REG-SEGRO PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
17/02/2023 07:00
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RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
STRONG OCCUPIER DEMAND DRIVES FURTHER GROWTH IN RENTS, EARNINGS AND DIVIDENDS
SEGRO PLC (Paris:SGRO) (LSE:SGRO)
Commenting on the results David Sleath, Chief Executive of SEGRO said:
“SEGRO is today reporting strong operational results for 2022, including a
record level of rent roll growth driven by our active asset management and a
strong leasing performance. Our modern, well-located and highly sustainable
warehouses continue to be in high demand from a diverse range of occupiers,
underpinned by long-term structural drivers.
“Our strategy over the past decade has focused on cultivating a unique
portfolio located in the most supply-constrained European urban and logistics
markets, backed by a strong balance sheet to enable SEGRO to outperform
through the property cycle. Our portfolio valuation fell in the second half of
2022 as investment yields rose and values weakened across the sector in
response to macroeconomic conditions. However, the impact on our portfolio was
mitigated by its high quality and the strong rental growth we delivered across
all of our markets.
“Our prime portfolio, excellent land bank, development expertise, customer
focus and balance sheet capacity mean we are well positioned to deliver
attractive returns and further growth into the years ahead.”
HIGHLIGHTS(1):
* Adjusted pre-tax profit of £386 million up 8.4 per cent compared with the
prior year (2021: £356 million). Adjusted EPS increased by 6.5 per cent to
31.0 pence (2021: 29.1 pence, 28.0 pence excluding the 1.1 pence SELP
performance fee recognised in 2021 resulting in a 10.7 per cent increase).
* Adjusted NAV per share down 15.0 per cent to 966 pence (31 December 2021:
1,137 pence) driven by a portfolio valuation decline of 11.0 per cent (2021:
13.1 per cent increase, H2 2022 16.6 per cent decrease). This was primarily
driven by market-wide yield expansion in the second half, partly offset by
estimated rental value growth (ERV) of 10.9 per cent, portfolio asset
management successes and development profits.
* Net rental income of £522 million, up 18.9 per cent (2021: £439 million),
driven by strong like-for-like rental growth of 6.7 per cent and development
completions.
* Strong occupier demand, with our customer focus and active management of the
portfolio generating a record £98 million of new headline rent commitments
during the period (2021: £95 million), including £41 million of new pre-let
agreements, and a 23 per cent average uplift on rent reviews and renewals.
* Net capital investment of £1.3 billion (2021: £1.5 billion) in asset
acquisitions, development projects and land purchases, less disposals.
* 639,200 sq m of development completions delivered during 2022, at a yield on
cost of 7.4 per cent. 80 per cent of this is already let to customers from a
diverse range of sectors.
* Continued momentum in the development pipeline with 915,600 sq m of projects
under construction or in advanced pre-let discussions equating to £86 million
of potential rent, of which 75 per cent has been or is expected to be pre-let,
supporting growth in earnings over the year ahead and into 2024.
* Significant progress with our Responsible SEGRO strategic priorities,
de-risking and investing in the future of our business, including a ten per
cent reduction in the average embodied carbon intensity of our development
programme; the launch of ten Community Investment Plans (CIPs); and meaningful
changes to promote diversity and inclusion across our business.
* £3.1 billion of new financing helping to maintain our long-average debt
maturity of 8.6 years and providing high visibility on funding costs with no
significant near-term debt maturities. Average cost of debt at 31 December
2022 of 2.5 per cent, and interest cover of 4.5 times.
* Strong balance sheet providing capacity to invest in our development programme
and allowing us flexibility to make further commitments. We have access to
£2.2 billion of available liquidity and a modest level of gearing reflected
in LTV of 32 per cent at 31 December 2022 (31 December 2021: 23 per cent).
* 2022 full year dividend increased 8.2 per cent to 26.3 pence (2021: 24.3
pence). Final dividend increased by 7.7 per cent to 18.2 pence (2021: 16.9
pence)
FINANCIAL SUMMARY
2022 2021 Change
per cent
Adjusted(3) profit before tax (£m) 386 356 8.4
IFRS(3) (loss)/profit before tax (£m) (1,967) 4,355 -
Adjusted(3) earnings per share (pence) 31.0 29.1(2) 6.5
IFRS(3) earnings per share (pence) (159.7) 339.0 -
Dividend per share (pence) 26.3 24.3 8.2
Total Accounting Return (%)(4) (12.8) 42.5 -
2022 2021 Change
per cent
Assets under Management (£m) 20,947 21,286 -
Portfolio valuation (SEGRO share, £m) 17,925 18,377 (11.0)(5)
Net true equivalent yield (per cent) 4.8 3.8
Adjusted(67 )net asset value per share (pence, diluted) 966 1,137 (15.0)
IFRS net asset value per share (pence, diluted) 938 1,115 -
Net debt (SEGRO share, £m) 5,693 4,161 -
Loan to value ratio including joint ventures and associates 32 23 -
at share (per cent)
1. Figures quoted on pages 1 to 19 refer to SEGRO and SEGRO’s share of joint
ventures and associates, 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.
2. 2021 comparator included 1.1 pence recognised for SELP performance fee,
excluding this Adjusted EPS for FY21 was 28.0 pence. For further
information on the SELP Performance fee see Note 6 to the condensed financial
information.
3. The primary driver of the difference between Adjusted profit before tax and
IFRS loss before tax (£1,967m IFRS loss before tax versus £386m
Adjusted profit before tax) and earnings per share (31.0p Adjusted earnings
versus -159.7p IFRS earnings) is the unrealised valuation deficit on our
portfolio recognised in IFRS but not recognised in our Adjusted profit and
earnings metrics. Further information and reconciliations between the
Adjusted and IFRS metrics can be found in Note 2 (Adjusted profit) and Notes
11 (Earnings per ordinary share) to the condensed financial
information.
4. Total Accounting Return is calculated based on the opening and closing
adjusted NAV per share adding back dividends paid during the period.
5. Percentage valuation movement during the period based on the difference
between opening and closing valuations for all properties including
buildings under construction and land, adjusting for capital expenditure,
acquisitions and disposals.
6. 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.
7. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA)
(see Table 5 in the Supplementary Notes for a NAV reconciliation).
8. FY21 comparators in table on page 3 have been adjusted to take £10 million
capitalised interest out of development capex and to account for £503
million of acquisitions that were reclassified as ‘covered land’ from
‘completed properties’ after FY21 results and now presented as land
acquisitions.
OPERATING SUMMARY & KEY METRICS
2022 2021
MARKET RENTAL GROWTH REMAINS STRONG DUE TO TIGHT SUPPLY-DEMAND DYNAMICS,
PORTFOLIO VALUATION IMPACTED BY MACRO ECONOMIC ENVIRONMENT (see page 9):
Valuation decline driven by increased yields (100bp on average) and partly
offset by estimated rental value (ERV)
growth, active asset management of the standing portfolio, and gains
recognised on completed development and
buildings under construction.
Portfolio valuation change (%): Group (11.0) 28.8
UK (13.1) 32.2
CE (7.3) 22.5
ERV growth (%) Group 10.9 13.1
UK 11.5 18.8
CE 9.9 4.1
RECORD GROWTH IN RENTAL INCOME DRIVEN BY HIGH OCCUPIER DEMAND AND ACTIVE
ASSET MANAGEMENT OF OUR PRIME PORTFOLIO (see page 11):
Existing portfolio contributed strongly to our rent roll growth through
continued rental growth, the capture of
reversion in the UK portfolio and indexation provisions on the Continent,
supplemented by pre-lets signed during
the year.
