TIDMSGRO
RNS Number : 9833C
SEGRO PLC
14 February 2020
14 february 2020
RESULTS FOR THE yearED 31 december 2019
Earnings momentum continues, driven by rental growth and a
record year of development completions
Commenting on the results, David Sleath, Chief Executive,
said:
"2019 was another successful year for SEGRO, with our clear
strategy delivering excellent financial and operational results.
Our high-quality, well-located portfolio of urban and big box
warehouses continues to attract a broad range of customers,
benefitting from the structural drivers of e-commerce and
urbanisation. As anticipated, these trends are now having an
increasing impact on the Continent as well as in the UK.
"We have started 2020 in a strong position. Our substantial,
mostly pre-leased development pipeline, along with the ongoing
results from the active asset management of our existing portfolio,
should enable us to drive further sustainable, compound growth in
rental income, earnings and dividends over the coming years.
"This year SEGRO celebrates its one hundred year anniversary. We
will continue to take a long-term view, reflecting the interests of
our financial stakeholders and our wider responsibilities, as we
look to position the business for further success in its next
century."
Highlights:
-- Adjusted pre-tax profit, up 10.8 per cent, reflecting a
record year of development completions, high customer retention
rates, like-for-like rental growth and a low vacancy rate.
-- Adjusted EPS of 24.4 pence, an increase of 4.3 per cent
compared to 2018 (23.4 pence) or 9.9 per cent excluding the impact
of the SELP performance fee received in 2018 (payable every five
years). IFRS EPS of 79.3 pence (2018: 105.4 pence) reflects the 7.5
per cent increase in the value of our portfolio (2018: 10.7 per
cent increase).
-- EPRA NAV per share up 8.9 per cent to 708 pence (31 December
2018: 650 pence) . IFRS NAV per share was 697 pence (31 December
2018: 644 pence).
-- Future earnings prospects underpinned by 1.2 million sq m of
development projects under construction or in advanced pre-let
discussions. This equates to an additional 15 per cent of space and
GBP70 million of potential rent, 71 per cent of which relates to
pre-lets and lettings prior to completion.
-- 2019 full year dividend increased by 10.1 per cent to 20.7
pence (2018: 18.8 pence). Final dividend increased by 8.7 per cent
to 14.4 pence (2018: 13.25 pence).
FINANCIAL AND OPERATING HIGHLIGHTS(1)
Valuation gains and rental growth across the portfolio with
Continental Europe outperforming the UK
-- Portfolio capital valuation surplus of 7.5 per cent driven by
a 2.5 per cent increase in the like-for-like value of our UK
portfolio (2018: 12.0 per cent) and 13.5 per cent in Continental
Europe (2018: 5.1 per cent). Valuation gains were driven mainly by
asset management, rental value growth (UK: 2.6 per cent,
Continental Europe: 3.0 per cent), development gains and further
yield compression in Continental Europe.
Operational metrics at record levels thanks to active asset
management and strong occupier demand
-- GBP65.8 million in annualised new rent commitments in the
period (2018: GBP66.4 million) , of which GBP33.2 million (2018:
GBP41.5 million) is from new development.
-- 4.7 per cent like-for-like net rental income growth (5.7 per
cent in the UK, 3.1 percent in Continental Europe) aided by an
average 17.8 per cent uplift on rent reviews and renewals. The UK
figures include the significant impact of lease re-gears and
renewals at the Heathrow Cargo Centre.
-- Vacancy rate remains low at 4.0 per cent (31 December 2018:
5.2 per cent) reflecting strong lettings of recently completed
speculative developments and some vacant asset disposals. Our
continued focus on customer service has kept customer retention
high at 88 per cent (2018: 89 per cent).
Capital allocation focused on funding further development-led
growth
-- GBP692 million of investment in our portfolio, including
GBP556 million invested in development capex, infrastructure and
land as well as GBP136 million of asset acquisitions. This was
partially offset by GBP442 million of asset and land disposals
(including sales of assets to our SELP joint venture).
-- Total development capex for 2020, including infrastructure
and land acquisitions, expected to exceed GBP600 million.
-- GBP50 million of potential rent from current development
pipeline , 60 per cent of which has been secured. This includes
GBP10 million of potential rent from speculative urban warehouse
developments in the very attractive London market.
-- GBP20 million of potential rent from further 'near-term'
pre-let projects which are in advanced stages of negotiation. Our
land bank and additional land under our control through option
agreements provide significant potential for further growth.
Balance sheet
-- SEGRO continues to be appropriately and efficiently financed.
The average cost of debt remains attractive at 1.7 per cent (2018:
1.9 per cent), the long average debt maturity has been maintained
at 10.0 years (2018: 10.2 years) and look-through LTV ratio has
reduced to 24 per cent (31 December 2018: 29 per cent).
-- Equity placing of GBP451 million completed in February 2019,
providing capacity to continue to invest for growth.
-- SEGRO has almost GBP1.4 billion of cash and available facilities at its disposal.
(1) Figures quoted on pages 1 to 16 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 SUMMARY
Change
Income statement metrics 2019 2018 per cent
----- -------
Adjusted(1) profit before tax (GBPm) 267.5 241.5 10.8
IFRS profit before tax (GBPm) 902.0 1,099.1 (17.9)
Adjusted(2) earnings per share (pence) 24.4 23.4 4.3
IFRS earnings per share (pence) 79.3 105.4 (24.8)
Dividend per share (pence) 20.7 18.8 10.1
----------------------------------------- ----- ------- ---------
31 December 31 December Change
Balance sheet metrics 2019 2018 per cent
----------- -----------
Portfolio valuation (SEGRO share, GBPm) 10,251 9,425 7.5(5)
EPRA(3 4) net asset value per share
(pence, diluted) 708 650 8.9
IFRS net asset value per share (pence,
diluted) 697 644 8.2
Group net borrowings (GBPm) 1,811 2,177 -
Loan to value ratio including joint
ventures at share (per cent) 24 29 -
------------------------------------------ ----------- ----------- ---------
1 A reconciliation between Adjusted profit before tax and IFRS
profit before tax is shown in Note 2.
2 A reconciliation between Adjusted earnings per share and IFRS
earnings per share is shown in Note 11(i).
3 A reconciliation between EPRA net asset value per share and
IFRS net asset value per share is shown in Note 11(ii).
4 Calculations for EPRA performance measures are shown in the
Supplementary Notes to the condensed financial information.
5 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.
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/9shzjdax
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 21 February
following number: 2020 on:
Dial-in: +44 (0)2071 928000 UK & International: +44 (0) 3333 009785
Access code: 4534627 Access code: 4534627
A video interview with David Sleath, Chief Executive, discussing
the results is now available to view on www.segro.com , together
with this announcement, the Full Year 2019 Property Analysis Report
and other information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Mob: +44 (0) 7771 773
(Chief Financial Officer) 134
Tel: + 44 (0) 20 7451
9110
(after 11am)
Claire Mogford Mob: +44 (0) 7710 153
(Head of Investor Relations) 974
Tel: +44 (0) 20 7451
9048
(after 11am)
FTI Consulting Richard Sunderland / Claire Turvey Tel: +44 (0) 20 3727
/ Eve Kirmatzis 1000
-------------- ---------------------------------- ------------------------
FINANCIAL CALAR
2019 final dividend ex-div date 19 March 2020
2019 final dividend record date 20 March 2020
2019 final dividend scrip dividend price announced 26 March
2020
2019 final dividend payment date 1 May 2020
2020 First Quarter Trading Update 21 April 2020
Half Year 2020 Results 30 July 2020
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), and a leading
owner, manager and developer of modern warehouses and light
industrial property. It owns or manages 8 million square metres of
space (86 million square feet) valued at GBP12.2 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 eight other European countries.
See www.SEGRO.com for further information.
Forward-Looking Statements: This announcement contains certain
forward-looking statements with respect to SEGRO's expectations and
plans, strategy, management objectives, future developments and
performances, costs, revenues and other trend information. These
statements are subject to assumptions, risk and uncertainty. Many
of these assumptions, risks and uncertainties relate to factors
that are beyond SEGRO's ability to control or estimate precisely
and which could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements. Certain statements have been made with reference to
forecast process changes, economic conditions and the current
regulatory environment. Any forward-looking statements made by or
on behalf of SEGRO are based upon the knowledge and information
available to Directors on the date of this announcement.
Accordingly, no assurance can be given that any particular
expectation will be met and SEGRO's shareholders are cautioned not
to place undue reliance on the forward-looking statements.
Additionally, forward-looking statements regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. Other than in accordance
with its legal or regulatory obligations (including under the
Financial Conduct Authority's Disclosure Guidance and Transparency
Rules), SEGRO does not undertake to update forward-looking
statements to reflect any changes in events, conditions or
circumstances on which any such statement is based. Past share
performance cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
forecast. The information in this announcement does not constitute
an offer to sell or an invitation to buy securities in SEGRO plc or
an invitation or inducement to engage in any other investment
activities.
Neither the content of SEGRO's website nor any other website
accessible by hyperlinks from SEGRO's website are incorporated in,
or form part of, this announcement.
CHIEF EXECUTIVE'S REVIEW
2019 was another year of strong financial and operational
performance by SEGRO. Earnings growth has been supported by rental
growth in our standing assets and the additional income generated
from our active development pipeline. As a result we are
recommending an increased dividend to shareholders.
Our portfolio of prime, modern warehouses in key strategic
markets, with more than half located in Europe's most
supply-constrained urban areas, continues to position us well for
sustainable success and delivers on our purpose of creating the
space to enable extraordinary things to happen.
This year, on 19 May, SEGRO will celebrate its centenary. Over
the past one hundred years, not only has our business changed
significantly, but so has the world around us and expectations of
listed companies now go much further than simply returning a profit
for shareholders.
Generating attractive financial returns from our business, based
on a strong balance sheet, continues to be vital for the long-term
sustainability of SEGRO as a company. It has always been part of
our DNA to take into consideration the interests of our
stakeholders and wider society in the way that we do business. We
aim to minimise our impact on the environment in which we operate,
work in harmony with the communities of which we are part, and to
have a positive impact on the customers, shareholders and other
stakeholders which we serve. As we celebrate our centenary in 2020
the balance between our financial and social returns continues to
be central to our strategy as we look to position ourselves for the
years ahead.
Looking back on 2019, the main highlights included:
-- A strong performance in securing new rent. GBP65.8 million
was signed in the period. This included a particularly strong
performance from increased rent on existing space, helped by
successful re-gears in our Heathrow portfolio.
-- Continued growth and modernisation of our portfolio with the
addition of prime, sustainable warehouses through our development
programme. 2019 was another record year of development with the
completion of 871,800 sq m of space, of which 92 per cent is
already let, generating over GBP40 million of new income. 94 per
cent of the eligible certified development completions were rated
BREEAM "Very Good" or "Excellent" (or equivalent).
-- Creating opportunities to add to our portfolio with targeted
acquisitions of both assets and land in some of our key urban
markets, including completed assets and land in the
supply-constrained London market.
-- A 38 per cent increase in our renewable energy capacity
bringing it to 18.5 MW. On-site renewable energy generation remains
a core part of SEGRO's sustainability strategy to transition
towards a low carbon future.
-- A successful GBP451 million equity placing in February 2019
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 a strong set of results:
adjusted profit before tax is up 10.8 per cent to GBP267.5 million
(IFRS: GBP902.0 million) and adjusted earnings per share are up 4.3
per cent to 24.4 pence (IFRS: 79.3 pence), or 9.9 per cent
excluding the impact of the SELP performance fee received in 2018.
Our EPRA NAV per share is up 8.9 per cent to 708 pence (IFRS: 697
pence) driven substantially by a 7.5 per cent increase in our
portfolio value, which now totals GBP10.3 billion (reflecting our
share of GBP12.2 billion of assets under management).
Our balance sheet is also in good shape. Our average cost of
debt remains low at 1.7 per cent (31 December 2018: 1.9 per cent)
with an average duration of 10.0 years (31 December 2018: 10.2
years). SEGRO remains appropriately and efficiently funded with a
loan-to-value ratio of 24 per cent (31 December 2018: 29 per cent)
and we have GBP1.4 billion of cash and available facilities at our
disposal, providing significant financing flexibility.
The combination of a strong set of financial results in 2019 and
our confident outlook for 2020 and beyond means that we are
recommending an 8.7 per cent increase in final dividend to 14.4
pence per share, resulting in a total distribution of 20.7 pence
for 2019 as a whole (2018: 18.8 pence).
OUR MARKETS
SEGRO has continued to thrive, despite heightened levels of
geopolitical and macro-economic uncertainty. The structural trends
of urbanisation and technology remain strong tailwinds for our
business and the impact of these can be seen at its greatest where
the two combine, most notably in our urban markets, in which more
than two-thirds of our assets are located.
Whilst these trends have been evident in the UK for some time
and have driven strong rental growth across both our big box and
urban portfolios, on the Continent the impact is only now beginning
to be realised in a more meaningful way. E-commerce penetration in
both France and Germany is now nearing the level at which retailers
start to adapt their supply chains for an omni-channel delivery
model. In the UK this has resulted in a requirement for more
warehouse space with a combination of larger centrally located
fulfilment centres, complemented by smaller urban distribution
centres, and we are starting to see a similar pattern emerge in
Continental Europe.
Businesses linked to e-commerce (retailers, third party
logistics operators and parcel delivery companies) continue to make
up just over half of our rent roll but beyond this a very wide
range of other companies use our space to manufacture goods (for
example food, electrical components, pharmaceuticals) as well as to
provide services (for example car servicing, laundry, data centres)
to urban populations.
As European cities become more densely populated, demand for
goods and services rapidly increases and at the same time consumers
want these delivered faster than ever before. It is therefore
important for even non e-commerce related businesses to be close to
their end users (as well as to their workforce), driving further
demand for urban warehouse space.
Our portfolio of well-located, modern warehousing is highly
desirable to all of these different types of businesses and at the
same time the supply response continues to be controlled. Within
our urban markets, industrial land is in short supply and is
frequently converted into other high value alternative uses
(primarily residential), putting upward pressure on rental values.
We have seen strong rental growth throughout 2019 in our UK, French
and German urban warehouse portfolios.
In the big box market supply tends to keep up with demand, with
most being built on a pre-let basis, and as a result rental growth
is more moderate. The recent increase in speculative development in
the UK is being absorbed by take-up levels that continue to be
higher than the long-term average. Demand for our prime logistics
parks is strong with two further large pre-lets signed during the
year. We continue to take a low risk approach to development,
particularly in big box warehouses, and have already pre-let 60 per
cent of our current pipeline.
Industrial asset values remain supported by continued demand
from investors wanting to increase their exposure to industrial and
warehouse properties. As a result we have seen further improvements
in valuation yields in the Continental European portfolio, whilst
yields in the UK have held steady at their historically low
levels.
OUR PORTFOLIO
Our portfolio of modern warehouses, with an overweight position
in urban markets, continues to produce good operational results
thanks to our active approach to asset management and the strong
fundamentals. The vacancy remains low, retention high and lease
lengths continue to increase as customers invest more in automation
and fit-out and seek to secure space close to urban centres for the
longer term.
We added to our portfolio in 2019 with targeted acquisitions of
completed assets as well as continuing to invest in land to provide
future development opportunities. Particularly pleasing were some
of the off-market transactions in urban markets such as London and
Paris, which were only possible thanks to the expertise of our
local teams as well as our strong customer relationships.
2019 was another record period of development completions with
871,800 sq m of new space for a diverse range of occupiers across
our markets. This elevated level of development allows us to
constantly upgrade our portfolio and all new developments of 5,000
sq m or more are designed to achieve BREEAM 'Very Good' or
'Excellent'. We continue to focus on the environmental
sustainability of our assets and are now working towards our SEGRO
2025 targets. These are focused on reducing the embodied carbon
within our developments and using the latest technology to help our
customers to reduce energy consumption in our standing assets.
Our development pipeline is an important source of growth and we
have 826,200 sq m of new space under construction, capable of
generating GBP50 million of new rent, of which 60 per cent has been
secured through pre-lets.
We continue to take a disciplined approach to capital allocation
and regularly review our portfolio, taking opportunities to dispose
of assets where we feel we have maximised our potential
returns.
OUR STAKEHOLDERS
We are both a developer and a long-term owner of industrial
assets which provides us with a unique opportunity. Land zoned for
industrial use is crucial to the proper functioning of cities and
we work closely with local authorities to help ensure the right
space is retained to support cities' needs. In our urban markets
this usually involves the regeneration of neglected industrial
sites, replacing old or disused facilities with modern warehouse
space with high sustainability credentials which attracts new
businesses to the area and creates employment opportunities.
Once our warehouses are completed, we attempt to connect our
customers that choose to locate their business inside them with the
surrounding communities, helping them to source employees locally
and also assisting with upskilling and training through regional
programmes such as Aspire on the Slough Trading Estate.
We stay close to businesses throughout their time as a SEGRO
customer thanks to the internal management of our portfolio. Our
asset management and property teams interact regularly with our
customers, helping us to understand the opportunities and
challenges that their businesses face and to anticipate their
needs. 88 per cent of our customers rate their overall satisfaction
as an occupier of a SEGRO warehouse as 'excellent' or 'very good'.
