to IFRS 3 'Business Combinations', Definition of a
Business, provides a revised framework for evaluating a business
and introduces an optional 'concentration test'. The amendment
impacts the assessment and judgements used in determining whether
property transactions represent an asset acquisition or business
combination. As a result of the amendment it is expected that
future transactions are more likely to be treated as an asset
acquisition. The optional 'concentration test' has been applied for
the acquisition of Sofibus Patrimoine SA in the year, see Note 7
for further details.
The other standards and amendments did not have any impact on
the amounts recognised in prior period and are not expected to
significantly affect the current or future periods.
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 Guidelines 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, are
also excluded. 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, unusual or significant by virtue of size and
nature. No non-EPRA adjustments to underlying profit were made in
the current or prior period.
2020 2019
Notes GBPm GBPm
Gross rental income 4 392.9 362.0
Property operating expenses 5 (88.3) (80.7)
Net rental income 304.6 281.3
Joint venture fee income 4 21.6 20.4
Administration expenses (51.5) (51.5)
Share of joint ventures' Adjusted profit after
tax(1) 6 61.5 54.0
Adjusted operating profit before interest and
tax 336.2 304.2
Net finance costs (including adjustments) 8 (39.7) (36.7)
Adjusted profit before tax 296.5 267.5
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from joint
ventures after tax(1) 6 175.0 149.1
Realised and unrealised property gain 7 988.6 489.2
Gain on sale of trading properties 12 1.2 6.9
Cost of early close out of debt 8 (10.9) (18.6)
Net fair value gain on interest rate swaps and
other derivatives 8 13.7 7.9
Total adjustments 1,167.6 634.5
Profit before tax 1,464.1 902.0
Tax
On Adjusted profit 9 (4.0) (3.2)
In respect of adjustments 9 (31.0) (38.2)
Total tax adjustments (35.0) (41.4)
Profit after tax before non-controlling
interests 1,429.1 860.6
Non-controlling interests:
Less: share of adjusted profit attributable to
non-controlling interests (0.2) (0.2)
: share of adjustments attributable to
non-controlling interests (2.0) (2.5)
Profit after tax and non-controlling interests 1,426.9 857.9
Of which:
Adjusted profit after tax and non-controlling
interests 292.3 264.1
Total adjustments after tax and non-controlling
interests 1,134.6 593.8
Profit attributable to equity shareholders 1,426.9 857.9
1. A detailed breakdown of the adjustments to the share of profit from joint
ventures is included in Note 6.
3. SEGMENTAL ANALYSIS
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 distinct Business Units.
Share of Total
joint directly
Gross Net ventures' owned Investments
31 rental rental Adjusted Adjusted property in joint Capital
December income income profit PBIT(2) assets ventures expenditure(3)
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Thames
Valley 83.7 78.3 -- 75.8 1,996.7 -- 57.5
National
Logistics 34.1 33.9 (0.1) 33.3 1,223.3 0.6 267.1
Greater
London 160.3 140.3 -- 137.7 4,867.0 -- 453.9
Northern
Europe 29.4 17.9 25.2 47.7 682.3 803.3 29.2
Southern
Europe 74.8 43.9 30.4 79.5 1,803.3 914.3 566.0
Central
Europe 10.6 4.2 22.0 30.3 150.9 495.7 3.7
Other(1) -- (13.9) (16.0) (68.1) -- (790.9) 5.0
Total 392.9 304.6 61.5 336.2 10,723.5 1,423.0 1,382.4
Share of Total
joint directly
Gross Net ventures' owned Investments
31 rental rental Adjusted Adjusted property in joint Capital
December income income profit PBIT(2) assets ventures expenditure(3)
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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 held by SELP Finance
S.à r.l, a Luxembourg entity.
2. A reconciliation of total Adjusted PBIT to the IFRS profit before tax is
provided in Note 2.
3. Capital expenditure includes additions and acquisitions of investment and
trading properties but does not include tenant incentives, letting fees and
rental guarantees. Part of the capital expenditure incurred is in response to
climate change including the reduction of the carbon footprint of the Group's
existing investment properties and developments. The 'Other' category includes
non-property related spend, primarily IT.
4. REVENUE
2020 2019
GBPm GBPm
Rental income from investment and trading properties 335.6 306.9
Rent averaging 18.2 25.1
Service charge income* 35.0 27.6
Management fees* 3.3 1.4
Surrender premiums and dividend income from property related
investments 0.8 1.0
Gross rental income(1) 392.9 362.0
Joint venture fee income - management fees* 21.6 20.4
Proceeds from sale of trading properties* 17.2 50.1
Total revenue 431.7 432.5
* The above income streams reflect revenue recognition under IFRS 15 'Revenue
from Contracts with Customers' and total GBP77.1 million (2019: GBP99.5
million).
1. Net rental income of GBP304.6 million (2019: GBP281.3 million) is
calculated as gross rental income of GBP392.9 million (2019: GBP362.0 million)
less total property operating expenses of GBP88.3 million (2019: GBP80.7
million) shown in Note 5.
5. COSTS
2020 2019
GBPm GBPm
Vacant property costs 3.4 4.8
Letting, marketing, legal and professional fees 10.1 8.5
Loss allowance and impairment of receivables 3.8 1.0
Service charge expense 35.0 27.6
Other expenses 8.7 10.5
Property management expenses 61.0 52.4
Property administration expenses(1) 36.0 35.6
Costs capitalised(2) (8.7) (7.3)
Total property operating expenses 88.3 80.7
Trading properties cost of sales 16.0 43.2
Total costs 104.3 123.9
1. Property administration expenses predominantly relate to the employee staff
costs of personnel directly involved in managing the property portfolio.