Total new rent signed during the period (£m) 98 95
Pre-lets signed during the period (£m) 41 49
Like-for-like net rental income growth (%): Group 6.7 4.9
UK 7.7 5.6
CE 4.9 3.6
Uplift on rent reviews and renewals (%): Group 23.3 13.0
(note: excludes uplifts from indexation) UK 28.0 18.7
CE 1.7 1.5
Occupancy rate (%) 96.0 96.8
Customer retention (%) 76 77
Visibility of customer energy use (%) 68 54
Corporate and customer carbon emission (tonnes CO2e) 272,218 280,575
INVESTMENT ACTIVITY REMAINS DISCIPLINED AND FOCUSED ON SECURING PROFITABLE
GROWTH (see page 13):
Capital investment continues to focus on our development programme (through
capex and securing land to
provide future growth opportunities). Development capex for 2023, including
infrastructure, expected to be in
excess of £600 million.
Development capex (£m) 787 639(8)
Asset acquisitions (£m) 155 494(8)
Land acquisitions (£m) 712 829(8)
Disposals (£m) 367 515
EXECUTING AND GROWING OUR DEVELOPMENT PIPELINE (see page 14):
Our active and largely pre-let development pipeline remains a key driver of
rent roll growth and attractive returns
on capital. Potential rent of £86 million from projects currently on site or
expected to commence shortly.
Development completions:
– Space completed (sq m) 639,200 839,200
– Potential rent (£m) (Rent secured) 46 (80%) 52 (93%)
Average embodied carbon intensity (kgCO2e/m(2)) 353 391
Current development pipeline potential rent (£m) (Rent secured) 67 (73%) 62 (60%)
Near-term development pipeline potential rent (£m) 19 20
OUTLOOK
Our long-standing disciplined approach to portfolio management means that
SEGRO has one of the best and most modern pan-European industrial warehouse
portfolios, through which we can serve our customers’ entire regional and
local distribution needs. Two-thirds of this portfolio is located in
Europe’s most attractive urban markets, often in substantial clusters in key
sub-markets, where the lack of available land means that supply-demand
dynamics are tightest and where long-term growth and returns are therefore
likely to be the highest. This is complemented by the remaining one-third of
our portfolio, comprising clusters of high-quality logistics warehouses
situated at key hubs along major transportation corridors.
Occupier demand for warehouse space across Europe continues to be positive and
is derived from a wide variety of customer types. Our space is flexible and
can be adapted to suit businesses from many different industries which, when
coupled with our relentless focus on customer service through our
market-leading operating platform, is reflected in high customer satisfaction
and retention rates, as well as our asset management and leasing performance.
Our business is therefore both resilient and positioned to support growth
sectors and adapt to trends, including e-commerce, the digital sector (data
centres), urbanisation and the consequential need for industrial and
distribution space close to the end customer from a very broad range of
businesses.
Supply and availability of modern, sustainable warehouse space in the
locations most desired by occupiers remains extremely limited across Europe.
Vacancy levels are at historic lows and supply is likely to remain constrained
given recent increases in financing and construction costs. We expect this
contrast between positive demand and limited supply to drive further growth in
rental levels. We already have £130 million of reversionary potential
embedded in the portfolio (most of which will be captured through the
five-yearly rent review process), as well as indexation provisions in almost
half of our leases, both of which underpin future like-for-like rental income
growth even before any further growth in market rental levels.
Our sizeable, mostly pre-let current development programme and well-located
land bank, provide us with further potential to grow our rent roll profitably
and allows us significant optionality due to the short construction periods of
our assets. We will continue to be led by customer demand and our Disciplined
approach to capital allocation as we make decisions regarding the execution of
future projects.
With modest leverage, a long-average debt maturity of 8.6 years, no near-term
refinancing requirements and virtually all of our debt at fixed or capped
rates, we have significant financial flexibility to continue to invest capital
in the development and acquisition opportunities that offer the most
attractive risk-adjusted returns.
Macroeconomic factors caused a sharp correction in interest rates in the
second half of 2022, with a consequential impact on real estate volumes,
property yields and asset values. As we enter 2023, there are early signs of
liquidity returning to the investment markets as investors see value at
current levels of pricing. As the path of future interest rates becomes more
evident, we believe there is a significant volume of capital ready to be
deployed into the industrial and logistics sector due to its attractive
fundamentals. We will continue to respond tactically to changes in market
conditions, but our long-term strategic focus is to ensure that our properties
are of the highest quality and the most sought after, able to generate
superior long-term growth, and therefore command a valuation premium.
We will also continue to invest in and de-risk the future of our business via
the significant progress we have made with our Responsible SEGRO strategic
priorities.
Our prime portfolio and market-leading operating platform combine to create a
strong competitive advantage, and position us to create value through the
cycle for all of our stakeholders. We therefore remain confident in our
ability to deliver attractive returns and continued growth in earnings and
dividends into the future.
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/63d7a413aaec340f003dc325/sfya
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fprotect-eu.mimecast.com%2Fs%2FLxL1C1j2kSE1AvQULPBdn%3Fdomain%3Dinvestis-live.com&esheet=53329316&newsitemid=20230216005701&lan=en-US&anchor=https%3A%2F%2Fwww.investis-live.com%2Fsegro%2F63d7a413aaec340f003dc325%2Fsfya&index=1&md5=dca5f01bacf43311b00612988071fce1)
The webcast will be available for replay at SEGRO’s website at:
http://www.segro.com/investors
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.segro.com%2Finvestors&esheet=53329316&newsitemid=20230216005701&lan=en-US&anchor=http%3A%2F%2Fwww.segro.com%2Finvestors&index=2&md5=e9dee4c33829bd04f8b284c31b357661)
shortly after the live presentation.
A conference call facility will be available at 08:30am (UK time) on the An audio recording of the conference call will be available until 24 February
following number: 2023 on:
Dial-in: +44 (0)800 640 6441 UK: +44 (0) 203 936 3001
+44 (0) 203 936 2999
Access code: 508626
Access code: 869845
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=53329316&newsitemid=20230216005701&lan=en-US&anchor=www.segro.com&index=3&md5=9b6a2059a8801684838857176af831c6)
, together with this announcement, the Full Year 2022 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 / Ellie Sweeney / Tel: +44 (0) 20 3727 1000
Eve Kirmatzis
FINANCIAL CALENDAR
2022 full year dividend ex-div date 16 March 2023
2022 full year dividend record date 17 March 2023
2022 full year dividend scrip dividend price announced 23 March 2023
Last date for scrip dividend elections 12 April 2023
2022 full year dividend payment date 4 May 2023
2023 Q1 Trading Update 20 April 2023
Half Year 2023 Results (provisional) 27 July 2023
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 9.9 million
square metres of space (106 million square feet) valued at £20.9 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
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.SEGRO.com&esheet=53329316&newsitemid=20230216005701&lan=en-US&anchor=www.SEGRO.com&index=4&md5=b81355d6c469e1bee7be9584672338c1)
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. All statements other than historical fact are, or
may be deemed to be, forward-looking statements. Forward-looking statements
are statements of future expectations and all forward-looking statements are
subject to assumptions, risk and uncertainty. Many of these assumptions, risks
and uncertainties relate to factors that are beyond SEGRO's ability to control
or estimate precisely and which could cause actual results or developments to
differ materially from those expressed or implied by these forward-looking
statements. Certain statements have been made with reference to forecast
process changes, economic conditions and the current regulatory environment.
