REG-SEGRO PLC Results for the Six Months Ended 30 June 2021
29/07/2021 07:00
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Results for the Six Months Ended 30 June 2021
SEGRO reports a strong performance in H1 2021 and remains well-positioned to
deliver further growth.
Commenting on the results, David Sleath, Chief Executive, said:
“SEGRO has delivered another strong set of results, which reflect the high
quality of our portfolio and increased demand from a diverse range of
occupiers and investors. Together with our active approach to asset
management, rental growth and further progress with our development pipeline,
these factors have driven significant valuation increases and earnings growth.
“We have also made important progress on our Responsible SEGRO priorities,
putting the necessary framework in place to enable us to deliver on our
long-term commitments, whilst continuing to work with our local teams and
partners to embed our approach into our day-to-day business.
“SEGRO is well-placed to continue benefitting from the structural tailwinds
driving the industrial property sector with our unique portfolio of prime
warehouses, two-thirds of which are located in the most supply constrained
urban markets, and an enviable land bank capable of supporting our profitable
and expanding development programme. The combination of our established
pan-European, customer-focused operating platform and our relationships and
reputation with other key stakeholders, give us a significant competitive
advantage which further enhances our ability to secure opportunities for
future growth.”
HIGHLIGHTS(A):
* Adjusted pre-tax profit of £168 million up 19 per cent compared with the
prior year (H1 2020: £141 million). Adjusted EPS is 13.8 pence, up 10 per
cent (H1 2020: 12.5 pence).
* Adjusted NAV per share is up 12 per cent to 909 pence (31 December 2020: 814
pence) driven by portfolio asset management initiatives, yield compression,
rental growth and our development activity delivering a 10 per cent increase
in the valuation of the portfolio.
* Strong occupier demand, our customer focus and active management of the
portfolio generated £38 million of new headline rent commitments during the
period, including £21 million of new pre-let agreements, and a 12 per cent
average uplift on rent reviews and renewals (UK: 16 per cent, CE: 2 per cent).
* Further growth in the development pipeline with 1.3 million sq m of projects
under construction or in advanced pre-let discussionsequating to £96 million
of potential rent, of which 75 per cent has been pre-let, substantially
de-risking the 2021-2022 pipeline.
* Balance sheet positioned to support further, development-led growth with
access to over £1.2 billion of available liquidity and a low level of gearing
reflected in an LTV of 21 per cent at 30 June 2021 (31 December 2020: 24 per
cent).
* Interim dividend increased by 7 per cent to 7.4 pence (2020: 6.9 pence), in
line with our usual practice of setting the interim dividend at one-third of
the previous full year dividend.
FINANCIAL SUMMARY
6 months to 6 months to Change
30 June 2021
30 June 2020
per cent
Adjusted(1) profit before tax (£m) 168 141 19.1
IFRS profit before tax (£m) 1,413 221 -
Adjusted(2) earnings per share (pence) 13.8 12.5 10.4
IFRS earnings per share (pence) 110.3 19.5 -
Dividend per share (pence) 7.4 6.9 7.2
Total Accounting Return (%)(3) 13.5 4.6
30 June 2021 31 December Change
2020
per cent
Portfolio valuation (SEGRO share, £m) 14,446 12,995 10.2(4)
Adjusted(5 6 )net asset value per share (pence, diluted) 909 814 11.7
IFRS net asset value per share (pence, diluted) 897 809 10.9
Net debt (SEGRO share, £m) 3,092 3,088
Loan to value ratio including joint ventures at share (per cent) 21 24
1. A reconciliation between Adjusted profit before tax and IFRS profit before
tax is shown in Note 2 to the condensed financial information.
2. A reconciliation between Adjusted earnings per share and IFRS earnings per
share is shown in Note 11 to the condensed financial information.
3. Total Accounting Return is calculated based on the opening and closing
adjusted NAV per share adding back dividends paid during the period.
4. Percentage valuation movement during the period based on the difference
between opening and closing valuations for all properties including buildings
under construction and land, adjusting for capital expenditure, acquisitions
and disposals.
5. A reconciliation between Adjusted net asset value per share and IFRS net
asset value per share is shown in Note 11 to the condensed financial
information.
6. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA)
(see Table 4 in the Supplementary Notes for a NAV reconciliation).
(A) Figures quoted on pages 1 to 17 refer to SEGRO’s share, except for land
(hectares) and space (square metres) which are quoted at 100 per cent, unless
otherwise stated. Please refer to the Presentation of Financial Information
statement in the Financial Review for further details.
OUTLOOK
SEGRO continues to be positioned well for further growth, benefiting from a
unique portfolio of assets and a development pipeline located in areas which
are highly sought after and where land is in increasingly short supply. Our
ability to provide our customers with modern, sustainable premises in prime
locations, two-thirds of which are in Europe’s major cities, combined with
the extensive experience and networks of our local teams, give us a strong
competitive advantage.
Our buildings are adaptable to many different uses and serve a wide range of
customers and sectors. A significant portion of occupier demand continues to
arise from the increased use of digital channels by retailers and consumers
which, in turn, is driving increased e-commerce penetration and consumption of
data across Europe. Although internet sales penetration levels have
understandably fallen from their highs as physical retail has reopened, they
remain significantly higher than pre-pandemic levels as cultural barriers have
been overcome and habits have changed. We believe that the long-term trend
towards increased on-line shopping has been amplified and accelerated by the
pandemic and this has given a new impetus to demand for space.
Coupled with that, many customers and logistics suppliers are placing renewed
emphasis on supply chain resilience, near-shoring and local sourcing, improved
customer service and cost or inventory efficiency which are fuelling increased
demand for modern, well-located warehouses – both urban and big box. We
expect these themes to continue for some time. More recently we have also seen
demand arising from emerging new sectors including creative industries and
q-commerce (including rapid food delivery providers).
Record levels of take-up across Europe have resulted in low vacancy rates and
in most of our markets supply currently equates to less than a year of
take-up. This is resulting in rental growth in our core markets, most notably
in urban areas where the combination of a shortage of modern warehouse space,
a shortage of land suitable for development and the diversity of the occupier
base is most prevalent.
Given these strong market dynamics investor demand for well-located, modern
industrial assets is likely to continue to grow, putting further upward
pressure on asset values.
These factors, combined with our active approach to asset management, are
enabling us to drive strong returns from the existing portfolio, supplemented
by our profitable, de-risked development programme which generates additional
rental income and allows us to further modernise the portfolio to help our
customers meet their own sustainability requirements.
We remain confident in the outlook for the remainder of 2021 and beyond given
the strong levels of occupier demand and the competitive position of our
business, but remain alert to macro risks, not least the ongoing Covid-19
pandemic.
SUMMARY & KEY METRICS
H1 2021 H1 2020 FY2020
STRONG PORTFOLIO PERFORMANCE (see page 8):
Valuation increase driven by yield compression, rental value growth and active
asset management of the standing portfolio, supplemented by development gains.
Portfolio valuation uplift (%) 10.2 0.7 10.3
Like-for-like portfolio valuation growth (%) UK 8.6 0.1 9.2
CE 8.3 0.8 10.2
Estimated rental value (ERV) growth (%) UK 3.6 1.0 3.1
CE 1.5 0.4 1.5
ACTIVE ASSET MANAGEMENT DRIVING OPERATIONAL PERFORMANCE (see page 9):
Strong performance in capturing new rent, including leases signed with
customers from new sectors, highlighting the versatility of our urban
portfolio. Our approach to asset management and customer focus has also
resulted in continued capture of reversionary potential.
Total new rent contracted during the period (£m) 38 34 78
Pre-lets signed during the period (£m) 21 19 41
Like-for-like net rental income growth (%): Group 4.7 (0.2) 2.1
UK 4.8 0.6 0.9
CE 4.6 (0.7) 4.3
Uplift on rent reviews and renewals (%) 12.1 10.4 19.1
Vacancy rate (%) 4.3 5.2 3.9
Customer retention (%) 83 88 86
INVESTMENT ACTIVITY CONTINUES TO FOCUS ON DEVELOPMENT (see page 14):
Investment continues to focus on the development and we sourced further land
to secure future opportunities. Development capex for 2021, including
infrastructure, expected to be c.£750 million.
Development capex (£m) 364 265 531
Acquisitions (£m) 92 426 889
Disposals (£m) 154 59 139
EXECUTING ON AND GROWING OUR DEVELOPMENT PIPELINE (see page 12):
Continuing to add to our development pipeline with a further 770,000 sq m
expected to complete by year end and £96m of potential rent from developments
under construction or in advanced discussions.
Development completions:
– Space completed (sq m) 104,000 358,500 835,900
– Potential rent (£m) (Rent secured, %) 8 (75%) 22 (64%) 47 (84%)
Current development pipeline potential rent (£m) (Rent secured, %) 74 (72%) 45 (85%) 54 (66%)
Near-term development pipeline potential rent (£m) 22 33 27
FINANCING (see page 15):
Strong balance sheet and low cost of debt provides significant capacity to
invest for future growth.
Cost of debt (%) 1.5 1.7 1.6
Average debt maturity (years) 9.7 9.4 9.9
Cash and available facilities (£m) 1,230 1,541 1,189
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available from 08:30am (UK
time) at:
https://www.investis-live.com/segro/60e718e680fc931000313c84/hy21
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The webcast will be available for replay at SEGRO’s website at:
http://www.segro.com/investors
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shortly after the live presentation.
A conference call facility will be available at 08:30 (UK time) on the An audio recording of the conference call will be available until 5 August
following number: 2021 on:
Dial-in: +44 (0)800 640 6441 UK: +44 (0) 203 936 3001
+44 (0) 203 936 2999 Access code: 713190
Access code: 933901
A video of David Sleath, Chief Executive discussing the results will be
available to view on www.segro.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.segro.com&esheet=52467481&newsitemid=20210728005971&lan=en-US&anchor=www.segro.com&index=3&md5=7b637564dda512f6df276e8eea495bac)
, together with this announcement, the Half Year 2021 Property Analysis Report
and other information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Tel: + 44 (0) 20 7451 9110
(after 11am)
(Chief Financial Officer)
Claire Mogford Mob: +44 (0) 7710 153 974
(Head of Investor Relations) Tel: +44 (0) 20 7451 9048
(after 11am)
FTI Consulting Richard Sunderland / Claire Turvey / Tel: +44 (0) 20 3727 1000
Eve Kirmatzis
FINANCIAL CALENDAR
2021 interim dividend ex-div date 12 August 2021
2021 interim dividend record date 13 August 2021
2021 interim dividend scrip dividend price announced 19 August 2021
Last date for scrip dividend elections 3 September 2021
2021 interim dividend payment date 24 September 2021
2021 Third Quarter Trading Update 20 October 2021
Full Year 2021 Results (provisional) 18 February 2022
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), listed on the London Stock
Exchange and Euronext Paris, and is a leading owner, manager and developer of
modern warehouses and industrial property. It owns or manages 8.8 million
square metres of space (95 million square feet) valued at £17.1 billion
serving customers from a wide range of industry sectors. Its properties are
located in and around major cities and at key transportation hubs in the UK
and in seven other European countries.
For over 100 years SEGRO has been creating the space that enables
extraordinary things to happen. From modern big box warehouses, used primarily
for regional, national and international distribution hubs, to urban
warehousing located close to major population centres and business districts,
it provides high-quality assets that allow its customers to thrive.
A commitment to be a force for societal and environmental good is integral to
SEGRO’s purpose and strategy. Its Responsible SEGRO framework focuses on
three long-term priorities where the company believes it can make the greatest
impact: Championing Low-Carbon Growth, Investing in Local Communities and
Environments and Nurturing Talent.
See www.SEGRO.com
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for further information.
Forward-Looking Statements: This announcement contains certain forward-looking
statements with respect to SEGRO's expectations and plans, strategy,
management objectives, future developments and performance, costs, revenues
and other trend information. These statements are subject to assumptions, risk
and uncertainty. Many of these assumptions, risks and uncertainties relate to
factors that are beyond SEGRO's ability to control or estimate precisely and
which could cause actual results or developments to differ materially from
those expressed or implied by these forward-looking statements. Certain
statements have been made with reference to forecast process changes, economic
conditions and the current regulatory environment. Any forward-looking
statements made by or on behalf of SEGRO are based upon the knowledge and
information available to Directors on the date of this announcement.
Accordingly, no assurance can be given that any particular expectation will be
met and you are cautioned not to place undue reliance on the forward-looking
statements. Additionally, forward-looking statements regarding past trends or
activities should not be taken as a representation that such trends or
activities will continue in the future. The information contained in this
announcement is provided as at the date of this announcement and is subject to
change without notice. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority), SEGRO does not
undertake to update forward-looking statements, including to reflect any new
information or changes in events, conditions or circumstances on which any
such statement is based. Past share performance cannot be relied on as a guide
to future performance. Nothing in this announcement should be construed as a
profit estimate or profit forecast. The information in this announcement does
not constitute an offer to sell or an invitation to buy securities in SEGRO
plc or an invitation or inducement to engage in or enter into any contract or
commitment or other investment activities.
Neither the content of SEGRO's website nor any other website accessible by
hyperlinks from SEGRO's website are incorporated in, or form part of, this
announcement.
CHIEF EXECUTIVE’S REVIEW
INTRODUCTION
SEGRO has delivered another strong set of results, which reflect the high
quality of our portfolio and increased demand from a diverse range of
occupiers and investors. Together with our active approach to asset
management, rental growth and further progress with our development pipeline,
these factors have driven significant valuation increases and earnings growth.
Our business is well-placed to continue benefitting from the structural
tailwinds driving the industrial property sector with our unique portfolio of
prime warehouses, two-thirds of which are located in the most supply
constrained urban markets, and an enviable land bank capable of supporting our
profitable and expanding development programme. The combination of our
established pan-European, customer-focused operating platform and our
relationships and reputation with other key stakeholders, give us a
significant competitive advantage which further enhances our ability to secure
opportunities for future growth.
IMPORTANT PROGRESS WITH RESPONSIBLE SEGRO PRIORITIES
Earlier this year we launched our new Responsible SEGRO ambitions and
commitments which address the key areas where we believe we can make the
greatest environmental and social contribution, helping to position SEGRO for
another 100 years of success.
Our three priorities are:
* Championing low-carbon growth – we recognise the world faces a climate
emergency and are committed to playing our part in tackling climate change.
* Investing in our local communities and environments – as a long-term
investor we are committed to contributing to the vitality of the communities
in which we operate.
* Nurturing talent – our people are vital to and inseparable from our success
and we are committed to attracting, creating and retaining talented
individuals from a wide range of backgrounds.
We have been working on these focus areas throughout the first half of the
year, alongside and as part of the management of our property portfolio, and
engaging with our stakeholders to gain their feedback, which has been
overwhelmingly positive.
We have made good progress in Championing Low-Carbon Growth, particularly in
the area of our Scope 3 carbon emissions. One of our key challenges in
reducing and eliminating operational carbon emissions is for us to gain
visibility over, and then influence, our customers’ energy usage and sources
of supply. We are gathering more data than we have ever done before and now
have visibility over significantly more data than we did at the end of 2020.
We have also moved our Polish portfolio, which is one of the few parts of the
portfolio where we directly source energy on behalf of our customers, onto a
renewable energy tariff. This represents an important step forward as Poland
has a highly coal-based power network and accounted for almost half of our
known total carbon emissions in 2020. All of the markets where we procure
energy (for ourselves and on behalf of our customers) are now on renewable
energy targets. Finally, we have also signed our first Green lease on a data
centre on the Slough Trading Estate which requires the customer to procure
certified renewable energy.
We are addressing embodied carbon in our development pipeline by undertaking
full lifetime carbon assessments for most developments and we continue to test
and introduce leading sustainability features in our developments and
refurbishments such as solar panels, LED lighting, living walls, battery
storage, rainwater harvesting and sensors to measure air quality, energy usage
and other day to day operational metrics.
In terms of Investing in our Local Communities and Environments, we have been
working hard to put the necessary framework in place to launch our first
Community Investment Plans (CIPs) in the second half of 2021. We have
identified eight key markets and started to accept proposals for an initial
set of projects.
The SEGRO Centenary Fund, which supports our Responsible SEGRO goal of
improving employment prospects of the individuals within the communities in
our major markets, has now committed its third and fourth rounds of funding.