Strong relationships with our customers also create opportunities,
evidenced by the fact that over half of our current development
pipeline is with existing customers.
We aim to be a trusted partner to all of our stakeholders and it
is through these connections that we enable extraordinary things to
happen within, and around, the spaces that we create.
OUR PEOPLE
Although real estate is a physical asset class, the business of
developing and managing it requires human interaction and our
longer-term success is therefore dependent on the expertise,
commitment and motivation of our workforce. It is our employees who
manage our relationships on a day-to-day basis and it is therefore
crucial that we attract and retain talented people.
Over 300 people now work in our 14 offices across Europe. We
have a strong company culture and a Purpose and Values that are
shared and aspired to across all geographies. To enable the sharing
of ideas and best practices we have created cross-border working
groups and we encourage employees to visit other regions and deepen
their understanding of the different parts of our business.
Our 'Space to Grow' programme offers our employees the
opportunity to undertake a broad range of training and, as the use
of technology advances within our sector, we will expand the scope
of this training to ensure that it continues to provide our
workforce with the skills that they need to thrive in, and develop,
their roles.
Successful businesses are diverse and inclusive and we promote
this throughout our workplace, enabling our employees to bring
'their whole selves' to work. We have robust policies in place that
help us to support our belief that everyone deserves the right to
be treated equally.
I would like to take this opportunity to thank all of our
employees for their continued dedication and commitment to our
business and for their contributions to the success of SEGRO in
2019.
OUTLOOK
The momentum that we have seen across our markets during the
final months of the year means that we have started 2020 with
confidence. We are proud owners of one of the highest quality
logistics and industrial portfolios in Europe and we are well
positioned to benefit from the structural drivers that are
currently at play in our sector.
We expect to see further rental growth across our geographies,
with an increasing contribution from Continental Europe, and the
potential for further upside in the UK as our future relationship
with the European Union becomes clearer.
Our development pipeline for 2020 is very healthy, allowing us
to both modernise our portfolio and generate additional rental
income, compounded by the rental growth from the active asset
management of our existing estate. Whilst the trends of e-commerce
and urbanisation continue to drive occupier demand we expect to be
able to develop at this elevated level, de-risking the majority of
it by pre-letting.
Looking beyond the immediate future, we recognise that the
society in which we operate continues to face unprecedented levels
of change as technological advances continue to impact our
customers and wider society. In order to position our business to
embrace this, we announced in January the creation of a new
Strategy, Investment and Innovation team. This will ensure that we
are able to navigate and benefit from these structural changes and
will help us to become more agile in supporting the evolving needs
of our customers and other stakeholders.
Our core strategy and pure focus on warehouse and industrial
property will remain unchanged, but by keeping one eye on the
horizon we expect to be able to position SEGRO for sustainable,
long-term success.
A Strategy to generate attractive, sustainable returns
Our goal is to be the best owner-manager and developer of
warehouse properties in Europe and a leading income-focused
REIT.
Our strategy for achieving this goal is to create a portfolio of
high quality big box and urban warehouses in the strongest markets
which generate attractive, low risk, income-led returns with above
average rental and capital growth when market conditions are
positive and are resilient in a downturn. We seek to enhance
returns through development, while ensuring that the short-term
income 'drag' associated with holding land does not outweigh the
long-term potential benefits.
Fundamental to our strategy are three key pillars of activity
which should combine to deliver an attractive, income-led total
property return:
-- Disciplined Capital Allocation
-- Operational Excellence
-- Efficient Capital and Corporate Structure.
The combination of these elements should translate into
sustainable, attractive returns for our shareholders in the form of
progressive dividends and net asset value growth over time.
Embedded in this strategy is the long-term approach that we take
to running our business. This requires:
-- an understanding and assessment of the risks facing the
business and the actions we can take to mitigate those risks. More
information can be found in the Principal Risks section (page 26);
and
-- engagement with our key stakeholders to understand their
priorities, and our impact on the environment.
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 structural void
rate and relatively low intensity asset management requirements.
Our assets are concentrated in the strongest European submarkets
which display attractive property market characteristics, including
good growth prospects, limited supply availability and where we
already have critical mass, or believe we will be able to achieve
it in a reasonable timeframe.
DISCIPLINED capital allocation
We invested GBP692 million in our portfolio during the year:
acquisitions of GBP136 million of assets, GBP147 million of land
and development capital expenditure of GBP409 million. This was
partly offset by GBP442 million of disposals.
Acquisitions focused on building scale in urban warehousing
2019 was a relatively quiet year for asset acquisitions as we
continued to focus investment on our development pipeline,
including many further land purchases. We did however complete a
small number of transactions in key strategic markets.
GBP95 million of the acquisitions were urban warehouses in the
UK, France and Italy. In London we made two off-market
acquisitions: a warehouse in East London that complements our
existing portfolio, and a further acquisition in South London,
establishing a presence in the area for the first time. In France
we purchased two properties in the supply-constrained market of
Lyon. Finally, in Italy we acquired a warehouse on the outskirts of
Verona, to be used by a global online retailer for their last mile
distribution.
The remaining acquisitions included big box warehouses in
Barcelona, where we are working to achieve scale, and also in Lille
and Wroc aw, two markets where we have identified strong occupier
demand for logistics.
The consideration for the asset acquisitions was GBP136 million,
reflecting a blended topped up initial yield of 4.7 per cent.
Acquisitions completed in 2019
Asset type Purchase price Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
---------------------------------------- -------------------- ----------------- ----------------------
Big box logistics 40.8 5.4 6.1
Urban warehousing 95.6 4.0 4.0
Land(2) 147.1 - -
Total acquisitions completed in 2019(3) 283.5 4.4(2) 4.7(1)
---------------------------------------- -------------------- ----------------- ----------------------
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 Table 3 of the supplementary notes.
Acquisitions: what to expect in 2020
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.
disciplined capital allocation - asset recycling TO IMPROVE
PORTFOLIO FOCUS
During 2019, we sold GBP442 million of land and assets, taking
advantage of strong investor demand to realise profits and release
capital to reinvest in our business.
The largest component of these disposals was GBP259 million of
UK stand-alone big box warehouses. Going forwards, our UK big box
focus will be on developing logistics parks rather than stand-alone
buildings.
Other disposals included the sale of a building at SLPEMG to its
occupier and we also sold our holdings in Gdańsk, a smaller
regional market that we have decided to exit in order to focus on
other parts of Poland.
As in previous years, we sold a portfolio of Continental
European big box warehouses developed by SEGRO to SELP for which we
received GBP113 million net proceeds from an effective sale of a 50
per cent interest.
The consideration for the asset disposals was GBP433 million,
reflecting a blended topped up initial yield of 3.9 per cent. The
disposals generated a modest gain on sale compared to book values
at 31 December 2018.
Additionally, we disposed of GBP9 million of land, primarily
comprising plots in non-core markets.
Disposals completed in 2019
Asset type Disposal proceeds Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
------------------------------------- -------------------- ----------------- ----------------------
Big box logistics 427.2 3.8 3.8
Urban warehousing 6.3 10.8 10.8
Land 8.9 - -
Total disposals completed in 2019(2) 442.4 3.9(1) 3.9(1)
------------------------------------- -------------------- ----------------- ----------------------
1 Yield excludes land transactions.
2. A reconciliation of disposals completed to the Financial
Statements is provided in Table 3 of the supplementary notes.
Disposals: what to expect in 2020
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.
Valuation gains from asset management, development, and
market-driven yield Improvement
Warehouse property values across Europe increased throughout the
year, with Continental Europe outperforming the UK. Investment
volumes across Europe continued to be healthy, at similar levels to
2018. Both investor and occupier demand for the asset class
remained strong.
The Group's property portfolio was valued at GBP10.3 billion at
31 December 2019 (GBP12.2 billion of assets under management). The
portfolio valuation, including completed assets, land and buildings
under construction, increased by 7.5 per cent on a like-for-like
basis (adjusting for capital expenditure and asset recycling during
the year) compared to 10.7 per cent in 2018. A reconciliation of
the portfolio valuation to the Financial Statements is provided in
Table 3 of the Supplementary Notes.
This primarily comprises a 5.8 per cent increase in the assets
held throughout the year (2018: 10.1 per cent), driven by a 2.7 per
cent increase in our valuer's estimate of the market rental value
of our portfolio (ERV) and in Continental Europe this was
complemented by approximately 50 basis points of yield compression.
In total, our portfolio generated a total property return of 10.5
per cent (2018: 15.4 per cent).
Assets held throughout the year in the UK increased in value by
2.5 per cent (2018: 12.0 per cent), slightly ahead of the MSCI Real
Estate UK All Industrial 2019 index which increased by 2.4 per
cent. The performance was mostly due to the capture of reversionary
potential in lease reviews and renewals, particularly in London.
The true equivalent yield applied to our UK portfolio was 4.6 per
cent, 20 basis points lower than at 31 December 2018 (4.8 per cent)
reflecting the impact of newly completed developments and the
disposal of some higher yielding assets rather than a movement in
market yields. Rental values improved by 2.6 per cent (2018: 4.7
per cent).
Assets held throughout the year in Continental Europe increased
in value by 13.5 per cent (2018: 5.1 per cent) on a constant
currency basis, reflecting a combination of yield compression to
5.2 per cent (31 December 2018: 5.9 per cent) and rental value
growth of 3.0 per cent (2018: 0.7 per cent).
More details of our property portfolio can be found in the 2019
Property Analysis Report available at www.segro.com/investors.
Valuations: what to expect in 2020
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 speculative 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 2019(1)
Portfolio value, GBPm Yield(3)
-------------------------------------------------------------------------------------- -------------
Topped-up net Vacancy
Lettable Combined property Valuation movement(2 3) initial Net true equivalent (ERV)(4)
area sq m Completed Land & develop-ment portfolio Combined property portfolio % % % %
(AUM) (AUM)
---------------- ----------- --------- ------------------- ----------------- --------------------------- ----------------------- ------------- ------------------- ----------
UK
Greater London 1,096,285 3,819.1 181.9 4,001.0 4,001.2 3.4 3.6 4.4 4.4
Thames Valley 554,618 1,671.7 80.7 1,752.4 1,752.4 1.0 4.5 4.9 2.4
National
Logistics 507,898 711.6 161.9 873.5 878.7 0.3 5.2 4.9 -
UK Total 2,158,801 6,202.4 424.5 6,626.9 6,632.3 2.5 4.1 4.6 3.3
Continental
Europe
Germany/Austria 1,410,891 982.4 122.5 1,104.9 1,657.2 13.4 4.3 4.7 7.9
Netherlands 205,951 108.1 29.3 137.4 253.9 19.6 5.1 5.0 -
France 1,296,664 955.3 82.9 1,038.2 1,424.5 16.6 4.8 5.0 4.1
Italy 903,197 371.8 193.1 564.9 845.0 9.6 5.2 5.2 0.1
Spain 230,838 127.6 41.9 169.5 260.6 9.9 3.9 5.4 23.4
Poland 1,382,632 495.9 30.4 526.3 920.9 9.1 6.4 6.2 3.6
Czech Republic 169,514 73.4 10.4 83.8 161.4 15.1 5.0 5.6 3.0
Continental
Europe Total 5,599,687 3,114.5 510.5 3,625.0 5,523.5 13.5 4.9 5.2 5.3
GROUP TOTAL 7,758,488 9,316.9 935.0 10,251.9 12,155.8 5.8 4.3 4.8 4.0
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 2019 is 4.4 per cent.
OPERATIONAL EXCELLENCE - active asset management
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, and vary by both type and
geography.
Urban warehouses
Urban warehouses account for 67 per cent of our portfolio value.
They tend to be smaller warehouses, and are located mainly in and
on the edges of major cities where land supply is restricted and
there is strong demand for warehouse space, particularly catering
for the needs of last mile delivery and, around London, from data
centre users.
Our urban portfolio is concentrated in London and South-East
England (83 per cent) and major cities in Continental Europe (17
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 31 per cent of our portfolio
value. They tend to be used for storage, processing and
distribution of goods on a regional, national or international
basis and are, therefore, much larger than urban warehouses.
They are focused on the major logistics hubs and corridors in
the UK (South-East and Midlands regions), France (the logistics
'spine' linking Lille, Paris, Lyon and Marseille), Germany
(Düsseldorf, Berlin, Frankfurt and Hamburg) and Poland (Warsaw,
ódz, Poznán, and the industrial region of Silesia). 30 per cent of
our big box warehouses are in the UK and the remaining 70 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 an increase in the amount of speculative development
of UK big box warehouses during 2019 but it appears that this space
is being absorbed, with take-up levels above the long-term average.
Our recent letting activity at SLPEMG and at our new logistics park
close to Kettering, shows that there is still good demand from
occupiers to sign pre-lets for modern, sustainable warehouses in
prime locations.
On the Continent we have seen stronger rental growth in 2019 as
the impact of e-commerce began to be felt. Overall, we believe that
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. We do
not see evidence of oversupply in any of the markets in which we
operate.
Customer relationships key to our continued success
As long-term owners of warehouses, and given that we manage the
majority of our portfolio internally, we seek to develop strong
customer relationships.
Part of the role of our asset managers is to build a knowledge
of the businesses that occupy our space. By understanding their
evolving needs and requirements, we can not only help them to
change and grow, but it also means that we can predict coming
trends and innovate accordingly.
Almost 60 per cent of our headline rent comes from customers
with whom we have multiple leases and over half of the potential
rent from our current development pipeline has been secured by a
pre-let with an existing customer.
Growing rental income from letting existing space and new
developments
At 31 December 2019, our portfolio generated passing rent of
GBP378 million, rising to GBP426 million once rent free periods
expire ("headline rent"). During the year, we contracted GBP65.8
million of new headline rent, level with our record 2018
performance (GBP66.4 million). New pre-let agreements continue to
contribute strongly to this number but in 2019 we also grew rent on
our existing space significantly, helped by successful regears 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 32 per cent of total headline rent, and our largest customer,
Deutsche Post DHL, accounts for 4.5 per cent.
Approximately half of our customers are involved in businesses
affected by e-commerce, including third party logistics and parcel
delivery businesses, and retailers. These businesses accounted for
almost 70 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 17.8 per cent (2018: 8.8 per cent) for the
portfolio as a whole compared to previous headline rent. During the
year, new rents agreed at review and renewal were 25.1 per cent
higher in the UK (2018: 12.8 per cent) as reversion accumulated
over the past five years was reflected in new rents agreed, adding
GBP8.5 million of headline rent. In Continental Europe, rents
agreed on renewal fell by 0.7 per cent (2018: 2.2 per cent lower),
equating to a less than GBP0.1 million reduction in the rent roll,
as market rental growth starts to get closer to 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 2019, one third of our customer base responded
and 88 per cent of the 367 participants in the surveys rated their
experience as a SEGRO customer as "good" or "excellent" (2018: 80
per cent).
-- Vacancy has remained low. The vacancy at 31 December 2019 was
4.0 per cent (31 December 2018: 5.2 per cent). This reduction was
due to a combination of a strong performance in letting recently
completed speculatively developed space as well as the disposal of
two vacant UK big box warehouses. This has helped bring the vacancy
rate on our standing stock down to 2.6 per cent (2018: 3.4 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 also down at 4.6 per cent (2018: 5.0 per cent).
-- High retention rate of 88 per cent. During the period, space
equating to GBP11.0 million (2018: GBP12.2 million) of rent was
returned to us, including GBP1.1 million of rent lost due to
insolvency (2018: GBP1.1 million). We took back space equating to
GBP0.3 million of rent for redevelopment. Approximately GBP58
million of headline rent was at risk from a break or lease expiry
during the period of which we retained 86 per cent in existing
space, with a further 2 per cent retained but in new premises.
-- Lease terms continue to offer attractive income security. The
level of incentives agreed for new leases (excluding those on
developments completed in the period) represented 6.6 per cent of
the headline rent (2018: 5.6 per cent). The portfolio's weighted
average lease length increased to 7.8 years to first break and 9.2
years to expiry (31 December 2018: 7.5 years to first break, 8.9
years to expiry). Lease terms are longer in the UK (9.3 years to
break) than in Continental Europe (5.4 years to break).
-- GBP14.1 million of net new rent from existing assets. The
combination of these strong metrics has enabled us to generate
GBP13.2 million of headline rent from new leases on existing assets
(2018: GBP12.9 million) and GBP11.9 million from rent reviews,
lease renewals and indexation (2018: GBP8.3 million). This was
offset by rent from space returned of GBP11.0 million (2018:
GBP12.2 million).
-- Continued strong demand from customers for pre-let
agreements. In addition to increased rents from existing assets, we
contracted GBP33.2 million of headline rent from pre-let agreements
and lettings of speculative developments prior to completion (2018:
GBP41.5 million). Included in this are four new data centres on the
Slough Trading Estate and a number of big box units around both
Milan and Rome (the largest of which we are developing for a global
online retailer). Other noteworthy lettings included our first
pre-let at SEGRO Park Kettering, a large unit for an online grocery
retailer in East London, further lettings at SLPEMG and our latest
development in Wroc aw, Poland.
-- Rent roll growth increased to GBP54.5 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 take-backs of space for
development), take-up of developments and pre-lets agreed during
the period, increased to GBP54.5 million in 2019, from GBP53.5
million in 2018.