2. Costs capitalised primarily relate to internal employee staff costs
directly involved in developing the property portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Profit from joint ventures after tax
The table below presents a summary Income Statement of the
Group's largest joint ventures, all of which are accounted for
using the equity method. Roxhill operates in the UK and develops
big box logistics assets and SEGRO European Logistics Partnership
(SELP) is incorporated in Luxembourg and owns logistics property
assets in Continental Europe. The Group holds 50 per cent of the
share capital and voting rights in the material joint ventures.
At
100% At 100% At 50% At 50%
SELP Roxhill Other 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue(1) 242.4 6.9 -- 249.3 223.5 124.7 111.8
Gross rental
income 242.4 -- -- 242.4 214.1 121.2 107.1
Property
operating
expenses
-underlying
property
operating
expenses (11.1) -- (0.2) (11.3) (8.5) (5.7) (4.2)
-vacant property
costs (2.8) -- -- (2.8) (2.1) (1.4) (1.1)
-property
management
fees(2) (19.2) -- -- (19.2) (17.1) (9.6) (8.6)
-service charge
expense (48.0) -- -- (48.0) (44.1) (24.0) (22.1)
Net rental income 161.3 -- (0.2) 161.1 142.3 80.5 71.1
Administration
expenses (3.2) -- -- (3.2) (3.3) (1.6) (1.6)
Finance costs (24.5) -- -- (24.5) (20.1) (12.3) (10.0)
Adjusted
profit/(loss)
before tax 133.6 -- (0.2) 133.4 118.9 66.6 59.5
Tax (10.3) -- -- (10.3) (10.9) (5.1) (5.5)
Adjusted
profit/(loss)
after tax 123.3 -- (0.2) 123.1 108.0 61.5 54.0
Adjustments:
Profit/(loss) on
sale of
investment
properties 1.9 -- -- 1.9 (1.1) 1.0 (0.6)
Valuation surplus
on investment
properties 424.0 -- -- 424.0 437.0 212.0 218.6
Impairment of
other interests
in properties -- -- -- -- (9.7) -- (4.9)
Profit on sale of
trading
properties -- 0.1 -- 0.1 2.1 -- 1.1
Other investment
income -- 5.2 -- 5.2 -- 2.6 --
Tax in respect of
adjustments (81.2) -- -- (81.2) (130.2) (40.6) (65.1)
Total adjustments 344.7 5.3 -- 350.0 298.1 175.0 149.1
Profit/(loss)
after tax 468.0 5.3 (0.2) 473.1 406.1 236.5 203.1
Other
comprehensive
income -- -- -- -- -- -- --
Total
comprehensive
income/(expense)
for the year 468.0 5.3 (0.2) 473.1 406.1 236.5 203.1
1. Total revenue at 100% of GBP249.3 million (2019: GBP223.5 million)
includes: Gross rental income GBP242.4 million (2019: GBP214.1 million) and
proceeds from sale of trading properties GBP6.9 million (2019: GBP9.4
million). Proceeds from sale of trading properties is presented net of cost of
sale and shown in the line item 'Profit on sale of trading properties' in the
table above.
2. Property management fees paid to SEGRO.
6(ii) Summarised Balance Sheet information in respect of the
Group's joint ventures
At 100% At 100% At 50% At 50%
SELP Roxhill Other 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment
properties 4,695.3 -- -- 4,695.3 3,796.7 2,347.7 1,898.3
Other
interests in
property -- 0.2 -- 0.2 16.6 0.1 8.3
Total
non-current
assets 4,695.3 0.2 -- 4,695.5 3,813.3 2,347.8 1,906.6
Trading
properties -- -- -- -- 1.9 -- 1.0
Other
receivables 111.2 0.9 2.5 114.6 127.3 57.3 63.7
Cash and cash
equivalents 46.6 0.1 1.6 48.3 42.0 24.2 21.0
Total current
assets 157.8 1.0 4.1 162.9 171.2 81.5 85.7
Total assets 4,853.1 1.2 4.1 4,858.4 3,984.5 2,429.3 1,992.3
Borrowings (1,574.4) -- -- (1,574.4) (1,338.4) (787.2) (669.2)
Deferred tax (345.5) -- -- (345.5) (243.2) (172.8) (121.6)
Total
non-current
liabilities (1,919.9) -- -- (1,919.9) (1,581.6) (960.0) (790.8)
Borrowings -- -- -- -- (50.1) -- (25.1)
Other
liabilities (92.6) -- -- (92.6) (110.0) (46.3) (55.0)
Total current
liabilities (92.6) -- -- (92.6) (160.1) (46.3) (80.1)
Total
liabilities (2,012.5) -- -- (2,012.5) (1,741.7) (1,006.3) (870.9)
Net assets 2,840.6 1.2 4.1 2,845.9 2,242.8 1,423.0 1,121.4
The external borrowings of the joint ventures are non-recourse
to the Group. At 31 December 2020, the fair value of GBP1,574.4
million (2019: GBP1,388.4 million) of borrowings was GBP1,651.0
million (2019: GBP1,427.3 million). This results in a fair value
adjustment decrease in EPRA NDV net asset value of GBP76.6 million
(2019: GBP38.9 million decrease), at share GBP38.3 million (2019:
GBP19.4 million), see Table 5 of the Supplementary Notes.