These two rounds contributed to 23 programmes supporting over 3,000
beneficiaries, with a focus on employability and skills training. Finally, we
have continued our work with LandAid and Pathways to Property on projects
aligned with our areas of focus.
We also continue to work to improve the physical environments within and
around our estates, including the introduction of biodiversity features such
as beehives and green spaces. For example, we recently funded the creation of
Tree Trails in Slough and in Germany are working with Plant-My-Tree to support
forest conservation and plant 1,430 trees near Hamburg.
A crucial element of Nurturing Talent is to ensure that we are a fully
inclusive business which appeals to a wide, diverse and talented range of
people. Our work in the first half has included working with the National
Equality Standards to audit our business, participating in the Social Mobility
Index and building on our strengths and identifying opportunities for
improvement from the results of our ‘Your Say’ employee survey. These
programmes and other initiatives will help us prioritise actions and
improvements to ensure that we provide an inclusive culture and a healthy,
supportive working environment.
Alongside the ongoing work on these three focus areas, an important next step
within our Responsible SEGRO framework in the second half of the year is to
identify challenging but achievable non-financial KPIs to help us measure and
report on our progress and to link these to remuneration as part of our
updated Remuneration Policy which will be presented to shareholders for
approval at the 2022 Annual General Meeting.
PORTFOLIO VALUATION: STRONG GROWTH IN ALL MARKETS
Valuation gains from asset management, market-driven yield improvement and
development
There has been significant growth in property values across all of our markets
in the first six months of 2021 as a result of the continued strong occupier
and investor appetite for industrial assets.
The Group’s property portfolio was valued at £14.4 billion at 30 June 2021
(£17.1 billion of assets under management). The portfolio valuation,
including completed assets, land and buildings under construction, increased
by 10.2 per cent (adjusting for capital expenditure and asset recycling during
the period) compared to 0.7 per cent in H1 2020.
This primarily comprises an 8.5 per cent increase in the assets held
throughout the period (H1 2020: 0.3 per cent), driven by strong yield
compression in most markets (the true equivalent yield fell 30 basis points
across the whole portfolio to 4.2 per cent) and a 2.8 per cent increase in our
valuers’ estimate of the market rental value of our portfolio (ERV).
Assets held throughout the period in the UK increased in value by 8.6 per cent
(H1 2020: 0.1 per cent). The true equivalent yield applied to our UK portfolio
was 4.1 per cent (31 December 2020: 4.3 per cent), reflecting yield
compression, rental growth and the impact of newly completed developments.
Rental values improved by 3.6 per cent (H1 2020: 1.0 per cent).
Assets held throughout the period in Continental Europe increased in value by
8.3 per cent (H1 2020: 0.8 per cent) on a constant currency basis, reflecting
a combination of yield compression to 4.4 per cent (31 December 2020: 4.8 per
cent) and rental value growth of 1.5 per cent (H1 2020: 0.4 per cent).
More details of our property portfolio can be found in the H1 2021 Property
Analysis Report available at www.segro.com/investors.
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.segro.com%2Finvestors&esheet=52467481&newsitemid=20210728005971&lan=en-US&anchor=www.segro.com%2Finvestors.&index=5&md5=9ba72a0f50317900a20840e11f2be41c)
Property portfolio metrics at 30 June 2021
Portfolio value, £m Yield(3)
Lettable Completed Land & Combined Combined Valuation Topped-up Net true Vacancy
area sq m
development
property
property
movement(2 3
net initial
equivalent
(ERV)(4
portfolio
portfolio )
%
% )
% %
(AUM) (AUM)
UK
GREATER LONDON 1,225,704 5,165 184 5,349 5,349 8.4 3.2 3.9 6.6
THAMES VALLEY 568,337 2,033 216 2,249 2,249 8.5 4.0 4.4 2.4
NATIONAL LOGISTICS 546,252 911 527 1,438 1,438 9.6 4.3 4.3 -
UK TOTAL 2,340,293 8,109 927 9,036 9,036 8.6 3.5 4.1 4.7
Continental Europe
Germany 1,478,357 1,323 163 1,486 2,224 6.6 3.7 3.8 2.4
Netherlands 233,193 159 16 175 334 14.2 4.0 4.1 2.5
France 1,420,452 1,419 184 1,603 2,074 6.0 4.1 4.6 6.1
Italy 1,357,237 764 327 1,091 1,612 16.4 4.3 4.2 -
Spain 311,056 219 115 334 507 14.1 4.2 4.3 -
Poland 1,475,328 586 41 627 1,104 6.5 5.6 5.6 6.3
Czech Republic 169,515 83 11 94 180 10.7 4.8 5.2 2.9
CONTINENTAL EUROPE TOTAL 6,445,138 4,553 857 5,410 8,035 8.3 4.2 4.4 3.7
GROUP TOTAL 8,785,431 12,662 1,784 14,446 17,071 8.5 3.8 4.2 4.3
1 Figures reflect SEGRO wholly-owned assets and its share of assets held in
joint ventures unless stated “AUM” which refers to all assets under
management.
2 Valuation movement is based on the difference between the opening and
closing valuations for properties held throughout the period, allowing for
capital expenditure, acquisitions and disposals.
3 In relation to completed properties only.
4 Vacancy rate excluding short term lettings for the Group at 30 June 2021 is
4.3 per cent.
ASSET MANAGEMENT: CREATING VALUE THROUGH OPERATIONAL EXCELLENCE
Our portfolio comprises two main asset types: urban warehouses and big box
warehouses. The demand-supply dynamics in both asset classes continue to be
positive.
Urban Warehouses
Urban warehouses account for 67 per cent of our portfolio value. They tend to
be smaller warehouses and are located mainly in and on the edges of major
cities where land supply is restricted and there is strong demand for
warehouse space, particularly catering for the needs of urban logistics and,
around London, from data centre users.
Our urban portfolio is concentrated in London and South-East England (80 per
cent) and major cities in Continental Europe (20 per cent), including Paris,
Düsseldorf, Frankfurt, Berlin, Amsterdam and Warsaw. These locations share
similar characteristics in terms of limited (and shrinking) supply of
industrial land and growing populations, while occupiers are attracted to
modern warehouses with plenty of yard space to allow easy and safe vehicle
circulation. We believe that this enduring occupier demand and limited supply
bodes well for future rental growth.
Big Box Warehouses
Big box warehouses account for 31 per cent of our portfolio value. They tend
to be used for storage, processing and distribution of goods on a regional,
national or international basis and are, therefore, much larger than urban
warehouses.
They are focused on the major logistics hubs and corridors in the UK
(South-East and Midlands regions), France (the logistics ‘spine’ linking
Lille, Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin, Frankfurt and
Hamburg), Italy (Milan, Bologna and Rome), Poland (Warsaw, Łódz, Poznán,
and the industrial region of Silesia) and Spain (Barcelona and Madrid). 27 per
cent of our big box warehouses are in the UK and 73 per cent are in
Continental Europe.
Occupier demand is strong across all of our markets but the nature (and
typical location) of big box warehouses tends to mean that, over time, supply
is able to increase more easily to satisfy demand, as there is generally more
land available in out-of-town locations. However, record take-up levels over
the past 12 months have meant that most of the markets that we operate in have
less than a year of available space and vacancy levels remain low.
Overall, we believe the prospects for significant rental growth in big box
warehouses are, and have always been, limited but this asset class brings
other benefits including lower asset management intensity and long leases
which help to ensure a sustainable level of income. In addition, by holding
the majority of our Continental European big box warehouses in the SELP joint
venture, we receive additional income from managing the venture which enhances
total returns.
Customer relationships key to our continued success
Our long-term ownership and internalised management of our portfolio allows us
to focus on developing strong customer relationships. These relationships
proved to be particularly important last year in helping us to respond quickly
to the impacts of the pandemic on our customer base. This meant that we were
able to alleviate the cash flow pressures that some of our customers were
experiencing and, as a result, help their businesses to survive an
unprecedented period. A small proportion of customers continue to pay their
rents monthly but are paying on time and in full and, as a result, rental
collections have largely reverted to pre-pandemic levels and patterns.
Our experience last year demonstrates why we believe that an important part of
the role of our asset managers is to build a knowledge of the businesses that
occupy our space. By understanding their evolving needs and requirements, we
can help them through difficult situations such as the pandemic but also help
them to change and grow in more positive times, whilst also becoming better
able to identify emerging trends and innovate accordingly.
Almost 60 per cent of our headline rent comes from customers with whom we have
multiple leases and over a quarter of our rent comes from customers with whom
we are active in more than one geography. Additionally, over 20 per cent of
our rent comes from customers with whom we have both a big box and urban
warehouse lease which shows the importance of being able to offer both types
of assets to our customers.
Our customer relationships also help to drive the growth of our development
pipeline and over 80 per cent of the potential rent from the projects in our
near-term pipeline has been secured by a pre-let with an existing customer.
Partnering with our customers is vital to achieving our Responsible SEGRO
ambitions. Our commitment to be net-zero carbon by 2030 covers Scope 3 carbon
emissions from our portfolio (including customer energy use). We therefore
need to engage with our customers to get visibility on the amount of energy
that they use and work with them to reduce the operating carbon emissions from
our portfolio (for further detail on the progress made with this so far in
2021 see page 7).
Growing Rental Income from Letting Existing Space and New Developments
At 30 June 2021, our portfolio generated passing rent of £461 million, rising
to £503 million once rent free periods expire (‘headline rent’). During
the period, we contracted £38 million of new headline rent and pre-let
agreements contributed £21 million to this number.
Our customer base remains well diversified, reflecting the multitude of uses
of warehouse space. Our top 20 customers account for 30 per cent of total
headline rent, and Amazon continues to be the largest customer, accounting for
4.7 per cent of the total.
Approximately half of our customers are involved in businesses affected by
e-commerce, including third party logistics and parcel delivery businesses,
and retailers. These businesses also accounted for almost half of our take-up
during the period.
Summary of key leasing data for H1 2021 and H1 2020
Summary of key leasing data(1) for the six months to 30 June( ) H1 2021 H1 2020
Take-up of existing space(2) (A) £m 9.5 6.6
Space returned(3) (B) £m (9.5) (8.2)
NET ABSORPTION OF EXISTING SPACE(2) (A-B) £m - (1.6)
Other rental movements (rent reviews, renewals, indexation)(2) (C) £m 4.4 3.9
RENT ROLL GROWTH FROM EXISTING SPACE £m 4.4 2.3
Take-up of pre-let developments completed in the year (signed in prior £m 4.8 10.1
years)(2) (D)
Take-up of speculative developments completed in the past two years(2) (D) £m 4.0 6.1
TOTAL TAKE-UP(2) (A+C+D) £m 22.7 26.7
Less take-up of pre-lets and speculative lettings signed in prior years(2) £m (5.5) (11.8)
Pre-lets signed in the year for future delivery(2) £m 21.2 18.8
RENTAL INCOME CONTRACTED IN THE PERIOD(2) £m 38.4 33.7
Takeback of space for redevelopment £m (1.9) (0.5)
Retention rate(4) % 83 88
1 All figures reflect exchange rates at 30 June 2021 and include joint
ventures at share.
2 Headline rent.
3 Headline rent, excluding space taken back for redevelopment.
4 Headline rent retained as a percentage of total headline rent at risk from
break or expiry during the period.
We monitor a number of asset management performance indicators to assess our
performance:
* Rental growth from lease reviews and renewals. These generated an uplift of
12.1 per cent (H1 2020: 10.4 per cent) compared to previous headline rent.
During the period, new rents agreed at review and renewal were 16.4 per cent
higher in the UK (H1 2020: 16.2 per cent higher) as reversion accumulated over
the past five years was reflected in new rents agreed, adding £3 million of
headline rent. In Continental Europe, rents agreed on renewal were 1.8 per
cent higher (H1 2020: 0.9 per cent higher), with market rental growth slightly
ahead of the indexation provisions that have accumulated over recent years.
* Vacancy has remained low. The vacancy at 30 June 2021 increased slightly to
4.3 per cent (31 December 2020: 3.9 per cent) mainly due to some takebacks of
older assets for refurbishment and redevelopment, which we expect to relet at
higher rental levels. The vacancy rate on our standing stock remains low at
3.0 per cent (31 December 2020: 2.6 per cent). The vacancy rate remains at the
lower end of our target range of between 4 and 6 per cent. The average vacancy
rate during the period was 4.3 per cent (H1 2020: 4.8 per cent).
* High retention rate of 83 per cent. During the period, space equating to £9.5
million (H1 2020: £8.2 million) of rent was returned to us, including £1.4
million of rent lost due to insolvency (H1 2020: £1.5 million). We also took
back space equating to £1.9 million of rent for redevelopment. Approximately
£35 million of headline rent was at risk from a break or lease expiry during
the period of which we retained 82 per cent in existing space, with a further
1 per cent retained but in new premises.
* Lease terms continue to offer attractive income security. The level of
incentives agreed for new leases (excluding those on developments completed in
the period) represented 6.0 per cent of the headline rent (H1 2020: 8.0 per
cent). The portfolio’s weighted average lease length reduced slightly during
the first six months of the year with 7.3 years to first break and 8.6 years
to expiry (31 December 2020: 7.5 years to first break, 8.8 years to expiry).
Lease terms are longer in the UK (8.7 years to break) than in Continental
Europe (5.4 years to break), reflecting the market convention of shorter
leases in countries such as France and Poland.
* £4.4 million of net new rent from existing assets. We generated £9.5 million
of headline rent from new leases on existing assets (H1 2020: £6.6 million)
and £4.4 million from rent reviews, lease renewals and indexation (H1 2020:
£3.9 million). This was offset by rent from space returned of £9.5 million
(H1 2020: £8.2 million).
* Continued strong demand from customers for pre-let agreements. In addition to
increased rents from existing assets, we contracted £21.2 million of headline
rent from pre-let agreements and lettings of speculative developments prior to
completion (H1 2020: £18.8 million). Included in this within the UK is a
sizeable new data centre on the Slough Trading Estate and a further letting at
SEGRO Logistics Park East Midlands Gateway. On the Continent, we agreed
pre-lets in most of our major markets with the majority being to online
retailers or third-party logistics operators.
* Net rent roll growth of £27.0 million. An important element of achieving our
goal of being a leading income-focused REIT is to grow our rent roll from both
our existing assets and our development pipeline. Rent roll growth, which
reflects net new headline rent from existing space (adjusted for takebacks of
space for development), take-up of developments and pre-lets agreed during the
period, increased to £27.0 million in the period, from £25.0 million in H1
2020.
DEVELOPMENT: FURTHER GROWTH IN OUR DEVELOPMENT PIPELINE
Development Activity
During the period, we invested £456 million in our development pipeline which
comprised £364 million (H1 2020: £265 million) in development spend, of
which £42 million (H1 2020: £34 million) was for infrastructure, and a
further £92 million (H1 2020: £202 million) to replenish our land bank to
enable future development.
Development Projects Completed
We completed 104,000 sq m of new space during the first half, a lower amount
than usual as our completion schedule is significantly weighted towards the
second half of the year in 2021. These projects were 58 per cent pre-let prior
to the start of construction and were 75 per cent let as at 30 June 2021,
generating £6 million of headline rent, with a potential further £2 million
to come when the remainder of the space is let. This translates into a yield
on total development cost (including land, construction and finance costs) of
6.7 per cent when fully let.
We completed 54,500 sq m of big box warehouse space, including pre-lets in
Germany, the Netherlands, Poland and Italy to customers in the e-commerce and
logistics space. We also completed 49,500 sq m of urban warehouses, 66 per
cent of which has already been leased, including a further data centre on the
Slough Trading Estate, phase two of SEGRO Park Rainham and urban warehouse
parks in Paris and Warsaw.
All of the eligible space that we completed in the period has been, or is in
the process of being, accredited as BREEAM ‘Excellent’ or ‘Very Good’
(or a local equivalent).
Current Development Pipeline
At 30 June 2021, we had development projects approved, contracted or under
construction totalling 1.1 million sq m, representing £337 million of future
capital expenditure to complete and £74 million of annualised gross rental
income when fully let. 72 per cent of this rent has already been secured and
these projects should yield 6.5 per cent on total development cost when fully
occupied.
* In the UK, we have 216,200 sq m of space approved or under construction.
Within this are three more data centres on the Slough Trading Estate,
developments in East, South and West London as well as four pre-lets at our
big box logistics park SEGRO Logistics Park East Midlands Gateway.