ASSET MANAGEMENT: WHAT TO EXPECT IN 2020
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 2019(1)
Summary of key leasing data for the year to 31 December(1) 2019 2018
---------------------------------------------------------------- ------ ------- -------
Take-up of existing space(2) (A) GBPm 13.2 12.9
Space returned(3) (B) GBPm (11.0) (12.2)
NET ABSORPTION OF EXISTING SPACE (A-B) GBPm 2.2 0.7
Other rental movements (rent reviews, renewals, indexation)(2)
(C) GBPm 11.9 8.3
RENT ROLL GROWTH FROM EXISTING SPACE GBPm 14.1 9.0
Take-up of pre-let developments completed in the year
(signed in prior years)(2) (D) GBPm 36.3 24.3
Take-up of speculative developments completed in the
past two years(2) (D) GBPm 9.0 9.7
TOTAL TAKE UP(2) (A+C+D) GBPm 70.4 55.2
Less take-up of pre-lets and speculative lettings signed
in prior years(2) GBPm (37.8) (30.3)
Pre-lets and lettings on speculative developments signed
in the year for future delivery(2) GBPm 33.2 41.5
RENTAL INCOME CONTRACTED IN THE YEAR(2) GBPm 65.8 66.4
Take-back of space for redevelopment GBPm (0.3) (0.7)
Retention rate(4) % 88 89
---------------------------------------------------------------- ------ ------- -------
1 All figures reflect exchange rates at 31 December and include
joint ventures at share.
2 Annualised rental income, after the expiry of any rent-free
periods.
3 Annualised rental income, excluding space taken back for
redevelopment.
4 Headline rent retained as a percentage of total headline rent
at risk from break or expiry during the period.
OPERATIONAL EXCELLENCE - development activity
During 2019, we invested GBP556 million in our development
pipeline which comprised GBP409 million (2018: GBP548 million) in
development spend, of which GBP18 million was for infrastructure,
and a further GBP147 million to replenish our land bank to enable
future development. Since the year end we also completed the
acquisition of a further 182 hectares of land that had been
expected to complete in 2019.
DEVELOPMENT PROJECTS COMPLETED
We completed 871,800 sq m of new space during the year, a 30 per
cent increase on 2018, which had already been a record year for
SEGRO. These projects were 85 per cent pre-let prior to the start
of construction and were 92 per cent let as at 31 December 2019,
generating GBP40.4 million of headline rent, with a potential
further GBP3.5 million to come when the remainder of the space is
let. This translates into a yield on total development cost
(including land, construction and finance costs) of 7.3 per cent
when fully let.
We completed 785,800 sq m of big box warehouse space, including
the first four units at SLPEMG. Other big box completions included
pre-lets to occupiers including Amazon, Geodis, Antony Morato, ALDI
and Porsche.
We completed 86,000 sq m of urban warehouses, of which 90 per
cent is already let. These included five new data centres on the
Slough Trading Estate, a unit for airline caterer DO&CO at
Heathrow and further phases of our urban warehouse parks in Berlin
and Düsseldorf.
We also completed the strategic rail freight interchange
terminal at SLPEMG and Maritime Intermodal launched their first
route from this in early January.
CURRENT DEVELOPMENT PIPELINE
At 31 December 2019, we had development projects approved,
contracted or under construction totalling 826,200 sq m,
representing GBP316 million of future capital expenditure to
complete and GBP50 million of annualised gross rental income when
fully let. 60 per cent of this rent has already been secured and
these projects should yield 6.6 per cent on total development cost
when fully occupied.
-- In the UK, we have 160,700 sq m of space approved or under
construction. Within this are two more data centres on the Slough
Trading Estate (taking the total number to 29) as well as a number
of developments in East London, including a further phase at
Rainham and our largest ever pre-let in London at a site close to
Purfleet. We are also developing SEGRO Park Hayes in West London, a
new urban warehouse estate close to Enfield in North London and
finally two pre-lets in our National Logistics portfolio, one at
SLPEMG and the other at SEGRO Park Kettering.
-- In Continental Europe, we have 572,200 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 Frankfurt and
Düsseldorf as well as new schemes in Lyon and on the outskirts of
Paris.
-- In addition to the above projects that we are developing
ourselves, we also have 93,300 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 gain 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
Düsseldorf and Frankfurt, as well as in France, with projects in
Lyon and Paris.
Within our Continental European development programme,
approximately GBP15 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 2019, SEGRO sold
GBP226 million of completed assets to SELP, representing a net
disposal of GBP113 million.
Further details of our completed projects and current
development pipeline are available in the 2019 Property Analysis
Report, which is available to download at www.segro.com/
investors.
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 395,300 sq m of space, equating to
approximately GBP205 million of additional capital expenditure and
GBP20 million of additional rent.
Land bank
Our land bank identified for future development (including the
near-term projects detailed above) totalled 507 hectares at 31
December 2019, valued at GBP423 million, less than 5 per cent of
our total portfolio value. We invested GBP147 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 2.1 million sq m of
development over the next five years. The prospective capital
expenditure associated with the future pipeline is approximately
GBP1.0 billion. It could generate GBP100 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.
Since the period end we acquired approximately 182 hectares of
land ideally suited to big box warehouse development close to
Coventry in the UK.
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 GBP37
million (including joint ventures at share). Those we expect to
exercise over the next two to three years are for land capable of
supporting just over 1.8 million sq m of space and generating
approximately GBP116 million of headline rent (SEGRO share) for a
blended yield of approximately 6-7 per cent.
ENVIRONMENTAL IMPACT
The carbon generated through our development activity is a
significant part of our total carbon footprint and we understand
that, as a developer, we are responsible for minimising the
environmental impact of our activity and making our buildings as
efficient as possible to operate.
Of the eligible certified space completed in 2019, 94 per cent
has been accredited as BREEAM 'Excellent' or 'Very Good' (or a
local equivalent).
We pay attention to our use of energy, resources and materials
throughout the construction of our warehouses and are increasingly
looking at how we can use design to minimise the carbon footprint
of them throughout their entire life cycle. We now regularly
include features such as LED lighting, transparent panels to
improve natural daylight, water recycling systems and electric
vehicle charging points.
We are also investigating ways of offsetting the carbon that we
produce, for example by installing solar panels on our buildings to
produce renewable energy. During 2019 we increased our renewable
energy capacity by 38 per cent, bringing it to 18.5 MW, enough to
power 4,500 homes.
USING OUR DEVELOPMENT PIPELINE TO HELP TRANSFORM COMMUNITIES
Our urban warehouse developments typically involve the
regeneration of former, often neglected, manufacturing sites and
the redevelopment of this land attracts new businesses and brings
jobs and prosperity to the area.
We work closely with local authorities on the section 106
agreements (or equivalent) that form part of the planning process
and often go above and beyond what is required. This can involve
making investment to improve the local infrastructure, asking our
contractors to source materials from local suppliers and advocating
the recruitment of local workers during the construction
process.
Once our warehouses are occupied we also do what we can to help
our customers to employ locally and fund training programmes to
upskill people from the surrounding community. We also create job
networks to help connect our customers with potential
employees.
As long-term owners of our assets it is in our interest for the
communities that we are part of to thrive. Taking this into
consideration from the very start of the development process is key
to maximising the contribution that we can make and the impact that
we can have.
DEVELOPMENT: WHAT TO EXPECT IN 2020
We have 826,200 sq m of development projects under way, capable
of generating GBP50 million of new headline rent, of which 60 per
cent has been secured.
We expect to invest in excess of GBP600 million in development
capex and land, including approximately GBP50 million of
infrastructure expenditure.
finance review: EFFICIENT CAPITAL STRUCTURE, strong operating
result
Financial highlights
31 December 2019 31 December 2018
------------------------------------------------------ ---------------- ----------------
IFRS(1) net asset value (NAV) per share (diluted) (p) 697 644
EPRA(1) NAV per share (diluted) (p) 708 650
IFRS profit before tax (GBPm) 902.0 1,099.1
Adjusted(2) profit before tax (GBPm) 267.5 241.5
IFRS earnings per share (EPS) (p) 79.3 105.4
Adjusted(2) EPS (p) 24.4 23.4
------------------------------------------------------- ---------------- ----------------
1 A reconciliation between IFRS NAV and its EPRA 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 information is prepared under IFRS where
the Group's interests in joint ventures are shown as a single line
item on the income statement and balance sheet and subsidiaries are
consolidated at 100 per cent.
The Adjusted profit measure reflects the underlying financial
performance of the Group's property rental business, which is our
core operating activity. It is based on 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 period there have been no such adjustments.
In the prior period to 31 December 2018, GBP51.8 million of pension
buy-out costs in respect of the SEGRO pension scheme have been
incurred which have been excluded as an adjustment to EPRA profit
when calculating Adjusted profit.
A detailed reconciliation between Adjusted profit after tax and
IFRS profit after tax is provided in Note 2 to the Financial
Statements. This is not on a proportionally consolidated basis.
Adjusted profit
Adjusted profit
2019 2018
GBPm GBPm
=================================================== ====== ======
Gross rental income 362.0 323.2
Property operating expenses (80.7) (75.6)
=================================================== ====== ======
Net rental income 281.3 247.6
Joint venture fee income 20.4 44.9
Administration expenses (51.5) (44.1)
Share of joint ventures' Adjusted profit(1) 54.0 39.0
=================================================== ====== ======
Adjusted operating profit before interest and tax 304.2 287.4
Net finance costs (36.7) (45.9)
=================================================== ====== ======
Adjusted profit before tax 267.5 241.5
Tax on Adjusted profit (3.2) (4.4)
Non-controlling interests share of Adjusted profit (0.2) (0.6)
=================================================== ====== ======
Adjusted profit after tax 264.1 236.5
=================================================== ====== ======
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
GBP267.5 million (2018: GBP241.5 million) during 2019 as explained
below (see Note 2).
Reconciliations between SEGRO Adjusted metrics and EPRA metrics
are provided in the Supplementary Notes to the 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 and total cost ratio, as
they provide a transparent and consistent basis to enable
comparison between European property companies.
Net rental income
Net rental income increased by GBP33.7 million to GBP281.3
million, 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.
Like-for-like net rental income (including 2019 2018 Change
JVs at share) GBPm GBPm %
===== ====== ========
UK 203.5 192.6 5.7
Continental Europe 90.6 87.9 3.1
==================================================== ===== ====== ========
Like-for-like net rental income 294.1 280.5 4.8
Other(1) (6.5) (5.7)
---------------------------------------------------- ----- ------ --------
Like-for-like net rental income (after
other) 287.6 274.8 4.7
Development lettings 40.6 11.7
Properties taken back for development (0.2) 1.4
==================================================== ===== ====== ========
Like-for-like net rental income plus developments 328.0 287.9
Properties acquired 5.7 0.8
Properties sold 10.7 18.2
==================================================== ===== ====== ========
Net rental income before surrenders, dilapidations
and exchange 344.4 306.9
Lease surrender premiums and dilapidations
income 0.5 1.2
Other items and rent lost from lease surrenders 16.1 8.6
Impact of exchange rate difference between
periods - 1.4
Net rental income (including joint ventures
at share) 361.0 318.1
Share of joint venture management fees (8.6) (7.0)
Share of joint venture performance fees - (13.1)
==================================================== ===== ====== ========
Net rental income after SEGRO share of
joint venture fees 352.4 298.0
==================================================== ===== ====== ========
1 Other includes the corporate centre and other costs relating
to the operational business which are not specifically allocated to
a geographical business unit.
The like-for-like rental growth metric is based on properties
held throughout both 2019 and 2018 on a proportionally consolidated
basis.
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 GBP13.6
million, or 4.8 per cent, compared to 2018. This is due to strong
rental performance across our portfolio (UK: 5.7 per cent increase
and Continental Europe: 3.1 per cent increase).
Income from joint ventures
Joint venture fee income decreased by GBP24.5 million to GBP20.4
million. This decrease is due to a performance fee from SELP of
GBP26.2 million that was recognised and paid in the prior year. The
performance fee is calculated and receivable every five years
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 GBP15.0 million from GBP39.0 million in 2018 to
GBP54.0 million in 2019. The increase is due to underlying growth
in the SELP joint venture and the inclusion, in the prior year, of
performance fee costs of GBP11.9 million (at share, being GBP13.1
million less tax of GBP1.2 million).
The share of joint ventures' Adjusted profit after tax are
primarily from the SELP joint venture in 2019.
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
2019 has been maintained at 22.9 per cent in line with 2018, above
our 20 per cent target. The calculation is set out in Table 7 of
the Supplementary Notes to the Financial Statements.
Total costs in respect of the cost ratio calculation (see Table
7) have increased by GBP10.7 million to GBP95.2 million in 2019. A
proportional increase in gross rental income, by GBP46.0 million to
GBP414.9 million (see Table 7), has maintained the cost ratio
consistent with the prior year. The increase in costs include
increased property operating costs following the growth of the
property portfolio (see Note 5) and staff costs.
Excluding share-based payments, the cost ratio would be 19.9 per
cent, unchanged compared to 2018.
Total costs (see Note 5) have increased by GBP47.4 million to
GBP123.9 million. This is primarily due to the inclusion of GBP43.2
million trading property cost of sales. Costs also include service
charge expenses of GBP27.6 million (2018: GBP25.5 million),
previously shown net, as detailed further in Note 1.
Net finance costs
Net finance costs (including adjustments) decreased by GBP9.2
million in 2019 to GBP36.7 million primarily as a result of lower
debt levels across the year compared to the prior period as a
result of the equity placing and lower average cost of debt
following the repayment of debt in the current period.
Net finance costs also include GBP3.0 million in respect of
interest on lease liabilities following the adoption of IFRS 16
(see Note 1).
Taxation
The tax charge on Adjusted profit of GBP3.2 million (2018:
GBP4.4 million) reflects an effective tax rate of 1.2 per cent
(2018: 1.8 per cent), consistent with a Group target tax rate of
less than 3 per cent.
The Group's target tax rate reflects the fact that over
three-quarters of its assets are located in the UK and France and
qualify for REIT and SIIC status respectively in those countries.
This status means that income from rental profits and gains on
disposals of assets in the UK and France are exempt from
corporation tax, provided SEGRO meets a number of conditions
including, but not limited to, distributing 90 per cent of UK
taxable profits.
Adjusted earnings per share
Adjusted earnings per share are 24.4 pence compared to 23.4
pence in 2018 (which included 1.2 pence in respect of the SELP
performance fee).
IFRS PROFIT
IFRS profit before tax in 2019 was GBP902.0 million (2018:
GBP1,099.1 million), equating to basic post-tax IFRS earnings per
share of 79.3 pence compared with 105.4 pence for 2018, principally
reflecting lower realised and unrealised gains in the wholly-owned
portfolio.
A reconciliation between Adjusted profit before tax and IFRS
profit before tax is provided in Note 2 to the Financial
Statements.
Realised and unrealised gains on wholly-owned investment and
trading properties of GBP496.1 million in 2019 (2018: GBP852.6
million) have been recognised in the Income Statement as the value
of our portfolio increased during the year. These included an
unrealised valuation surplus on invested properties of GBP476.7
million (2018: GBP791.4 million) and a profit of GBP7.2 million on
investment property disposals (2018: GBP56.5 million).
SEGRO's share of realised and unrealised gains on properties
held in joint ventures was GBP214.2 million (2018: GBP101.1
million) largely in respect of the SELP portfolio and is further
analysed in Note 6. The SELP portfolio is entirely based in
Continental Europe where capital growth was above that in the UK
(where the majority of the wholly owned portfolio is located).
The cost of closing out debt in the year was GBP18.6 million
(2018: GBP6.4 million) following the buy back of the SEGRO bonds
maturing in 2020. IFRS earnings were also impacted by a net fair
value gain on interest rate swaps and other derivatives of GBP7.9
million (2018: GBP22.0 million loss) and a tax charge of GBP41.4
million (2018: GBP33.0 million) of which GBP38.2 million (2018:
GBP28.6 million) arises in respect of adjustments, primarily in
relation to property valuation movements.
BALANCE SHEET
EPRA net asset value
GBPm Shares million Pence per share
-------------------------------------------------------------------------- ------- -------------- ---------------
EPRA net assets attributable to ordinary shareholders at 31 December 2018 6,620.3 1,018.7 650
Realised and unrealised property gain 710.3
Adjusted profit after tax and non-controlling interests 264.1
Dividend net of scrip shares issued (2018 final and 2019 interim) (141.7)
Exchange rate movement (net of hedging) (52.6)
Issue of shares 444.0
Early repayment of debt (18.6)
Other (24.8)
-------------------------------------------------------------------------- ------- -------------- ---------------
EPRA net assets attributable to ordinary shareholders at 31 December 2019 7,801.0 1,102.1 708
-------------------------------------------------------------------------- ------- -------------- ---------------
At 31 December 2019, IFRS net assets attributable to ordinary
shareholders were GBP7,677.6 million (31 December 2018: GBP6,564.0
million), reflecting 697 pence per share (31 December 2018: 644
pence) on a diluted basis.
EPRA NAV per share at 31 December 2019 was 708 pence (31
December 2018: 650 pence). The 8.9 per cent increase primarily
reflects property gains in the period. The table above highlights
the other principal factors behind the increase. A reconciliation
between IFRS and EPRA NAV is available in Note 11 to the Financial
Statements.