Any forward-looking statements made by or on behalf of SEGRO are based upon
the knowledge and information available to Directors on the date of this
announcement. Accordingly, no assurance can be given that any particular
expectation will be met and you are cautioned not to place undue reliance on
the forward-looking statements. Additionally, forward-looking statements
regarding past trends or activities should not be taken as a representation
that such trends or activities will continue in the future. The information
contained in this announcement is provided as at the date of this announcement
and is subject to change without notice. Other than in accordance with its
legal or regulatory obligations (including under the UK Listing Rules and the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority), SEGRO does not undertake to update forward-looking statements,
including to reflect any new information or changes in events, conditions or
circumstances on which any such statement is based. Past share performance
cannot be relied on as a guide to future performance. Nothing in this
announcement should be construed as a profit estimate or profit forecast. The
information in this announcement does not constitute an offer to sell or an
invitation to buy securities in SEGRO plc or an invitation or inducement to
engage in or enter into any contract or commitment or other investment
activities.
Neither the content of SEGRO's website nor any other website accessible by
hyperlinks from SEGRO's website are incorporated in, or form part of, this
announcement.
Chief Executive's Review
Our business delivered strong operational results during 2022, a year where we
saw significant geopolitical uncertainty and changes to the macroeconomic
environment. This led to an unprecedented disconnect between the occupier and
investment markets emerging over the summer months.
Actions taken by central banks to address high levels of inflation by sharply
raising interest rates led to significantly reduced liquidity in the property
investment markets in the second half of the year, as both buyers and sellers
reacted to the increased volatility in capital markets and the higher cost of
capital. Valuers increased yields to reflect this higher interest rate
environment, leading to falls in property valuations across all markets. In
contrast to former property cycles however, occupational demand and rental
performance in the industrial and logistics sector has remained strong,
supported by long-term structural tailwinds and tight supply.
The expertise and knowledge of our local teams on the ground across Europe
meant we could respond quickly to the changing market environment and deliver
progress in all our operating metrics throughout the year as well as continued
growth in both earnings and dividends.
Looking back on 2022, our main highlights include:
* a record £98 million of new rent contracted, arising from a combination of
active asset management of our existing portfolio, our expanded development
programme, market rental growth and the benefits of indexation;
* 639,200 sq m of development completions, and a reduction of ten per cent in
the average embodied carbon intensity of our development programme;
* the acquisition of key strategic land plots in some of Europe’s most supply
constrained urban markets such as London, Paris and Berlin;
* progress towards reducing our portfolio’s carbon emissions with the
introduction of green lease clauses, and a significant increase in our solar
capacity;
* the launch of Community Investment Plans in ten key markets, providing
tangible economic and social benefits for thousands of people in the
communities closest to our assets;
* meaningful changes to promote diversity and inclusion within our workforce and
the wider property sector, including, for example, changes to our recruitment
process which resulted in a more diverse 2022 graduate intake.
This activity helped us to deliver a 6.5 per cent increase in Adjusted
earnings per share (10.7 per cent excluding the SELP performance fee) and we
are therefore recommending a 7.7 per cent increase in our final dividend to
18.2 pence per share, resulting in a total distribution of 26.3 pence for 2022
(2021: 24.3 pence).
Reflecting on 2022, three things stand out for me:
* the performance of our high-quality portfolio, and the benefits of the
decade-long reshaping of both that and our balance sheet, particularly in the
current market environment;
* the continued strength and diversity of occupier demand;
* the tangible progress that we have made with our Responsible SEGRO strategic
priorities, and the long-term value that we are creating through our
activities.
Over a decade ago, we launched a strategy centred around an ambition to create
a portfolio focused on the most attractive industrial and logistics markets
across the UK and Continental Europe, one that would deliver attractive total
returns throughout the cycle. An important element of this strategy was the
strengthening of our balance sheet to provide resilience, and to ensure we
could take advantage of opportunities for further growth even in more
challenging market environments.
Since launching that strategy, the industrial and logistics sector has
transformed. Long-term structural trends of digitalisation and urbanisation
have led to increased occupier demand, driving down vacancy rates to record
lows. This shortage of supply led to exceptional levels of rental growth,
attracting huge amounts of investment into our sector and increased
competition.
We adapted our strategy accordingly, selling non-core assets in secondary
locations and buying new assets in our preferred locations. As competition for
standing assets increased we moved away from acquiring them on-market, instead
investing capital into development, where we believed we could produce better
risk-adjusted returns. We also reduced leverage and worked hard to create a
diverse, long-duration debt profile.
During 2022 our portfolio was not immune to the sharp rises in interest rates,
which increased the cost of capital and consequently, yields on commercial
properties. This led to a fall in valuation of 11.0 per cent during the year.
At this time, benchmark information is not available for the Continent but in
the UK our portfolio has outperformed the MSCI Quarterly All Industrial index,
which showed a decline in capital values of 17.4 per cent during 2022, versus
SEGRO’s UK portfolio which decreased by 15.5 per cent. This reflects the
positive benefit of the changes made to our portfolio over the past ten years
and our continued focus on Disciplined capital allocation.
Importantly, the strength of our balance sheet has meant that, as long-term
investors, we have been able to look through the current volatility, and focus
on the areas that we can control: capitalising on the continued strength of
occupier demand to drive rental growth; capturing a significant amount of the
reversionary potential in our portfolio (which has grown once again due to
further market rental growth in both the UK and Continental Europe); and
signing pre-lets to build out our well-located land bank.
Consistent throughout 2022 was the strength of the occupier market. Demand
from our customers has been, and continues to be, very resilient. Take-up
remained very high and well above historical averages. Most notably, we saw
increased demand from businesses which are attempting to make their
supply-chains more resilient during 2022: holding more inventory locally and
therefore requiring more space; moving parts of their operations back to
Europe and the impacts of businesses choosing to source materials closer to
their end destination.
We have also seen customers placing greater importance on the sustainability
of the buildings they occupy. Many of our larger customers have their own
net-zero targets and want the space that they occupy to contribute to this.
Smaller businesses have been impacted by recent increases in energy prices and
are recognising the benefits of choosing more energy efficient buildings and
working with a landlord who will help them to understand their energy
consumption and can provide solutions to help reduce it.
These structural drivers are resulting in demand from a diverse range of
businesses and our teams have been working hard to capitalise on it. In 2022
we leased space to existing customers who value the excellent customer service
that they receive from SEGRO, and to new customers who bring even greater
diversity into our rent roll.
As part of the day-to-day management of our portfolio, our teams prioritise
our three Responsible SEGRO strategic priorities and in 2022 we saw tangible
benefits from these initiatives.
There were a number of innovations within our development programme that
helped us to reduce our average embodied carbon intensity, such as using
recycled roof materials to create asphalt for road surfaces. We have also
significantly increased the number of solar panels installed on our
warehouses, with one project in the Netherlands adding almost 20 per cent to
our total Group capacity, which makes us excited about further similar
opportunities across the portfolio.
We have launched ten Community Investment Plans (CIPs) in key markets, and
projects are underway across the UK and Continental Europe that focus on
employability, supporting local economies and improving local environments,
making meaningful changes to the day-to-day lives of people in our local
communities. Thousands of people have already benefited from projects linked
to these and this is only the beginning.
We have also made great progress with our Nurturing talent ambitions, focusing
on the wellbeing of our people (including providing extra support for those
most impacted by the cost of living crisis) and actioning recommendations from
the National Equality Standards audit to promote diversity and inclusion
within our workplace and the wider property sector.
Not only are these initiatives creating additional value for our stakeholders,
they are ensuring that our business is fit for the future and that it is truly
delivering on its Purpose of creating the space that enables extraordinary
things to happen.
2022 might not have been the year that we all expected, but our business has
shown its quality and resilience and has continued to deliver value. I am
proud of how everyone at SEGRO has come together and worked hard to make this
happen.