* In Continental Europe, we have 843,000 sq m of space approved or under
construction. This includes pre-let big box warehouses for a variety of
different occupiers, from retailers to manufacturers, across all of our
European markets. We are also developing further phases of our successful
urban warehouse parks in Berlin, Cologne, Düsseldorf and Ingolstadt in
Germany as well as two projects in Paris.
* In addition to the above projects that we are developing ourselves, we also
have 72,200 sq m of space under construction as part of forward-funded
agreements with local developers. This is proving to be an additional and
effective method of accessing opportunities in competitive markets where
sourcing land is more difficult.
We continue to focus our speculative developments primarily on urban warehouse
projects, particularly in the UK, France and Germany, where modern space is in
short supply and occupier demand is strong. In the UK, our speculative
projects are concentrated in London and on the Slough Trading Estate. In
Continental Europe, we continue to build scale in Germany, where projects are
underway in a number of major cities.
Within our Continental European development programme, approximately £22
million of potential gross rental income is associated with big box warehouses
developed outside our SELP joint venture. Under the terms of the joint
venture, SELP has the option, but not the obligation, to acquire these assets
shortly after completion. Assuming SELP exercises its option, we would retain
a 50 per cent share of the rent after disposal. In the period, SEGRO sold
£233 million of completed assets to SELP, representing a net disposal of
£117 million.
In recent months, there has been media commentary around the availability and
costs of certain materials as economies reopen post various local Covid
lockdowns. We have not experienced any delays to the completion date of any of
our actual or pipeline development projects, working closely with our
construction partners to ensure that any supply chain interruptions can be
managed within the overall project timetable. In terms of costs, the majority
of our development pipeline is on fixed price contracts so there has been
little impact so far. We anticipate that rental growth would more than offset
any additional costs that arise on the future pipeline described below, given
the compelling demand from occupiers for new, high-quality, space and the low
level of vacancy across our markets.
We continue to pay attention close to our use of energy, resources and
materials throughout the construction of our warehouses and are increasingly
looking at how we can minimise the carbon footprint throughout their entire
life cycle. It is now a SEGRO wide policy to undertake BIM (Building
Information Management) modelling on all new developments of 5,000 sq m or
larger, which enables us to do a full lifecycle assessment.
Focusing on the environmental sustainability of our buildings is important not
just for the long-term performance and resilience of the portfolio, but also
because increasingly our customers want to occupy buildings that align with
and help them achieve their own environmental targets.
Future Development Pipeline
Near-Term Development Pipeline
Within the future development pipeline are a number of pre-let projects which
are close to being approved, awaiting either final conditions to be met or
planning approval to be granted. We expect to commence these projects within
the next six to 12 months.
These projects total 183,100 sq m of space, equating to approximately £186
million (H1 2020: £311 million) of additional capital expenditure and £22
million (H1 2020: £33 million) of additional rent.
Land Bank
Our land bank identified for future development (including the near-term
projects detailed above) totalled 597 hectares at 30 June 2021, valued at
£651 million, less than 5 per cent of our total portfolio value. We invested
£92 million in acquiring new land during the period, the majority of which
was land associated with developments already underway or expected to start in
the short term.
We estimate that our land bank (excluding projects currently under
construction) can support over 2.5 million sq m of development over the next
five years. The prospective capital expenditure associated with the future
pipeline is approximately £1.4 billion. It could generate £144 million of
gross rental income, representing a yield on total development cost (including
land and notional finance costs) of around 6.9 per cent. These figures are
indicative based on our current expectations and are dependent on our ability
to secure pre-let agreements, planning permissions, construction contracts and
on our outlook for occupier conditions in local markets.
Conditional Land Acquisitions and Land Held Under Option Agreements
Land acquisitions (contracted but subject to further conditions) and land held
under option agreements are not included in the figures above but together
represent significant further development opportunities. These include sites
for big box warehouses in the UK Midlands as well as in Germany and Italy.
They also include urban warehouse sites in East London and close to Heathrow.
The options are held on the balance sheet at a value of £16 million
(including joint ventures at share). Those we expect to exercise over the next
two to three years are for land capable of supporting just over 1.1 million sq
m of space and generating approximately £66 million of headline rent (SEGRO
share) for a blended yield of approximately 6 per cent.
INVESTMENT: CONTINUING TO FOCUS ON OUR DEVELOPMENT PIPELINE
We invested £456 million in our portfolio during the period: development
capital expenditure of £364 million, and £92 million on acquisitions. This
was partly offset by £154 million of disposals.
Acquisitions: Focused on sourcing land to add to the future development
pipeline
Acquisitions during the period totalled £92 million, mainly land or
redevelopment opportunities to further grow our development pipeline. They
included a site in South London on which we have agreed a forward-funding
agreement to build an urban warehouse park. We also bought land in France,
Italy and Spain for a mix of urban warehouse and big box development projects.
Disposals: Asset Recycling to Improve Portfolio Focus
During the period, we recognised proceeds of £154 million from the disposal
of land and assets.
The asset disposals included a recently developed stand-alone car showroom in
the Thames Valley portfolio and, as in previous years, we sold a portfolio of
Continental European big box warehouses developed by SEGRO to SELP for which
we received £117 million net proceeds from an effective sale of a 50 per cent
interest. The consideration for these asset disposals was £136 million,
reflecting a blended topped-up initial yield of 4.3 per cent.
In addition to the above asset disposals, we also completed the disposal of a
building that we developed on a turnkey basis in our East London portfolio.
The remainder of the disposals were residual plots of land in Budapest and
Warsaw that were not suitable for our development pipeline.
Since the end of June, we have also agreed the sale of a portfolio of urban
warehouses in Italy that were developed on behalf of our largest customer to
help them expand their distribution network in the country. As these assets
are situated in locations that are not core to our strategy we took advantage
of the strong investment markets and disposed of this portfolio for £109
million, a price materially ahead of December 2020 book value.
Disposals completed in H1 2021
Asset type Disposal proceeds Net initial yield Topped-up
(£m, SEGRO share)
net initial yield (%)
(%)
Big boxes 117 2.7 4.2
Urban warehousing 19 4.6 4.6
Other (including sale of turnkey development site) 16 n/a n/a
Land 2 n/a n/a
Disposals completed in H1 2021(2) 154 3.0 4.3
1 Yield excludes land transactions.
2. A reconciliation of disposals completed to the Financial Statements is
provided in Note 12 to the condensed financial information.
BALANCE SHEET POSITIONED TO SUPPORT FURTHER GROWTH
Net borrowings, including our share of joint venture net debt, increased
slightly by £4 million from 31 December 2020 to £3,092 million. The
look-through loan to value ratio reduced to 21 per cent (31 December 2020: 24
per cent). Our intention for the foreseeable future is to maintain our LTV at
around 30 per cent. This provides the flexibility to take advantage of
investment opportunities arising and ensures significant headroom compared to
our tightest gearing covenants should property values decline. We were pleased
to note the decision by Fitch Ratings to upgrade our senior unsecured credit
rating to ‘A’ (from ‘A-‘).
During the period we launched our Green Finance Framework, issued the first
SELP Green Bond (8-year tenure, 0.875% coupon) and extended the bank
facilities for both SEGRO and SELP. This activity helped reduce our weighted
average cost of debt to 1.5 per cent and extended the average duration of debt
to 9.7 years.
INTERIM DIVIDEND OF 7.4 PENCE PER SHARE
Consistent with its previous guidance that the interim dividend would normally
be set at one-third of the previous year’s total dividend, the Board has
declared an increase in the interim dividend of 0.5 pence per share to 7.4
pence (H1 2020: 6.9 pence), a rise of 7.2 per cent. This will be paid as an
ordinary dividend on 24 September 2021 to shareholders on the register at the
close of business on 13 August 2021. The Board will offer a scrip dividend
option for the 2021 interim dividend, allowing shareholders to choose whether
to receive the dividend in cash or new shares. 39 per cent of the 2020 final
dividend was paid in new shares, equating to £66 million of cash retained on
the balance sheet and 7.2 million new shares being issued.
FINANCIAL REVIEW
Like-for-like net rental income growth, income from acquisitions and new
developments were the primary drivers of the 19 per cent increase in Adjusted
profit before tax compared to H1 2020. Adjusted NAV per share increased by 12
per cent to 909 pence compared to December 2020, primarily driven by the
valuation uplift on the property portfolio.
Financial highlights
30 June 30 June 31 December
2021
2020
2020
IFRS(1) net asset value (NAV) per share (diluted) (p) 897 716 809
Adjusted NAV per share(1) (diluted) (p) 909 718 814
IFRS profit before tax (£m) 1,413 221 1,464
Adjusted(2) profit before tax (£m) 168 141 296
IFRS earnings per share (EPS) (p) 110.3 19.5 124.1
Adjusted(2 )EPS (p) 13.8 12.5 25.4
1. A reconciliation between IFRS NAV and Adjusted NAV is shown in Note 11.
2. A reconciliation between IFRS profit before tax and Adjusted profit before
tax is shown in Note 2 and between IFRS EPS and Adjusted EPS is shown in Note
11.
Presentation of financial information
The condensed financial information is prepared under IFRS where the Group’s
interests in joint ventures are shown as a single line item on the income
statement and balance sheet and subsidiaries are consolidated at 100 per cent.
The Adjusted profit measure better reflects the underlying recurring
performance of the Group’s property rental business, which is SEGRO’s core
operating activity. It is based on the Best Practices Recommendations of the
European Public Real Estate Association (EPRA) which are widely used alternate
metrics to their IFRS equivalents (further details on EPRA Best Practices
Recommendations can be found at www.epra.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.epra.com&esheet=52467481&newsitemid=20210728005971&lan=en-US&anchor=www.epra.com&index=6&md5=989888e0605c52f11e651f175f87dcbc)
). In calculating Adjusted profit, the Directors may also exclude additional
items considered to be non-recurring, not in the ordinary course of business,
and significant by virtue of size and nature. There are no such items reported
in the current period or prior periods.
A detailed reconciliation between Adjusted profit after tax and IFRS profit
after tax is provided in Note 2 of the condensed financial information. The
Adjusted NAV per share measure reflects the EPRA Net Tangible Asset metric and
based on the EPRA best practice reporting guidelines. A detailed
reconciliation between Adjusted NAV and IFRS NAV is provided in Note 11(ii) of
the condensed financial information.
The Supplementary Notes to the condensed financial information include other
EPRA metrics as well as SEGRO’s Adjusted income statement and balance sheet
presented on a proportionately consolidated basis.
SEGRO monitors the above alternative metrics, as well as the EPRA metrics for
vacancy rate, net asset value and total cost ratio, as they provide a
transparent and consistent basis to enable comparison between European
property companies.
Look-through metrics for like-for-like net rental income and loan to value
ratio are also provided, with joint ventures included at share, in order that
our full operations are captured, therefore providing more meaningful
analysis.
Adjusted profit
Adjusted profit
Six months to Six months to
30 June 2021
30 June 2020
£m
£m
Gross rental income 220 187
Property operating expenses (49) (42)
Net rental income 171 145
Joint venture fee income 12 11
Administration expenses (27) (25)
Share of joint ventures’ Adjusted profit after tax(1 ) 32 29
Adjusted operating profit before interest and tax 188 160
Net finance costs (20) (19)
Adjusted profit before tax 168 141
Tax on Adjusted profit (3) (2)
Adjusted profit after tax(2) 165 139
1. Comprises net property rental income less administration expenses, net
interest expenses and taxation.
2. A detailed reconciliation between Adjusted profit after tax and IFRS profit
after tax is provided in Note 2 to the condensed financial information.
Adjusted profit before tax increased by 19 per cent to £168 million (H1 2020:
£141 million). The primary driver was a £26 million increase in net rental
income to £171 million, as discussed further below.
Net rental income (including joint ventures at share)
Net rental income Six months to Six months to
30 June 2020
30 June 2021
£m Change(3)
£m
%
UK 118 112 4.8
Continental Europe 65 63 4.6
Like-for-like net rental income before other items(1) 183 175 4.7
Other(2) (3) (3)
Like-for-like net rental income (after other) 180 172 4.9
Development lettings 15 2
Properties taken back for development - 2
Like-for-like net rental income plus developments 195 176
Properties acquired 11 1
Properties sold 2 2
Net rental income before surrenders, dilapidations and exchange 208 179
Lease surrender premiums and dilapidations income 3 1
Other items and rent lost from lease surrenders 8 7
Impact of exchange rate difference between periods - 1
Net rental income (including joint ventures at share) 219 188
SEGRO share of joint venture management fees (5) (5)
Net rental income after SEGRO share of joining venture fees 214
183
1. Includes expected credit losses UK £1.3 million (H1 2020: £2.4 million);
CE £0.2 million (H1 2020: £0.8 million). Excluding these losses the like for
like change would be: Group 3.7%; UK 3.7%; CE 3.6%.
2. Other includes the corporate centre and other costs relating to the
operational business which are not specifically allocated to a geographical
business unit.
3. Percentage change has been calculated using the figures presented in the
table above in millions accurate to one decimal place.
The like-for-like rental growth metric is based on properties held throughout
both H1 2021 and H1 2020 and comprises wholly owned assets (net rental income
of £171 million) and SEGRO’s share of net rental income held in joint
ventures (£43 million).
Net rental income on this basis increased by £31 million to £214 million
which mainly reflects £13 million of additional income from development
lettings, £10 million from properties acquired (almost entirely during 2020)
and £8 million of like-for-like net rental income growth before other items
(a growth rate of 4.7 per cent compared to H1 2020). The growth rate is
calculated based on figures in millions to one decimal place rather than those
rounded to £ million as presented in the table.
The growth in like-for-like net rental income before other items was mainly
due to rental increases on review and renewal in both our UK portfolio and
Continental Europe portfolios. This includes the impact of expected credit
losses. Excluding such items would reduce the Group like for like increase to
3.7 per cent, as the levels of losses have decreased compared to the prior
period.
Where a completed property has been sold into SELP, the 50 per cent share
owned throughout the period is included in the like-for-like calculation, with
the balance shown in properties sold.
Income from joint ventures
Joint venture management fee income increased by £1 million to £12 million
in line with the growth in activity in the SELP joint venture.
SEGRO provides certain services, including venture advisory and asset
management, to the SELP joint venture and receives fees for doing so,
including potential performance fees based on the performance of the
portfolio. The next performance fee measurement date is on the tenth
anniversary, in October 2023. No performance fee was recognised in the current
or prior period.
SEGRO’s share of joint ventures’ Adjusted profit after tax increased by
£3 million, mainly reflecting the growth in income from the SELP joint
venture.
Administrative and operating costs
The Total Cost Ratio for H1 2021 improved to 19.8 per cent from 21.2 per cent
in H1 2020. Excluding the impact of share based payments (£6 million), the
cost of which are directly linked to the outperformance of the property
portfolio, the Cost Ratio improved to 17.4 per cent in H1 2021 from 18.6 per
cent in H1 2020. The calculations are set out in Table 8 of the Supplementary
Notes to the condensed financial information.
Net finance costs
Net finance costs have increased by £1 million during the period from £19
million at H1 2020 to £20 million at H1 2021. Whilst absolute levels of debt
are higher than the comparative period this is mitigated through a reduction
in the cost of debt (as discussed further in the Financial Position and
Funding section below).
Taxation
The tax charge on Adjusted profit of £3 million (H1 2020: £2 million)
reflects an effective tax rate of 1.8 per cent (H1 2020: 1.1 per cent),
calculated on figures in millions to one decimal place. The effective tax rate
is consistent with a Group target tax rate of less than 3 per cent.
The Group’s target tax rate reflects the fact that over three-quarters of
its assets are located in the UK and France and qualify for REIT and SIIC
status respectively in those countries. This status means that income from
rental profits and gains on disposals of assets in the UK and France are
exempt from corporation tax, provided SEGRO meets a number of conditions
including, but not limited to, distributing 90 per cent of UK taxable profits.
Adjusted earnings per share
Adjusted earnings per share were 13.8 pence (H1 2020: 12.5 pence) reflecting
the £26 million increase in Adjusted profit after tax and non-controlling
interests, offset by the 8 per cent increase in the weighted number of shares
in issue as a result of the equity issue in June 2020.