Cash flow and net debt reconciliation
Cash flow generated from operations was GBP210.3 million in
2019, an increase of GBP10.0 million from 2018. The underlying
increase in cash flows from operating activities (GBP56.5 million)
is driven by increased Adjusted profit in the year including
favourable movements in trading properties of GBP30.9 million,
largely due to a disposal during the year. This is offset by tax
paid of GBP46.9 million, primarily in Italy from property disposals
in the prior period.
The Group made net investments of GBP217.2 million of investment
and development properties (including options and loans to joint
ventures) during the year on a cash flow basis (2018: GBP276.5
million investment). This includes cash from disposals of GBP412.4
million (2018: GBP480.4 million) the largest of which was a
portfolio of UK big box warehouses where GBP75.4 million of the
proceeds were deferred until 2021. The Group spent GBP602.9 million
(2018: GBP637.1 million) to purchase and develop investment
properties, and it invested GBP12.2 million in joint ventures
(2018: GBP99.2 million divestment).
The largest financing cashflow arose in respect of proceeds from
the issue of shares primarily from an equity placing undertaken in
February 2019. Other significant cash flows include dividends paid
of GBP141.7 million (2018: GBP120.4 million) where cash flows are
lower than the total dividend due to the level of scrip uptake.
Overall, net debt has decreased in the year from GBP2,177.0
million to GBP1,811.0 million.
Cash flow and net debt reconciliation
2019 2018
GBPm GBPm
======================================================= ========== ==========
Opening net debt (2,177.0) (1,954.2)
Cash flow from operations 291.6 235.1
Finance costs (net) (44.6) (55.1)
Debt and IRS close out costs (23.1) (5.7)
Dividends received (net) 33.3 28.6
Tax paid (46.9) (2.6)
======================================================= ========== ==========
Free cash flow 210.3 200.3
Dividends paid (141.7) (120.4)
Acquisitions and development of investment properties (602.9) (637.1)
Investment property sales 412.4 480.4
Acquisition of interests in property and other
investments (14.5) (20.6)
Net investment in joint ventures (12.2) (99.2)
Net settlement of foreign exchange derivatives 26.9 (6.4)
Proceeds from issue of ordinary shares 444.0 0.6
Other items 4.1 5.4
======================================================= ========== ==========
Net funds flow 326.4 (197.0)
Non-cash movements (20.9) (9.8)
Exchange rate movements 60.5 (16.0)
Closing net debt (1,811.0) (2,177.0)
======================================================= ========== ==========
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 GBP892.8 million, a decrease of
GBP64.2 million compared to 2018.
Development capital expenditure of GBP408.7 million was spent in
the year (2018: GBP548.2 million) across all our business units,
particularly Southern Europe, reflecting our development led growth
strategy.
Development spend incorporates interest capitalised of GBP9.0
million (2018: GBP10.0 million) including joint ventures at
share.
Spend on existing completed properties, none of which increased
lettable space, totalled GBP30.8 million (2018: GBP30.3 million),
of which GBP17.4 million (2018: GBP17.1 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 2 per cent of total spend.
EPRA capital expenditure analysis
2019 2018
Wholly owned Joint ventures Total Wholly owned Joint ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ -------------- -------- ------------ -------------- -----
Acquisitions 233.9(1) 164.1 398.0(7) 193.7 162.0 355.7
Development(4) 345.2(2) 63.5 408.7 482.3 65.9 548.2
Completed properties(6) 25.2(3) 5.6 30.8 23.9 6.4 30.3
Other(5) 44.7 10.6 55.3 16.6 6.2 22.8
------------------------ ------------ -------------- -------- ------------ -------------- -----
Total 649.0 243.8 892.8 716.5 240.5 957.0
------------------------ ------------ -------------- -------- ------------ -------------- -----
1 Being GBP233.9 million investment property and GBPnil trading
property (2018: GBP193.7 million and GBPnil respectively) see Note
12.
2 Being GBP336.8 million investment property and GBP8.4 million
trading property (2018: GBP461.8 million and GBP20.5 million
respectively) see Note 12.
3 Being GBP25.2 million investment property and GBPnil trading
property (2018: GBP23.9 million and GBPnil million respectively)
see Note 12.
4 Includes wholly-owned capitalised interest of GBP8.2 million
(2018: GBP9.2 million) as further analysed in Note 8 and share of
joint venture capitalised interest of GBP0.8 million (2018: GBP0.8
million).
5 Tenant incentives, letting fees and rental guarantees and
other items.
6 Capital expenditure on completed properties in 2019 did not
create additional lettable space.
7 Total acquisitions completed in 2019 shown in the Disciplined
Capital Allocation section of GBP283.5 million excludes share of
assets acquired by SELP from SEGRO of GBP114.5 million (of which
GBP113.0 million was completed property and GBP1.5 million was
land).
FINANCIAL POSITION AND FUNDING
During 2019, we have taken advantage of favourable financing
conditions to improve the capital structure of both SEGRO and
SELP.
In February 2019, SEGRO issued 71 million new shares, raising
GBP451 million of gross proceeds to help to fund our development
programme while also retaining an appropriate capital structure.
The shares were issued at 635 pence per share, a 2 per cent
discount to the prior day's closing share price.
In May 2019, SEGRO redeemed its GBP250 million 5.625 per cent
sterling bonds due to mature in 2020 and, in September 2019, we
extended the maturity of GBP915 million of revolving credit
facilities for a further year to 2024.
In April 2019, SELP executed a new EUR200 million syndicated
revolving credit facility, with a 2023 maturity. This means that
SELP now has total revolving credit facilities of EUR500 million to
help fund its development programme. In June 2019, SELP issued a
EUR500 million, 7.5 year unsecured bond at a coupon of 1.5 per
cent. The proceeds were used to refinance existing bank borrowings
as well as provide additional liquidity to the venture.
As 31 December 2019, the gross borrowings of SEGRO Group and its
share of gross borrowings in joint ventures totalled GBP2,637.8
million (31 December 2018: GBP2,803.6 million), all but GBP27.6
million (31 December 2018: GBP29.8 million) of which were
unsecured, and cash and cash equivalent balances were GBP153.5
million (31 December 2018: GBP90.2 million). Average debt maturity
was 10.0 years (31 December 2018: 10.2 years) and average cost of
debt (excluding non-cash interest and commitment fees) was 1.7 per
cent (31 December 2018 1.9 per cent).
Funds available to SEGRO Group (including its share of joint
venture funds) at 31 December 2019 totalled GBP1,370.0 million (31
December 2018: GBP1,248.9 million), comprising GBP153.5 million of
cash and short term investments and GBP1,216.5 million of undrawn
bank facilities of which only GBP8.5 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 Key Performance Indicators
2019 2018
------------------------ ------------------------
SEGRO Group SEGRO Group
and JVs at and JVs at
SEGRO Group share SEGRO Group share
--------------------------- ----------- ----------- ----------- -----------
Net borrowings (GBPm) 1,811.0 2,484.3 2,177.0 2,713.4
Available cash and undrawn
facilities (GBPm) 1,173.2 1,370.0 1,177.8 1,248.9
Balance sheet gearing (%) 23 N/A 33 N/A
Loan to value ratio (%) 22 24 28 29
Weighted average cost of
debt(1) (%) 1.8 1.7 2.1 1.9
Interest cover(2) (times) 6.2 6.3 4.5 4.9
Average duration of debt
(years) 11.6 10.0 11.4 10.2
--------------------------- ----------- ----------- ----------- -----------
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 2019 on this basis was 24
per cent (31 December 2018: 29 per cent), reflecting a combination
of lower total debt levels mainly due to the new equity raised in
early 2019 and the increase in the value of the portfolio during
the course of the year.
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 2019, as defined within
the principal debt funding arrangements of the Group, was 23 per
cent (31 December 2018: 33 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 2019 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 68 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 2019, the Group
comfortably met this ratio at 6.2 times. On a proportionally
consolidated basis, including joint ventures, this ratio was 6.3
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, lower than our mid-cycle target of 40 per
cent. This provides the flexibility to take advantage of investment
opportunities and ensures significant headroom compared to our
tightest gearing covenants should property values decline.
At 31 December 2019, the only debt maturity falling due within
12 months is a EUR59 million secured facility in SELP. The weighted
average maturity of the gross borrowings of the Group (including
joint ventures at share) was 10.0 years. With a majority of the
Group's bank debt facilities not due to mature until 2024, and no
Group debt maturities in 2020, this long average debt maturity
translates into a favourable, well spread debt funding maturity
profile which reduces future refinancing risk.
INTEREST RATE RISK
The Group's interest rate risk policy is designed to ensure that
we limit our exposure to volatility in interest rates. The policy
states that between 50 and 100 per cent of net borrowings
(including the Group's share of borrowings in joint ventures)
should be at fixed or capped rates, including the impact of
derivative financial instruments.
At 31 December 2019, including the impact of derivative
instruments, 89 per cent (2018: 67 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 57 per cent at 31 December 2019 (31 December 2018: 53
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 2019, the adjusted net finance cost of the Group would
have increased by approximately GBP8.9 million representing around
3 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
2019: 24 per cent) and 100 per cent. At 31 December 2019, the Group
had gross foreign currency assets which were 65 per cent hedged by
gross foreign currency denominated liabilities (31 December 2018:
67 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 2019 weakened by 10 per cent against
sterling (to EUR1.30, in the case of euros), net assets would have
decreased by approximately GBP98 million and there would have been
a reduction in gearing of approximately 1.8 per cent and in the LTV
of 1.5 per cent.
The average exchange rate used to translate euro denominated
earnings generated during 2019 into sterling within the
consolidated income statement of the Group was EUR1.14:GBP1. Based
on the hedging position at 31 December 2019, and assuming that this
position had applied throughout 2019, if the euro had been 10 per
cent weaker than the average exchange rate (EUR1.25:GBP1), Adjusted
profit after tax for the year would have been approximately GBP7.8
million (3.0 per cent) lower than reported. If it had been 10 per
cent stronger, Adjusted profit after tax for the year would have
been approximately GBP9.6 million (3.6 per cent) higher than
reported.
GOING CONCERN
As noted in the financial position and funding section above,
the Group has a very strong liquidity position, a favourable debt
maturity profile and substantial headroom against financial
covenants. Accordingly, it can reasonably expect to be able to
continue to have good access to capital markets and other sources
of funding.
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 1.15 pence to 14.4
pence (2018: 13.25 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
1 May 2020 to shareholders on the register at the close of business
on 19 March 2020.
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 2019 and the outlook for earnings.
The total dividend for the year will, therefore, be 20.7 pence,
a rise of 10.1 per cent on 2018 (18.8 pence) and represents
distribution of 85 per cent of Adjusted profit after tax and
Adjusted EPS.
As at 31 December 2019, the Company had distributable reserves
that provide cover for the total of the interim dividend paid and
the final dividend proposed in respect of the year ended 31
December 2019 of over 4 times (2018: 4 times). When required the
Company can receive dividends from its subsidiaries to further
increase the distributable reserves.
The Board has decided to retain a scrip dividend option for the
2019 final dividend, allowing shareholders to choose whether to
receive the dividend in cash or new shares. In 2019, 36 per cent of
the 2018 final dividend and 36 per cent of the 2019 interim
dividend was paid in new shares, equating to GBP71 million of cash
retained on the balance sheet.
STATEMENT OF PRINCIPAL RISKS
The Group recognises that its ability to manage risk effectively
throughout the organisation continues to be central to its success.
Our approach to risk management aims to bring controllable risks
within our appetite, and to enable our decision making to balance
uncertainty against the objective of creating and protecting value
for our shareholders and other stakeholders.
OUR INTEGRATED AND ROBUST APPROACH TO RISK MANAGEMENT
The Board has overall responsibility for ensuring that risk is
effectively 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 (both existing and emerging)
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 that they are aware of and
this is cross checked against formal 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 macro-economic, political
and regulatory environment, but it reviews the potential impact of
such risks on the business and actively considers them in its
decision making.
The Board also monitors internal risks and ensures that
appropriate controls are in place 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 receives a report twice a year on how the Group Risk
Register has been compiled.
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 provide 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 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
cause an intolerable impact on us.
A Key Risk Indicator (KRI) dashboard is produced on a monthly
basis to show actual and forecast performance against risk appetite
metrics. KRIs are considered in 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.
OUR RISK APPETITE
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 a sustainable progressive dividend stream,
supported by long-term growth in net asset value per share.
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.
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 and construction 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
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 per share. 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 investors, regulators,
employees, customers, business partners, suppliers, lenders and by
the wider communities and environments 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; safeguarding the environment; compliance with codes of
conduct and ethics; ensuring business continuity; and making a
positive contribution to the communities in which we operate.
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
below.
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 2019;
and whether the risk is within our appetite (after the application
of our mitigations).
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.
Whilst no principal risks have been added or removed in 2019,
three of our risks have increased, whilst others have remained in
line with the prior year.
PRINCIPAL IMPACT AND
RISK MITIGATIONS CHANGE IN 2019
1. Market The property market is The Board, Executive Impact on strategy:
Cycle cyclical and there is Committee Disciplined
a continuous risk that and Investment Capital Allocation
the Group could either Committee monitor Change in 2019:
misinterpret the market the property market Similar risk
or fail to react appropriately cycle Risk is within
to changing market conditions, on a continual basis appetite.
which could result in and adapt
capital being invested the Group's
or disposals taking place investment/divestment
at the wrong price or strategy in
time in the cycle. anticipation of
This is a continuous changing market
risk with a moderate conditions.
likelihood. Multiple, diverse
investment
and occupier market
intelligence
is regularly received
and
considered - both from
internal
'on the ground' sources
and
from independent
external
sources.
Upside and downside
scenarios
are incorporated into
Investment
Committee papers to
assess
the impact of differing
market
conditions.
------------ ---------------------------------------------------------- ----------------------- -------------------
2. Portfolio The Group's Total Property The Group's portfolio Impact on strategy:
Strategy and/or Shareholder Returns strategy Disciplined
could underperform in is subject to regular Capital Allocation
absolute or relative review Change in 2019:
terms as a result of by the Board to Similar risk
an inappropriate portfolio consider the Risk is within
strategy. This could desired shape of the appetite.
result from: portfolio
* Holding the wrong balance of prime or secondary in order to meet the
assets; Group's
overall objectives and
to
* Holding the wrong amounts or types of land, leading determine our response
to diluted returns and/or constraints on development to
opportunities; changing opportunities
and
market conditions.
* Holding the wrong level of higher risk 'opportunity' The Group's Disciplined
assets or too many old or obsolete assets which Capital
dilute returns; and Allocation is informed
by
comprehensive asset
* Holding assets in the wrong geographical markets; plans
missing opportunities in new markets or lacking and independent
critical mass in existing markets. external assessments
of market conditions
and forecasts.
This is a continuous Regular portfolio
risk with a moderate analysis
likelihood. ensures the portfolio
is correctly
positioned in terms of
location
and asset type, and
retains
the right balance of
core
and opportunity assets.
The
annual asset planning
exercise
provides a bottom-up
assessment
of the performance and
potential
for all assets to
identify
underperforming assets
that
are considered for
sale.
------------ ---------------------------------------------------------- ----------------------- -------------------
3. Disruptive The uncertainty associated The Group is Impact on strategy:
Brexit with Brexit may adversely mindful of ongoing Disciplined
impact investment, capital, political and Capital Allocation,
financial (including economic Operational
exchange rates), occupier uncertainties Excellence
and labour markets in but remains and Efficient
the UK as the nature focussed on Capital and
of the future relationships controlling Corporate Structure
is negotiated. what it can within Change in 2019:
Whilst the UK left the its own Increased risk
EU on 31 January 2020, business. We have The increased
the full impact will engaged rating is a
not be felt until such in dialogue with reflection
time that the new trading key customers, of persisting
relationship with the and with key uncertainty
EU, and those required suppliers to of future trade
more globally, become understand labour agreements.
more certain. The impact and material Risk is within
may be more acute depending supply risks. To appetite.
on the outcome of future date, we
negotiations. have not observed
In the long term, exit significant
from the EU could impact adverse factors.
levels of investor and Structural
occupier demand as a drivers of demand
result of reduced trade, appear to
in particular those in have continued to
industries more at risk outweigh
to the impact of a disruptive any Brexit-related
Brexit, and/or the relocation uncertainties.
of corporations and financial The Group has,
institutions away from however, continued
the UK. to adopt a
Nevertheless, the likelihood disciplined
of severe adverse impact approach
on the Group is judged to land
to be low. acquisition and
speculative
development.
The Group's
strategy provides
resilience through
the market
cycle. As well as
the underlying
quality and
diversity (in
terms of both
asset type and
location) of the
portfolio,
mitigations
include
substantial
covenant headroom,
access
to diverse sources
of funding,
exchange rate and
interest
rate hedging, and
short, responsive
development
lead-times.
--------------- ------------------------------------------------------------ ------------------ -------------------
4. Health Health and safety management The Group manages Impact on strategy:
and Safety processes could fail, an active Operational
leading to a loss of health and safety Excellence
life, litigation, fines management Change in 2019:
and serious reputational system, with a Similar risk
damage to the Group. particular Risk is within
This is a continuous focus on managing appetite.
risk with a low likelihood the quality
of causing significant and compliance to
harm to the Group. Nevertheless, good health
we note that this risk and safety
is somewhat increased practice of all
by the scale of the Group's our suppliers.
development activity. A published Health
and Safety
policy is
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 are
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 and
ENHESA who
provide regulatory
assurance
support to the
Group.