SEGRO provides certain services, including venture advisory and
asset management to the SELP joint venture and receives fees for
doing so. Performance fees are payable from SELP to SEGRO based on
its IRR subject to certain hurdle rates. The first calculation and
payment was on the fifth anniversary of the inception of SELP,
being 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.
In 2018 SELP paid a GBP52.4 million performance fee including
the amount subject to clawback (fee denominated in euros). Only
GBP26.2 million, representing the 50 per cent of the performance
fee paid not subject to future clawback, was recognised by SEGRO in
the 2018 Income Statement (SELP recognised a corresponding
performance fee expense of GBP26.2 million (at share GBP13.1
million) in the SELP 2018 Income Statement).
SEGRO has not recognised the 50 per cent of the performance fee
income subject to future clawback in the Income Statement as
management have judged the revenue recognition criteria has not
been met (accordingly the performance fee expense has not been
recognised in the share of profits from joint ventures in table
6(i)). The IRR calculation to determine whether the hurdle rates
will be met when the performance period ends in October 2023 is an
estimation and sensitive to movements and assumptions in property
valuations over the remaining performance period. Due to the
estimation uncertainties that exist in calculating the IRR
management do not consider it highly probable there will not be a
significant reversal of the fee subject to clawback over the
remaining performance period. The performance fee subject to
clawback has been recognised by SEGRO as a contract liability
within Trade and other payables at 31 December 2020 and 31 December
2019.
6(iii) Investments by Group
2020 2019
GBPm GBPm
Cost or valuation at 1 January 1,121.4 999.9
Exchange movement 62.0 (65.2)
Net investments(1) 39.8 16.9
Disposals (2.9) --
Dividends received(2) (33.8) (33.3)
Share of profit after tax 236.5 203.1
Cost or valuation at 31 December 1,423.0 1,121.4
1. Net investments represent the net movement of capital injections, loans and
divestments with joint ventures during the period.
2. Dividends received from SELP and Roxhill.
7. REALISED AND UNREALISED PROPERTY GAIN
2020 2019
GBPm GBPm
Profit on sale of investment properties 5.1 7.2
Valuation surplus on investment properties(1) 970.6 476.7
(Increase)/decrease in provision for impairment of trading
properties (0.1) 1.4
Increase in provision for impairment of other interests in
property (0.6) (0.4)
Valuation surplus on other investments(2) 13.6 4.3
Total realised and unrealised property gain 988.6 489.2
1. Includes GBP971.1 million valuation surplus on investment properties (2019:
GBP477.1 million) less GBP0.5 million valuation loss on head lease ROU asset
(2019: GBP0.4 million).
2. On 15 December 2020 SEGRO acquired an additional 74.9 per cent of the share
capital of Sofibus Patrimoine SA (Sofibus) for EUR178.6 million. This
increased SEGRO's total shareholding in Sofibus to 94.4 per cent and as a
result Sofibus is now controlled by the Group. As control of Sofibus was
achieved in stages, the carrying value of the previously held 19.5 per cent
equity interest which was classified as Other investments has been remeasured
to fair value at the acquisition date. This resulted in a fair value gain of
GBP13.6 million which has been recognised in the Income Statement within
realised and unrealised property gain and shown in the table above. The
transaction has been treated as an asset acquisition and therefore the
property acquired is reflected in the 'Property acquisitions' line in the
tables shown in Note 12. In February 2021 SEGRO filed a draft offer document
with the French financial market authority as part of the process to acquire
the remaining 5.6% shares in Sofibus at a price of EUR313.71 per share
(EUR13.7 million in total). SEGRO intends to enter Sofibus into the French
SIIC regime during 2021.
Total valuation surplus on investment and trading properties
total GBP1,182.5 million (2019: GBP696.7 million). This comprises
GBP970.6 million surplus from investment properties (2019: GBP476.7
million), GBP0.1 million impairment from trading properties (2019:
GBP1.4 million surplus) and GBP212.0 million surplus from joint
ventures at share (2019: GBP218.6 million).
Details of realised gains on sale of trading properties are
given in Note 12(ii).
8. NET FINANCE COSTS
2020 2019
Finance income GBPm GBPm
Interest received on bank deposits and related
derivatives 27.0 32.0
Fair value gain on interest rate swaps and other
derivatives 23.0 33.1
Exchange differences -- 0.2
Total finance income 50.0 65.3
2020 2019
Finance costs GBPm GBPm
Interest on overdrafts, loans and related derivatives (68.0) (71.8)
Cost of early close out of debt (10.9) (18.6)
Amortisation of issue costs (2.4) (2.3)
Interest on lease liabilities (3.1) (3.0)
Total borrowing costs (84.4) (95.7)
Less amount capitalised on the development of properties 7.0 8.2
Net borrowing costs (77.4) (87.5)
Fair value loss on interest rate swaps and other
derivatives (9.3) (25.2)
Exchange differences (0.2) --
Total finance costs (86.9) (112.7)
Net finance costs (36.9) (47.4)
Net finance costs (including adjustments) in Adjusted profit
(Note 2) are GBP39.7 million (2019: GBP36.7 million). This excludes
net fair value gains and losses on interest rate swaps and other
derivatives of GBP13.7 million gain (2019: GBP7.9 million gain) and
the cost of early close out of debt of GBP10.9 million (2019:
GBP18.6 million).