IFRS PROFIT
IFRS profit before tax in H1 2021 was £1,413 million (H1 2020: £221
million), equating to post-tax IFRS earnings per share of 110.3 pence compared
with 19.5 pence for H1 2020. The increase in IFRS profits is driven primarily
by unrealised and realised gains on our property portfolio, including joint
ventures at share, which were £1,273 million higher in H1 2021 than in the
same period a year ago.
A reconciliation between Adjusted profit before tax and IFRS profit before tax
is provided in Note 2 to the condensed financial information.
Realised and unrealised gains on wholly owned investment and trading
properties of £1,123 million in H1 2021 (H1 2020: £57 million) have been
recognised in the income statement, mainly comprising an unrealised valuation
surplus on investment properties of £1,118 million (H1 2020: £57 million).
SEGRO’s share of realised and unrealised gains on properties held in joint
ventures was £217 million (H1 2020: £10 million) arising on revaluation
gains in the SELP joint venture.
BALANCE SHEET
Adjusted net asset value
£m Shares Pence per
million
share
Adjusted net assets attributable to ordinary shareholders at 31 December 2020 9,725 1,194.7 814
Realised and unrealised property gain (including joint ventures) 1,340
Adjusted profit after tax 165
Dividend net of scrip shares issued (2020 final) (115)
Exchange rate movement (net of hedging) (76)
Tax charge in respect of realised and unrealised property gain(1) (54)
SIIC entry tax charge (39)
Other (17)
Adjusted net assets attributable to ordinary shareholders at 30 June 2021 10,929 1,202.5 909
1. Includes 50 per cent of deferred tax charge in respect of depreciation and
valuation surpluses.
At 30 June 2021, IFRS net assets attributable to ordinary shareholders (on a
diluted basis) were £10,783 million (31 December 2020: £9,659 million),
equating to 897 pence per share (31 December 2020: 809 pence).
Adjusted net asset value per share at 30 June 2021 was 909 pence measured on a
diluted basis (31 December 2020: 814 pence), an increase of 12 per cent in the
period. The table above highlights the other principal factors behind the
increase. The tax charge of £54 million includes both the impact of deferred
tax in respect of valuation surpluses recognised (of which 50 per cent are
recognised in Adjusted net assets) and the tax liability due from the disposal
of a property portfolio in the period. In addition, a portfolio of properties
acquired in France in the prior period has been entered in to the SIIC regime
at a cost of £39 million as discussed further in Note 9.
A reconciliation between IFRS and Adjusted net assets is available in Note 11
to the condensed financial information.
Cash flow and net debt reconciliation
Cash flow from operations for the period was £168 million, an increase of
£61 million from H1 2020 (£107 million), primarily due to increased
operating profits and improved working capital cashflows including improved
debtor collections and reduced trading property spend.
The largest cash outflow in the period relates to acquisitions and
developments of investment properties at £371 million, which primarily
reflects the Group’s investment activity during the period and ongoing
development activity (see Capital Expenditure section for more details). Cash
flows from investment property sales are £350 million, giving a net outflow
of £21 million from property investment activity. In addition investment
outflows of £56 million to joint ventures was made primarily to fund the SELP
investing activity.
Other significant financing cash flows include dividends paid of £90 million
(H1 2020: £80 million) reflecting the increased dividend per share and level
of scrip dividend take-up and an inflow of £34 million from the derivatives
which are used to manage the Group’s exposure to foreign exchange during the
period as the euro has weakened against sterling.
As a result of these factors there was a net funds outflow of £8 million
during the period compared to an inflow of £74 million in H1 2020.
Cash flow and net debt reconciliation
Six months to 30 Six months to
June 2021
30 June 2020
£m
£m
Opening net debt (2,325) (1,811)
Cash flow from operations 168 107
Finance costs (net) (25) (27)
Dividends received 4 2
Tax (paid)/received (2) 2
Free cash flow 145 84
Dividends paid (90) (80)
Acquisitions and development of investment properties (371) (614)
Investment property sales 350 53
Acquisitions of other interests in property and other investments (3) (4)
Purchase of non-controlling interest (12) -
Net settlement of foreign exchange derivatives 34 (35)
Proceeds from issue of ordinary shares 1 672
Net investment in joint ventures (56) -
Other items (6) (2)
Net funds flow (8) 74
Non-cash movements (1) (1)
Exchange rate movements 59 (61)
Closing net debt (2,275) (1,799)
Capital expenditure
The table below sets out analysis of the capital expenditure on property
assets during the period on a basis consistent with the EPRA Best Practices
Recommendations. This includes acquisition and development spend, on an
accruals basis, in respect of the Group’s wholly‑owned investment and
trading property portfolios, as well as the equivalent amounts for joint
ventures at share.
Total spend for the period was £490 million, a decrease of £233 million
compared to H1 2020. This is primarily driven by a decreased volume of
acquisitions, with significant UK acquisitions in the prior period.
Development capital expenditure increased by £99 million to £364 million
with particular spend on our schemes in Italy and the UK National Logistics
business unit.
Spend on existing completed properties totalled £21 million (H1 2020: £13
million), over half of which was for value-enhancing major refurbishment and
fit-out costs prior to re-letting.
EPRA capital expenditure analysis
Six months to Six months to
30 June 2021
30 June 2020
Wholly owned Joint Total Wholly Joint Total
£m ventures £m owned ventures £m
£m £m £m
Acquisitions 90(1) 2 92(7) 420 10 430
Development(4) 327(2) 37 364 236 29 265
Completed properties(5) 16(3) 5 21 12 1 13
Other(6) 8 5 13 11 4 15
Total 441 49 490 679 44 723
1. Being £90 million investment property and £nil trading property (2020:
£418 million and £2 million respectively) see Note 12.
2. Being £318 million investment property and £9 million trading property
(2020: £229 million and £7 million respectively) see Note 12.
3. Being £16 million investment property and £nil trading property (2020:
£12 million and £nil respectively) see Note 12.
4. Includes wholly owned capitalised interest of £4 million (2020: £4
million) as further analysed in Note 8 and share of joint venture capitalised
interest of £nil (2020: £nil).
5. Being £19 million expenditure used for enhancing existing space (2020:
£13 million) and £2 million used for creation of additional lettable space
(2020: £nil).
6. Tenant incentives, letting fees and rental guarantees.
7. Excludes acquisitions of property sold from the Group’s wholly owned
portfolio to the SELP joint venture of £117 million (2020: £nil) and
associated property tax of £2 million, which is effectively a net 50 percent
disposal by the Group.
FINANCIAL POSITION AND FUNDING
Financial Key Performance Indicators
GROUP ONLY 30 June 30 June 31 December
2021
2020
2020
Net borrowings (£m) 2,275 1,799 2,325
Available Group cash and undrawn facilities (£m) 983 1,319 1,061
Gearing (%) 21 21 24
LTV ratio (%) 19 20 22
Weighted average cost of debt(1) (%) 1.6 1.8 1.7
Interest cover(2) (times) 7.0 6.5 6.6
Average duration of debt (years) 11.3 11.1 11.7
INCLUDING JOINT VENTURES AT SHARE
Net borrowings (£m) 3,092 2,511 3,088
Available cash and undrawn facilities (£m) 1,230 1,541 1,189
LTV ratio (%) 21 22 24
Weighted average cost of debt(1) (%) 1.5 1.7 1.6
Interest cover(2) (times) 6.9 6.4 6.5
Average duration of debt (years) 9.7 9.4 9.9
1. Based on gross debt, excluding commitment fees and non-cash interest.
2. Net rental income/adjusted net finance costs (before capitalisation).
At 30 June 2021, the Group’s net borrowings (including the Group’s share
of borrowings in joint ventures) were £3,092 million (31 December 2020:
£3,088 million) at a weighted average cost of 1.5 per cent and an average
duration of 9.7 years. The loan to value ratio (including joint ventures at
share) was 21 per cent (31 December 2020: 24 per cent) with £1,230 million of
cash and undrawn facilities available for investment.
Gross borrowings of SEGRO Group were £2,353 million at 30 June 2021, all but
£13 million of which were unsecured, and cash and cash equivalent balances
were £78 million. SEGRO’s share of gross borrowings in its joint ventures
was £850 million (all of which were advanced on a non-recourse basis to
SEGRO) and cash and cash equivalent balances of £33 million.
Cash and cash equivalent balances, together with the Group’s interest rate
and foreign exchange derivative portfolio, are spread amongst a strong group
of banks, all of which have a credit rating of A- or better.
In May 2021, SELP consolidated its €0.5 billion of revolving credit
facilities and simultaneously extended maturity to 2025. This was followed,
also in May 2021, with SEGRO extending the maturity of its €1.2 billion of
revolving credit facilities for a further year to 2026.
In May 2021, SEGRO published its Green Finance Framework, building on the
Responsible SEGRO strategy launched in February 2021. The framework, which
applies to SEGRO, its subsidiaries and joint ventures including SELP,
integrates financial strategy with the Responsible SEGRO commitments.
In May 2021, SELP issued a €500 million, 8.0 year unsecured green bond at a
coupon of 0.875 per cent. The proceeds were used to refinance existing bank
borrowings as well as provide additional liquidity to the venture.
MONITORING AND MITIGATING FINANCIAL RISK
The Group monitors a number of financial metrics to assess the level of
financial risk being taken and to mitigate that risk.
Treasury policies and governance
The Group Treasury function operates within a formal policy covering all
aspects of treasury activity, including funding, counterparty exposure and
management of interest rate, currency and liquidity risks. Group Treasury
reports on compliance with these policies on a quarterly basis and policies
are reviewed regularly by the Board.
Gearing and financial covenants
The key leverage metric for SEGRO is its loan to value ratio (LTV), which
incorporates assets and net debt on SEGRO’s balance sheet and SEGRO’s
share of assets and net debt on the balance sheets of its joint ventures. The
LTV at 30 June 2021 on this ‘look-through’ basis was 21 per cent (31
December 2020: 24 per cent).
Our borrowings contain gearing covenants based on Group net debt and net asset
value, excluding debt in joint ventures. The gearing ratio of the Group at 30
June 2021, as defined within the principal debt funding arrangements of the
Group, was 21 per cent (31 December 2020: 24 per cent). This is significantly
lower than the Group’s tightest financial gearing covenant within these debt
facilities of 160 per cent. Property valuations would need to fall by around
66 per cent from their 30 June 2021 levels to reach the gearing covenant
threshold of 160 per cent.
The Group’s other key financial covenant within its principal debt funding
arrangements is interest cover, requiring that net interest before
capitalisation be covered at least 1.25 times by net property rental income.
At 30 June 2021, the Group comfortably met this ratio at 7.0 times. On a
look-through basis, including joint ventures, this ratio was 6.9 times.
We mitigate the risk of over-gearing the Company and breaching debt covenants
by carefully monitoring the impact of investment decisions on our LTV and by
stress-testing our balance sheet to potential changes in property values. We
also expect to continue to recycle assets which would also provide funding for
future investment.
Our intention for the foreseeable future is to maintain our LTV at around 30
per cent. This provides the flexibility to take advantage of investment
opportunities arising and ensures significant headroom compared to our
tightest gearing covenants should property values decline.
At 30 June 2021, the only debt maturities within 12 months are €1 million of
principal repayments on an amortising loan, acquired with Sofibus Patrimoine
SA. The weighted average maturity of the gross borrowings of the Group was
11.3 years (9.7 years on a look-through basis). With the majority of the
Group’s revolving credit facilities not due to mature until 2026, and no
material Group debt maturities until 2024, this long average debt maturity
translates into a favourable, well spread debt funding maturity profile which
reduces future refinancing risk.
Interest rate risk
The Group’s interest rate risk policy is designed to ensure that we limit
our exposure to volatility in interest rates. The policy states that between
50 and 100 per cent of net borrowings (including the Group’s share of
borrowings in joint ventures) should be at fixed or capped rates, including
the impact of derivative financial instruments.
As at 30 June 2021, including the impact of derivative instruments, 74 per
cent (31 December 2020: 70 per cent) of the net borrowings of the Group
(including the Group’s share of borrowings within joint ventures) were at
fixed or capped rates. The fixed-only level of debt is 49 per cent at 30 June
2021 (31 December 2020: 44 per cent).
As a result of the fixed rate cover in place, if short term interest rates had
been 1 per cent higher throughout the six month period to 30 June 2021, the
adjusted net finance cost of the Group would have increased by approximately
£8 million representing around 5 per cent of Adjusted profit after tax.
The Group elects not to hedge account its interest rate derivatives portfolio.
Therefore, movements in derivative fair values are taken to the income
statement but, in accordance with EPRA Best Practices Recommendations
Guidelines, these gains and losses are excluded from Adjusted profit after
tax.
Foreign currency translation risk
The Group has negligible transactional foreign currency exposure but does have
a potentially significant currency translation exposure arising on the
conversion of its substantial foreign currency denominated assets (mainly
euro) and euro denominated earnings into sterling in the Group consolidated
accounts.
The Group seeks to limit its exposure to volatility in foreign exchange rates
by hedging at a level between the year-end Group LTV percentage and 100 per
cent of its foreign currency gross assets through either borrowings or
derivative instruments. At 30 June 2021, the Group had gross foreign currency
assets which were 64 per cent hedged by gross foreign currency denominated
liabilities (including the impact of derivative financial instruments).
The exchange rate used to translate euro denominated assets and liabilities as
at 30 June 2021 into sterling within the balance sheet of the Group was
€1.17:£1 (31 December 2020: €1.12:£1). Including the impact of forward
foreign exchange and currency swap contracts used to hedge foreign currency
denominated net assets, if the value of the other currencies in which the
Group operates at 30 June 2021 weakened by 10 per cent against sterling
(€1.29, in the case of euros), net assets would have decreased by
approximately £155 million and there would have been a reduction in gearing
of approximately 1.7 per cent and in the LTV of approximately 1.5 per cent.
The impact if the other currencies in which the Group operates should
strengthen by 10 per cent against Sterling would be broadly equal and
opposite.
The average exchange rate used to translate euro denominated earnings
generated during the six months ending 30 June 2021 into sterling within the
consolidated income statement of the Group was €1.15:£1 (H1 2020:
€1.14:£1).
Based on the hedging position at 30 June 2021, and assuming that this position
had applied throughout the 6 month period, if the euro had been 10 per cent
weaker than the average exchange rate (€1.27:£1), Adjusted profit after tax
for the six month period would have been approximately £5 million (3.2 per
cent) lower than reported. If it had been 10 per cent stronger, adjusted
profit after tax for the period would have been approximately £6 million (3.9
per cent) higher than reported.
GOING CONCERN
As noted in the Financial Position and Funding section above, the Group has
significant available liquidity to meet its capital commitments, a long-dated
debt maturity profile and substantial headroom against financial covenants.
* In 2021, the Group has extended the term of its €1.2 billion of bank
facilities to 2026.
* Cash and available facilities at 30 June 2021 were £1.0 billion.
* The Group continuously monitors its liquidity position compared to committed
and expected capital and operating expenses on a rolling forward 18 month
basis. The quantum of committed capital expenditure at any point in time is
typically low due to the short timeframe to construct warehouse buildings.
* The Group also regularly stress-tests its financial covenants. As noted above,
at 30 June 2021, property values would need to fall by around 66 per cent
before breaching the gearing covenant. In terms of interest cover, net rental
income would need to fall by 82 per cent before breaching the interest cover
covenant. Both would be significantly in excess of the Group’s experience
during the financial crisis and its experience in 2021 to date.
Having made enquiries and having considered the principal risks facing the
Group, including liquidity and solvency risks, and material uncertainties, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future (a period of at least 12 months from the date of approval of the
financial statements). Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
STATEMENT OF PRINCIPAL RISKS
The Group recognises that its ability to manage risk effectively throughout
the organisation continues to be central to its success. Our approach to risk
management aims to bring controllable risks within our appetite, and to enable
our decision-making to balance uncertainty against the objective of creating
and protecting, now and in the long term, value for our shareholders and other
stakeholders.
The Group’s risk appetite, its integrated approach to managing risk, and the
governance arrangements in place are described in the Principal Risks section
of the 2020 Annual Report on pages 72 to 81.
Covid-19
The uncertainties and challenges caused by the Covid-19 pandemic continue to
impact our entire risk landscape including the global economy, our markets and
our operations.
The Group’s Board, and key committees have overseen the Group’s response
to the pandemic throughout the period and taken actions to mitigate its
impacts including on our operations, the health and wellbeing of our employees
and to support our stakeholders.