--------------- ------------------------------------------------------------ ------------------ -------------------
5. Development The Group has an extensive Our appetite for Impact on strategy:
Plan Execution current programme and exposure Disciplined
future pipeline of developments. to non-income Capital Allocation
The Group could suffer producing assets and Operational
significant financial (including land, Excellence
losses from: infrastructure Change in 2019:
* Cost over-runs on larger, more complex projects, and speculative Similar risk
including for example due to contractor default or developments) Risk is within
poor performance and management. is monitored appetite.
closely, for
example when
* Increased competition and/or construction costs (from acquisition
labour market changes or weakened supply competition) decisions
leading to reduced or uneconomic development yields. are being made by
the Investment
Committee.
* Above-appetite exposure to non-income producing land, We retain a high
infrastructure and speculatively developed buildings level of
arising from a sharp deterioration in occupier 'optionality' in
demand. our future
development
programme
This is a medium-term including
risk with a moderate at the point of
likelihood. land acquisition,
commitment to
infrastructure
and commitment to
building.
The development
programme
remains weighted
towards pre-let
opportunities.
The risk of
cost-overruns
is mitigated by
our experienced
development teams
and the
use of trusted
advisors and
contractors.
The risk of
contractor default
is mitigated by
using a
diversified
selection of
companies who
have been through
a rigorous
onboarding
process.
Our short
development
lead-times
enable a quick
response to
changing market
conditions.
--------------- ------------------------------------------------------------ ------------------ -------------------
6. Investment Decisions to buy, hold, Asset plans are prepared annually Impact on strategy:
Plan Execution sell or develop assets for all estates to determine Disciplined
could be flawed due to where to invest capital in Capital Allocation
uncertainty in analysis, existing assets and to identify Change in 2019:
quality of assumptions, assets for disposal. Similar risk
poor due diligence or Locally-based property investment Risk is within
unexpected changes in and operational teams provide appetite.
the economic or operating market intelligence and networking
environment. to source attractive opportunities.
Our investment decisions Policies are in place to govern
could be insufficiently evaluation, due diligence,
responsive to changes approval, execution and subsequent
in market cycle and portfolio review of investment activity.
strategy. Further it The Investment Committee meets
may be delinked and therefore frequently to review investment
misaligned from portfolio and disposal proposals and
strategy. to consider appropriate capital
This is a continuous allocation.
risk with a moderate Investment hurdle rates are
likelihood as changing regularly reappraised taking
investment and occupier into account estimates of
market conditions require our weighted average cost
constant adaptation. of capital.
Major capital investment and
disposal decisions are subject
to Board approval in line
with portfolio strategy.
7. Financing The Group could suffer The Group's financing strategy Impact on strategy:
Strategy an acute liquidity or is aligned with our long-term Efficient Capital
solvency crisis, financial business strategy, the Medium and Corporate
loss or financial distress Term Plan and our risk appetite. Structure
as a result of a failure The Treasury policy defines Change in 2019:
in the design or execution key policy parameters and Similar risk
of its financing strategy. controls to support execution Risk is within
Such an event may be of the strategy. appetite.
caused by: a failure The Group regularly reviews
to obtain debt funding its changing financing requirements
(e.g. due to market disruption in the light of opportunities
or rating downgrade); and market conditions and
having an inappropriate maintains a good long term
debt structure (including relationship with a wide range
leverage level, debt of sources of finance.
maturity, interest rate Financing activity in 2019
or currency exposure); has
poor forecasting; default strengthened the balance sheet,
on loan agreements as increased average debt maturity,
a result of a breach lowered the average cost of
of financial or other debt, and demonstrated our
covenants; or counterparty ability to access a range
default. of debt capital markets.
This is both a short Liquidity remains strong and
and a long-term risk there is substantial headroom
with a low likelihood. against all of our financial
covenants.
--------------- ------------------------------- ------------------------------------ ----------------------
8. Political The Group could fail Emerging risks in this category Impact on strategy:
and Regulatory to anticipate significant are reviewed regularly by Disciplined
political, legal, tax the Executive Committee. Capital Allocation
or regulatory changes, Corporate heads of function and Efficient
leading to a significant consult with external advisers, Capital and
un-forecasted financial attend industry and specialist Corporate Structure
or reputational impact. briefings, and sit on key Change in 2019:
In general, regulatory industry bodies such as EPRA Increased risk
matters present medium- and BPF. The increased
to long-term risks with A number of potential risks rating reflects
a medium likelihood of were identified, assessed levels of
causing significant harm and managed during the course Political uncertainty
to the Group. of the year. None were individually in markets
Political risks could considered to be material including
impact business confidence enough to be classified as the UK knock
and conditions in the principal risks. on effects
short and longer terms. to the other
EU countries.
Risk is within
appetite.
--------------- ------------------------------- ------------------------------------ ----------------------
9. Operational The Group's ability to The Group maintains a strong Impact on strategy:
delivery and protect its reputation, focus on Operational Excellence. Operational
compliance revenues and shareholder The Executive, Operations, Excellence
value could be damaged and Technology Committees Change in 2019:
by operational failures regularly monitor the range Increased risk
such as: environmental of risks to property management, The increased
damage; failing to attract, construction, compliance, rating reflects
retain and motivate key business continuity, organisational the increased
staff; non-compliance effectiveness, customer management environmental
with legislation; major and cyber security. challenges
customer default; supply The Group's tax compliance facing the
chain failure; the structural is managed by an experienced business and
failure of one of our internal tax team. REIT and wider communities.
assets; or a cyber-security SIIC tax regime compliance Risk is within
breach. In addition the is demonstrated at least bi-annually. appetite.
Group's operations might Compliance with joint venture
also be impacted by an shareholder agreements is
adverse external event managed by experienced property
(such as a health pandemic operations, finance and legal
or terrorism) or failure staff. The SELP JV additionally
to respond to the consequences has comprehensive governance
of climate change (which and compliance arrangements
may involve extreme weather in place, including dedicated
or environmental disaster). management, operating manuals,
Compliance failures, and specialist third-party
such as breaches of joint compliance support.
venture shareholders' Our approach to environmental
agreements, loan agreements sustainability and climate
or tax legislation could change is discussed in detail
also damage reputation, in the Annual Report.
revenue and shareholder
value.
This is a continuous
risk with a low likelihood
of causing significant
harm to the Group.
-------------- ------------------------------- -------------------------------------- -------------------
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 2019. 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:
(a) the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Group; and
(b) 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 13 February 2020 and signed on its behalf by:
David Sleath Soumen Das
Chief Executive Chief Financial Officer
13 February 2020 13 February 2020
CONDENSED GROUP INCOME STATEMENT
For the year ended 31 December 2019
2019 2018(1,2)
Notes GBPm GBPm
------------------------------------------ ----- ------- ----------
Revenue 4 432.5 369.0
Costs 5 (123.9) (76.5)
------------------------------------------- ----- ------- ----------
308.6 292.5
Administration expenses (51.5) (44.1)
Pension buy-out costs 2 - (51.8)
Share of profit from joint ventures after
tax 6 203.1 124.2
Realised and unrealised property gain 7 489.2 852.6
Operating profit 949.4 1,173.4
Finance income 8 65.3 33.4
Finance costs 8 (112.7) (107.7)
------------------------------------------- ----- ------- ----------
Profit before tax 902.0 1,099.1
Tax 9 (41.4) (33.0)
------------------------------------------- ----- ------- ----------
Profit after tax 860.6 1,066.1
------------------------------------------- ----- ------- ----------
Attributable to equity shareholders 857.9 1,062.6
Attributable to non-controlling interests 2.7 3.5
------------------------------------------- ----- ------- ----------
Earnings per share (pence)
Basic 11 79.3 105.4
Diluted 11 78.9 104.8
=========================================== ===== ======= ==========
1 The prior period comparatives have been re-presented to
reflect the presentation adopted in the current period. See Note
1.
2 The Group adopted IFRS 16 'Leases' on 1 January 2019 using the
modified retrospective approach to transition and in accordance
with the standard the Group's financial results for the prior
periods have not been restated. See Note 1.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
2019 2018
GBPm GBPm
--------------------------------------------------- ------- -------
Profit for the year 860.6 1,066.1
----------------------------------------------------- ------- -------
Items that will not be reclassified subsequently
to profit or loss
Actuarial gain on defined benefit pension
schemes - 11.0
----------------------------------------------------- ------- -------
- 11.0
Items that may be reclassified subsequently
to profit or loss
Foreign exchange movement arising on translation
of international operations (110.2) 29.4
Fair value movements on derivatives and borrowings
in effective hedge relationships 57.6 (12.6)
---------------------------------------------------- ------- -------
(52.6) 16.8
Tax on components of other comprehensive
(expense)/income - -
--------------------------------------------------- ------- -------
Other comprehensive (expense)/income (52.6) 27.8
Total comprehensive income for the year 808.0 1,093.9
----------------------------------------------------- ------- -------
Attributable to equity shareholders 804.7 1,090.5
Attributable to non-controlling interests 3.3 3.4
----------------------------------------------------- ------- -------
CONDENSED GROUP BALANCE SHEET
As at 31 December 2019
2019 2018
Notes GBPm GBPm
--------------------------------------------- ----- -------- -------
Assets
Non-current assets
Intangible assets 2.5 3.9
Investment properties 12 8,401.7 7,801.4
Other interests in property 28.3 15.4
Property, plant and equipment 23.0 13.3
Investments in joint ventures 6 1,121.4 999.9
Other investments 27.5 23.6
Other receivables 110.6 26.8
Derivative financial instruments 59.7 25.7
9,774.7 8,910.0
Current assets
Trading properties 12 20.2 51.7
Trade and other receivables 146.6 128.7
Derivative financial instruments 8.7 11.7
Cash and cash equivalents 13 132.5 66.5
---------------------------------------------- ----- -------- -------
308.0 258.6
Total assets 10,082.7 9,168.6
============================================== ===== ======== =======
Liabilities
Non-current liabilities
Borrowings 13 1,943.5 2,243.5
Deferred tax liabilities 9 53.2 26.9
Trade and other payables 102.9 26.2
Derivative financial instruments - 2.9
---------------------------------------------- ----- -------- -------
2,099.6 2,299.5
Current liabilities
Trade and other payables 298.6 261.9
Derivative financial instruments 1.7 2.8
Tax liabilities 5.2 40.4
============================================== ===== ======== =======
305.5 305.1
Total liabilities 2,405.1 2,604.6
============================================== ===== ======== =======
Net assets 7,677.6 6,564.0
============================================== ===== ======== =======
Equity
Share capital 14 109.6 101.3
Share premium 2,554.3 2,047.7
Capital redemption reserve 113.9 113.9
Own shares held (2.6) (2.0)
Other reserves 199.5 246.2
---------------------------------------------- ----- -------- -------
Retained earnings brought forward 4,056.9 3,150.2
Profit for the year attributable to owners
of the parent 857.9 1,062.6
Other movements (211.9) (155.9)
---------------------------------------------- ----- -------- -------
Retained earnings 4,702.9 4,056.9
---------------------------------------------- ----- -------- -------
Total equity attributable to owners of the
parent 7,677.6 6,564.0
Non-controlling interests - -
--------------------------------------------- ----- -------- -------
Total equity 7,677.6 6,564.0
---------------------------------------------- ----- -------- -------
Net assets per ordinary share (pence)
Basic 11 700 648
Diluted 11 697 644
---------------------------------------------- ----- -------- -------
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019(1)
Attributable to owners of the parent
------------------------------------------------------------------------------------------------
Other reserves
--------------------------------
Share Translation, Total equity
Ordinary Capital Own based hedging attributable
share Share redemption shares payments and other Merger Retained to equity Non-controlling Total
capital premium reserve held reserves reserves reserve earnings shareholders interests(2) 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(2) - - - - - - - (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 The format of the statement of changes in equity has been
changed from that disclosed in the Annual Report & Accounts
2018 for better presentation and to reconcile total comprehensive
income for the year.
2 Non-controlling interests relate to Vailog S.r.l.
For the year ended 31 December 2018(1)
Attributable to owners of the parent
------------------------------------------------------------------------------------------------
Other reserves
--------------------------------
Share Translation, Total equity
Ordinary Capital Own based hedging attributable
share Share redemption shares payments and other Merger Retained to equity Non-controlling Total
capital premium reserve held reserves reserves reserve earnings shareholders interests(2) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ======== ======= ========== ====== ======== ============ ======== ========= ============ =============== =======
Balance at
1 January
2018 100.3 1,998.6 113.9 (3.3) 18.7 37.9 169.1 3,150.2 5,585.4 (1.2) 5,584.2
Profit for
the year - - - - - - - 1,062.6 1,062.6 3.5 1,066.1
Other
comprehensive
income - - - - - 16.9 - 11.0 27.9 (0.1) 27.8
================ ======== ======= ========== ====== ======== ============ ======== ========= ============ =============== =======
Total
comprehensive
income for
the year - - - - - 16.9 - 1,073.6 1,090.5 3.4 1,093.9
================ ======== ======= ========== ====== ======== ============ ======== ========= ============ =============== =======
Transactions with owners
of the Company
Issue of shares 0.2 0.4 - - - - - - 0.6 - 0.6
Own shares
acquired - - - (1.1) - - - - (1.1) - (1.1)
Equity-settled
share-based
transactions - - - 2.4 3.6 - - 3.0 9.0 - 9.0
Dividends 0.8 48.7 - - - - - (169.9) (120.4) - (120.4)
Movement in
non-controlling
interest(2) - - - - - - - - - (2.2) (2.2)
================ ======== ======= ========== ====== ======== ============ ======== ========= ============ =============== =======
Total
transaction
with owners
of the Company 1.0 49.1 - 1.3 3.6 - - (166.9) (111.9) (2.2) (114.1)
================ ======== ======= ========== ====== ======== ============ ======== ========= ============ =============== =======
Balance at
31 December
2018 101.3 2,047.7 113.9 (2.0) 22.3 54.8 169.1 4,056.9 6,564.0 - 6,564.0
================ ======== ======= ========== ====== ======== ============ ======== ========= ============ =============== =======
1 The format of the statement of changes in equity has been
changed from that disclosed in the Annual Report & Accounts
2018 for better presentation and to reconcile total comprehensive
income for the year.
2 Non-controlling interests relate to Vailog S.r.l.
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 31 December 2019
2019 2018
Notes GBPm GBPm
===================================================== ===== ======= =======
Cash flows from operating activities 15(i) 291.6 235.1
Interest received 47.1 44.1
Dividends received 33.3 28.6
Interest paid (91.7) (99.2)
Cost of early close out of interest rate derivatives
and new derivatives transacted (11.4) -
Proceeds from early close out of interest
rate derivatives 6.9 -
Cost of early close out of debt (18.6) (5.7)
Tax paid (46.9) (2.6)
====================================================== ===== ======= =======
Net cash received from operating activities 210.3 200.3
====================================================== ===== ======= =======
Cash flows from investing activities
Purchase and development of investment
properties (602.9) (637.1)
Sale of investment properties 412.4 480.4
Acquisition of other interests in property (13.3) (2.0)
Purchase of plant and equipment and intangibles (2.7) (1.6)
Acquisition of other investments (1.2) (18.6)
Investment and loans to joint ventures (148.6) (200.2)
Divestment and repayment of loans from
joint ventures 136.4 101.0
====================================================== ===== ======= =======
Net cash used in investing activities (219.9) (278.1)
====================================================== ===== ======= =======
Cash flows from financing activities
Dividends paid to ordinary shareholders (141.7) (120.4)
Proceeds from borrowings 10.2 264.1
Repayment of borrowings (251.1) (102.0)
Principal element of lease payments (0.9) -
Settlement of foreign exchange derivatives 26.9 (6.4)
Purchase of non-controlling interest (7.9) -
Proceeds from issue of ordinary shares 444.0 0.6
Purchase of ordinary shares (3.4) (1.1)
====================================================== ===== ======= =======
Net cash generated from financing activities 76.1 34.8
====================================================== ===== ======= =======
Net increase/(decrease) in cash and cash
equivalents 66.5 (43.0)
Cash and cash equivalents at the beginning
of the year 66.5 109.3
Effect of foreign exchange rate changes (0.5) 0.2
====================================================== ===== ======= =======
Cash and cash equivalents at the end of
the year 13 132.5 66.5
====================================================== ===== ======= =======
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 2019 and 2018, but is derived from those accounts.
Statutory accounts for 2019 have been delivered to the Registrar of
Companies and those for 2019 (approved by the Board on 13 February
2020) 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 or emphasis of
matter paragraphs.
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 Financial Reporting Standards (IFRS)
as adopted by 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 2018 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 IFRSs as adopted by the
European Union, this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to
publish full financial statements that comply with IFRSs by March
2020.
The principal exchange rates used to translate foreign currency
denominated amounts are: Balance sheet: GBP1 = EUR1.18 (31 December
2018: GBP1 = EUR1.11) and Income statement: GBP1 = EUR1.14 (31
December 2018: GBP1 = EUR1.13).
