Continued rental growth, valuations stabilised

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KEY MESSAGES

• Occupier market conditions remain attractive and SEGRO’s focus on the most supply-constrained European urban and big box markets has driven continued income and earnings growth.
• Valuations have stabilised, with the UK seeing its first increase since the cycle turned in 2022.
• SEGRO is well-placed for further profitable growth with the potential to increase passing rents by over 50 per cent over the next three years, supporting strong shareholder returns.

Commenting on the results, David Sleath, Chief Executive, said:

“SEGRO has continued to perform well during the first half of 2024, signing £48 million of new rent. The balance of supply and demand for modern warehouse space remains supportive of further rental growth and development gains in the attractive European markets in which our portfolio is concentrated.

“Valuations have stabilised with the UK seeing its first increase since the cycle turned in 2022. The strength of our local networks, and balance sheet have enabled us to invest selectively in profitable new opportunities, putting to work some of the capital raised in February.

“In a sector that continues to benefit from long-term, attractive structural drivers, SEGRO is well-placed for further growth through a combination of active asset management of our irreplaceable, prime portfolio of existing assets and our profitable development programme, which includes a sizeable data centre pipeline. These factors, together with the competitive advantage of our market-leading operating platform, give us confidence that we will continue to deliver attractive and compounding increases in both earnings and dividends.”

HIGHLIGHTS¹:

• £48 million of new headline rent commitments signed during the period (H1 2023: £44 million), including £17 million of new pre-let agreements, and a 28 per cent average uplift in rent reviews and renewals as we continue to capture embedded reversion within the portfolio.
• 7 per cent increase in net rental income to £306 million (H1 2023: £286 million), driven by strong like-for-like rental growth of 5.3 per cent and development completions.
• Adjusted pre-tax profit of £227 million up 14.6 per cent compared with the prior year (H1 2023: £198 million). Adjusted EPS is 17.0 pence, up 6.9 per cent (H1 2023: 15.9 pence), the impact of the equity placing being broadly neutral as the higher share count was offset by lower interest costs.
• Overall valuation flat, with a positive performance in the UK offset by a small decline in Continental Europe, mostly due to modest outward yield shift. Adjusted NAV per share down 1.8 per cent to 891 pence (31 December 2023: 907 pence) largely due to the impact of the equity placing.
• Capital investment of £401 million (H1 2023: £625 million) comprising development capex and acquisitions, less £251 million of disposals completed ahead of previous book values.
• Development completions added £27 million of potential new headline rent, delivered at a yield on cost of 7.0 per cent. 78 per cent of this has been leased and 96 per cent was, or is expected to be, certified BREEAM ‘Excellent’ (or local equivalent) or higher.
• A further £49 million of potential rent from development projects under construction or in advanced negotiations, 65 per cent of which has been or is currently expected to be pre-let. Anticipated yield on cost for these projects is 7.7 per cent.
• Strong balance sheet, well-positioned for further growth following £907 million equity placing. LTV of 30 per cent (31 December 2023: 34 per cent) and net debt:EBITDA of 8.5 times (31 December 2023: 10.4 times), with access to £2.1 billion of cash and undrawn committed bank facilities.
• Attractive cost of debt due to our diverse, long-term debt structure. Average cost of debt is 2.7 per cent (31 December 2023: 3.1 per cent) with no major debt maturities until 2026.
• Interim dividend increased by 4.6 per cent to 9.1 pence (2023: 8.7 pence).

^1. Figures quoted on pages 1 to 12 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.