We have reviewed and updated the Group’s risk register during the period, in
particular in light of the continued impact of Covid-19 which has acted to
increase the impact, or probability, or both in respect of risks already on
the risk register, as detailed further in our Principal Risks section below.
No new risks have been identified in this period as a result of the pandemic.
Looking forward, it is clear there is still much uncertainty around the future
trajectory of the pandemic. Whilst the progress of the vaccine programme
offers a pathway to re-opening of economies and some degree of normality, the
emergence of new variants puts this at risk both in the near- and longer-term.
Accordingly, we remain vigilant to the rapidly changing environment and
possible prolonged impact of Covid-19 on the locations in which we operate.
Emerging risks
We continue to identify and monitor emerging risks in our risk processes.
Emerging risks are those which may be evolving rapidly and whose impact or
probability may not yet be fully understood and whose mitigations are
consequently evolving. This process is supplemented by formal horizon scans
with the Executive Committee. Clearly the impact of Covid-19, discussed above,
continues to be a major focus, as does the long term impact of climate change
on our business.
Risks Appetite
Our risk appetite depends on the nature of the risk and falls into 3 broad
categories:
- Property risk - we recognise that, in seeking outperformance from our
portfolio, the Group must accept a balanced level of property risk – with
diversity in geographic locations and asset types and an appropriate mixture
of stabilised income producing and opportunity assets – in order to enhance
opportunities for superior returns. This is balanced against the backdrop of
the macro economic climate and its impact on the property cycle.
- Financial risk - we maintain a low to moderate appetite for financial risk
in general, with a very low appetite for risks to solvency and gearing
covenant breaches.
- Corporate risk - we have a very low appetite for risks to our good
reputation and risks to being well-regarded by our investors, regulators,
employees, customers, business partners, suppliers, lenders and by the wider
communities and environments in which we operate.
Principal Risks
A summary of the Group’s principal risks including an update for changes
during the period and expected impacts during the second half of 2021, is
provided below. Following the trade agreement with the EU in December 2020,
the risk of a ‘Disruptive Brexit’ was, at least in part, mitigated and, as
no subsequent material impacts on the Group have arisen, it has been removed
as a Principal Risk. The relevant consequences of Brexit are now being managed
as part of their applicable risks such as Political and Regulatory. Disruptive
Brexit aside, the other principal risks remain the same as reported in the
Annual Report for 2020 and the residual risk for each remains within appetite
however each continues to have an elevated probability of volatility in the
period.
- Macroeconomic Impact on Market Cycle. The property market is cyclical and
there is a continuous risk that the Group could either misinterpret the market
or fail to react appropriately to changing market and wider geopolitical
conditions, which could result in capital being invested or disposals taking
place at the wrong price or time in the cycle.
Update: The pandemic continues to cause greater market volatility and less
predictability and in response we have increased the regularity of our
economic outlook assessments. Whilst we are not entirely immune to these
fluctuations, the most material adverse impacts appear to be focused in
sectors where we do not have significant exposure.
- Portfolio Strategy and Execution. The Group’s Total Property and/or
Shareholder Returns could underperform in absolute or relative terms as a
result of an inappropriate portfolio strategy.
Update: The Group’s approach to portfolio management and capital allocation
remains responsive to opportunities that arise, as detailed further in the
Investment and Development sections above. The attractiveness of the
industrial property asset class has led to increased market competition and
the consequent impact on pricing has led to us being more selective in our
investing.
- Major Event / Business Disruption. Unexpected global, regional or national
events result in severe adverse disruption to SEGRO, such as sustained asset
value or revenue impairment, solvency or covenant stress, liquidity or
business continuity challenges. A global event or business disruption may
include, but is not limited to a global financial crises, health pandemic,
civil unrest, act of terrorism, cyber-attack or other IT disruption. Events
may be singular or cumulative, and lead to acute/systemic issues in the
business and/or operating environment.
Update: As detailed in the Covid-19 section above, the pandemic continues to
cause increased uncertainty to the Group’s operations and stakeholders. The
Board and other committees remain vigilant and responsive in managing the
mitigation of risks as they evolve.
- Health & Safety. Health and safety management processes could fail,
leading to a loss of life, litigation, fines and serious reputational damage
to the Group.
Update: The health and safety of the workforce remains a key priority whilst
working away from the office as well as the potential gradual return to the
office. We continue to closely monitor our development sites in order to
ensuring a safe and compliant working environment.
- Environmental Sustainability. Failure to anticipate and respond to the
impact of both physical and transitional risks from climate change on the
sustainability of our environment as both a principal and emerging risk.
Changes in social attitudes, laws, regulations, policies, taxation,
obligations, and customer preferences associated with environmental
sustainability could cause significant reputational damage and impact on our
business, through non-compliance with laws and regulations, increased costs of
tax and energy and loss of value through not meeting stakeholder expectations
in addressing these challenges when reporting.
Update: We refreshed our ‘Responsible SEGRO’ framework earlier this year
that sets out our key priorities: championing low carbon growth, investing in
local communities and environments and nurturing talent. This is detailed
further in the Responsible SEGRO Update above.
- Development Plan Execution. The Group could suffer significant financial
losses from its extensive current programme and future pipeline of
developments.
Update: We continue to work with our contractors to ensure Covid-19 compliant
work practices are in place at all work sites on our major development sites
operate effective and efficiently. During the period we have become aware of
possible bottlenecks in the construction supply chain for certain materials
and whilst these have not currently caused undue delay we look to proactively
work alongside our contractors to manage such issues as they arise.
- Financing Strategy. The Group could suffer an acute liquidity or solvency
crisis, financial loss or financial distress as a result of a failure in the
design or execution of its financing strategy.
Update: Currently the Group has strong access to financial markets as seen by
our funding activity as detailed in the Financial Position and Funding section
above leaving us well positioned, financially, in order to fund activity in
the remainder of the year and beyond.
- Political and Regulatory. The Group could fail to anticipate significant
political, legal, tax or regulatory changes, leading to a significant
unforecasted financial or reputational impact.
Update: Following the UK’s exit from the EU the Group has closely monitored
and managed its consequential legal and regulatory risks through a dedicated
internal team and external advisors ensuring timely remedial actions were
taken where necessary. Whilst the full extent of such risks continue to be
monitored, no significant unexpected issues have currently arisen. In addition
we continue to closely monitor changes in other legislation, such as tax, to
ensure they are understood and addressed in an appropriate and effective
manner.
- Operational Delivery & Compliance. The Group’s ability to protect its
reputation, revenues and shareholder value could be damaged by operational
failures such as: failing to attract, retain and motivate key employees; major
customer default; supply chain failure or the structural failure of one of our
assets. Compliance failures, such as breaches of joint venture shareholders’
agreements, loan agreements or tax legislation could also damage reputation,
revenue and shareholder value.
Update: The pandemic continues to impact working practices with significant
time spent away from the office, although we have seen an increase in the
number of employees in our offices more recently. In due course, we remain
committed to returning to our agile working approach to promote our strong,
positive corporate culture, ensuring our key employees continue to be
motivated and challenged. We continue to ensure the resilience and security of
our technology, and to engage closely with our customers.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the interim condensed set of financial statements has been prepared in
accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the
United Kingdom and European Union;
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties’ transactions and
changes therein).
By order of the Board,
David Sleath Soumen Das
Chief Executive Chief Financial Officer
Independent review report to SEGRO plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed SEGRO plc’s condensed consolidated interim financial
statements (the “interim financial statements”) in the half-yearly report
of SEGRO plc for the 6 month period ended 30 June 2021 (the “period”).
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting', the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom’s Financial Conduct
Authority, and EU adopted International Accounting Standard 34, ‘Interim
Financial Reporting’.
What we have reviewed
The interim financial statements comprise:
* the Condensed Group Balance Sheet as at 30 June 2021;
* the Condensed Group Income Statement and Condensed Group Statement of
Comprehensive Income for the period then ended;
* the Condensed Group Cash Flow Statement for the period then ended;
* the Condensed Group Statement of Changes in Equity for the period then ended;
and
* the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly report of SEGRO
plc have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting', the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom’s Financial Conduct
Authority, and EU adopted International Accounting Standard 34, ‘Interim
Financial Reporting’.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the half-yearly report in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the half-yearly report based on our review. This report,
including the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information
Performed by the Independent Auditor of the Entity’ issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the half-yearly report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 July 2021
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2021
Notes Half year to Half year to Year to
30 June
30 June
31 December
2021
2020
(unaudited) 2020
(audited)
£m
(unaudited)
£m
£m
Revenue 4 246 198 432
Costs 5 (62) (42) (104)
184 156 328
Administration expenses (27) (25) (52)
Share of profit from joint ventures after tax 6 210 35 236
Realised and unrealised property gain 7 1,122 57 989
Operating profit 1,489 223 1,501
Finance income 8 23 38 50
Finance costs 8 (99) (40) (87)
Profit before tax 1,413 221 1,464
Tax 9 (92) (4) (35)
Profit after tax 1,321 217 1,429
Attributable to equity shareholders 1,317 216 1,427
Attributable to non-controlling interests 4 1 2
Earnings per share (pence)
Basic 11 110.3 19.5 124.1
Diluted 11 110.0 19.4 123.6
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2021
Half year to Half year to Year to
30 June
30 June
31 December
2021
2020
2020
(unaudited)
(unaudited)
(audited)
£m
£m
£m
Profit for the period 1,321 217 1,429
Items that may be reclassified subsequently to profit or loss
Foreign exchange movement arising on translation of international operations (124) 149 112
Fair value movements on derivatives and borrowings in effective hedge 48 (71) (52)
relationships
(76) 78 60
Tax on components of other comprehensive income - - -
Other comprehensive (loss)/income (76) 78 60
Total comprehensive income for the period 1,245 295 1,489
Attributable to – equity shareholders 1,241 295 1,487
– non-controlling interests 4 - 2
CONDENSED GROUP BALANCE SHEET
As at 30 June 2021
Notes 30 June 30 June 31 December
2021
2020
2020
(unaudited)
(unaudited)
(audited)
£m
£m
£m
Assets
Non-current assets
Intangible assets 8 2 2
Investment properties 12 11,850 9,208 10,671
Other interests in property 16 19 16
Property, plant and equipment 23 25 27
Investments in joint ventures 6 1,620 1,235 1,423
Other investments 4 29 2
Other receivables 36 114 37
Derivative financial instruments 58 66 63
13,615 10,698 12,241
Current assets
Trading properties 12 47 29 52
Trade and other receivables 175 197 270
Derivative financial instruments 4 3 15
Cash and cash equivalents 13 78 203 89
304 432 426
Total assets 13,919 11,130 12,667
Liabilities
Non-current liabilities
Borrowings 13 2,352 2,002 2,413
Deferred tax liabilities 9 112 61 87
Trade and other payables 107 109 110
Derivative financial instruments 41 13 5
2,612 2,185 2,615
Current liabilities
Trade and other payables 460 389 372
Borrowings 13 1 - 1
Derivative financial instruments 1 11 5
Tax liabilities 62 5 3
524 405 381
Total liabilities 3,136 2,590 2,996
Net assets 10,783 8,540 9,671
Equity
Share capital 120 119 119
Share premium 3,343 3,271 3,277
Capital redemption reserve 114 114 114
Own shares held (1) (1) (1)
Other reserves 170 268 253
Retained earnings 7,037 4,769 5,897
Total shareholders' equity 10,783 8,540 9,659
Non-controlling interests - - 12
Total equity 10,783 8,540 9,671
Net assets per ordinary share (pence)
Basic 11 899 717 811
Diluted 11 897 716 809
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2021
Attributable to owners of the parent
Other reserves
(unaudited) Ordinary Share Capital Own Share- Translation, Merger Retained Total equity Non- Total
share
premium
redemption
shares
based
hedging and
reserve
earnings
attributable to
controlling
equity
capital
£m
reserve
held
payment
other reserve
£m
£m
owners of the
interest(1
£m
£m (
£m
reserve
£m
parent )
)£m
£m
£m £m
Balance at 1 January 2021 119 3,277 114 (1) 22 62 169 5,897 9,659 12 9,671
Profit for the period - - - - - - - 1,317 1,317 4 1,321
Other comprehensive income - - - - - (76) - - (76) - (76)
Total comprehensive income for the period - - - - - (76) - 1,317 1,241 4 1,245
Transactions with owners of the Company
Issues of shares - 1 - - - - - - 1 - 1
Own shares acquired - - - (3) - - - - (3) - (3)
Equity-settled share-based payment transactions - - - 3 (7) - - 5 1 - 1
Dividends 1 65 - - - - - (181) (115) - (115)
Movement in non-controlling interest(1) - - - - - - - (1) (1) (16) (17)
Total transactions with owners of the Company 1 66 - - (7) - - (177) (117) (16) (133)
Balance at 30 June 2021 120 3,343 114 (1) 15 (14) 169 7,037 10,783 - 10,783
1. Non-controlling interests relate to Vailog Sàrl and Sofibus Patrimoine SA.
During the period the remaining share capital of Sofibus Patrimoine SA was
acquired and is a 100% subsidiary of the Group at 30 June 2021.
For the six months ended 30 June 2020
Attributable to owners of the parent
Other reserves
(unaudited) Ordinary Share Capital Own Share- Translation, Merger Retained Total equity Non- Total
share
premium
redemption
shares
based
hedging and
reserve
earnings
attributable to
controlling
equity
capital
£m
reserve
held
payment
other reserve
£m
£m
owners of the
interest(1
£m
£m (
£m
reserve
£m
parent )
)£m
£m
£m £m
Balance at 1 January 2020 109 2,554 114 (3) 29 2 169 4,703 7,677 - 7,677
Profit for the period - - - - - - - 216 216 1 217
Other comprehensive income - - - - - 79 - - 79 (1) 78
Total comprehensive income for the period - - - - - 79 - 216 295 - 295
Transactions with owners of the Company
Issues of shares 9 663 - - - - - - 672 - 672
Own shares acquired - - - (1) - - - - (1) - (1)
Equity-settled share-based payment transactions - - - 3 (11) - - 9 1 - 1
Dividends 1 54 - - - - - (158) (103) - (103)
Movement in non-controlling interest(1) - - - - - - - (1) (1) - (1)
Total transactions with owners of the Company 10 717 - 2 (11) - - (150) 568 - 568
Balance at 30 June 2020 119 3,271 114 (1) 18 81 169 4,769 8,540 - 8,540
1. Non-controlling interests relate to Vailog Sàrl.
For the year ended 31 December 2020
Attributable to owners of the parent
Other reserves
(audited) Ordinary Share Capital Own Share- Translation, Merger Retained Total equity Non- Total
share
premium
redemption
shares held
based
hedging and
reserve
earnings
attributable to
controlling
equity
capital
£m
reserve
£m
payment
other reserve
£m
£m
owners of the
interest(1
£m
£m (
reserve
£m
parent )
)£m
£m
£m £m
Balance at 1 January 2020 109 2,554 114 (3) 29 2 169 4,703 7,677 - 7,677
Profit for the year - - - - - - - 1,427 1,427 2 1,429
Other comprehensive income - - - - - 60 - - 60 - 60
Total comprehensive income for the year - - - - - 60 - 1,427 1,487 2 1,489
Transactions with owners of the Company
Issues of shares 9 663 - - - - - - 672 - 672
Own shares acquired - - - (2) - - - - (2) - (2)
Equity-settled share-based payment transactions - - - 4 (7) - - 9 6 - 6
Dividends 1 60 - - - - - (240) (179) - (179)
Movement in non-controlling interest(1) - - - - - - - (2) (2) 10 8
Total transactions with owners of the Company 10 723 - 2 (7) - - (233) 495 10 505
Balance at 31 December 2020 119 3,277 114 (1) 22 62 169 5,897 9,659 12 9,671
1. Non-controlling interests relate to Vailog Sàrl and Sofibus Patrimoine SA.
CONDENSED GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2021
Notes Half year to Half year to Year to
30 June
30 June
31 December
2021
2020
2020
(unaudited)
(unaudited)
(audited)
£m
£m
£m
Cash flows from operating activities 14 168 107 233
Interest received 21 18 42
Dividends received 4 2 34
Interest paid (46) (45) (94)
Cost of new interest rate derivatives transacted - - (12)
Proceeds from early close out of interest rate derivatives - - 12
Cost of early close out of debt - - (11)
Tax (paid)/received (2) 2 (5)
Net cash received from operating activities 145 84 199
Cash flows from investing activities
Purchase and development of investment properties (371) (614) (1,216)
Sale of investment properties 350 53 159
Acquisition of other interests in property - (3) (4)
Purchase of plant and equipment and intangibles (5) (2) (5)
Acquisition of other investments (3) (1) -
Investment and loans to joint ventures (67) - (40)
Divestment and repayment of loans from joint ventures 11 - -
Net cash used in investing activities (85) (567) (1,106)
Cash flows from financing activities
Dividends paid to ordinary shareholders (90) (80) (179)
Proceeds from borrowings 14 35 - 551
Repayment of borrowings 14 (34) (2) (122)
Principal element of lease payments (1) (1) (2)
Settlement of foreign exchange derivatives 34 (35) (55)
Purchase of non-controlling interest (12) - -
Proceeds from issue of ordinary shares 1 672 672
Purchase of ordinary shares (3) (1) (2)
Net cash (used in)/generated from financing activities (70) 553 863
Net (decrease)/increase in cash and cash equivalents (10) 70 (44)
Cash and cash equivalents at the beginning of the period 89 133 133
Effect of foreign exchange rate changes (1) - -
Cash and cash equivalents at the end of the period 13 78 203 89
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed set of financial statements for the six months ended 30 June
2021 were approved by the Board of Directors on 28 July 2021.