Following recent discussions with the Financial Reporting
Council's ("FRC") Corporate Reporting Review team, the format of
the Group Income Statement has been changed to improve the
presentation of the Financial Statements. The sub headings 'Gross
rental income', 'Net rental income' and 'Joint venture fee income'
previously presented have been removed from the Group Income
Statement. The line item 'Costs' is now presented. A breakdown of
'Costs' is shown in Note 5 where a reconciliation to 'Property
operating expenses' as reported in the 2018 Group Income Statement
is provided. The prior-year comparatives have been represented to
reflect this change. There is no change in 'Operating profit',
'Profit before tax' or 'Profit after tax' as a result of the change
in presentation.
The revenue accounting policy for service charges and other
recoveries from tenants has consequently been updated:
These include income in relation to service charges, directly
recoverable expenditure and management fees. Revenue from providing
services is recognised in the accounting period in which the
services are rendered. Revenue from services is recognised based on
the actual service provided to the end of the reporting period as a
proportion of the total services to be provided and recognised over
time. The Group generally acts as the principal in service charge
transactions as it directly controls the delivery of the services
at point they are provided to the tenant. Where the Group acts as a
principal, service charge income is presented gross within revenue
and service charge expense presented gross within costs.
New and amended standards adopted by the Group
A number of new or amended standards become applicable for the
current reporting year, and the Group has had to change its
accounting policies as a result of adopting IFRS 16 Leases.
There is no significant impact on the Group as a lessor. The
impact of the adoption of the IFRS 16 leasing standard on the Group
as a lessee and the new accounting policies are disclosed below.
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.
IFRS 16 Leases - as a lessee
The Group has applied IFRS 16, 'Leases' on 1 January 2019. In
accordance with the transition provisions in IFRS 16, the new rules
have been adopted retrospectively, with the cumulative effect of
initially applying the new standard recognised on 1 January 2019.
Comparatives for the 2018 financial year have not been restated.
The Group had to update its Leases and Investment properties
accounting policies following the adoption of IFRS 16.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17. Until the 2019
financial year, the payments made under the operating leases (net
of any incentives received from the lessor) were charged to profit
or loss on a straight-line basis over the period of the lease.
The Group holds two types of significant 'operating leases':
-- Head leases: A small proportion of the investment properties
held by the Group are situated on land held through leasehold
arrangements, as opposed to the Group owning the freehold. The
remaining lease terms for the leasehold arrangements range between
11 and 47 years. Under the lease terms with tenants the head lease
payments are directly recoverable.
-- Office leases: Office space occupied by the Group's operations.
Upon initial recognition the lease liabilities were measured at
the present value of the remaining lease payments, discounted using
the lessee's incremental borrowing rate as of 1 January 2019. The
associated right-of-use ("ROU") assets were measured equal to the
lease liability. As a result there is no impact on opening retained
earnings at 1 January 2019.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to the portfolio of offices leases with reasonably similar characteristics
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application, and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract
is, or contains, a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
Group relied on its assessment made applying IAS 17 and IFRIC 4
Determining whether an Arrangement contains a Lease.
Whilst judgement and estimates were required in applying IFRS
16, these were not deemed to be significant. The potential exposure
to future cash outflows not reflected in the measurement of the
lease liabilities are not expected to be significant.
The Balance Sheet impact of recognising the lease liabilities
and associated ROU asset upon adoption at 1 January 2019 and
subsequently at 31 December 2019 is set out below.
Head leases*:
1 January 31 December
2019 2019
Balance Sheet caption GBPm GBPm
------------------------------------------------------- --------- -----------
Investment property (ROU asset) 75.2 70.2
Non-current Trade and other Payables (lease liability) 74.8 69.8
Current Trade and other Payables (lease liability) 0.4 0.4
------------------------------------------------------- --------- -----------
* The head leases are held in the Southern Europe Business Unit
and are denominated in euros.
As the head leases meet the definition of investment property,
they are initially recognised in accordance with IFRS 16, and then
subsequently accounted for as investment property in accordance
with IAS 40 and the Group's accounting policy. After initial
recognition the ROU head lease asset is subsequently carried at
fair value and the valuation gains and losses recognised within
'Realised and unrealised property gain' in the Income
Statement.
The incremental borrowing rate applied to lease liabilities on 1
January 2019 has been estimated on an individual lessee basis and
range from 3 per cent to 4 per cent. The weighted average lessees
incremental borrowing rate on 1 January 2019 was 3.9 per cent.
Office leases:
The impact upon recognition was not significant. As at 31
December 2019, a lease liability of GBP7.6 million has been
recognised within non-current and current trade and other payables,
and a ROU asset of GBP7.5 million recognised within Property, plant
and equipment.
Measurement of lease liabilities:
Below sets out a reconciliation between the operating lease
commitments presented under IAS 17 at 31 December 2018 and the
opening lease liability recognised under IFRS 16 on 1 January 2019
at the date of application.
GBPm
-------------------------------------------------------- -----
Office lease commitments as at 31 December 2018 4.9
Head lease commitments as at 31 December 2018 156.3
Total lease commitments based on gross cash flows as
at 31 December 2018 161.2
========================================================= =====
Discounted using lesee's incremental borrowing rate at
the date of initial application 79.6
(Less): short-term leases not recognised as a liability (2.5)
(Less): low-value leases not recognised as a liability (1.9)
IFRS 16 lease liability recognised as at 1 January 2019 75.2
--------------------------------------------------------- -----
Impact on earnings per share from the adoption of IFRS 16:
Profit after tax for the year ended 31 December 2019 decreased
by GBP0.05 million following the adoption of IFRS 16 and Adjusted
profit after tax increased by GBP0.4 million following the
adoption. There was no impact on EPS or Adjusted EPS.
New accounting polices
The Group's new accounting policies for leases and investment
property to reflect the new IFRS 16 Lease accounting standard are
set out below.
Leases
At inception, the Group assesses whether a contract is or
contains a lease. This assessment involves the exercise of
judgement about whether the Group obtains substantially all the
economic benefits from the use of that asset, and whether the Group
has the right to direct the use of the asset.
The Group recognises a right-of-use ("ROU") asset and the lease
liability at the commencement date of the lease.
Lease liabilities include the present value of payments which
generally include fixed payments and variable payments that depend
on an index (such as an inflation index). When the lease contains
an extension or purchase option that the Group considers reasonably
certain to be exercised, the cost of the option is included in the
lease payments.
Each lease payment is allocated between the liability and
finance cost. The lease payments are discounted using the interest
rate implicit in the lease if that rate can be readily determined
or if not, the incremental borrowing rate is used. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant rate of interest on the remaining balance of the
liability for each period.
Cash payments relating to the principal portion of the lease
liabilities are presented as cash flows from financing activities
and cash payments for the interest portion are presented as cash
flows from operating activities.
The ROU asset is measured at a cost based on the amount of the
initial measurement of the lease liability, plus initial direct
costs and the cost of obligations to refurbish the asset, less any
incentives received.
The ROU asset (other than the ROU assets that relate to land or
property that meets the definition of investment property under IAS
40) is depreciated over the shorter of the lease term or the useful
life of the underlying asset. The ROU asset is subject to testing
for impairment if there is an indicator of impairment. ROU assets
are included in the heading Property, plant and equipment, and the
lease liability in included in the headings current and non-current
Trade and other payables on the Balance Sheet.
Where the ROU asset relates to land or property that meets the
definition of investment property under IAS 40, after initial
recognition the ROU asset is subsequently accounted for as
investment property and carried at fair value (see Investment
properties accounting policy). Valuation gains and losses in a
period are taken to the Income Statement. The ROU assets are
included in the heading Investment properties, and the lease
liability in the headings current and non-current Trade and other
payables on the Balance Sheet.
The Group has elected not to recognise ROU assets and
liabilities for leases where the total lease term is less than or
equal to 12 months, or for low value leases. The payments for such
leases are recognised in the Income Statement on a straight-line
basis over the lease term.
Investment properties
These properties include completed properties that are
generating rent or are available for rent, and development
properties that are under development or available for development.
Investment properties comprise freehold and leasehold properties
and are first measured at cost (including transaction costs), then
revalued to market value at each reporting date by independent
professional valuers. Leasehold properties are shown gross of the
leasehold payables (and accounted for as right-of-use asset under
IFRS 16, see Leases accounting policy). Valuation gains and losses
in a period are taken to the Income Statement. As the Group uses
the fair value model, as per IAS 40 Investment Properties, no
depreciation is provided. An asset will be classified as held for
sale within investment properties, in line with IFRS 5 Non-Current
Assets Held for Sale and Discontinued Operations, where the asset
is available for immediate sale in their present condition and the
sale is highly probable.
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
2019. In the period to 31 December 2018, GBP51.8 million of pension
buy-out costs incurred in respect of the SEGRO Pension Scheme
following the commitment to buy-out the scheme during the year,
were excluded from the calculation of Adjusted profit. There was no
tax effect of this item in the period to 31 December 2018.
2019 2018
Notes GBPm GBPm
============================================================== ===== ====== =======
Gross rental income 4 362.0 323.2
Property operating expenses 5 (80.7) (75.6)
============================================================== ===== ====== =======
Net rental income 281.3 247.6
Joint venture fee income 4 20.4 44.9
Administration expenses (51.5) (44.1)
Share of joint ventures' Adjusted profit after
tax(1) 6 54.0 39.0
============================================================== ===== ====== =======
Adjusted operating profit before interest and
tax 304.2 287.4
Net finance costs (including adjustments) 8 (36.7) (45.9)
============================================================== ===== ====== =======
Adjusted profit before tax 267.5 241.5
============================================================== ===== ====== =======
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from joint
ventures after tax(1) 6 149.1 85.2
Realised and unrealised gain on property 7 489.2 852.6
Gain on sale of trading properties 12 6.9 -
Cost of early close out of debt 8 (18.6) (6.4)
Net fair value gain/(loss) on interest rate
swaps and other derivatives 8 7.9 (22.0)
Pension buy-out costs(2) - (51.8)
============================================================== ===== ====== =======
Total adjustments 634.5 857.6
============================================================== ===== ====== =======
Profit before tax 902.0 1,099.1
============================================================== ===== ====== =======
Tax
On Adjusted profit 9 (3.2) (4.4)
In respect of adjustments 9 (38.2) (28.6)
============================================================== ===== ====== =======
Total tax adjustments (41.4) (33.0)
Profit after tax before non-controlling interests 860.6 1,066.1
============================================================== ===== ====== =======
Non-controlling interests:
Less: share of adjusted profit attributable
to non-controlling interests (0.2) (0.6)
: share of adjustments attributable to non-controlling
interests (2.5) (2.9)
============================================================== ===== ====== =======
Profit after tax and non-controlling interests 857.9 1,062.6
Of which:
Adjusted profit after tax and non-controlling
interests 264.1 236.5
Total adjustments after tax and non-controlling
interests 593.8 826.1
============================================================== ===== ====== =======
Profit attributable to equity shareholders 857.9 1,062.6
============================================================== ===== ====== =======
1 A detailed breakdown of the adjustments to the share of profit
from joint ventures is included in Note 6.
2 Non-EPRA related adjustments referred to in the third
paragraph above.
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 joint
Gross ventures' Total directly Investments
rental Net rental Adjusted Adjusted owned property in joint Capital
income income profit PBIT(2) assets ventures expenditure(3)
31 December 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
=================== ======= ========== ========== ======== =============== =========== ===============
Share
of joint
Gross ventures' Total directly Investments
rental Net rental Adjusted Adjusted owned property in joint Capital
income income profit PBIT(2) assets ventures expenditure(3)
31 December 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======= ========== ========== ======== =============== =========== ===============
Thames Valley 71.2 65.1 - 65.1 1,638.5 - 20.3
National Logistics 31.4 29.2 (0.2) 29.0 999.0 3.7 170.1
Greater London 134.0 118.7 - 118.3 3,724.5 - 50.4
Northern Europe 24.2 14.0 22.7 41.3 505.7 507.2 79.2
Southern Europe 51.2 30.8 20.3 53.3 837.2 611.8 348.7
Central Europe 11.2 4.8 18.8 28.2 148.2 397.0 31.2
Other(1) - (15.0) (22.6) (47.8) - (519.8) 1.6
=================== ======= ========== ========== ======== =============== =========== ===============
Total 323.2 247.6 39.0 287.4 7,853.1 999.9 701.5
=================== ======= ========== ========== ======== =============== =========== ===============
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. The 'Other'
category includes non-property related spend, primarily IT.
4. REVENUE
2019 2018
GBPm GBPm
===================================================== ===== =====
Rental income from investment and trading
properties 306.9 282.8
Rent averaging 25.1 12.5
Service charge income* 27.6 25.5
Management fees* 1.4 1.3
Surrender premiums and dividend income from property
related investments 1.0 1.1
====================================================== ===== =====
Gross rental income(1) 362.0 323.2
====================================================== ===== =====
Joint venture fees - management fees 20.4 18.7
- performance fees - 26.2
------------------------------------------------------ ----- -----
Joint venture fee income* 20.4 44.9
Proceeds from sale of trading properties* 50.1 0.9
====================================================== ===== =====
Total revenue 432.5 369.0
====================================================== ===== =====
* The above income streams reflect revenue recognition under
IFRS 15 Revenue from Contracts with Customers and total GBP99.5
million (2018: GBP72.6 million).
1 Net rental income of GBP281.3 million (2018: GBP247.6 million)
is calculated as gross rental income of GBP362.0 million (2018:
GBP323.2 million) less total property operating expenses of GBP80.7
million (2018: GBP75.6 million) shown in Note 5.
5. COSTS
2019 2018
GBPm GBPm
============================================= ===== =======
Vacant property costs 4.8 5.1
Letting, marketing, legal and professional
fees 8.5 8.0
Loss allowance and impairment of receivables 1.0 0.3
Service charge expense 27.6 25.5
Other expenses 10.5 10.3
============================================== ===== =======
Property management expenses 52.4 49.2
Property administration expenses(1) 35.6 31.0
Costs capitalised(2) (7.3) (4.6)
============================================== ===== =======
Total property operating expenses 80.7 75.6
============================================== ===== =======
Trading properties cost of sales 43.2 0.9
============================================== ===== =======
Total costs 123.9 76.5(3)
============================================== ===== =======
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.
3 Total 2018 Costs of GBP76.5 million consists of: Property
operating expenses of GBP50.1 million which was reported and
presented as a line item in the 2018 Group Income Statement,
service charge expense of GBP25.5 million and trading properties
costs of sales of GBP0.9 million.
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.
SELP Roxhill Other At 50%
At 100% 2019
GBPm GBPm GBPm At 100% GBPm At 50%
2019 2018 2018
GBPm GBPm GBPm
====================================== ======= ======= ===== ======= ======= ====== ======
Revenue(1) 213.0 7.2 3.3 223.5 195.1 111.8 97.6
Gross rental income 213.0 1.1 - 214.1 195.1 107.1 97.6
Property operating expenses
-underlying property operating
expenses (8.4) - (0.1) (8.5) (8.1) (4.2) (4.1)
-vacant property costs (2.1) - - (2.1) (1.8) (1.1) (0.9)
-property management fees (17.1) - - (17.1) (13.9) (8.6) (7.0)
-service charge expense (44.1) - - (44.1) (44.2) (22.1) (22.1)
-performance fees - - - - (26.2) - (13.1)
====================================== ======= ======= ===== ======= ======= ====== ======
Net rental income 141.3 1.1 (0.1) 142.3 100.9 71.1 50.4
Administration expenses (3.3) - - (3.3) (2.6) (1.6) (1.3)
Finance costs (including adjustments) (19.9) - (0.2) (20.1) (15.3) (10.0) (7.6)
====================================== ======= ======= ===== ======= ======= ====== ======
EPRA profit/(loss) before tax 118.1 1.1 (0.3) 118.9 83.0 59.5 41.5
Tax (10.9) - - (10.9) (5.0) (5.5) (2.5)
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
Adjusted profit/(loss) after
tax 107.2 1.1 (0.3) 108.0 78.0 54.0 39.0
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
Adjustments:
(Loss)/profit on sale of investment
properties (1.1) - - (1.1) 15.2 (0.6) 7.6
Valuation surplus on investment
properties 437.0 - - 437.0 187.0 218.6 93.5
Impairment of other interests
in properties - (9.7) - (9.7) - (4.9) -
Profit on sale of trading properties - - 2.1 2.1 - 1.1 -
Tax in respect of adjustments (130.2) - - (130.2) (31.7) (65.1) (15.9)
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
Total adjustments 305.7 (9.7) 2.1 298.1 170.5 149.1 85.2
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
Profit/(loss) after tax 412.9 (8.6) 1.8 406.1 248.5 203.1 124.2
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
Other comprehensive income - - - - - - -
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
Total comprehensive income/(expense)
for the year 412.9 (8.6) 1.8 406.1 248.5 203.1 124.2
-------------------------------------- ------- ------- ----- ------- ------- ------ ------
1 Total revenue at 100% of GBP223.5 million (2018: GBP195.1
million) includes: Gross rental income GBP214.1 million (2018:
GBP195.1 million) and proceeds from sale of trading properties
GBP9.4 million (2018: GBPnil). 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.