Performance review
Portfolio Performance Summary
Valuation declines from market-driven yield expansion were partly offset by
gains from strong rental growth, asset management and development.
Warehouse property values continued to rise during the first six months of
2022, but sharp increases in interest rates resulted in market uncertainty and
volatility. This led to a higher cost of capital, which was reflected by the
valuers through significant yield expansion during the second half of the
year.
Occupier demand was strong throughout, and supply remained at historically low
levels, driving further market rental growth. Along with asset management and
development gains, this helped to offset some of the impact of yield
expansion, but not enough to prevent property values falling over the year.
The Group’s property portfolio was valued at £17.9 billion at 31 December
2022 (£20.9 billion of assets under management). The portfolio valuation,
including completed assets, land and buildings under construction, decreased
by 11.0 per cent (adjusting for capital expenditure and asset recycling during
the year), offsetting some of the 28.8 per cent growth achieved in 2021. The
valuation fell 16.6 per cent in the second half of 2022.
In total, our portfolio generated a total property return (TPR) of -8.1 per
cent (2021: 35.6 per cent). The UK delivered a TPR of -10.6 per cent which
compared favourably to its MSCI calculated benchmark of -14.4 per cent. The
Continental European TPR was -3.7 per cent, however the MSCI calculated
benchmark will not be available until later in the year.
The reduction in valuation of our portfolio primarily comprises a 13.1 per
cent decrease in the assets held throughout the year (2H22: -19.6 per cent,
2021: +29.0 per cent), driven by yield expansion in most markets (100 basis
points across the whole portfolio), but this was partly offset by a 10.9 per
cent increase in our valuer’s estimate of the market rental value of our
portfolio (2021: 13.1 per cent).
Assets held throughout the year in the UK decreased in value by 15.5 per cent
(2H22: -21.4 per cent, 2021: +34.5 per cent), outperforming the MSCI Real
Estate UK All Industrial Quarterly index which decreased by 17.4 per cent over
the same period. The outperformance was due to the prime quality of our
portfolio providing resilience on capital values along with the significant
embedded reversionary potential. The true equivalent yield applied to our UK
portfolio was 4.8 per cent, 110 basis points higher than at 31 December 2021
(3.7 per cent) reflecting significant yield expansion, which was offset by
strong rental growth and the impact of newly completed developments. Rental
values improved by 11.5 per cent (2021: 18.8 per cent).
Assets held throughout the year in Continental Europe decreased in value by
8.8 per cent (2H22: -12.4 per cent, 2021: +18.7 per cent) on a constant
currency basis, reflecting a combination of yield expansion to 4.8 per cent
(31 December 2021: 4.0 per cent) and rental value growth of 9.9 per cent
(2021: 4.1 per cent).
More details of our property portfolio can be found in Note 26 to the
Financial Statements and in the 2022 Property Analysis Report at
www.SEGRO.com/investors
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.SEGRO.com%2Finvestors&esheet=53329316&newsitemid=20230216005701&lan=en-US&anchor=www.SEGRO.com%2Finvestors&index=5&md5=5aef45fbdb231d3405be3a20079723da)
.
Valuation: what to expect in 2023
Forecasting yields over any period is notoriously difficult given the
multitude of economic and financial drivers (particularly interest rates and
credit spreads), most of which are outside our direct control.
Nevertheless, the operating prospects for our portfolio are strong, supported
by structural drivers of occupational demand and limited supply, therefore we
are optimistic about the potential for further rental value growth,
particularly in our urban warehouse portfolio.
These attractive fundamentals mean we anticipate investors will return to the
market to invest in industrial and logistics assets once there is more clarity
over the interest rate trajectory. We have seen encouraging early signs that
activity is increasing.
We believe that our high-quality portfolio and focus on active asset
management will enable us to outperform the wider industrial and logistics
markets in the countries in which we operate through the cycle.
Property portfolio metrics at 31 December 2022(1)
Portfolio value, £m Yield(3)
Lettable Completed Land & Combined Combined Valuation Topped Net true Occupancy
area sq m
develop-
property
property
movement(2 3
-up net
equivalent
(ERV)
ment
portfolio
portfolio )
initial
%
%
%
%
(AUM) (AUM)
UK
GREATER LONDON 1,308,638 6,065 347 6,412 6,420 (16.2) 3.3 4.6 93.6
THAMES VALLEY 606,469 2,325 686 3,011 3,011 (12.3) 4.2 5.3 97.4
NATIONAL LOGISTICS 713,138 1,167 554 1,721 1,721 (17.8) 4.5 5.3 98.8
UK TOTAL 2,628,245 9,557 1,587 11,144 11,152 (15.5) 3.7 4.8 95.3
Continental
Europe
Germany 1,813,597 1,664 335 1,999 2,850 (9.6) 3.9 4.3 96.4
Netherlands 260,042 170 12 182 363 (10.8) 4.5 4.8 100.0
France 1,567,240 1,771 463 2,234 2,792 (7.9) 4.1 4.8 95.3
Italy 1,547,405 962 191 1,153 1,686 (15.9) 4.8 4.8 100.0
Spain 313,199 263 70 333 533 (6.0) 4.5 4.5 100.0
Poland 702 71 773 1,358 (2.2) 5.7 5.9 97.0
1,635,436
Czech Republic 169,513 102 5 107 213 7.4 4.3 5.5 97.5
CONTINENTAL 7,306,432 5,634 1,147 6,781 9,795 (8.8) 4.4 4.8 97.1
EUROPE TOTAL
GROUP TOTAL 9,934,677 15,191 2,734 17,925 20,947 (13.1) 3.9 4.8 96.0
1 Figures reflect SEGRO wholly-owned assets and its share of assets held in
joint ventures unless stated “AUM” which refers to all assets under
management.
2 Valuation movement is based on the difference between the opening and
closing valuations for properties held throughout the period, allowing for
capital expenditure, acquisitions and disposals.
3 In relation to completed properties only.
Asset management update
Growing rental income from letting existing space and new developments
At 31 December 2022, our portfolio generated passing rent of £587 million,
rising to £634 million once rent free periods expire (‘headline rent’).
During the year, we contracted £98 million of new headline rent. We grew the
rent from our existing space significantly as a result of the capture of
reversionary potential, and also due to the impact of indexation. Strong
occupier demand for new space also helped us sign a high number of pre-let
agreements for delivery over the next two years.
Our customer base remains well diversified, reflecting the multitude of uses
of warehouse space. Our top 20 customers account for 32 per cent of total
headline rent. Amazon remained our largest customer during 2022, accounting
for 7 per cent of our total rent roll.
Customers from the transport and logistics sector were the largest takers of
our space during 2022, in order to service their e-commerce and increasingly
manufacturing related contracts as these sectors focus on building efficiency
and resilience into their supply chains and distribution networks. We also
signed new leases with data centre operators taking space in response to the
growth in cloud computing.
* £31 million of net new rent from existing assets. We generated £21 million
of headline rent from new leases on existing assets (2021: £26 million) and
£28 million from rent reviews, lease renewals and indexation (2021: £9
million). This was offset by rent from space returned of £18 million (2021:
£20 million), much of it for refurbishment and including £2 million of rent
lost due to insolvency (2021: £2 million).
* Rental growth from lease reviews and renewals. These generated an uplift of
23.3 per cent (2021: 13.0 per cent) for the portfolio, compared to previous
headline rent. During the year, new rents agreed at review and renewal were
28.0 per cent higher in the UK (2021: 18.7 per cent) as reversion accumulated
over the past five years was reflected in new rents agreed, adding £18
million of headline rent. In Continental Europe, rents agreed on renewal were
1.7 per cent higher (2021: 1.5 per cent higher), as a result of market rental
growth continuing to outpace the indexation provisions that have accumulated
over recent years.