The condensed set of financial statements for the six months ended 30 June
2021 is unaudited and does not constitute statutory accounts within the
meaning of Section 434 of the Companies Act 2006. The financial information
contained in this report for the year ended 31 December 2020 does not
constitute statutory accounts within the meaning of Section 434 of the
Companies Act 2006 and has been extracted from the statutory accounts, which
were prepared in accordance with International Accounting Standards (IAS) in
conformity with the requirements of the Companies Act 2006 and EU-adopted
International Financial Reporting Standards (IFRS) and were delivered to the
Registrar of Companies. The auditor’s opinion on these accounts was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement made under S498(2) or S498(3) of the Companies Act
2006. The condensed set of financial statements included in this half-yearly
report has been prepared in accordance with both UK-adopted International
Accounting Standard 34 ‘Interim Financial Reporting’, and the Disclosure
Rules and Transparency Rules of the United Kingdom’s Financial Conduct
Authority as well as EU-adopted International Accounting Standard 34
‘Interim Financial Reporting’.
On 31 December 2020 EU-adopted IFRS was brought into UK law and became
UK-adopted International Accounting Standards, with future changes to IFRS
being subject to endorsement by the UK Endorsement Board. The consolidated
financial statements transitioned to UK-adopted international accounting
standards for the financial period beginning 1 January 2021. There were no
impact or changes in accounting policies from the transition. UK adopted
International Accounting Standards differs in certain respects from
International Financial Reporting Standards as adopted by the EU. The
differences have no material impact on the Group’s condensed financial
statements for the periods presented, which therefore also comply with
International Reporting Standards as adopted by the EU.
The condensed set of financial statements have been prepared on a going
concern basis for a period of at least 12 months from the date of approval of
the financial statements. This is discussed further in the Financial Review.
The same accounting policies, presentation and methods of computation are
followed in the condensed set of financial statements as applied in the
Group’s latest financial statements. The following new accounting amendment
became effective for the financial year beginning on 1 January 2021:
- Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16)
The Group did not have to change its accounting policies or make retrospective
adjustments as a result of this amendment.
The condensed set of financial statements are presented in pounds sterling to
the nearest million. In prior periods the financial statements were presented
in millions to one decimal place, as a result the comparative figures for the
six months ended 30 June 2020 and year ended 31 December 2020 have been
represented to the nearest million.
The principal exchange rates used to translate foreign currency denominated
amounts are:
Balance sheet: £1 = €1.17 (30 June 2020: £1 = €1.10; 31 December 2020:
£1 = €1.12)
Income statement: £1 = €1.15 (30 June 2020: £1 = €1.14; 31 December
2020: £1 = €1.13)
The Group’s business is not seasonal and the results relate to continuing
operations unless otherwise stated.
2. ADJUSTED PROFIT
Adjusted profit is a non-GAAP measure and is the Group’s measure of
underlying profit, which is used by the Board and senior management to measure
and monitor the Group’s income performance.
It is based on the Best Practices Recommendations of European Public Real
Estate Association (EPRA), which calculate profit excluding investment and
development property revaluations and gains or losses on disposals, changes in
the fair value of financial instruments and associated close-out costs and
their related taxation, as well as other permitted one-off items. Refer to the
Supplementary Notes for all EPRA adjustments.
The Directors may also exclude from the EPRA profit measure additional items
(gains and losses) which are considered by them to be non-recurring, not in
the ordinary course of business and significant by virtue of size and nature.
No non-EPRA adjustments to underlying profit were made in the current or prior
periods.
The following table provides a reconciliation of Adjusted profit to IFRS
profit:
Notes Half year to Half year to Year to
30 June
30 June
31 December
2021
2020
2020
£m
£m
£m
Gross rental income 4 220 187 393
Property operating expenses 5 (49) (42) (88)
Net rental income 171 145 305
Joint venture fee income 4 12 11 22
Administration expenses (27) (25) (52)
Share of joint ventures’ adjusted profit after tax 6 32 29 61
Adjusted operating profit before interest and tax 188 160 336
Net finance costs (including adjustments) 8 (20) (19) (40)
Adjusted profit before tax 168 141 296
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from joint ventures after tax(1) 6 178 6 175
Realised and unrealised property gain 7 1,122 57 989
Gain on sale of trading properties 1 - 1
Cost of early close out of debt - - (11)
Net fair value (loss)/gain on interest rate swaps and other derivatives 8 (56) 17 14
Total adjustments 1,245 80 1,168
Profit before tax 1,413 221 1,464
Tax
On Adjusted profit 9 (3) (2) (4)
In respect of adjustments 9 (50) (2) (31)
In respect of SIIC entry charge(2) 9 (39) - -
Total tax adjustments (92) (4) (35)
Profit after tax before non-controlling interests 1,321 217 1,429
Non-controlling interests:
Less: share of adjusted profit attributable to non-controlling
interest - - -
: share of adjustments attributable to non-controlling (4) (1) (2)
interests
Profit after tax and non-controlling interests 1,317 216 1,427
Of which:
Adjusted profit after tax and non-controlling interests 165 139 292
Total adjustments after tax and non-controlling interests 1,152 77 1,135
Profit attributable to equity shareholders 1,317 216 1,427
1. A detailed breakdown of the adjustments to the share of profit from joint
ventures is included in Note 6.
2. In line with EPRA Best Practices Recommendations guidelines the tax charge
in respect of SIIC entry (detailed further in Note 9) has been excluded from
Tax on adjusted profit in the table above.
3. SEGMENTAL REPORTING
The Group’s reportable segments are the geographical business units: Greater
London (UK), Thames Valley (UK), National Logistics (UK), Northern Europe
(principally Germany), Southern Europe (principally France) and Central Europe
(principally Poland), which are managed and reported to the Board as separate
and distinct Business Units.
Gross Net rental Share of Adjusted Total directly Investments Capital
rental
income
joint
operating
owned
in joint
expenditure(3
income
£m
ventures’
PBIT(2
property
ventures
)£m
£m
Adjusted
)£m
assets
£m
profit
£m
£m
30 June 2021
Thames Valley 43 40 - 39 2,249 - 15
National Logistics 18 17 - 17 1,438 1 94
Greater London 90 79 - 77 5,349 - 79
Northern Europe 15 9 12 24 765 834 27
Southern Europe 49 29 16 49 1,939 1,116 217
Central Europe 5 2 11 15 157 517 1
Other(1) - (5) (7) (33) - (848) 5
Total 220 171 32 188 11,897 1,620 438
30 June 2020
Thames Valley 41 38 - 37 1,784 - 10
National Logistics 17 18 - 18 1,098 1 217
Greater London 75 65 - 63 4,235 - 257
Northern Europe 15 9 12 23 597 680 15
Southern Europe 34 20 13 36 1,374 796 166
Central Europe 5 2 10 14 149 484 3
Other(1) - (7) (6) (31) - (726) 2
Total 187 145 29 160 9,237 1,235 670
31 December 2020
Thames Valley 84 78 - 76 1,997 - 57
National Logistics 34 34 - 33 1,223 1 267
Greater London 160 140 - 138 4,867 - 454
Northern Europe 29 18 25 48 682 803 29
Southern Europe 75 44 30 79 1,803 914 566
Central Europe 11 4 22 30 151 496 4
Other(1) - (13) (16) (68) - (791) 5
Total 393 305 61 336 10,723 1,423 1,382
1. Other includes the corporate centre, SELP holding companies and costs
relating to the operational business which are not specifically allocated to a
geographical business unit. This includes the bonds issued by SELP Finance
S.à r.l, a Luxembourg entity.
2. A reconciliation of total Adjusted PBIT to the IFRS profit before tax is
provided in Note 2.
3. Capital expenditure includes additions and acquisitions of investment and
trading properties but does not include tenant incentives, letting fees and
rental guarantees. Part of the capital expenditure incurred is in response to
climate change including the reduction of the carbon footprint of the
Group’s existing investment properties and developments. The “Other”
category includes non-property related spend, primarily IT.
4. REVENUE
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Rental income from investment and trading properties 190 161 336
Rent averaging 5 7 18
Service charge income* 21 17 35
Management fees* 2 1 3
Surrender premiums and dividend income from property related investments 2 1 1
Gross rental income(1) 220 187 393
Joint venture fees - management fees* 12 11 22
Proceeds from sale of trading properties* 14 - 17
Total revenue 246 198 432
* The above income streams reflect revenue recognition under IFRS 15 Revenue
from Contracts with Customers and total £49 million (31 December 2020: £77
million; 30 June 2020: £29 million).
1. Net rental income of £171 million (31 December 2020: £305 million; 30
June 2020: £145 million) is calculated as gross rental income of £220
million (31 December 2020: £393 million; 30 June 2020: £187 million) less
total property operating expenses of £49 million (31 December 2020: £88
million; 30 June 2020: £42 million) shown in Note 5.
5. PROPERTY OPERATING EXPENSES
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Vacant property costs 3 2 3
Letting, marketing, legal and professional fees 5 4 10
Loss allowance and impairment of receivables 1 3 4
Service charge expense 21 17 35
Other expenses 5 3 9
Property management expenses 35 29 61
Property administration expenses(1) 19 17 36
Costs capitalised(2) (5) (4) (9)
Total property operating expenses 49 42 88
Trading properties cost of sales 13 - 16
Total costs 62 42 104
1. Property administration expenses predominantly relate to the employee staff
costs of personnel directly involved in managing the property portfolio.
2. Costs capitalised relate to staff costs of those internal employees
directly involved in developing the property portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Share of profit from joint ventures after tax
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Revenue(1) 131 125 249
Gross rental income 131 118 242
Property operating expenses:
-underlying property operating expenses (6) (6) (12)
-vacant property costs (1) (1) (3)
-property management fees(2) (10) (10) (19)
-service charge expense (27) (24) (48)
Net rental income 87 77 160
Administration expenses (2) (1) (3)
Net finance costs (including adjustments) (13) (13) (25)
Adjusted profit before tax 72 63 132
Tax (8) (5) (10)
Adjusted profit after tax 64 58 122
At share 32 29 61
Adjustments:
Profit on sale of investment properties - - 2
Valuation surplus on investment properties 435 21 424
Gain on sale of trading properties - - -
Other investment income - - 5
Tax in respect of adjustments (79) (10) (81)
Total adjustments 356 11 350
At share 178 6 175
Profit after tax 420 69 472
At share 210 35 236
Total comprehensive income for the period 420 69 472
At share 210 35 236
1. Total revenue at 100% of £131 million (31 December 2020: £249 million; 30
June 2020: £125 million) includes: Gross rental income £131 million (31
December 2020: £242 million; 30 June 2020: £118 million) and proceeds from
sale of trading properties £nil (31 December 2020: £7 million; 30 June 2020:
£7 million). Proceeds from sale of trading properties is presented net of
cost of sale and shown in the line ‘Gain on sale of trading properties’ in
the table above.
2. Property management fees paid to SEGRO.
6(ii) Summarised balance sheet information of the Group’s share of joint
ventures
As at As at As at
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Investment properties 5,249 4,172 4,695
Other interests in property - 2 -
Total non-current assets 5,249 4,174 4,695
Other receivables 173 108 115
Cash and cash equivalents 66 112 48
Total current assets 239 220 163
Total assets 5,488 4,394 4,858
Borrowings (1,701) (1,535) (1,574)
Deferred tax liabilities (412) (272) (346)
Total non-current liabilities (2,113) (1,807) (1,920)
Other liabilities (136) (118) (92)
Total current liabilities (136) (118) (92)
Total liabilities (2,249) (1,925) (2,012)
Net assets 3,239 2,469 2,846
At share 1,620 1,235 1,423
In May 2021, SELP issued an 8 year, €500 million unsecured bond at an annual
coupon of 0.875 per cent as discussed further in the Finance Review.
SEGRO provides certain services, including venture advisory and asset
management to the SELP joint venture and receives fees for doing so.
Performance fees may also be payable from SELP to SEGRO based on its IRR
subject to certain hurdle rates. The first fee of £52 million was paid on the
fifth anniversary of the inception of SELP, October 2018, but 50 per cent of
this is subject to clawback based on performance over the period to the tenth
anniversary, October 2023. If performance has improved at this point,
additional fees might be triggered.
The IRR calculation to determine whether the hurdle rates will be met when the
performance period ends in October 2023 is an estimation and sensitive to
movements and assumptions in property valuations over the remaining
performance period. Due to the estimation uncertainties that exist in
calculating the IRR management do not consider it highly probable there will
not be a significant reversal of the fee subject to clawback over the
remaining performance period. For these reasons, no performance fee has been
recognised by SEGRO (and no performance fee expense recognised by SELP) in the
Income Statement for the period ended 30 June 2021 (31 December 2020: £nil;
30 June 2020: £nil).
7. REALISED AND UNREALISED PROPERTY GAIN
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Profit on sale of investment properties 4 2 5
Valuation surplus on investment properties 1,118 57 971
Increase in provision for impairment in other interests in property - - (1)
Valuation (deficit)/ surplus on other investments - (2) 14
Total realised and unrealised property gain 1,122 57 989
The above table does not include realised gains on sale of trading properties
of £1 million (31 December 2020: £1 million; 30 June 2020: £nil) as
detailed further in Note 2.
Valuation surpluses are discussed further in the Chief Executive’s Review.
8. NET FINANCE COSTS
Finance income Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Interest received on bank deposits and related derivatives 16 18 27
Fair value gain on interest rate swaps and other derivatives 7 20 23
Total finance income 23 38 50
Finance costs
Interest on overdrafts, loans and related derivatives (37) (39) (68)
Cost of early close out of debt - - (11)
Amortisation of issue costs (1) (1) (3)
Interest on lease liabilities (2) (1) (3)
Total borrowing costs (40) (41) (85)
Less amount capitalised on the development of properties 4 4 7
Net borrowing costs (36) (37) (78)
Fair value loss on interest rate swaps and other derivatives (63) (3) (9)
Total finance costs (99) (40) (87)
Net finance costs (76) (2) (37)
Net finance costs (including adjustments) in Adjusted profit (see Note 2) are
£20 million (31 December 2020: £40 million; 30 June 2020: £19 million).
This excludes net fair value loss on interest rate swaps and other derivatives
of £56 million (31 December 2020: gain of £14 million; 30 June 2020: gain of
£17 million) and cost of early close out of debt of £nil (31 December 2020:
£11 million; 30 June 2020: £nil) in the table above.