6(ii) Summarised Balance Sheet information in respect of the
Group's joint ventures
SELP Roxhill Other At 50%
At 100% 2019
GBPm GBPm GBPm At 100% GBPm At 50%
2019 2018 2018
GBPm GBPm GBPm
============================== ========= ======= ===== ========= ========= ======= =======
Investment properties 3,796.7 - - 3,796.7 3,133.9 1,898.3 1,566.9
Other interests in property - 16.6 - 16.6 10.9 8.3 5.4
Total non-current assets 3,796.7 16.6 - 3,813.3 3,144.8 1,906.6 1,572.3
============================== ========= ======= ===== ========= ========= ======= =======
Trading properties - 1.9 - 1.9 4.8 1.0 2.4
Other receivables 118.9 5.9 2.5 127.3 159.9 63.7 80.0
Cash and cash equivalents 37.6 2.9 1.5 42.0 47.6 21.0 23.8
============================== ========= ======= ===== ========= ========= ======= =======
Total current assets 156.5 10.7 4.0 171.2 212.3 85.7 106.2
============================== ========= ======= ===== ========= ========= ======= =======
Total assets 3,953.2 27.3 4.0 3,984.5 3,357.1 1,992.3 1,678.5
============================== ========= ======= ===== ========= ========= ======= =======
Borrowings (1,338.4) - - (1,338.4) (1,120.4) (669.2) (560.2)
Deferred tax (243.2) - - (243.2) (123.5) (121.6) (61.8)
Total non-current liabilities (1,581.6) - - (1,581.6) (1,243.9) (790.8) (622.0)
------------------------------ --------- ------- ----- --------- --------- ------- -------
Borrowings (50.1) - - (50.1) - (25.1) -
Other liabilities (90.5) (19.5) - (110.0) (113.4) (55.0) (56.6)
Total current liabilities (140.6) (19.5) - (160.1) (113.4) (80.1) (56.6)
------------------------------ --------- ------- ----- --------- --------- ------- -------
Total liabilities (1,722.2) (19.5) - (1,741.7) (1,357.3) (870.9) (678.6)
------------------------------ --------- ------- ----- --------- --------- ------- -------
Net assets 2,231.0 7.8 4.0 2,242.8 1,999.8 1,121.4 999.9
------------------------------ --------- ------- ----- --------- --------- ------- -------
On 13 June 2019 SELP issued a 7.5 year, EUR500 million unsecured
bond at an annual coupon of 1.5 per cent as discussed further in
the Finance Review.
The external borrowings of the joint ventures are non-recourse
to the Group. At 31 December 2019, the fair value of GBP1,388.5
million (2018: GBP1,120.4 million) of borrowings was GBP1,427.4
million (2018: GBP1,104.3 million). This results in a fair value
adjustment decrease in EPRA triple net asset value of GBP38.9
million (2018: GBP16.1 million increase), at share GBP19.4 million
(2018: GBP8.0 million increase), see Note 11.
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.
No additional performance fee has been recognised by SEGRO in
the 2019 Income Statement (and no additional performance fee
expense has been recognised by SELP). In the prior year SELP paid a
GBP52.4 million performance fee including the amount subject to
clawback. 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 (see Note 4). The 50 per cent
subject to clawback (which is denominated in euros) has been
recognised as a contract liability within Trade and other payables
at 31 December 2019 and 31 December 2018.
6(iii) Investments by Group
2019 2018
GBPm GBPm
================================= ======= ======
Cost or valuation at 1 January 999.9 792.0
Exchange movement (65.2) 17.4
Net investments(1) 16.9 99.2
Disposals - (4.3)
Dividends received(2) (33.3) (28.6)
Share of profit after tax 203.1 124.2
Cost or valuation at 31 December 1,121.4 999.9
================================== ======= ======
1 Net investments represent the net movement of capital
injections, loans and divestments with joint ventures during the
period.
2 Dividends received from SELP.
7. REALISED AND UNREALISED PROPERTY GAIN
2019 2018
GBPm GBPm
================================================ ===== =====
Profit on sale of investment properties 7.2 56.5
Valuation surplus on investment properties(1) 476.7 791.4
Decrease in provision for impairment of trading
properties 1.4 -
Increase in provision for impairment of other
interests in property (0.4) -
Valuation surplus on other investments 4.3 4.7
================================================= ===== =====
Total realised and unrealised property gain 489.2 852.6
================================================= ===== =====
1 Includes GBP477.1 million valuation surplus on investment
properties (2018: GBP791.4 million) less GBP0.4 million valuation
loss on head lease ROU asset (2018: GBPnil).
Total valuation surplus on investment and trading properties
total GBP696.7 million (2018: GBP884.9 million). This comprises
GBP476.7 million from investment properties (2018: GBP791.4
million), GBP1.4 million from trading properties (2018: GBPnil) and
GBP218.6 million from joint ventures at share (2018: GBP93.5
million).
Details of realised gains on sale of trading properties are
given in Note 12.
8. NET FINANCE COSTS
2019 2018
Finance income GBPm GBPm
====================================================== ======= =======
Interest received on bank deposits and related
derivatives 32.0 29.9
Fair value gain on interest rate swaps and other
derivatives 33.1 2.6
Net interest income on defined benefit asset - 0.9
Exchange differences 0.2 -
======================================================= ======= =======
Total finance income 65.3 33.4
======================================================= ======= =======
Finance costs
====================================================== ======= =======
Interest on overdrafts, loans and related derivatives (71.8) (82.3)
Cost of early close out of debt (18.6) (6.4)
Amortisation of issue costs (2.3) (3.4)
Interest on lease liabilities (3.0) -
======================================================= ======= =======
Total borrowing costs (95.7) (92.1)
Less amount capitalised on the development of
properties 8.2 9.2
======================================================= ======= =======
Net borrowing costs (87.5) (82.9)
Fair value loss on interest rate swaps and other
derivatives (25.2) (24.6)
Exchange differences - (0.2)
======================================================= ======= =======
Total finance costs (112.7) (107.7)
======================================================= ======= =======
Net finance costs (47.4) (74.3)
======================================================= ======= =======
Net finance costs (including adjustments) in Adjusted profit
(Note 2) are GBP36.7 million (2018: GBP45.9 million).
This excludes net fair value gains and losses on interest rate
swaps and other derivatives of GBP7.9 million gain (2018: GBP22.0
million loss) and the cost of early close out of debt of GBP18.6
million (2018: GBP6.4 million).
9. TAX
9(i) Tax on profit
2019 2018
GBPm GBPm
================================================== ====== ======
Tax:
On Adjusted profit (3.2) (4.4)
In respect of adjustments (38.2) (28.6)
=================================================== ====== ======
Total tax charge (41.4) (33.0)
=================================================== ====== ======
Current tax
United Kingdom
Current tax credit 0.3 -
=================================================== ====== ======
Total UK current tax credit 0.3 -
Overseas
Current tax charge (12.0) (40.5)
Adjustments in respect of earlier years (0.3) (0.6)
=================================================== ====== ======
Total overseas current tax charge (12.3) (41.1)
=================================================== ====== ======
Total current tax charge (12.0) (41.1)
=================================================== ====== ======
Deferred tax
Origination and reversal of temporary differences (6.1) (1.6)
Released in respect of property disposals
in the year 4.7 20.5
On valuation movements (39.2) (9.9)
=================================================== ====== ======
Total deferred tax in respect of investment
properties (40.6) 9.0
Other deferred tax 11.2 (0.9)
=================================================== ====== ======
Total deferred tax (charge)/credit (29.4) 8.1
=================================================== ====== ======
Total tax charge on profit on ordinary activities (41.4) (33.0)
=================================================== ====== ======
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Balance
1 January Exchange Recognised 31 December
2019 movement Acquisitions/disposals in income 2019
GBPm GBPm GBPm GBPm GBPm
================================= ========== ========= ====================== ========== ============
Valuation surpluses and deficits
on properties/accelerated
tax allowances 25.2 (2.3) (0.6) 29.1 51.4
Deferred tax asset on revenue
losses (1.4) - - 0.9 (0.5)
Others 3.1 (0.2) - (0.6) 2.3
================================== ========== ========= ====================== ========== ============
Total deferred tax liabilities 26.9 (2.5) (0.6) 29.4 53.2
================================== ========== ========= ====================== ========== ============
10. DIVIDS
2019 2018
GBPm GBPm
========================================== ===== =====
Ordinary dividends paid
Interim dividend for 2019 @ 6.30 pence
per share 68.9 -
Final dividend for 2018 @ 13.25 pence per
share 143.7 -
Interim dividend for 2018 @ 5.55 pence
per share - 56.1
Final dividend for 2017 @ 11.35 pence per
share - 113.8
=========================================== ===== =====
Total dividends 212.6 169.9
=========================================== ===== =====
The Board recommends a final dividend for 2019 of 14.4 pence
which is estimated to result in a distribution of up to GBP157.9
million. The total dividend paid and proposed per share in respect
of the year ended 31 December 2019 is 20.7 pence (2018: 18.8
pence).
The total dividend in 2019 of GBP212.6 million (2018: GBP169.9
million) was paid; GBP141.7 million as cash (2018: GBP120.4
million) and GBP70.9 million in scrip dividends (2018: GBP49.5
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 (2018:
0.7 million) being the average number of shares held on trust for
employee share schemes and net assets per share calculations
exclude 0.6 million shares (2018: 0.7 million) being the actual
number of shares held on trust for employee share schemes at year
end.
11(i) Earnings per ordinary share (EPS)
2019 2018
=============================== ==============================
Earnings Shares Pence Earnings Shares Pence
GBPm million per share GBPm million per share
============================== === === === ======== ======== ========== ======== ======== ==========
Basic EPS 857.9 1,081.3 79.3 1,062.6 1,008.6 105.4
Dilution adjustments:
Share and save as you
earn schemes - 5.8 (0.4) - 5.8 (0.6)
============================================= ======== ======== ========== ======== ======== ==========
Diluted EPS 857.9 1,087.1 78.9 1,062.6 1,014.4 104.8
============================================= ======== ======== ========== ======== ======== ==========
Basic EPS 857.9 1,081.3 79.3 1,062.6 1,008.6 105.4
Adjustments to profit
before tax(1) (634.5) (58.7) (857.6) (85.0)
Tax in respect of Adjustments 38.2 3.6 28.6 2.8
Non-controlling interest
on adjustments 2.5 0.2 2.9 0.2
============================================= ======== ======== ========== ======== ======== ==========
Adjusted Basic EPS 264.1 1,081.3 24.4 236.5 1,008.6 23.4
============================================= ======== ======== ========== ======== ======== ==========
Adjusted Diluted EPS 264.1 1,087.1 24.3 236.5 1,014.4 23.3
============================================= ======== ======== ========== ======== ======== ==========
1 Details of adjustments are included in Note 2.
11(ii) Net asset value per share (NAV)
2019 2018
==================================== =========================================
Equity
attributable Equity attributable
to ordinary to ordinary
shareholders Shares Pence shareholders Shares Pence
GBPm million per share GBPm million per share
=================================== ============= ======== =========== =================== ======== ==========
Basic NAV 7,677.6 1,096.1 700 6,564.0 1,012.8 648
Dilution adjustments:
Share and save as you earn schemes - 6.0 (3) - 5.9 (4)
=================================== ============= ======== =========== =================== ======== ==========
Diluted NAV 7,677.6 1,102.1 697 6,564.0 1,018.7 644
=================================== ============= ======== =========== =================== ======== ==========
Fair value adjustment in respect
of interest rate derivatives -
Group (50.5) (5) (35.0) (3)
Fair value adjustment in respect
of trading properties - Group - - 2.2 -
Fair value adjustment in respect
of trading properties - Joint
ventures 0.9 - 0.9 -
Deferred tax in respect of
depreciation
and valuation surpluses - Group 51.9 5 26.4 3
Deferred tax in respect of
depreciation
and valuation surpluses - Joint
ventures 121.1 11 61.8 6
=================================== ============= ======== =========== =================== ======== ==========
EPRA NAV(1) 7,801.0 1,102.1 708 6,620.3 1,018.7 650
=================================== ============= ======== =========== =================== ======== ==========
Fair value adjustment in respect
of debt - Group (233.3) (21) (17.4) (1)
Fair value adjustment in respect
of debt - Joint ventures (19.4) (2) 8.0 1
Fair value adjustment in respect
of interest rate swap derivatives
- Group 50.5 5 35.0 3
Deferred tax in respect of
depreciation
and valuation surpluses - Group (51.9) (5) (26.4) (3)
Deferred tax in respect of
depreciation
and valuation surpluses - Joint
ventures (121.1) (11) (61.8) (6)
=================================== ============= ======== =========== =================== ======== ==========
EPRA triple net NAV (NNNAV)(1) 7,425.8 1,102.1 674 6,557.7 1,018.7 644
=================================== ============= ======== =========== =================== ======== ==========
1 EPRA NAV and NNNAV is an alternative metric that is calculated
in accordance with the Best Practices Recommendations of the
European Public Real Estate Association (EPRA) to provide a
transparent and consistent basis to enable comparison between
European property companies.
12. PROPERTIES
12(i) Investment properties
Completed Development Total
GBPm GBPm GBPm
===================================================== ========= =========== =======
At 1 January 2019 6,827.8 888.7 7,716.5
Exchange movement (75.4) (22.6) (98.0)
Property acquisitions 98.6 135.3 233.9
Additions to existing investment properties 25.2 336.8 362.0
Disposals (467.3) (6.0) (473.3)
Transfers on completion of development 625.8 (625.8) -
Transfer to trading properties - (3.1) (3.1)
Revaluation surplus during the year 372.5 104.6 477.1
===================================================== ========= =========== =======
At 31 December 2019 7,407.2 807.9 8,215.1
Add tenant lease incentives, letting fees and rental
guarantees 116.4 - 116.4
----------------------------------------------------- --------- ----------- -------
Investment properties excluding head lease ROU
assets at 31 December 2019 7,523.6 807.9 8,331.5
----------------------------------------------------- --------- ----------- -------
Add head lease liabilities (ROU assets) 70.2 - 70.2
----------------------------------------------------- --------- ----------- -------
Total investment properties at 31 December 2019 7,593.8 807.9 8,401.7
===================================================== ========= =========== =======
Investment properties are stated at fair value as at 31 December
2019 based on external valuations performed by professionally
qualified valuers. The Group's wholly-owned and joint venture
property portfolio is valued by CBRE Ltd on a half-yearly basis
(apart from two assets valued by Knight Frank). The valuations
conform to International Valuation Standards and were arrived at by
reference to market evidence of the transaction prices paid for
similar properties. In estimating the fair value of the properties,
the valuers consider the highest and best use of the properties.
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. The
firm advises us that the total fees paid by the Group represent
less than 5 per cent of its total revenue in any year.
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.
During 2019 a plot of land with a carrying value of GBP3.1
million was transferred to trading properties following the
agreement in the year which led to the development of the asset
with a view to sell the asset on completion (2018: GBP19.3
million). No trading properties were transferred to investment
properties during 2019 (2018: GBPnil).
At 31 December 2019 the carrying value of investment properties
was adjusted by GBP70.2 million to reflect head lease liabilities
(2018: GBPnil) which have been recognised upon adoption of IFRS 16
on 1 January 2019. Head lease liabilities are held within Trade and
other payables. See Note 1 for further details. The carrying value
of investment properties situated on land held under leaseholds is
GBP151.5 million (excluding head lease ROU assets) (2018: GBP120.3
million).
The disposals of investment properties during the year include
properties with a carrying value of GBP221.0 million (2018:
GBP242.0 million) sold to the SELP joint venture. Total proceeds
received by SEGRO was GBP229.0 million (2018: GBP251.6
million).
12(ii) Trading properties
2019 2018
GBPm GBPm
================================================ ====== ======
At 1 January 51.7 12.5
Exchange movement (1.2) 0.3
Additions 8.4 20.5
Disposals(1) (43.2) (0.9)
Decrease in provision for impairment during the
year 1.4 -
Transfer from investment properties 3.1 19.3
================================================= ====== ======
At 31 December 20.2 51.7
================================================= ====== ======
1 Gain on sale of trading properties of GBP6.9 million in the
year (2018: GBPnil) have been generated from total proceeds of
GBP50.1 million (2018: GBP0.9 million), see Note 4, less costs of
GBP43.2 million (2018: GBP0.9 million), see Note 5.
Trading properties were externally valued, as detailed in Note
12(i), resulting in a decrease in the provision for impairment of
GBP1.4 million (2018: GBPnil). Based on the fair value at 31
December 2019, the portfolio has unrecognised surplus of GBPnil
million (2018: GBP2.2 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
2019 2018
GBPm GBPm
======================================================== ======= =======
In one year or less - -
======================================================== ======= =======
In more than one year but less than two 79.3 250.0
In more than two years but less than five 120.6 115.9
In more than five years but less than ten 896.5 533.8
In more than ten years 847.1 1,343.8
======================================================== ======= =======
In more than one year 1,943.5 2,243.5
======================================================== ======= =======
Total borrowings 1,943.5 2,243.5
======================================================== ======= =======
Cash and cash equivalents (132.5) (66.5)
======================================================== ======= =======
Net borrowings 1,811.0 2,177.0
======================================================== ======= =======
Total borrowings is split between secured and unsecured
as follows:
Secured (on land and buildings) 2.6 3.2
Unsecured 1,940.9 2,240.3
======================================================== ======= =======
Total borrowings 1,943.5 2,243.5
======================================================== ======= =======
Currency profile of total borrowings after derivative
instruments
Sterling 184.7 759.6
Euros 1,758.8 1,483.9
Total borrowings 1,943.5 2,243.5
======================================================== ======= =======
Maturity profile of undrawn borrowing facilities
In one year or less 8.5 14.0
In more than one year but less than two - -
In more than two years 1,032.2 1,097.3
======================================================== ======= =======
Total available undrawn facilities 1,040.7 1,111.3
======================================================== ======= =======
During the year the Group undertook a debt refinancing exercise
and redeemed GBP250 million of sterling bonds due 2020 at a cost of
GBP18.6 million above carrying value (see Note 8). The debt
refinancing is discussed in more detail in the Finance Review.