* Continued strong demand from customers for pre-let agreements. We contracted
£41 million of headline rent from pre-let agreements and lettings of
speculative developments prior to completion (2021: £49 million). This
includes the first pre-let at our new UK big box park in Coventry, space for
third-party logistics operators, online retailers and manufacturers across
Continental Europe, and a multi-storey data centre development in Slough.
* Rent roll growth increased to £77 million. An important contributor to
increases in earnings and dividends is the growth in our rent roll, primarily
through increasing rent from our existing assets and generating new rent
through development. Rent roll growth, which reflects net new headline rent
from existing space (adjusted for takebacks of space for development), take-up
of developments and pre-lets agreed during the period, increased to £77
million in 2022, from £72 million in 2021.
Summary of key leasing data for 2022
Summary of key leasing data(1) for the year to 31 December 2022 2021
Take-up of existing space(2) (A) £m 21 26
Space returned(3) (B) £m (18) (20)
NET ABSORPTION OF EXISTING SPACE(2) (A-B) £m 3 6
Other rental movements (rent reviews, renewals, indexation)(2) (C) £m 28 9
RENT ROLL GROWTH FROM EXISTING SPACE £m 31 15
Take-up of pre-let developments completed in the year (signed in prior £m 27 43
years)(2) (D)
Take-up of speculative developments completed in the past two years(2) (D) £m 13 15
TOTAL TAKE-UP(2) (A+C+D) £m 89 93
Less take-up of pre-lets and speculative lettings signed in prior years(2) £m (32) (47)
Pre-lets signed in the year for future delivery(2) £m 41 49
RENTAL INCOME CONTRACTED IN THE YEAR(2) £m 98 95
Takeback of space for redevelopment £m (4) (3)
Known Takeback/letting from acquisition £m – –
Retention rate(4) % 76 77
1 All figures reflect exchange rates at 31 December 2022 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.
Existing portfolio continues to perform well and delivered another set of
strong operating metrics
We monitor a number of asset management indicators to assess the performance
of our existing portfolio:
* High levels of customer satisfaction. Although the quality and location of our
portfolio is important to our customers, we believe the service we provide is
crucial to maintaining high customer retention and low vacancy. We carry out a
rolling survey of our customers throughout the year to identify and rectify
issues promptly. In 2022, we spoke to 286 customers, and 98 per cent said that
they would recommend SEGRO to others (2021: 97 per cent) while 85 per cent
said they rated their experience with SEGRO as ‘Excellent’ or ‘Good’
(2021: 90 per cent).
* Occupancy has remained high. The occupancy rate at 31 December 2022 was 96.0
per cent (31 December 2021: 96.8 per cent), with a slight decrease due to
taking some existing space back for our redevelopment plans and some
speculative completions towards the end of the year. The occupancy rate
excluding recently completed speculative developments remains high at 97.3 per
cent (2021: 97.3 per cent). The average occupancy rate during the period was
96.4 per cent (2021: 96.2 per cent) which is above our target of 94 to 96 per
cent.
* Customer retention rate of 76 per cent. Approximately £61 million of headline
rent was at risk from a break or lease expiry during the period, of which we
retained 75 per cent in existing space, with a further 1 per cent retained but
in new premises. We value the long-term relationships that we build with our
customers and always try to work with them to meet their changing
requirements. However, with vacancy at such low levels we also take the
opportunity to create space for reletting, and to capture market rental
growth. We have actively taken space back during 2022 to enable redevelopment.
* 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 6.1 per cent of the headline rent (2021: 6.3 per
cent). We maintained the portfolio’s weighted average lease length, with 7.0
years to first break and 8.3 years to expiry (31 December 2021: 7.2 years to
first break, 8.5 years to expiry). Lease terms are longer in the UK (8.1 years
to break) than in Continental Europe (5.6 years to break), reflecting the
market convention of shorter leases in countries such as France and Poland.
A reduction in our corporate and customer carbon emissions and increased
visibility of the energy usage of our customers
Alongside the day-to-day management of our portfolio, our teams also worked
hard during 2022 on our Responsible SEGRO commitment to Champion low-carbon
growth and be a net-zero carbon business by 2030.
We made good progress towards our science-based target to reduce the absolute
corporate and customer carbon emissions from our portfolio by 42 per cent by
2030 (compared to a 2020 baseline), in line with the 1.5 degree scenario.
During 2022, we reduced carbon emissions by 3 per cent, taking our reduction
from 2020 to 13 per cent.
All energy for our own operations, and where we procure energy on behalf of
our customers, has been on renewable tariffs since 2021. During 2022, we
focused our efforts on the customer emissions that we do not directly control.
An important step in this is gaining better visibility of this usage, so that
we do not have to rely on estimates. We now have visibility of 68 per cent of
our portfolio (2021: 54 per cent).
This improved visibility allows us to better identify opportunities to help
our customers operate their buildings more efficiently, saving them both
carbon emissions and money. During 2022, we introduced the inclusion of green
clauses on all new leases across our portfolio. These clauses require our
customers to provide us with visibility of their energy use and, where
feasible, procure it via a renewable tariff.
We continue to improve the carbon footprint of our portfolio through the
ongoing maintenance and refurbishment of our warehouses. At the end of 2022,
58 per cent of the portfolio had an EPC rating of B or better and we expect
that proportion to increase through refurbishment and development.
We also made great progress with our ambition to expand the solar capacity of
our portfolio. During 2022 we increased our total capacity by 12 MW taking it
to 44 MW (2021: 35 MW). This included the retrofitting of solar onto an
existing asset in the Netherlands which added almost 6 MW of capacity. We
continue to add solar capacity through our development programme, installing
panels on every asset where feasible.
Development update
Growing through development
Development activity
During 2022, we invested £1.5 billion in our development pipeline, which
comprised £787 million (2021: £639 million) in development spend, of which
£149 million was for infrastructure, and a further £712 million to replenish
our land bank to secure future development-led growth opportunities.
Development projects completed
We completed 639,200 sq m of new space during the year. These projects were 59
per cent pre-let prior to the start of construction and were 80 per cent let
as at 31 December 2022, generating £37 million of headline rent, with a
potential further £9 million to come when the remainder of the space is let.
This translates into a yield on total development cost (including land,
construction and finance costs) of 7.4 per cent when fully let.
We completed 475,000 sq m of big box warehouse space, including units at our
UK big box parks in the East Midlands, Derby and Kettering. Also within this
was 381,000 sq m of big box warehouses across all of our major European
markets, let to third-party logistics operators, online retailers, food
retailers and manufacturers.
We completed 153,400 sq m of urban warehouses, the majority built on a
speculative basis, of which almost 66 per cent is already let. In the UK, this
includes our new estates SEGRO Park Hayes and SEGRO Park Tottenham, as well as
a further data centre in Slough. On the Continent, we completed further phases
of urban warehouse parks in the key markets of Frankfurt, Munich and Paris.
The remaining 10,800 sq m of space was for high value or other uses, for
example additional car parking for customers.
Construction cost inflation, caused mainly by supply chain issues and labour
shortages, was at its highest during the first half of 2022 but stabilised in
the second half of the year. We are seeing evidence of increased contractor
availability which may be an early sign of construction costs softening.
Reducing embodied carbon in our development programme is critical to helping
us achieve net-zero carbon by 2030. In 2022, we reduced this by 10 per cent to
353kgCO2e/sq m.
We continued to use best available data, including the use of Building
Information Modelling (BiM) for our life cycle assessments, which helps us to
assess how best to reduce the carbon footprint of our development programme.