9. TAX
9(i) Tax on profit
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Tax:
On Adjusted profit (3) (2) (4)
In respect of adjustments (50) (2) (31)
In respect of SIIC entry charge (39) - -
Total tax charge (92) (4) (35)
Current tax
Current tax charge (23) (2) (7)
Adjustments in respect of earlier years - 4 4
SIIC entry charge (39) - -
Total current tax (charge)/credit (62) 2 (3)
Deferred tax
Origination and reversal of temporary differences (2) (1) (3)
Released in respect of property disposals in the period 21 - 5
On valuation movements (48) (5) (39)
Total deferred tax in respect of investment properties (29) (6) (37)
Other deferred tax (1) - 5
Total deferred tax charge (30) (6) (32)
Total tax charge on profit on ordinary activities (92) (4) (35)
During April 2021, the Group elected Sofibus Patrimoine S.A. into the SIIC
regime in France. The entry cost to the regime was €45 million (£39
million) and is payable over a period of four years, of which the first
payment is due to be made during H2 2021. The entire entry cost has been
recognised in the H1 2021 Income Statement.
The Group believes that its accruals for tax liabilities are adequate for all
open tax years based on its assessment of many factors, including
interpretations of tax laws and prior experience.
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Exchange Acquisitions/ Recognised Balance
1 January
movement
(disposals)
in income
30 June 2021
2021
£m
£m
£m
£m Balance
£m
30 June 2020
£m
Valuation surplus and deficits on properties/accelerated tax allowances 84 (5) - 30 109 60
Deferred tax asset on revenue losses - - - - - (1)
Others 3 - - - 3 2
Total deferred tax liabilities 87 (5) - 30 112 61
10. DIVIDENDS
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Ordinary dividends paid
Final dividend for 2020 @ 15.2 pence per share 181 - -
Interim dividend for 2020 @ 6.9 pence per share - - 82
Final dividend for 2019 @ 14.4 pence per share - 158 158
181 158 240
The Board has declared an interim dividend of 7.4 pence per ordinary share
(2020: 6.9 pence). This dividend has not been recognised in the condensed
financial statements.
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average number of shares
in issue during the period and the net assets per share calculations use the
number of shares in issue at the period end. Earnings per share calculations
exclude 0.2 million shares (0.4 million for the full year 2020 and 0.5 million
for half year 2020) being the average number of shares held on trust during
the period for employee share schemes and net assets per share exclude 0.2
million shares (0.3 million for the full year 2020 and 0.3 million for the
half year 2020) being the actual number of shares held on trust for employee
share schemes at period end.
11(i) Earnings per ordinary share (EPS)
Half year to 30 June 2021 Half year to 30 June 2020 Year to 31 December 2020
Earnings Shares Pence per Earnings Shares Pence per Earnings Shares Pence per
£m
million
share
£m
million
share
£m
million
share
Basic EPS 1,317 1,194.1 110.3 216 1,108.1 19.5 1,427 1,149.8 124.1
Dilution adjustments:
Employee share schemes - 2.9 (0.3) - 4.4 (0.1) - 4.7 (0.5)
Diluted EPS 1,317 1,197.0 110.0 216 1,112.5 19.4 1,427 1,154.5 123.6
Basic EPS 1,317 1,194.1 110.3 216 1,108.1 19.5 1,427 1,149.8 124.1
Adjustments to profit before tax(1) (1,245) (104.3) (80) (7.3) (1,168) (101.6)
Tax in respect of Adjustments 50 4.2 2 0.2 31 2.7
Tax in respect to SIIC entry charge 39 3.3 - - - -
Non-controlling interest on adjustments 4 0.3 1 0.1 2 0.2
Adjusted Basic EPS 165 1,194.1 13.8 139 1,108.1 12.5 292 1,149.8 25.4
Adjusted Diluted EPS 165 1,197.0 13.8 139 1,112.5 12.5 292 1,154.5 25.3
1. Details of adjustments are included in Note 2.
11(II) NET ASSET VALUE PER SHARE (NAV)
The EPRA Net Tangible Assets (NTA) metric is considered to be most consistent
with the nature of SEGRO’s business as a UK REIT providing long-term
progressive and sustainable returns. EPRA NTA acts as the primary measure of
net asset value and is also referred to as Adjusted Net Asset Value (or
Adjusted NAV).
A reconciliation from IFRS NAV to Adjusted NAV is set out in the table below
along with the net asset per share metrics.
Table 4 of the supplementary notes provides a reconciliation for each of the
three EPRA net asset value metrics.
As at 30 June 2021 As at 30 June 2020 As at 31 December 2020
Equity Shares Pence Equity Shares Pence Equity Shares Pence
attributable
million
per
attributable
million
per
attributable
million
per
to ordinary
share
to ordinary
share
to ordinary
share
shareholders
shareholders
shareholders
£m £m £m
Basic NAV 10,783 1,200.0 899 8,540 1,190.6 717 9,659 1,191.3 811
Dilution adjustments:
Employee share schemes - 2.5 (2) - 2.7 (1) - 3.4 (2)
Diluted NAV 10,783 1,202.5 897 8,540 1,193.3 716 9,659 1,194.7 809
Fair value adjustment in respect of interest rate derivatives – Group (1) - (68) (6) (61) (5)
Fair value adjustment in respect of trading properties – Group - - 2 - 1 -
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 55 5 30 2 42 3
Deferred tax in respect of depreciation and valuation surpluses – Joint 100 8 67 6 86 7
ventures(1)
Intangible assets (8) (1) (2) - (2) -
Adjusted NAV (EPRA NTA) 10,929 1,202.5 909 8,569 1,193.3 718 9,725 1,194.7 814
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating Adjusted NAV in line with option 3
of EPRA Best Practices Recommendations guidelines.
12. PROPERTIES
12(i) Investment properties
Completed Development Total
£m
£m
£m
At 1 January 2021 9,397 1,062 10,459
Exchange movement (91) (22) (113)
Property acquisitions 6 84 90
Additions to existing investment properties 16 318 334
Disposals(2) (248) (2) (250)
Transfers on completion of development 126 (126) -
Revaluation surplus during the period 825 293 1,118
At 30 June 2021 10,031 1,607 11,638
Add tenant lease incentives, letting fees and rental guarantees 137 - 137
Investment properties excluding head lease liabilities at 30 June 2021 10,168 1,607 11,775
Add head lease liabilities (ROU assets)(1) 75 - 75
Total investment properties at 30 June 2021 10,243 1,607 11,850
Total investment properties at 30 June 2020 8,169 1,039 9,208
1. At 30 June 2021 investment properties included £75 million (31 December
2020: £77 million; 30 June 2020: £75 million) for the head lease liabilities
recognised under IFRS 16.
2. Total disposals completed in H1 2021 of £154 million shown in the
Investment section of the Chief Executive’s Review includes: Carrying value
of investment properties disposed by SEGRO Group of £250 million and profit
generated on disposal of £4 million (see Note 7); proceeds from the sale of
trading properties by SEGRO Group of £14 million (see Note 4); share of joint
venture investment properties disposal proceeds of £nil; carrying value of
lease incentives, letting fees and rental guarantees disposed by SEGRO Group
and joint venture (at share) of £3 million; and excludes 50 per cent of the
disposal proceeds for assets sold by SEGRO to SELP JV of £117m (further
discussed below).
Investment properties are stated at fair value based on external valuations
performed by professionally qualified, independent valuers. The Group’s
wholly owned property portfolio and joint venture properties were performed by
CBRE Ltd (apart from two assets valued by Knight Frank). The valuations
conform to International Valuation Standards and were arrived at by reference
to market evidence of the transaction prices paid for similar properties. In
estimating the fair value of the properties, the valuers consider the highest
and best use of the properties. All investment property would be classified as
level 3 fair value measurements, there has been no change in the valuation
technique and no significant changes in the assumptions used during the
period. The valuation surplus recognised during the period is discussed
further in the Chief Executive’s Review.
CBRE Ltd also undertake some professional and agency work on behalf of the
Group, although this is limited relative to the activities provided by other
advisors to the Group as a whole.
Sensitivity analysis
An increase/decrease to ERV will increase/decrease valuations, while an
increase/decrease to yield will decrease/increase valuations. Management
continue to consider a +/- 25bp change in yield and a +/- 5% change in ERV to
be reasonably possible changes to the assumptions. A sensitivity analysis
showing the impact on valuations of changes in yields and ERV on the property
portfolio (including joint ventures at share) is shown below.
Impact on valuation of Impact on valuation of 5
25bp change in nominal
% change in estimated
equivalent yield
rental value (ERV)
Group total completed Increase Decrease Increase Decrease
property portfolio(1)
£m
£m
£m
£m
£m
30 June 2021 12,662 (685) 692 472 467
30 June 2020 10,112 (514) 460 373 (367)
31 December 2020 11,807 (616) 608 436 (431)
1. For further details see Table 6 of the supplementary notes.
There are interrelationships between all these inputs as they are determined
by market conditions. The existence of an increase in more than one input
would be to magnify the impact on the valuation. The impact on the valuation
will be mitigated by the interrelationship of two inputs in opposite
directions, e.g. an increase in rent may be offset by an increase in yield.
Completed properties include buildings that are occupied or are available for
occupation. Development properties include land available for development
(land bank), land under development and construction in progress.
At 30 June 2021 investment properties included £137 million tenant lease
incentives, letting fees and rent guarantees (31 December 2020: £136 million;
30 June 2020: £125 million).
The carrying value of investment properties situated on land held under
leaseholds amount to £183 million (excluding head lease ROU assets) (31
December 2020: £179 million; 30 June 2020: £168 million).
The disposals of completed properties during the period includes properties
with a carrying value of £233 million (31 December 2020: £92 million; 30
June 2020: £nil) sold to the SELP joint venture.
12(ii) Trading properties
The carrying value of trading properties at 30 June 2021 was £47 million (31
December 2020: £52 million; 30 June 2020: £29 million). Based on the fair
value at 30 June 2021, the portfolio has unrecognised surplus of £nil (31
December 2020: £1 million; 30 June 2020: £2 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
As at As at As at
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
In one year or less 1 - 1
In more than one year but less than two 1 121 1
In more than two years but less than five 210 82 218
In more than five years but less than ten 909 933 934
In more than ten years 1,232 866 1,260
In more than one year 2,352 2,002 2,413
Total borrowings 2,353 2,002 2,414
Cash and cash equivalents (78) (203) (89)
Net borrowings 2,275 1,799 2,325
Total borrowings is split between secured and unsecured as follows:
Secured (on land and buildings) 13 3 14
Unsecured 2,340 1,999 2,400
Total borrowings 2,353 2,002 2,414
Currency profile of total borrowings after derivative instruments
Sterling (113) (16) 180
Euros 2,466 2,018 2,234
Total borrowings 2,353 2,002 2,414
Maturity profile of undrawn borrowing facilities
In one year or less 9 9 19
In more than one year but less than two - - -
In more than two years 896 1,107 953
Total available undrawn facilities 905 1,116 972
Fair value of financial instruments
Book value of debt 2,353 2,002 2,414
Interest rate derivatives (1) (68) (61)
Foreign exchange derivatives (19) 23 (7)
Book value of debt including derivatives 2,333 1,957 2,346
Net fair market value 2,655 2,210 2,813
Mark to market adjustment (pre-tax) 322 253 467
Fair value measurements recognised in the Balance Sheet
The financial instruments that are measured subsequent to initial recognition
at fair value are listed equity investments, forward exchange and currency
swap contracts, interest rate swaps and interest rate caps. Investments in
equity securities traded in active markets are classified as level 1. All
other financial instruments would be classified as level 2 fair value
measurements, as defined by IFRS 13, being those derived from inputs other
than quoted prices (included within level 1) that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices). There were no transfers between categories in the current or
prior periods.
The fair values of financial assets and financial liabilities are determined
as follows:
– Forward foreign exchange contracts are measured using quoted forward
exchange rates and yield curves derived from quoted interest rates with
maturities matching the contracts.
– Interest rate swaps, currency swap contracts and interest rate caps are
measured at the present value of future cash flows estimated and discounted
based on the applicable yield curves derived from quoted interest rates and
the appropriate exchange rate at the Balance Sheet date.
– The fair value of non-derivative financial assets and financial
liabilities traded on active liquid markets is determined with reference to
the quoted market prices.
14. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
14(i) Reconciliation of cash generated from operations
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Operating profit 1,489 223 1,501
Adjustments for:
Depreciation of property, plant and equipment 2 2 4
Share of profit from joint ventures after tax (210) (35) (236)
Profit on sale of investment properties (4) (2) (5)
Revaluation surplus on investment properties (1,118) (57) (971)
Valuation deficit/(surplus) on other investments - 2 (14)
Other provisions 5 (2) 4
164 131 283
Changes in working capital:
Decrease/(increase) trading properties 4 (9) (20)
Increase in debtors and tenant incentives (1) (26) (52)
Increase in creditors 1 11 22
Net cash inflow generated from operations 168 107 233
14(ii) Analysis of net debt
Non-cash movements
At 1 January Cash Exchange Other non-cash At 30 June
2021
movement
adjustments(3)
2021
£m inflow(1) Cash
£m
£m
Outflow(2 £m
£m
)£m
Bank loans and loan capital 2,431 35 (34) (60) - 2,372
Capitalised finance costs( ) (17) - (3) - 1 (19)
Total borrowings 2,414 35 (37) (60) 1 2,353
Cash in hand and at bank (89) - 10 1 - (78)
Net debt 2,325 35 (27) (59) 1 2,275
1. Proceeds from borrowings of £35 million.
2. Cash outflow of £37 million, comprises the repayment of borrowings of £34
million and capitalised costs of £3 million.
3. The other non-cash adjustments relate to the amortisation of issue costs
offset against borrowings.
15. RELATED PARTY TRANSACTIONS
There have been no undisclosed material changes in the related party
transactions as described in the last annual report, other than those
disclosed in Note 12 in this condensed set of financial statements.
16. SUBSEQUENT EVENTS
On 5 July 2021 SEGRO entered into a binding agreement to sell a portfolio of
six Italian urban warehouses for €127 million. Five of the properties were
sold on 15 July 2021 and the sale of the sixth property is expected to
complete later this year following practical completion of additional works.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
Half year to 30 June Half year to 30 June Year to 31 December
2021
2020
2020
Notes £m Pence per £m Pence per £m Pence per
share
share
share
EPRA Earnings Table 2 165 13.8 139 12.5 292 25.4
EPRA NTA (Adjusted NAV) Table 4 10,929 909 8,569 718 9,725 814
EPRA NRV Table 4 11,868 987 9,282 778 10,571 885
EPRA NDV Table 4 10,432 868 8,290 695 9,155 766
EPRA net initial yield Table 6 3.5% 3.7% 3.8%
EPRA ‘topped up’ net initial yield Table 6 3.8% 4.0% 4.1%
EPRA vacancy rate Table 7 4.3% 5.2% 3.9%
EPRA cost ratio (including vacant property costs) Table 8 19.8% 21.2% 21.1%
EPRA cost ratio (excluding vacant property costs) Table 8 18.4% 20.0% 20.1%
TABLE 2: INCOME STATEMENT, PROPORTIONALLY CONSOLIDATED
Half year to 30 June 2021 Half year to 30 June 2020 Year to 31 December 2020
Notes Group JV Total Group JV Total Group JV Total
£m £m £m £m £m £m £m £m £m
Gross rental income 2, 6 220 66 286 187 59 246 393 121 514
Property operating expenses 2, 6 (49) (18) (67) (42) (16) (58) (88) (31) (119)
Net rental income 171 48 219 145 43 188 305 90 395
Joint venture fee income(1) 2 12 (5) 7 11 (5) 6 22 (10) 12
Administration expenses 2 (27) (1) (28) (25) (1) (26) (52) (2) (54)
Adjusted operating profit before interest and tax 156 42 198 131 37 168 275 78 353
Net finance costs (including adjustments) 2, 6 (20) (6) (26) (19) (6) (25) (40) (12) (52)
Adjusted profit before tax 136 36 172 112 31 143 235 66 301
Tax on adjusted profit 2, 6 (3) (4) (7) (2) (2) (4) (4) (5) (9)
Adjusted earnings before non-controlling interests 133 32 165 110 29 139 231 61 292
Non-controlling interest on adjusted profit - - - - - - - - -
Adjusted/EPRA earnings after tax and non-controlling interests 133 32 165 110 29 139 231 61 292
Number of shares, million 1,194.1 1,108.1 1,149.8
Adjusted/EPRA EPS, pence per share 13.8 12.5 25.4
Number of shares, million 1,197.0 1,112.5 1,154.5
Adjusted/EPRA EPS, pence per share – diluted 13.8 12.5 25.3
1. Joint venture fee income includes the cost of such fees borne by the joint
ventures which are shown in Note 6 within net rental income.