9. TAX
9(i) Tax on profit
2020 2019
GBPm GBPm
Tax:
On Adjusted profit (4.0) (3.2)
In respect of adjustments (31.0) (38.2)
Total tax charge (35.0) (41.4)
Current tax
United Kingdom
Current tax credit 0.9 0.3
Total UK current tax credit 0.9 0.3
Overseas
Current tax charge (8.1) (12.0)
Adjustments in respect of earlier years 4.4 (0.3)
Total overseas current tax charge (3.7) (12.3)
Total current tax charge (2.8) (12.0)
Deferred tax
Origination and reversal of temporary differences (3.2) (6.1)
Released in respect of property disposals in the year 5.0 4.7
On valuation movements (39.0) (39.2)
Total deferred tax in respect of investment properties (37.2) (40.6)
Other deferred tax 5.0 11.2
Total deferred tax charge (32.2) (29.4)
Total tax charge on profit on ordinary activities (35.0) (41.4)
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Balance
1 31
January Exchange Acquisitions/ Recognised December
2020 movement disposals in income 2020
GBPm GBPm GBPm GBPm GBPm
Valuation surpluses and
deficits on
properties/accelerated
tax allowances 51.4 3.6 (1.9) 31.3 84.4
Deferred tax asset on
revenue losses (0.5) -- -- -- (0.5)
Others 2.3 0.1 (0.2) 0.9 3.1
Total deferred tax
liabilities 53.2 3.7 (2.1) 32.2 87.0
10. DIVIDS
2020 2019
GBPm GBPm
Ordinary dividends paid
Interim dividend for 2020 @ 6.90 pence per share 82.2 --
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
Total dividends 240.1 212.6
The Board recommends a final dividend for 2020 of 15.2 pence
which is estimated to result in a distribution of up to GBP181.1
million. The total dividend paid and proposed per share in respect
of the year ended 31 December 2020 is 22.1 pence (2019: 20.7
pence).
The total dividend in 2020 of GBP240.1 million (2019: GBP212.6
million) was paid: GBP179.5 million as cash (2019: GBP141.7
million) and GBP60.6 million in scrip dividends (2019: GBP70.9
million).
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average
number of shares in issue during the year and the net assets per
share calculations use the number of shares in issue at year end.
Earnings per share calculations exclude 0.4 million shares (2019:
0.4 million) being the average number of shares held on trust for
employee share schemes and net assets per share calculations
exclude 0.3 million shares (2019: 0.6 million) being the actual
number of shares held on trust for employee share schemes at year
end.
11(i) Earnings per ordinary share (EPS)
2020 2019
Pence Pence
Earnings Shares per Earnings Shares per
GBPm million share GBPm million share
Basic EPS 1,426.9 1,149.8 124.1 857.9 1,081.3 79.3
Dilution
adjustments:
Share and save as
you earn
schemes -- 4.7 (0.5) -- 5.8 (0.4)
Diluted EPS 1,426.9 1,154.5 123.6 857.9 1,087.1 78.9
Basic EPS 1,426.9 1,149.8 124.1 857.9 1,081.3 79.3
Adjustments to
profit before
tax(1) (1,167.6) (101.6) (634.5) (58.7)
Tax in respect of
Adjustments 31.0 2.7 38.2 3.6
Non-controlling
interest on
Adjustments 2.0 0.2 2.5 0.2
Adjusted Basic
EPS 292.3 1,149.8 25.4 264.1 1,081.3 24.4
Adjusted Diluted
EPS 292.3 1,154.5 25.3 264.1 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 Practices Recommendations
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 31 December 2020
position.
EPRA have introduced three new NAV metrics: EPRA Net Tangible
Assets (NTA), EPRA Net Reinstatement Value (NRV) and EPRA Net
Disposal Value (NDV).
EPRA NTA is considered to be most consistent with the nature of
SEGRO's business as a UK REIT providing long-term progressive and
sustainable returns. EPRA NTA now acts as the primary measure of
net asset value and is also referred to as Adjusted Net Asset Value
(or Adjusted NAV).
A reconciliation from IFRS NAV to Adjusted NAV as at 31 December
2020 is set out in the table below along with the net asset per
share metrics. The 31 December 2019 position has been represented
on a comparable basis.
Table 5 of the Supplementary Notes provides more details of the
changes and the calculation for each of the three new EPRA net
asset value metrics.
2020 2019
Equity Equity
attributable attributable
to ordinary Pence to ordinary Pence
shareholders Shares per shareholders Shares per
GBPm million share GBPm million share
Basic NAV 9,659.2 1,191.3 811 7,677.6 1,096.1 700
Dilution
adjustments:
Share and save
as you earn
schemes -- 3.4 (2) -- 6.0 (3)
Diluted NAV 9,659.2 1,194.7 809 7,677.6 1,102.1 697
Fair value
adjustment in
respect of
interest rate
derivatives
-- Group (61.0) (5) (50.5) (5)
Fair value
adjustment in
respect of
trading
properties --
Group 0.9 -- -- --
Fair value
adjustment in
respect of
trading
properties --
Joint
ventures -- -- 0.9 --
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Group(1) 42.2 3 26.0 2
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Joint
ventures(1) 85.5 7 60.6 6
Intangible
assets (1.6) -- (2.5) --
Adjusted NAV 9,725.2 1,194.7 814 7,712.1 1,102.1 700
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating Adjusted NAV in line with option 3
of EPRA Best Practices Recommendations guidelines.