14. SHARE CAPITAL
Number Par value
of shares of shares
m GBPm
=================================================== ========== ==========
Issued and fully paid ordinary shares at 10p each:
At 1 January 2019 1,013.5 101.3
Issue of shares - placing 71.0 7.1
Issue of shares - scrip dividends 10.3 1.0
Issue of shares - other 1.9 0.2
=================================================== ========== ==========
At 31 December 2019 1,096.7 109.6
=================================================== ========== ==========
On 15 February 2019 the Company announced the placing of 71
million ordinary shares of 10p each in the capital of the Company
at a price of 635 pence per share. The Company raised GBP450.9
million, before GBP7.5 million expenses and as a result the
Company's share capital increased by GBP7.1 million and share
premium by GBP436.3 million.
15. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
15(i) Reconciliation of cash generated from operations
2019 2018
GBPm GBPm
================================================ ======= =======
Operating profit 949.4 1,173.4
Adjustments for:
Depreciation of property, plant and equipment 3.4 2.9
Share of profit from joint ventures after tax (203.1) (124.2)
Profit on sale of investment properties (7.2) (56.5)
Revaluation surplus on investment properties (476.7) (791.4)
Valuation gain on other investments (4.3) (4.7)
Pension buy-out costs - 51.8
Other provisions 8.2 6.1
269.7 257.4
Changes in working capital:
Decrease/(increase) in trading properties 30.9 (19.5)
Increase in debtors and tenant incentives (59.3) (13.7)
Increase in creditors 50.3 10.9
================================================ ======= =======
Net cash inflow generated from operations 291.6 235.1
================================================ ======= =======
15(ii) Analysis of net debt
Cash movements Non-cash adjustments
-------------------------
Cost of
early
At 1 Cash Cash close Other
January inflow(2) outflow(3) Exchange Fair value out of non-cash At 31 December
2019 GBPm GBPm movement changes debt adjustment(1) 2019
GBPm GBPm GBPm GBPm GBPm GBPm
============== ======== =========== ============ ========= ========== ======= ============= ==============
Bank loans and
loan capital 2,259.7 10.2 (269.7) (60.5) - 18.6 - 1,958.3
Capitalised
finance
costs (16.2) - (0.9) - - - 2.3 (14.8)
============== ======== =========== ============ ========= ========== ======= ============= ==============
Total
borrowings 2,243.5 10.2 (270.6) (60.5) - 18.6 2.3 1,943.5
Cash in hand
and
at bank (66.5) (66.5) - 0.5 - - - (132.5)
============== ======== =========== ============ ========= ========== ======= ============= ==============
Net debt 2,177.0 (56.3) (270.6) (60.0) - 18.6 2.3 1,811.0
============== ======== =========== ============ ========= ========== ======= ============= ==============
1 The other non-cash adjustment relates to the amortisation of
issue costs. See Note 8.
2 Proceeds from borrowings of GBP10.2 million.
3 Cash outflow of GBP270.6 million, comprises the repayment of
borrowings of GBP251.1 million, cash settlement for early repayment
of debt of GBP18.6 million and capitalised issue costs of GBP0.9
million.
15. RELATED PARTY TRANSACTIONS
There have been no undisclosed material changes in the related
party transactions as described in the last annual report, other
than those disclosed elsewhere in this condensed set of financial
information.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
2019 2018
------------------------ ------------------------
Notes GBPm Pence per share GBPm Pence per share
-------------------------------------------------- ------- ------- --------------- ------- ---------------
EPRA Earnings Table 4 264.1 24.4 184.7 18.3
EPRA NAV Table 3 7,801.0 708 6,620.3 650
EPRA NNNAV 11 7,425.8 674 6,557.7 644
EPRA net initial yield Table 5 3.8% 3.9%
EPRA 'topped up' net initial yield Table 5 4.3% 4.3%
EPRA vacancy rate Table 6 4.0% 5.2%
EPRA cost ratio (including vacant property costs) Table 7 22.9% 36.9%
EPRA cost ratio (excluding vacant property costs) Table 7 21.5% 35.3%
-------------------------------------------------- ------- ------- --------------- ------- ---------------
TABLE 2: INCOME STATEMENT, PROPORTIONAL CONSOLIDATION
2019 2018
======================= =======================
Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
====================================================== ===== ====== ====== ======= ====== ====== =======
Gross rental income 2,6 362.0 107.1 469.1 323.2 97.6 420.8
Property operating expenses 2,6 (80.7) (27.4) (108.1) (75.6) (27.1) (102.7)
====================================================== ===== ====== ====== ======= ====== ====== =======
Net rental income 281.3 79.7 361.0 247.6 70.5 318.1
Joint venture fee income(1) 2 20.4 (8.6) 11.8 44.9 (20.1) 24.8
Administration expenses 2,6 (51.5) (1.6) (53.1) (44.1) (1.3) (45.4)
====================================================== ===== ====== ====== ======= ====== ====== =======
Adjusted operating profit before interest and tax 250.2 69.5 319.7 248.4 49.1 297.5
Net finance costs (including adjustments) 2,6 (36.7) (10.0) (46.7) (45.9) (7.6) (53.5)
====================================================== ===== ====== ====== ======= ====== ====== =======
Adjusted profit before tax 213.5 59.5 273.0 202.5 41.5 244.0
Tax on adjusted profit 2,6 (3.2) (5.5) (8.7) (4.4) (2.5) (6.9)
====================================================== ===== ====== ====== ======= ------ ------ -------
Adjusted earnings 210.3 54.0 264.3 198.1 39.0 237.1
====================================================== ===== ====== ====== ======= ------ ------ -------
Non-controlling interest on adjusted profit 2,6 (0.2) - (0.2) (0.6) - (0.6)
====================================================== ===== ====== ====== ======= ------ ------ -------
Adjusted earnings after non-controlling interests (A) 210.1 54.0 264.1 197.5 39.0 236.5
Number of shares, million 11 1,081.3 1,008.6
Adjusted EPS, pence per share 24.4 23.4
------------------------------------------------------ ----- ------ ------ ------- ------ ------ -------
Number of shares 11 1,087.1 1,014.4
Adjusted EPS, pence per share - diluted 24.3 23.3
------------------------------------------------------ ----- ------ ------ ------- ------ ------ -------
EPRA earnings
-------------------------------------------------------------- ----- ---- ------- ------ ---- -------
Adjusted earnings after tax and non-controlling interests (A) 210.1 54.0 264.1 197.5 39.0 236.5
Pension buy-out costs 2 - - - (51.8) - (51.8)
-------------------------------------------------------------- ----- ---- ------- ------ ---- -------
EPRA earnings after tax and non-controlling interests 210.1 54.0 264.1 145.7 39.0 184.7
Number of shares 1,081.3 1,008.6
EPRA EPS, pence per share 24.4 18.3
-------------------------------------------------------------- ----- ---- ------- ------ ---- -------
Number of shares 1,087.1 1,014.4
EPRA EPS, pence per share - diluted 24.3 18.2
-------------------------------------------------------------- ----- ---- ------- ------ ---- -------
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.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
2019 2018
=============================== =============================
Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----- --------- --------- --------- --------- ------- ---------
Investment properties 12,6 8,401.7 1,898.3 10,300.0 7,801.4 1,566.9 9,368.3
Trading properties 12,6 20.2 1.0 21.2 51.7 2.4 54.1
------------------------------ ----- --------- --------- --------- --------- ------- ---------
Total properties 8,421.9 1,899.3 10,321.2 7,853.1 1,569.3 9,422.4
Investment in joint ventures 6 1,121.4 (1,121.4) - 999.9 (999.9) -
Other net liabilities (54.7) (104.6) (159.3) (112.0) (33.0) (145.0)
Net borrowings 13,6 (1,811.0) (673.3) (2,484.3) (2,177.0) (536.4) (2,713.4)
------------------------------ ----- --------- --------- --------- --------- ------- ---------
Total shareholders' equity(1) 7,677.6 - 7,677.6 6,564.0 - 6,564.0
EPRA adjustments 11 123.4 56.3
------------------------------ ----- --------- --------- --------- --------- ------- ---------
EPRA NAV 11 7,801.0 6,620.3
Number of shares, million 11 1,102.1 1,018.7
------------------------------ ----- --------- --------- --------- --------- ------- ---------
EPRA NAV, pence per share 11 708 650
1 After non-controlling interests.
Loan to value of 24.2 per cent is calculated as net borrowings
of GBP2,484.3 million divided by total properties (excluding head
lease ROU asset of GBP70.2 million) of GBP10,251.0 million (2018:
28.8 per cent; GBP2,713.4 million net borrowings; GBP9,422.4
million total properties).
The portfolio valuation uplift of +7.5 per cent shown in the
Disciplined Capital Allocation section is not directly derivable
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 GBP696.7 million (see Note 7) and property value of
GBP10,251.0 million (paragraph above) giving a valuation uplift of
7.3 per cent. The primary differences are that the uplift excludes
the impact of rent free incentives (GBP26.7 million, +0.3 per cent)
and other movements (-GBP5.3 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 GBP12,220.5 million (2018:
GBP10,991.8 million) includes Group total properties of GBP8,421.9
million and 100 per cent of total properties owned by joint
ventures of GBP3,798.6 million (see Note 6 (ii), investment
properties of GBP3,796.7 million and trading properties of GBP1.9
million) (2018: Group: GBP7,853.1 million, joint ventures:
GBP3,138.7 million).
Total acquisitions completed in 2019 of GBP283.5 million shown
in the Disciplined Capital Allocation section includes: SEGRO Group
acquisitions of GBP233.9 million (see Note 12), share of joint
venture acquisitions of GBP164.1 million; and excludes share of
assets acquired by SELP from SEGRO of GBP114.5 million (see Note
12).
Total disposals completed in 2019 of GBP442.4 million shown in
the Disciplined Capital Allocation section includes: Carrying value
of investment properties disposed by SEGRO Group of GBP473.3
million (see Note 12) and profit generated on disposal of GBP7.2
million (see Note 7); proceeds from the sale of trading properties
by SEGRO Group of GBP50.1 million (see Note 4); share of JV
disposal proceeds of GBP18.3 million; carrying value of lease
incentives, letting fees and rental guarantees disposed by SEGRO
Group and JV (at share) of GBP8.0 million; and excludes 50% of the
disposal proceeds for assets sold from SEGRO to SELP JV of GBP114.5
million (see Note 12).
TABLE 4: EPRA EARNINGS
2019 2018
Notes GBPm GBPm
=========================================== ===== ======= =======
Earnings per IFRS income statement 857.9 1,062.6
Adjustments to calculate EPRA Earnings,
exclude:
Valuation surplus on investment properties 7 (476.7) (791.4)
Profit on sale of investment properties 7 (7.2) (56.5)
Gain on sale trading properties 12 (6.9) -
Decrease in provision for impairment
of trading properties 7 (1.4) -
Increase in provision for impairment
of other interests in property 7 0.4 -
Valuation surplus on other investments 7 (4.3) (4.7)
Tax on profits on disposals(1) 9.2 36.8
Costs of early close out of debt 8 18.6 6.4
Net fair value (gain)/loss on interest
rate swaps and other derivatives 8 (7.9) 22.0
Deferred tax charge/(credit) in respect
of EPRA adjustments(1) 29.0 (8.2)
Adjustments to the share of profit from
joint ventures after tax 6 (149.1) (85.2)
Non-controlling interests in respect
of the above 2 2.5 2.9
=======
EPRA earnings 264.1 184.7
=======
Basic number of shares 11 1,081.3 1,008.6
EPRA Earnings per Share (EPS) 24.4 18.3
=======
Company specific adjustments:
Pensions buy-out costs 2 - 51.8
=======
Adjusted earnings 264.1 236.5
=======
Adjusted EPS 11 24.4 23.4
=======
1. Total tax charge in respect of adjustments per Note 2 of
GBP38.2 million (2018: GBP28.6 million charge) comprises tax charge
on profits on disposals of GBP9.2 million (2018: GBP36.8 million
charge) and deferred tax charge of GBP29.0 million (2018: GBP8.2
million credit).
TABLE 5: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Combined property portfolio including joint UK Continental Total
ventures at share - 2019 Notes GBPm Europe GBPm GBPm
============
Table
Total properties per financial statements 3 6,626.0 3,695.2 10,321.2
Add valuation surplus not recognised on trading
properties(1) 0.9- 0.9
Less head lease ROU assets - (70.2) (70.2)
============
Combined property portfolio per external valuers'
report 6,626.9 3,625.0 10,251.9
Less development properties (investment, trading
and joint ventures) (424.5) (510.5) (935.0)
============
Net valuation of completed properties 6,202.4 3,114.5 9,316.9
Add notional purchasers' costs 416.8 152.9 569.7
============
Gross valuation of completed properties including
notional purchasers' costs A 6,619.2 3,267.4 9,886.6
============
Income
============
Gross passing rents(2) 242.1 147.7 389.8
Less irrecoverable property costs (4.0) (6.1) (10.1)
============
Net passing rents B 238.1 141.6 379.7
Adjustment for notional rent in respect of
rent frees 30.0 18.6 48.6
============
Topped up net rent C 268.1 160.2 428.3
Including fixed/minimum uplifts(4) 10.7 1.0 11.7
============
Total topped up net rent 278.8 161.2 440.0
============
Yields - 2019 %% %
-----------
EPRA net initial yield(3) B/A 3.6 4.3 3.8
EPRA topped up net initial yield(3) C/A 4.1 4.9 4.3
Net true equivalent yield 4.6 5.2 4.8
============
1 Trading properties are recorded in the Financial Statements at
the lower of cost and net realisable value, therefore valuations
above cost 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 6: EPRA VACANCY RATE
2019 2018
GBPm GBPm
-----
Annualised potential rental value of vacant
premises 19.2 23.1
Annualised potential rental value for the
completed property portfolio 474.2 441.3
-----
EPRA vacancy rate 4.0% 5.2%
-----
TABLE 7: TOTAL COST RATIO/EPRA COST RATIO
2019 2018
Notes GBPm GBPm
------
Costs
Property operating expenses(1) 5 80.7 75.6
Administration expenses 51.5 44.1
Share of joint venture property operating and administration
expenses(2) 6 37.6 35.4
Less:
Joint venture property management fee income, management
fees and other costs recovered through rents but not
separately invoiced(3) (74.6) (70.6)
------
Total costs (A) 95.2 84.5
Gross rental income
Gross rental income 4 362.0 323.2
Share of joint venture property gross rental income 6 107.1 97.6
Less:
Service charge income, management fees and other costs
recovered through rents but not separately invoiced(3) (54.2) (51.9)
------
Total gross rental income (B) 414.9 368.9
Total cost ratio (A)/(B) 22.9% 22.9%
------
Total costs (A) 95.2 84.5
Share based payments (12.5) (11.1)
------
Total costs after share based payments (C) 82.7 73.4
Total cost ratio after share based payments (C)/(B) 19.9% 19.9%
------
EPRA cost ratio
Total costs (A) 95.2 84.5
Pension buy-out costs 2 - 51.8
------
EPRA total costs including vacant property costs (D) 95.2 136.3
Group vacant property costs 5 (4.8) (5.1)
Share of joint venture vacant property costs 6 (1.1) (0.9)
------
EPRA total costs excluding vacant property costs (E) 89.3 130.3
------
Total gross rental income (B) 414.9 368.9
------
Total EPRA cost ratio (including vacant property costs)
(D)/(B) 22.9% 36.9%
------
Total EPRA cost ratio (excluding vacant property costs)
(E)/(B) 21.5% 35.3%
------
1 Property operating expenses are net of costs capitalised in
accordance with IFRS of GBP7.3 million (2018: GBP4.6 million) (see
Note 5 for further detail on the nature of costs capitalised).
2 Share of joint venture property operating and administration
expenses after deducting costs related to performance and other
fees.
3 Total deduction of GBP74.6 million (2018: GBP70.6 million)
from costs includes: joint venture management fees income of
GBP20.4 million (2018: GBP18.7 million), service charge income
including joint ventures of GBP49.7 million (2018: GBP47.6 million)
and management fees and other costs recovered through rents but not
separately invoiced, including joint ventures, of GBP4.5 million
(2018: GBP4.3 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 GBP362.0 million
x(2018: GBP323.2 million) does not include joint venture management
fees income of GBP20.4 million (2018: GBP18.7 million) and are not
included in the total deduction to income of GBP54.2 million (2018:
GBP51.9 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 the IPD 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GPUPWPUPUGBW
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