As discussed in Note 2 there were no non-EPRA adjustments to underlying profit
made in the current period or prior periods, therefore Adjusted earnings is
equal to EPRA earnings in the table above.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
As at 30 June 2021 As at 30 June 2020 As at 31 December 2020
Notes Group JV Total Group JV Total Group JV Total
£m £m £m £m £m £m £m £m £m
Investment properties 12, 6 11,850 2,624 14,474 9,208 2,086 11,294 10,671 2,348 13,019
Trading properties 12, 6 47 - 47 29 - 29 52 - 52
Total properties 11,897 2,624 14,521 9,237 2,086 11,323 10,723 2,348 13,071
Investment in joint ventures 6 1,620 (1,620) - 1,235 (1,235) - 1,423 (1,423) -
Other net liabilities (459) (187) (646) (133) (139) (272) (162) (162) (324)
Net borrowings 13,6 (2,275) (817) (3,092) (1,799) (712) (2,511) (2,325) (763) (3,088)
Total shareholders’ equity(1) 10,783 - 10,783 8,540 - 8,540 9,659 - 9,659
EPRA adjustments 11 146 29 66
Adjusted NAV 11 10,929 8,569 9,725
Number of shares, million 11 1,202.5 1,193.3 1,194.7
Adjusted NAV pence per share 11 909 718 814
1. After non-controlling interests.
Loan to value of 21 per cent at 30 June 2021 is calculated as net borrowings
of £3,092 million divided by total properties (excluding head lease ROU asset
of £75 million) of £14,446 million (30 June 2020: 22 per cent, £2,511
million net borrowings and £11,248 million total properties; 31 December
2020: 24 per cent, £3,088 million net borrowings and £12,994 million total
properties).
TABLE 4: EPRA NET ASSET MEASURES
The European Public Real Estate Association (‘EPRA’) best practice
recommendations (BPR) for financial disclosures by public real estate
companies sets out three net asset value measures: EPRA net tangible assets
(NTA), EPRA net reinstatement value (NRV) and EPRA net disposal value (NDV).
The EPRA Net Tangible Assets (NTA) metric is considered to be most consistent
with the nature of SEGRO’s business as a UK REIT providing long-term
progressive and sustainable returns. EPRA NTA acts as the primary measure of
net asset value and is also referred to as Adjusted Net Asset Value (or
Adjusted NAV).
A reconciliation of the three EPRA NAV metrics from IFRS NAV is shown in the
table below.
EPRA measures
As at 30 June 2021 EPRA NTA EPRA NRV EPRA NDV
(Adjusted NAV)
£m £m £m
Equity attributable to ordinary shareholders 10,783 10,783 10,783
Fair value adjustment in respect of interest rate derivatives – Group (1) (1) -
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 55 110 -
Deferred tax in respect of depreciation and valuation surpluses – Joint 100 200 -
ventures(1)
Intangible assets (8) - -
Fair value adjustment in respect of debt – Group - - (322)
Fair value adjustment in respect of debt – Joint ventures - - (29)
Real estate transfer tax(2) - 776 -
Net assets 10,929 11,868 10,432
Diluted shares (million) 1,202.5 1,202.5 1,202.5
Diluted net assets per share 909 987 868
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’
costs. Purchasers’ costs are added back when calculating EPRA NRV.
EPRA measures
As at 30 June 2020 EPRA NTA EPRA NRV EPRA NDV
(Adjusted NAV)
£m £m £m
Equity attributable to ordinary shareholders 8,540 8,540 8,540
Fair value adjustment in respect of interest rate derivatives – Group (68) (68) -
Fair value adjustment in respect of trading properties – Group 2 2 2
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 30 60 -
Deferred tax in respect of depreciation and valuation surpluses – Joint 67 134 -
ventures(1)
Intangible assets (2) - -
Fair value adjustment in respect of debt – Group - - (253)
Fair value adjustment in respect of debt – Joint ventures - - 1
Real estate transfer tax(2) - 614 -
Net assets 8,569 9,282 8,290
Diluted shares (million) 1,193.3 1,193.3 1,193.3
Diluted net assets per share 718 778 695
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’
costs. Purchasers’ costs are added back when calculating EPRA NRV.
EPRA measures
As at 31 December 2020 EPRA NTA EPRA NRV EPRA NDV
(Adjusted NAV)
£m £m £m
Equity attributable to ordinary shareholders 9,659 9,659 9,659
Fair value adjustment in respect of interest rate derivatives – Group (61) (61) -
Fair value adjustment in respect of trading properties – Group 1 1 1
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 42 84 -
Deferred tax in respect of depreciation and valuation surpluses – Joint 86 171 -
ventures(1)
Intangible assets (2) - -
Fair value adjustment in respect of debt – Group - - (467)
Fair value adjustment in respect of debt – Joint ventures - - (38)
Real estate transfer tax(2) - 717 -
Net assets 9,725 10,571 9,155
Diluted shares (million) 1,194.7 1,194.7 1,194.7
Diluted net assets per share 814 885 766
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’
costs. Purchasers’ costs are added back when calculating EPRA NRV.
TABLE 5: EPRA EARNINGS
Notes Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Earnings per IFRS income statement 1,317 216 1,427
Adjustments to calculate EPRA Earnings, exclude:
Valuation surplus on investment properties 7 (1,118) (57) (971)
Profit on sale of investment properties 7 (4) (2) (5)
Gain on sale of trading properties 7 (1) - (1)
Increase in provision for impairment of other interests in property 7 - - 1
Valuation deficit/(surplus) on other investments 7 - 2 (14)
Tax on profits on disposals(1) 29 (4) -
Costs of early close out of debt 8 - - 11
Net fair value loss/(gain) on interest rate swaps and other derivatives 8 56 (17) (14)
Deferred tax in respect of EPRA adjustments(1) 21 6 31
Tax charge in respect of SIIC entry 9 39 - -
Adjustments to the share of profit from joint ventures after tax 6 (178) (6) (175)
Non-controlling interests in respect of the above 2 4 1 2
EPRA earnings 165 139 292
Basic number of shares, million 11 1,194.1 1,108.1 1,149.8
EPRA Earnings per Share (EPS) 13.8 12.5 25.4
Company specific adjustments:
Non-EPRA adjustments 2 - - -
Adjusted earnings 165 139 292
Adjusted EPS 13.8 12.5 25.4
1. Total tax charge in respect of adjustments per Note 2 of £50 million (H1
2020: £2 million, FY 2020: £31 million) comprises tax charge on profits on
disposals of £29 million (H1 2020: credit £4 million, FY 2020: £nil) and
deferred tax charge of £21 million (H1 2020: £6 million, FY 2020: £31
million).
TABLE 6: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL YIELD
Combined property portfolio including joint ventures at share – 30 June 2021 Notes UK Continental Total
£m
Europe
£m
£m
Total properties per financial statements Table 3 9,036 5,485 14,521
Less head lease ROU assets 12 - (75) (75)
Combined property portfolio per external valuers’ report(4) 9,036 5,410 14,446
Less development properties (investment, trading and joint venture) (928) (856) (1,784)
Net valuation of completed properties 8,108 4,554 12,662
Add notional purchasers’ costs 549 227 776
Gross valuation of completed properties including notional purchasers’ costs A 8,657 4,781 13,438
Income
Gross passing rents(1) 288 189 477
Less irrecoverable property costs (5) (7) (12)
Net passing rents B 283 182 465
Adjustment for notional rent in respect of rent frees 22 21 43
Topped up net rent C 305 203 508
Including fixed/minimum uplifts(2) 10 - 10
Total topped up net rent 315 203 518
Yields – 30 June 2021
EPRA net initial yield(3) B/A 3.3% 3.8% 3.5%
EPRA topped up net initial yield(3) C/A 3.5% 4.2% 3.8%
True net equivalent yield 4.1% 4.4% 4.2%
1. Gross passing rent excludes short term lettings and licences.
2. Certain leases contain clauses which guarantee future rental increases,
whereas most leases contain five yearly, upwards-only rent review clauses (UK)
or indexation clauses (Continental Europe).
3. In accordance with the Best Practices Recommendations of EPRA.
4. Total assets under management of £17,071 million includes Combined
property portfolio (including JV at 50% share) of £14,446 million plus 50% of
JV properties not owned but under management of £2,625 million.
TABLE 7: EPRA VACANCY RATE
Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Annualised potential rental value of vacant premises 24 27 22
Annualised potential rental value for the completed property portfolio 567 518 561
EPRA vacancy rate(1) 4.3% 5.2% 3.9%
1. EPRA vacancy rate has been calculated using the figures presented in the
table above in millions accurate to one decimal place.
TABLE 8: TOTAL COST RATIO / EPRA COST RATIO
Total cost ratio Notes Half year to Half year to Year to
30 June 2021
30 June 2020
31 December 2020
£m
£m
£m
Costs
Property operating expenses(1) 5 49 42 88
Administration expenses 27 25 52
Share of joint venture property operating and administration expenses(2) 6 24 21 43
Less:
Joint venture property management fee income, service charge income, (51) (43) (88)
management fees and other costs recovered through rents but not separately
invoiced(3)
Total costs (A) 49 45 95
Gross rental income
Gross rental income 4 220 187 393
Share of joint venture property gross rental income 6 66 59 121
Less:
Service charge income, management fees and other costs recovered through rents (39) (32) (66)
but not separately invoiced(3)
Total gross rental income (B) 247 214 448
Total cost ratio (A)/(B)(4) 19.8% 21.2% 21.1%
Total costs (A) 49 45 95
Share-based payments (6) (5) (10)
Total costs after share based payments (C) 43 40 85
Total cost ratio after share based payments (C)/(B)(4) 17.4% 18.6% 18.8%
EPRA cost ratio
Total costs (A) 49 45 95
Non-EPRA adjustments - - -
EPRA total costs including vacant property costs (D) 49 45 95
Group vacant property costs (3) (2) (3)
Share of joint venture vacant property costs (1) (1) (2)
EPRA total costs excluding vacant property costs (E) 45 42 90
Total gross rental income (B) 247 214 448
Total EPRA costs ratio (including vacant property costs) (D)/(B)(4) 19.8% 21.2% 21.1%
Total EPRA costs ratio (excluding vacant property costs) (E)/(B)(4) 18.4% 20.0% 20.1%
1. Property operating expenses are net of costs capitalised in accordance with
IFRS of £5 million (H1 2020: £4 million, FY 2020: £9 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 £51 million (H1 2020: £43 million, FY 2020: £88
million) from costs includes: joint venture management fees income of £12
million (H1 2020: £11 million, FY 2020: £22 million), service charge income
including joint ventures of £35 million (H1 2020: £29 million, FY 2020: £59
million) and management fees and other costs recovered through rents but not
separately invoiced, including joint ventures, of £4 million (H1 2020: £3
million, FY 2020: £7 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 £220 million (H1 2020: £187 million, FY 2020: £393 million) does
not include joint venture management fees income of £12 million (H1 2020:
£11 million, FY 2020: £22 million) and these fees are not required to be
included in the total deduction to income of £39 million (H1 2020: £32
million, FY 2020: £66 million).
4. Cost ratio percentages have been calculated using the figures presented in
the table above in millions accurate to one decimal place.
GLOSSARY OF TERMS
Completed portfolio: The completed investment properties and the Group’s
share of joint ventures’ completed investment properties. Includes
properties held throughout the period, completed developments and properties
acquired during the period.
Development pipeline: The Group’s current programme of developments
authorised or in the course of construction at the balance sheet date (current
development pipeline), together with potential schemes not yet commenced on
land owned or controlled by the Group (future development pipeline). Within
the future development pipeline are pre-let development projects which
management expects to approve over the next twelve months or which have been
approved but are subject to final planning approval or other conditions being
met (“near-term” development pipeline).
EPRA: The European Public Real Estate Association, a real estate industry
body, which has issued Best Practices Recommendations Guidelines in order to
provide consistency and transparency in real estate reporting across Europe.
Estimated cost to completion: Costs still to be expended on a development or
redevelopment to practical completion, including attributable interest.
Estimated rental value (ERV): The estimated annual market rental value of
lettable space as determined biannually by the Group’s valuers. This will
normally be different from the rent being paid.
Gearing: Net borrowings divided by total shareholders’ equity excluding
intangible assets and deferred tax provisions.
Gross rental income: Contracted rental income recognised in the period in the
Income Statement, including surrender premiums and service charge income.
Lease incentives, initial costs and any contracted future rental increases are
amortised on a straight line basis over the lease term. Service charge
expenses are captured in “Property Operating Expenses”.
Headline rent: The annual rental income currently receivable on a property as
at the balance sheet date (which may be more or less than the ERV) ignoring
any rent-free period.
Hectares (Ha): The area of land measurement used in this analysis. The
conversion factor used, where appropriate, is 1 hectare = 2.471 acres.
Investment property: Completed land and buildings held for rental income
return and/or capital appreciation.
Joint venture: An entity in which the Group holds an interest and which is
jointly controlled by the Group and one or more partners under a contractual
arrangement whereby decisions on financial and operating policies essential to
the operation, performance and financial position of the venture require each
partner’s consent.
Loan to value (LTV): Net borrowings divided by the carrying value of total
property assets (investment, owner occupied and trading properties and
excludes head lease ROU asset). This is reported on a ‘look‑through’
basis (including joint ventures at share) except where stated.
MSCI: MSCI Real Estate calculates indices of real estate performance around
the world.
Net initial yield: Passing rent less non recoverable property expenses such as
empty rates, divided by the property valuation plus notional purchasers’
costs. This is in accordance with EPRA’s Best Practices Recommendations.
Net rental income: Gross rental income less ground rents paid, net service
charge expenses and property operating expenses.
Net true equivalent yield: The internal rate of return from an investment
property, based on the value of the property assuming the current passing rent
reverts to ERV and assuming the property becomes fully occupied over time.
Rent is assumed to be paid quarterly in advance, in line with standard UK
lease terms.
Passing rent: The annual rental income currently receivable on a property as
at the Balance Sheet date (which may be more or less than the ERV). Excludes
rental income where a rent free period is in operation. Excludes service
charge income.
Pre-let: A lease signed with an occupier prior to commencing construction of a
building.
REIT: A qualifying entity which has elected to be treated as a Real Estate
Investment Trust for tax purposes. In the UK, such entities must be listed on
a recognised stock exchange, must be predominantly engaged in property
investment activities and must meet certain ongoing qualifications. SEGRO plc
and its UK subsidiaries achieved REIT status with effect from 1 January 2007.
Rent-free period: An incentive provided usually at commencement of a lease
during which a customer pays no rent. The amount of rent free is the
difference between passing rent and headline rent.
Rent roll: See Passing Rent.
SELP: SEGRO European Logistics Partnership, a 50-50 joint venture between
SEGRO and Public Sector Pension Investment Board (PSP Investments).
SIIC: Sociétés d’investissements Immobiliers Cotées are the French
equivalent of UK Real Estate Investment Trusts (see REIT).
Speculative development: Where a development has commenced prior to a lease
agreement being signed in relation to that development.
Square metres (sq m): The area of buildings measurements used in this
analysis. The conversion factor used, where appropriate, is one square metre =
10.7639 square feet.
Take-back: Rental income lost due to lease expiry, exercise of break option,
surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted to include notional
rent in respect of let properties which are subject to a rent free period at
the valuation date. This is in accordance with EPRA’s Best Practices
Recommendations.
Total accounting return (TAR): A measure of the growth in Net Asset Value
(NAV) per share calculated as change in Adjusted NAV per share in the period
plus dividend per share paid in the period, expressed as a percentage of
Adjusted NAV per share at the beginning of the period.
Total property return (TPR): A measure of the ungeared return for the
portfolio and is calculated as the change in capital value, less any capital
expenditure incurred, plus net income, expressed as a percentage of capital
employed over the period concerned, as calculated by MSCI Real Estate and
excluding land.
Total shareholder return (TSR): A measure of return based upon share price
movement over the period and assuming reinvestment of dividends.
Trading property: Property being developed for sale or one which is being held
for sale after development is complete.
Yield on cost: The expected gross yield based on the estimated current market
rental value (ERV) of the developments when fully let, divided by the book
value of the developments at the earlier of commencement of the development or
the balance sheet date, plus future development costs and estimated finance
costs to completion.
Yield on new money: The yield on cost excluding the book value of land if the
land is owned by the Group in the reporting period prior to commencement of
the development.
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