As a result, wherever possible, we continue to use timber instead of steel on
projects across Continental Europe and low-carbon concrete alternatives. We
also work with our supply chain partners to find innovative solutions, such as
using recycled parts of an old roof to create asphalt for use as a road
surface in the Netherlands. During the significant infrastructure works at our
Northampton, UK big box logistics park a concrete plant was located onsite to
reduce transport emissions and we used over one million recycled milk bottles
for the site’s drainage system, achieving a 90 per cent carbon saving.
The introduction of our Mandatory Sustainability policy during 2022 also
supports our ambitions in this area. It covers all development projects larger
than 5,000 sq m (98 per cent of our current development pipeline) and sets out
a range of mandatory measures to future-proof our operations and ensure that
our net-zero ambitions can be met, including guidelines for embodied carbon,
solar installations, electric vehicle charging, energy data, building
certifications as well as biodiversity and wellbeing requirements.
All of our development completions in 2022 have been, or are expected to be,
accredited BREEAM ‘Very Good’ (or local equivalent) or higher and 68 per
cent were rated ‘Excellent’ or above.
Current development pipeline
At 31 December 2022, we had development projects approved, contracted or under
construction totalling 749,000 sq m, representing £328 million of future
capital expenditure to complete and £67 million of annualised gross rental
income when fully let. 73 per cent of this rent has already been secured and
these projects should yield 6.5 per cent on total development cost when fully
occupied.
In the UK, we have 207,600 sq m of space approved or under construction.
Within this are our first multi-level warehouse scheme in West London, two new
data centres on the Slough Trading Estate and big box warehouses at our
logistics parks in Coventry, Derby and East Midlands.
In Continental Europe, we have 484,800 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 our European
markets. We are also developing further phases of our successful urban
warehouse parks in Berlin, Cologne and Paris.
In addition to the projects we are developing ourselves, we also have 56,600
sq m of space under construction as part of forward-funded agreements with
local developers in South London and Paris.
We continue to focus our speculative developments on urban warehouse projects,
particularly in cities such as London, Paris and Berlin, where modern space is
in short supply and occupier demand is strong.
Within our Continental European current development programme, approximately
£15 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 2022, SEGRO sold
£218 million of completed assets to SELP, representing a net disposal of
£109 million.
We have factored current construction and financing costs into the development
returns for our current and future development projects. We continue to expect
to be able to develop at a 150-200 basis point margin over standing asset
yields which means that development remains highly profitable.
Further details of our completed projects and current development pipeline are
available in the 2022 Property Analysis Report, at www.SEGRO.com/investors
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.SEGRO.com%2Finvestors&esheet=53329316&newsitemid=20230216005701&lan=en-US&anchor=www.SEGRO.com%2Finvestors&index=6&md5=5226faa62bd5241c8599289f451a2392)
.
FUTURE DEVELOPMENT PIPELINE
Near-term development pipeline
Within the future development pipeline are a number of pre-let projects 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 166,600 sq m of space, equating to approximately £179
million of capital expenditure and £19 million of rent.
Land bank
Our land bank identified for future development (including the near-term
projects detailed above) totalled 756 hectares as at 31 December 2022, valued
at £1.8 billion, roughly 10 per cent of our total portfolio value. This
includes £656 million of land acquired for future re-development but which is
currently income producing, reducing the holding costs until development can
start (equating to £21 million of annualised rent, excluded from passing
rent), known as ‘covered’ land.
The land bank includes £712 million of land acquired during 2022, including
land associated with developments already underway or expected to start in the
short term. We acquired land in most of our major markets, with the largest
acquisitions in supply-constrained urban markets including London, Paris,
Berlin and Düsseldorf.
We estimate our land bank can support 3.5 million sq m of development over the
next five to seven years. The estimated capital expenditure associated with
the future pipeline is approximately £2.8 billion. It could generate £305
million of gross rental income, representing a yield on total development cost
(including land and notional finance costs) of around 6-7 per cent. These
figures are indicative, based on our current expectations, and are dependent
on our ability to secure pre-let agreements, planning permissions,
construction contracts and on our outlook for occupier conditions in local
markets.
Conditional land acquisitions and land held under option agreements
Land acquisitions (contracted but subject to further conditions) and land held
under option agreements are not included in the figures above, but represent
significant further development opportunities. These include sites for big box
warehouses in the UK Midlands as well as in Germany, Italy and Poland. They
also include urban warehouse sites in East and West London.
The options are held on the balance sheet at a value of £30 million
(including joint ventures and associates at share). Those we expect to
exercise over the next two to three years are for land capable of supporting
almost 1.7 million sq m of space and generating almost £160 million of
headline rent, for a blended yield of approximately 6 per cent.
INVESTMENT UPDATE
Acquisitions focused on adding to our development programme
The majority of our asset acquisitions took place in the first half of 2022
and focused older assets with redevelopment potential.
We acquired assets totalling £155 million, reflecting a blended topped-up
initial yield of 2.7 per cent. This included:
* urban warehouse estates in Park Royal and Slough (one of which was part of an
asset swap) that neighbour our existing assets and unlock potential
development opportunities;
* two well-located older urban warehouse estates near to Essen and Frankfurt in
Germany, both of which we intend to redevelop in the medium term;
* a big box warehouse close to Paris developed by a customer to a high
specification and sold to us off-market.
In addition we acquired £712 million of land to create future development
opportunities; £261 million of this was covered land.
Asset recycling to crystallise profits on developments
Asset and land disposals combined totalled £367 million. Most of these
disposals completed in the first six months of the year, taking advantage of
strong investment markets to crystallise profits on assets where we believed
we had maximised returns, and to reinvest the proceeds into our development
programme.
We disposed of £247 million of assets, reflecting a blended topped-up initial
yield of 4.4 per cent. They included:
* a stand-alone warehouse on the edge of the Slough Trading Estate as part of an
asset swap;
* freehold sales of small units in East London;
* big box warehouses in Italy, including an older stand-alone warehouse on the
outskirts of Milan and a state-of-the-art facility for an online retailer;
* stand-alone older warehouses in Spain and the Netherlands;
* a big box unit that we developed for a customer in the UK Midlands.
In addition to the above disposals, we sold a portfolio of Continental
European big box warehouses developed by SEGRO to SELP and some development
land, for which we received £109 million net proceeds from an effective sale
of a 50 per cent interest.
Finally, we disposed of £11 million of land, primarily comprising plots in
non-core markets and residual land that was unsuitable for industrial
development.
Financial Review
Financial highlights
31 December 31 December
2022
2021
IFRS(1 )net asset value (NAV) per share (diluted) (p) 938 1,115
Adjusted(1 )NAV per share (diluted) (p) 966 1,137
IFRS (loss)/profit before tax (£m) (1,967) 4,355
Adjusted(2) profit before tax (£m) 386 356
IFRS earnings per share (EPS) (p) (159.7) 339.0
Adjusted(2) EPS (p) 31.0 29.1
1 A reconciliation between IFRS NAV and its Adjusted NAV equivalent is shown
in Note 11.
2 A reconciliation between IFRS (loss)/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.
Financing
During 2022, despite significant capital market volatility, we were able to
arrange £3.1 billion of short-and long-term debt from existing relationship
banks and investors, new banking partners and the capital markets to finance
SEGRO’s and SELP’s obligations. In response to the heightened market
volatility, we established European Medium Term Note (EMTN) programmes for
both SEGRO and SELP to enhance the agility of our financing activity and we
also increased the level of fixed and capped rate debt.
Financing during the year
Short-term debt: SEGRO has increased its revolving credit facilities to €1.8
billion (31 December 2021: €1.2 billion) of which €1.2 billion matures in
2027 and €600 million in 2025. SELP also increased its facilities to €600
million (31 December 2021: €500 million), which mature in 2026. During the
year, SEGRO also had access to €1.75 billion of short-term acquisition
facilities which have now been fully repaid.