12. PROPERTIES
12(i) Investment properties
Completed Development Total
GBPm GBPm GBPm
At 1 January 2020 7,407.2 807.9 8,215.1
Exchange movement 75.9 20.9 96.8
Property acquisitions 564.0 260.3 824.3
Additions to existing investment
properties 34.0 471.0 505.0
Disposals (140.3) (14.6) (154.9)
Transfers on completion of
development 620.6 (620.6) --
Transfer from trading properties -- 1.5 1.5
Revaluation surplus during the year 835.6 135.5 971.1
At 31 December 2020 9,397.0 1,061.9 10,458.9
Add tenant lease incentives, letting
fees and rental guarantees 135.6 -- 135.6
Investment properties excluding head
lease ROU assets at 31 December
2020 9,532.6 1,061.9 10,594.5
Add head lease liabilities (ROU
assets)(1) 76.9 -- 76.9
Total investment properties at 31
December 2020 9,609.5 1,061.9 10,671.4
1. At 31 December 2020 investment properties included GBP76.9 million (2019:
GBP70.2 million) for the head lease liabilities recognised under IFRS 16.
Investment properties are stated at fair value as at 31 December
2020 based on external valuations performed by professionally
qualified, independent valuers. The Group's wholly-owned and joint
venture property portfolio is valued by CBRE Ltd on a half-yearly
basis. 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 to the
valuation technique during the year.
CBRE Ltd also undertakes 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.
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.
The carrying value of investment properties situated on land
held under leaseholds is GBP178.9 million (excluding head lease ROU
assets) (2019: GBP151.5 million).
The disposals of investment properties during the year include
properties with a carrying value of GBP92.1 million (2019: GBP221.0
million) sold to the SELP joint venture. Total proceeds received by
SEGRO was GBP92.9 million (2019: GBP229.0 million).
12(ii) Trading properties
2020 2019
GBPm GBPm
At 1 January 20.2 51.7
Exchange movement 1.4 (1.2)
Property acquisitions 34.2 --
Additions to existing trading properties 13.9 8.4
Disposals(1) (16.0) (43.2)
(Increase)/decrease in provision for impairment during the
year (0.1) 1.4
Transfer (to)/from investment properties (1.5) 3.1
At 31 December 52.1 20.2
1. Gain on sale of trading properties of GBP1.2 million in the year (2019:
GBP6.9 million) have been generated from total proceeds of GBP17.2 million
(2019: GBP50.1 million), see Note 4, less costs of GBP16.0 million (2019:
GBP43.2 million), see Note 5.
Trading properties were externally valued, as detailed in Note
12(i), resulting in an increase in the provision for impairment of
GBP0.1 million (2019: decrease of GBP1.4 million). Based on the
fair value at 31 December 2020, the portfolio has unrecognised
surplus of GBP0.9 million (2019: GBPnil).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
2020 2019
GBPm GBPm
In one year or less 0.9 --
In more than one year but less than two 0.9 79.3
In more than two years but less than five 217.8 120.6
In more than five years but less than ten 934.2 896.5
In more than ten years 1,260.2 847.1
In more than one year 2,413.1 1,943.5
Total borrowings 2,414.0 1,943.5
Cash and cash equivalents (89.0) (132.5)
Net borrowings 2,325.0 1,811.0
Total borrowings is split between secured and unsecured
as follows:
Secured (on land, buildings and other assets) 14.5 2.6
Unsecured 2,399.5 1,940.9
Total borrowings 2,414.0 1,943.5
Currency profile of total borrowings after derivative
instruments
Sterling 179.5 184.7
Euros 2,234.5 1,758.8
Total borrowings 2,414.0 1,943.5
Maturity profile of undrawn borrowing facilities
In one year or less 18.8 8.5
In more than one year but less than two -- --
In more than two years 953.6 1,032.2
Total available undrawn facilities 972.4 1,040.7
During the year the Group undertook a debt refinancing exercise
including issuing EUR450 million of US Private Placement notes and
redeemed GBP118 million of sterling bonds due in 2021 and 2022 at a
cost of GBP10.9 million above carrying value (see Note 8). The debt
refinancing is discussed in more detail in the Finance Review.
14. SHARE CAPITAL
Number of Par value of
shares shares
GBPm 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 8.2 0.8
Issue of shares -- other 3.8 0.4
At 31 December 2020 1,191.6 119.1
On 9 June 2020 the Company announced the placing of 82.9 million
ordinary shares of 10 pence 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 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
2019 2019
GBPm GBPm
Operating profit 1,501.0 949.4
Adjustments for:
Depreciation of property, plant and equipment 3.6 3.4
Share of profit from joint ventures after tax (236.5) (203.1)
Profit on sale of investment properties (5.1) (7.2)
Revaluation surplus on investment properties (970.6) (476.7)
Valuation gain on other investments (13.6) (4.3)
Other provisions 3.9 8.2
282.7 269.7
Changes in working capital:
(Increase)/decrease in trading properties (19.6) 30.9
Increase in debtors and tenant incentives (52.4) (59.3)
Increase in creditors 22.5 50.3
Net cash inflow generated from operations 233.2 291.6
15(ii) Analysis of net debt
Cash
movements Non-cash adjustments
Cost
of
early
close
At 1 Fair out Other At 31
January Cash Cash Exchange value of non-cash December
2020 Acquired(4) inflow(1) outflow(2) movement changes debt Adjustment(3) 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Bank loans
and loan
capital 1,958.3 12.1 550.6 (133.0) 31.6 -- 10.9 -- 2,430.5
Capitalised
finance
costs (14.8) -- -- (4.1) -- -- -- 2.4 (16.5)
Total
borrowings 1,943.5 12.1 550.6 (137.1) 31.6 -- 10.9 2.4 2,414.0
Cash in hand
and at bank (132.5) (19.6) -- 63.4 (0.3) -- -- -- (89.0)