Medium-term debt: SEGRO diversified its sources of funding by arranging €408
million and £300 million of term loans, maturing between 2025 and 2027, from
relationship and new banking partners. While the loans were undrawn at year
end, we drew €293 million in January 2023.
Long-term debt: SEGRO raised €1,375 million and £350 million of new funds
through the US Private Placement, euro and sterling bond markets at a weighted
average coupon of 2.7 per cent and a weighted average duration of 10.4 years.
In August, SELP issued €750 million of five-year unsecured green bonds with
an annual coupon of 3.75 per cent, using part of the proceeds to repurchase
the €500 million of bonds maturing in 2023, extending the debt maturity and
removing the 2023 refinancing requirement.
Financial position at 31 December 2022
As at 31 December 2022, the gross borrowings of SEGRO Group and its share of
gross borrowings in joint ventures and associates totalled £5,887 million (31
December 2021: £4,268 million), of which £7 million (31 December 2021: £8
million) are secured by way of legal charges over specific assets. The
remainder of gross borrowings are unsecured. Cash and cash equivalent balances
were £194 million (31 December 2021: £107 million). The average debt
maturity was 8.6 years (31 December 2021: 8.6 years) and average cost of debt
(excluding non-cash interest and commitment fees) was 2.5 per cent (31
December 2021: 1.5 per cent).
SEGRO has an unsecured rating of ‘A’ from Fitch Ratings as at 31 December
2022.
Financial Position and Funding
31 December 2022 31 December 2021
SEGRO Group SEGRO Group, JVs SEGRO Group SEGRO Group, JVs
and associates
and associates
at share
at share
Net borrowings (£m)(3) 4,722 5,693 3,321 4,161
Available cash and undrawn facilities (£m)(3) 1,920 2,208 933 1,145
Balance sheet gearing (%)(3) 41 N/A 24 N/A
Loan to value ratio (%) 32 32 22 23
Weighted average cost of debt (%)(1) 2.6 2.5 1.5 1.5
Interest cover (times)(2) 4.3 4.5 7.0 6.9
Average duration of debt (years) 9.4 8.6 9.6 8.6
1 Based on gross debt, excluding commitment fees and non-cash interest.
2 Net rental income/Adjusted net finance costs (before capitalisation).
3 SEGRO Group cash and cash equivalents have been restated as at 31 December
2021. See Note 1 for further details. Net borrowings, Available
cash and undrawn facilities and Balance sheet gearing as at 31 December 2021
have been restated in the table above to reflect this change.
Funds available to SEGRO Group (including its share of joint venture and
associates funds) at 31 December 2022 totalled £2,208 million (31 December
2021: £1,145 million), comprising £194 million cash and short-term
investments and £2,014 million of undrawn credit facilities of which £150
million was uncommitted. Cash and cash equivalent balances, together with the
Group’s interest rate and foreign exchange derivatives portfolio, are spread
amongst a strong group of banks, all of which have a credit rating of A- or
better.
The closest debt maturity is SEGRO’s £82 million sterling bond in February
2024.
Monitoring and mitigating financial risk
As explained in the Risks section of this Annual Report, 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
We consider the key leverage metric for SEGRO to be proportionally
consolidated (‘look-through’) loan to value ratio (LTV) which incorporates
assets and net debt on SEGRO’s balance sheet and SEGRO’s share of assets
and net debt on the balance sheets of its joint ventures and associates. The
LTV at 31 December 2022 on this basis was 32 per cent (31 December 2021: 23
per cent), the increase primarily driven by the reduction in asset values and
a higher debt balance.
SEGRO’s borrowings contain gearing covenants based on Group net debt and net
asset value, excluding debt in joint ventures and associates. The gearing
ratio of the Group at 31 December 2022, as defined within the principal debt
funding arrangements of the Group, was 41 per cent (31 December 2021: 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 48 per cent from their 31 December
2022 values to reach the gearing covenant threshold of 160 per cent. A 48 per
cent fall in property values would equate to an LTV ratio of approximately 62
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:
the ratio for 2022 was four times, comfortably ahead of the covenant minimum.
Net property rental income would need to fall by around 71 per cent from 2022
levels, or the average rate of interest would need to rise to 8 per cent, to
reach the interest cover covenant threshold. On a proportionally consolidated
basis, including joint ventures and associates, the interest cover ratio was
also four times.
We mitigate the risk of over-gearing the Company and breaching debt covenants
by carefully monitoring the impact of investment decisions on our LTV and by
stress testing our balance sheet to potential changes in property values.
Our intention for the foreseeable future is to maintain our LTV at around 30
per cent, although the evolution of the property cycle will inevitably mean
that there are periods of time when our mid-cycle LTV is higher or lower than
this. However, this level of LTV through the cycle provides the flexibility to
take advantage of investment opportunities arising and ensures significant
headroom compared against our tightest gearing covenant should property values
decline.
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 and associates) should be at fixed or capped
rates, including the impact of derivative financial instruments.
At 31 December 2022, including the impact of derivative instruments, 95 per
cent (31 December 2021: 65 per cent) of the net borrowings of the Group
(including the Group’s share of borrowings within joint ventures and
associates) were either at fixed rates or are protected from rising interest
rates with caps. The pure fixed level of debt is 83 per cent at 31 December
2022 (31 December 2021: 46 per cent), rising to 91 per cent including floating
rate debt which is now subject to an active cap. The remaining nine per cent
of debt is at floating rates, with five per cent subject to caps should
three-month EURIBOR rise above a maximum 2.72 per cent.
During the year, in line with our risk management processes and due to the
higher levels of market volatility, the Group closed out £928 million
notional value of historical interest rate swaps (which transformed fixed rate
interest payments into floating rate payments). Had these transactions not
occurred, the proportion of fixed and capped rate debt would have been 16 per
cent lower.
As a result of the fixed rate cover in place, if short-term interest rates had
been 200 basis points higher throughout 2022, the adjusted net finance cost of
the Group would have been approximately £27 million higher (2021: £34
million higher) representing around seven per cent (2021: ten per cent) of
Adjusted profit after tax.
The Group elects not to hedge account its interest rate derivatives portfolio.
Therefore, movements in its fair value are taken to the income statement but,
in accordance with EPRA Best Practices Recommendations Guidelines, these gains
and losses are eliminated from Adjusted profit after tax.
Foreign currency translation risk
The Group has minimal transactional foreign currency exposure, but does have a
potentially significant currency translation exposure arising on the
conversion of its foreign currency denominated assets (mainly euro) and euro
denominated earnings into sterling in the Group consolidated accounts.
The Group seeks to limit its exposure to volatility in foreign exchange rates
by hedging its foreign currency gross assets using either borrowings or
derivative instruments. The Group targets a hedging range of between the last
reported LTV ratio (32 per cent at 31 December 2022) and 100 per cent. At 31
December 2022, the Group was 76 per cent hedged by gross foreign currency
denominated liabilities (31 December 2021: 62 per cent).
Including the impact of forward foreign exchange and currency swap contracts
used to hedge foreign currency denominated net assets, if the value of the
other currencies in which the Group operates at 31 December 2022 weakened by
10 per cent against sterling (to €1.24, in the case of euros), net assets
would have decreased by approximately £137 million and there would have been
a reduction in gearing of approximately 2.4 per cent and in the LTV of 1.3 per
cent.