Net debt 1,811.0 (7.5) 550.6 (73.7) 31.3 -- 10.9 2.4 2,325.0
1. Proceeds from borrowings of GBP550.6 million.
2. Group cash outflow of GBP137.1 million, comprises the repayment of
borrowings of GBP122.1 million, cash settlement for early repayment of debt of
GBP10.9 million and capitalised issue costs of GBP4.1 million.
3. The other non-cash adjustment relates to the amortisation of issue costs.
See Note 8.
4. Acquired represents cash and borrowings assumed from the acquisition of
Sofibus detailed further in Note 7.
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
information.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
2020 2019
Pence Pence
per per
Notes GBPm share GBPm share
EPRA Earnings Table 4 292.3 25.4 264.1 24.4
EPRA NTA Table 5 9,725.2 814 7,712.1 700
EPRA NRV Table 5 10,571.2 885 8,370.7 760
EPRA NDV Table 5 9,155.3 766 7,425.8 674
EPRA net initial
yield Table 6 3.8% 3.8%
EPRA 'topped up'
net initial yield Table 6 4.1% 4.3%
EPRA vacancy rate Table 7 3.9% 4.0%
EPRA cost ratio
(including vacant
property costs) Table 8 21.1% 22.9%
EPRA cost ratio
(excluding vacant
property costs) Table 8 20.1% 21.5%
TABLE 2: INCOME STATEMENT, PROPORTIONAL CONSOLIDATION
2020 2019
Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Gross rental income 2,6 392.9 121.2 514.1 362.0 107.1 469.1
Property operating
expenses 2,6 (88.3) (31.1) (119.4) (80.7) (27.4) (108.1)
Net rental income 304.6 90.1 394.7 281.3 79.7 361.0
Joint venture fee
income(1) 2 21.6 (9.6) 12.0 20.4 (8.6) 11.8
Administration expenses 2,6 (51.5) (1.6) (53.1) (51.5) (1.6) (53.1)
Adjusted operating profit
before interest and tax 274.7 78.9 353.6 250.2 69.5 319.7
Net finance costs
(including adjustments) 2,6 (39.7) (12.3) (52.0) (36.7) (10.0) (46.7)
Adjusted profit before
tax 235.0 66.6 301.6 213.5 59.5 273.0
Tax on adjusted profit 2,6 (4.0) (5.1) (9.1) (3.2) (5.5) (8.7)
Adjusted/EPRA earnings
before non-controlling
interests 231.0 61.5 292.5 210.3 54.0 264.3
Non-controlling interest
on adjusted profit 2,6 (0.2) -- (0.2) (0.2) -- (0.2)
Adjusted/EPRA earnings
after non-controlling
interests 230.8 61.5 292.3 210.1 54.0 264.1
Number of shares, million 11 1,149.8 1,081.3
Adjusted/EPRA EPS, pence
per share 25.4 24.4
Number of shares, million 11 1,154.5 1,087.1
Adjusted/EPRA EPS, pence
per share -- diluted 25.3 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 or prior period, therefore
Adjusted earnings is equal to EPRA earnings in the table above.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
2020 2019
Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Investment
properties 12,6 10,671.4 2,347.7 13,019.1 8,401.7 1,898.3 10,300.0
Trading
properties 12,6 52.1 -- 52.1 20.2 1.0 21.2
Total
properties 10,723.5 2,347.7 13,071.2 8,421.9 1,899.3 10,321.2
Investment in
joint
ventures 6 1,423.0 (1,423.0) -- 1,121.4 (1,121.4) --
Other net
liabilities (162.3) (161.7) (324.0) (54.7) (104.6) (159.3)
Net borrowings 13,6 (2,325.0) (763.0) (3,088.0) (1,811.0) (673.3) (2,484.3)
Total
shareholders'
equity(1) 9,659.2 -- 9,659.2 7,677.6 -- 7,677.6
EPRA
adjustments 11 66.0 34.5
Adjusted NAV 11 9,725.2 7,712.1
Number of
shares,
million 11 1,194.7 1,102.1
Adjusted NAV,
pence per
share 11 814 700
1. After non-controlling interests.
Loan to value of 23.8 per cent is calculated as net borrowings
of GBP3,088.0 million divided by total properties (excluding head
lease ROU asset of GBP76.9 million) of GBP12,994.3 million (2019:
24.2 per cent; GBP2,484.3 million net borrowings; GBP10,251.0
million total properties).
The portfolio valuation uplift of 10.3 per cent shown in the
Investment Update section cannot be directly derived from the
Financial Statements and is calculated to be comparable with
published MSCI Real Estate indices against which we are measured.
Based on the Financial Statements there is a valuation surplus of
GBP1,182.5 million (see Note 7) and property value of GBP12,994.3
million (paragraph above) giving a valuation uplift of 10.0 per
cent. The primary differences are that the uplift excludes the
impact of rent free incentives (GBP23.5 million, +0.2 per cent) and
other movements (GBP7.0 million, +0.1 per cent) primarily due to
foreign exchange based on closing rate as opposed to average used
in the Financial Statements.
Total assets under management of GBP15,342.8 million (2019:
GBP12,220.5 million) includes Group total properties of GBP10,647.5
million (which excludes head lease ROU asset of GBP76.9 million and
includes valuation surpluses not recognised on trading properties
of GBP0.9 million) and 100 per cent of total properties owned by
joint ventures of GBP4,695.3 million (see Note 6 (ii)).
Total disposals completed in 2020 of GBP138.8 million shown in
the Investment Update section includes: Carrying value of
investment properties disposed by SEGRO Group of GBP154.9 million
(see Note 12) and profit generated on disposal of GBP5.1 million
(see Note 7); proceeds from the sale of trading properties by SEGRO
Group of GBP17.2 million (see Note 4); share of joint venture
disposal proceeds of GBP7.6 million; carrying value of lease
incentives, letting fees and rental guarantees disposed by SEGRO
Group and joint venture (at share) of GBP3.0 million; and excludes
50 per cent of the disposal proceeds for assets sold by SEGRO to
SELP JV of GBP46.5 million (see Note 12) and certain proceeds from
the sale of trading properties of GBP2.5 million.
TABLE 4: EPRA EARNINGS
2020 2019
Notes GBPm GBPm
Earnings per IFRS income statement 1,426.9 857.9
Adjustments to calculate EPRA Earnings,
exclude:
Valuation surplus on investment properties 7 (970.6) (476.7)
Profit on sale of investment properties 7 (5.1) (7.2)
Gain on sale trading properties 12 (1.2) (6.9)
Increase/(decrease) in provision for impairment
of trading properties 7 0.1 (1.4)
Increase in provision for impairment of other
interests in property 7 0.6 0.4
Valuation surplus on other investments 7 (13.6) (4.3)
Tax on profits on disposals(1) (0.3) 9.2
Costs of early close out of debt 8 10.9 18.6
Net fair value gain on interest rate swaps and
other derivatives 8 (13.7) (7.9)
Deferred tax charge in respect of EPRA
adjustments(1) 31.3 29.0
Adjustments to the share of profit from joint
ventures after tax 6 (175.0) (149.1)
Non-controlling interests in respect of the
above 2 2.0 2.5
EPRA earnings 292.3 264.1
Basic number of shares, million 11 1,149.8 1,081.3
EPRA Earnings per Share (EPS) 25.4 24.4
Company specific adjustments:
Non-EPRA adjustments 2 -- --
Adjusted earnings 292.3 264.1
Adjusted EPS 11 25.4 24.4
1. Total tax charge in respect of adjustments per Note 2 of GBP31.0 million
(2019: GBP38.2 million charge) comprises tax credit on profits on disposals of
GBP0.3 million (2019: GBP9.2 million charge) and deferred tax charge of
GBP31.3 million (2019: GBP29.0 million charge).
TABLE 5: EPRA NET ASSET MEASURES
In October 2019, the European Public Real Estate Association
(EPRA) published new Best Practices 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 reinstatement 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 31 December 2020 position.
EPRA NTA is considered to be most consistent with the nature of
SEGRO's business as a UK REIT providing long-term progressive and
sustainable returns. EPRA NTA now acts as the primary measure of
net asset value and is also referred to as Adjusted Net Asset Value
(or Adjusted NAV).
A reconciliation of the three 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 31
December EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
2020 GBPm GBPm GBPm GBPm GBPm
Equity
attributable
to ordinary
shareholders 9,659.2 9,659.2 9,659.2 9,659.2 9,659.2
Fair value
adjustment in
respect of
interest rate
derivatives
-- Group (61.0) (61.0) - (61.0) -
Fair value
adjustment in
respect of
trading
properties --
Group 0.9 0.9 0.9 0.9 0.9
Fair value
adjustment in
respect of
trading
properties --
Joint
ventures - - - - -
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Group(1) 42.2 84.4 - 84.4 -
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Joint
ventures(1) 85.5 171.0 - 171.0 -
Intangible
assets (1.6) - - - -
Fair value
adjustment in
respect of
debt --
Group - - (466.5) - (466.5)
Fair value
adjustment in
respect of
debt -- Joint
ventures - - (38.3) - (38.3)
Real estate
transfer
tax(2) - 716.7 - - -
Net assets 9,725.2 10,571.2 9,155.3 9,854.5 9,155.3
Diluted shares
(million) 1,194.7 1,194.7 1,194.7 1,194.7 1,194.7
Diluted new
assets per
share 814 885 766 825 766
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
Previously reported
Current measures measures
As at 31
December EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
2019 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(1) 26.0 51.9 - 51.9 -
Deferred tax
in respect of
depreciation
and valuation
surpluses --
Joint
ventures(1) 60.6 121.1 - 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(2) - 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 new
assets per
share 700 760 674 708 674
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers'
costs. Purchasers' costs are added back when calculating EPRA NRV.
TABLE 6: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Combined property portfolio Continental
including joint ventures at UK Europe Total
share -- 2020 Notes GBPm GBPm GBPm
Total properties per
financial statements Table 3 8,087.0 4,984.2 13,071.2
Add valuation surplus not
recognised on trading
properties(1) 12 0.9 -- 0.9
Less head lease ROU assets 12 -- (76.9) (76.9)
Combined property portfolio
per external valuers'
report 8,087.9 4,907.3 12,995.2
Less development properties
(investment, trading and
joint ventures) (673.1) (514.9) (1,188.0)
Net valuation of completed
properties 7,414.8 4,392.4 11,807.2
Add notional purchasers'
costs 501.6 215.1 716.7
Gross valuation of completed
properties including
notional purchasers' costs A 7,916.4 4,607.5 12,523.9
Income
Gross passing rents(2) 282.3 198.5 480.8
Less irrecoverable property
costs (3.0) (7.5) (10.5)
Net passing rents B 279.3 191.0 470.3
Adjustment for notional rent
in respect of rent frees 23.7 22.2 45.9
Topped up net rent C 303.0 213.2 516.2
Including fixed/minimum
uplifts(4) 10.8 0.1 10.9
Total topped up net rent 313.8 213.3 527.1
Yields -- 2020 % % %
EPRA net initial yield(3) B/A 3.5 4.1 3.8
EPRA topped up net initial
yield(3) C/A 3.8 4.6 4.1
Net true equivalent yield 4.3 4.8 4.5
1. Trading properties are recorded in the Financial Statements at the lower of
cost and net realisable value, therefore valuations above cost have not been
recognised.
2. Gross passing rent excludes short-term lettings and licences.
3. In accordance with the Best Practices Recommendations of EPRA.
4. 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).
TABLE 7: EPRA VACANCY RATE
2020 2019
GBPm GBPm
Annualised estimated rental value of vacant premises 21.8 19.2
Annualised estimated rental value for the completed property
portfolio 560.9 474.2
EPRA vacancy rate 3.9% 4.0%
TABLE 8: TOTAL COST RATIO/EPRA COST RATIO
2020 2019
Notes GBPm GBPm
Costs
Property operating expenses(1) 5 88.3 80.7
Administration expenses 51.5 51.5
Share of joint venture property operating and
administration expenses 6 42.3 37.6
Less:
Joint venture property management fee income,
service charge income, management fees and other
costs recovered through rents but not separately
invoiced(2) (87.3) (74.6)
Total costs (A) 94.8 95.2
Gross rental income
Gross rental income 4 392.9 362.0
Share of joint venture property gross rental
income 6 121.2 107.1
Less:
Service charge income, management fees and other
costs recovered through rents but not separately
invoiced(2) (65.7) (54.2)
Total gross rental income (B) 448.4 414.9
Total cost ratio (A)/(B) 21.1% 22.9%
Total costs (A) 94.8 95.2
Share based payments (10.4) (12.5)
Total costs after share based payments (C) 84.4 82.7
Total cost ratio after share based payments
(C)/(B) 18.8% 19.9%
EPRA cost ratio
Total costs (A) 94.8 95.2
Non-EPRA adjustments 2 -- --
EPRA total costs including vacant property costs
(D) 94.8 95.2
Group vacant property costs 5 (3.4) (4.8)
Share of joint venture vacant property costs 6 (1.4) (1.1)
EPRA total costs excluding vacant property costs
(E) 90.0 89.3
Total gross rental income (B) 448.4 414.9
Total EPRA cost ratio (including vacant property
costs) (D)/(B) 21.1% 22.9%
Total EPRA cost ratio (excluding vacant property
costs) (E)/(B) 20.1% 21.5%
1. Property operating expenses are net of costs capitalised in accordance with
IFRS of GBP8.7 million (2019: GBP7.3 million) (see Note 5 for further detail
on the nature of costs capitalised).
2. Total deduction of GBP87.3 million (2019: GBP74.6 million) from costs
includes: joint venture management fees income of GBP21.6 million (2019:
GBP20.4 million), service charge income including joint ventures of GBP59.0
million (2019: GBP49.7 million) and management fees and other costs recovered
through rents but not separately invoiced, including joint ventures, of GBP6.7
million (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 GBP392.9 million (2019: GBP362.0 million) does not include joint
venture management fees income of GBP21.6 million (2019: GBP20.4 million) and
are not included in the total deduction to income of GBP65.7 million (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 Pipeline), together with potential
schemes not yet commenced on land owned or controlled by the Group
(Future Pipeline).
EPRA: The European Public Real Estate Association, a real estate
industry body, which has issued Best Practices Recommendations 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.
Lease incentives, initial costs and any contracted future rental
increases are amortised on a straight-line basis over the lease
term.
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.
IFRS: International Financial Reporting Standards, the standards
under which SEGRO reports its financial accounts.
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, trading
properties and, if appropriate, assets held for sale on the balance
sheet) and excludes head lease ROU asset. This is reported on a
'look-through' basis (including joint ventures at share).
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. It assumes that rent is received
quarterly in advance.
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 (which is netted off
against service charge expenses).
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 the Public Sector Pension Investment
Board (PSP Investments) established in 2013 to own big box
warehouses in Continental Europe.
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.
SPPICAV: Société de Placement à Prépondérance Immobilière à
Capital Variable is a French equivalent of UK Real Estate
Investment Trusts (see REIT).
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.
Takeback: 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.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20210218006094/en/
CONTACT:
SEGRO plc
SOURCE: SEGRO PLC
Copyright Business Wire 2021
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