The average exchange rate used to translate euro denominated earnings
generated during 2022 into sterling within the consolidated income statement
of the Group was €1.17: £1. Based on the hedging position at 31 December
2022, and assuming that this position had applied throughout 2022, if the euro
had been 10 per cent weaker than the average exchange rate (€1.29: £1),
Adjusted profit after tax for the year would have been approximately £11
million (2.9 per cent) lower than reported. If it had been 10 per cent
stronger, Adjusted profit after tax for the year would have been approximately
£13 million (3.5 per cent) higher than reported.
Going concern
As noted in the Financial Position and Financing sections above, the Group has
significant available liquidity to meet its capital commitments, a long-dated
debt maturity profile and substantial headroom against financial covenants.
During the year:
* The Group extended the term of its €1.2 billion of bank facilities to 2027
and added a further €1.0 billion and £0.3 billion of bank facilities with
maturity dates between 2025 and 2027.
* The Group executed its second Eurobond, raising €1.15 billion with a six
times oversubscription rate.
* The Group raised €225 million of funding from existing US Private Placement
investors.
* Cash and available committed facilities at 31 December 2022 were £1.7
billion.
* The Group continuously monitors its liquidity position compared to committed
and expected capital and operating expenses on a rolling forward 18-month
basis. The quantum of committed capital expenditure at any point in time is
typically low due to the short timeframe to construct warehouse buildings.
* The Group also regularly stress-tests its financial covenants. As noted above,
at 31 December 2022, property values would need to fall by around 48 per cent
before breaching the gearing covenant. In terms of interest cover, net rental
income would need to fall by 71 per cent or the average interest rate would
need to reach eight per cent before breaching the interest cover covenant. All
would be significantly in excess of the Group’s experience during the
financial crisis, and the Covid pandemic.
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.
Income statement review
Presentation of financial information
The Group Financial Statements are prepared under IFRS where the Group’s
interests in joint ventures and associates are shown as a single line item on
the income statement and balance sheet and subsidiaries are consolidated at
100 per cent.
The Adjusted profit measure reflects the underlying financial performance of
the Group’s property rental business, which is our core operating activity.
It is based on EPRA earnings as set out in the Best Practices Recommendations
Guidelines of the European Public Real Estate Association (EPRA) which are
widely used alternate metrics to their IFRS equivalents within the European
real estate sector (further details can be found at www.epra.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.epra.com&esheet=53329316&newsitemid=20230216005701&lan=en-US&anchor=www.epra.com&index=7&md5=fa48e8d893b19f15b266cc8f5c435af0)
). In calculating Adjusted profit, the Directors may also exclude additional
items considered to be non-recurring, unusual, or significant by virtue of
size and nature. In the current and prior years there have been no such
adjustments and therefore Adjusted profit and EPRA earnings are the same.
A detailed reconciliation between Adjusted profit after tax and IFRS loss
after tax is provided in Note 2 to the condensed financial statements. This is
not on a proportionally-consolidated basis.
Reconciliations between SEGRO Adjusted metrics and EPRA metrics are provided
in the Supplementary Notes to the condensed financial statements, which also
include EPRA metrics as well as SEGRO’s Adjusted income statement and
balance sheet presented on a proportionally consolidated basis.
SEGRO monitors these alternative metrics, as well as the EPRA metrics for
vacancy rate, net asset value, capital expenditure, loan to value and total
cost ratio, as they provide a transparent and consistent basis to enable
comparison between European property companies.
Look-through metrics provided for like-for-like net rental income include
joint ventures and associates at share in order that our full operations are
captured, therefore providing more meaningful analysis.
Adjusted profit
Adjusted profit
2022 2021(1
£m )
£m
Gross rental income 488 398
Property operating expenses (76) (57)
Net rental income(1) 412 341
Joint venture fee income 30 52
Management and development fee income 5 5
Net solar energy income 1 1
Administrative expenses (59) (59)
Share of joint ventures and associates’ Adjusted profit(2) 71 56
Adjusted operating profit before interest and tax 460 396
Net finance costs (74) (40)
Adjusted profit before tax 386 356
Tax on Adjusted profit (11) (8)
Non-controlling interests share of Adjusted profit (1) –
Adjusted profit after tax 374 348
1 The composition of gross and net rental income has changed in 2022 to provide
a better measure of the underlying rental income from the property
portfolio. There is no impact on Adjusted operating profit before interest and
tax from this change and the prior year comparatives in the table above
have been re-presented to reflect this change. See Note 2 to the condensed
financial statements for further details.
2 Comprises net property rental income less administrative expenses, net finance
costs and taxation.
Net rental income
Net rental income increased by £71 million to £412 million (or by £83
million to £522 million including joint ventures and associates at share
before joint venture fees), reflecting the positive net impact of
like-for-like rental growth, development completions and investment activity
during the year, offset by the impact of disposals.
On a like-for-like basis, before other items (primarily corporate centre and
other costs not specifically allocated to a geographic Business Unit), net
rental income increased by £28 million, or 6.7 per cent, compared to 2021.
This is due to strong rental performance across our portfolio. UK: 7.7 per
cent increase, in particular in Greater London and Thames Valley; and
Continental Europe: 4.9 per cent increase, in particular in Germany and
France.
Like-for-like net rental income
(including JVs and associates at share) 2022 2021
£m
£m
Change
%(3)
UK 271 251 7.7
Continental Europe 153 145 4.9
Like-for-like net rental income before other items(1) 424 396 6.7
Other(2) (4) (6)
Like-for-like net rental income (after other) 420 390 7.3
Development lettings 54 11
Properties taken back for development 1 5
Like-for-like net rental income plus developments 475 406
Properties acquired 35 2
Properties sold 4 18
Net rental income before surrenders, dilapidations and exchange 514 426
Lease surrender premiums and dilapidation income 3 3
Other items and rent lost from lease surrenders 5 8
Impact of exchange rate difference between periods – 2
Net rental income (including joint ventures and associates at 522 439
share)
SEGRO share of joint venture management fees (13) (11)
SEGRO share of joint venture performance fees – (13)
Net rental income after SEGRO share of joint venture fees 509 415
1 Like-for like change by Business Unit: Greater London 9.5%, Thames Valley
5.3%, National Logistics 4.6%, Northern Europe 8.5%, Southern Europe 4.1%,
Central Europe 1.1%.
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 numbers accurate to one decimal
place.
4 The like-for-like net rental growth metric is based on properties held
throughout both 2022 and 2021 on a proportionally consolidated basis. This
provides details of net rental income growth excluding the distortive impact
of acquisitions, disposals and development completions. Where an asset has
been sold into a joint venture (sales to SELP, for example) the 50 per cent
share owned throughout the period is included in like-for-like calculation,
with the balance shown as disposals.
Income from joint ventures and associates
Joint venture fee income decreased by £22 million to £30 million in 2022.
This decrease is primarily due to the recognition of a performance fee of £26
million in respect of the SELP joint venture in the prior year (as detailed
further in Note 6). Joint venture management fee income increased by £4
million to £30 million in 2022, primarily from the SELP joint venture.
SEGRO’s share of joint ventures and associates’ Adjusted profit after tax
increased by £15 million from £56 million in 2021 to £71 million in 2022.
This includes a performance fee expense (at share) in the prior year of £13
million. Excluding performance fee expense, the Adjusted joint ventures and
associates profit after tax increased by £2 million compared to 2021 as net
rental income in the SELP joint venture has continued to grow.
Net finance costs
Net finance costs were £34 million higher than 2021 at £74 million. Average
interest rates during the year were 2.6 per cent compared to 1.5 per cent in
the prior year. This has been partially offset by a £13 million increase in
capitalised interest compared to the prior year. Furthermore, gross debt
levels were higher in 2022 compared to the prior year.
Taxation
The tax charge on Adjusted profit of £11 million (2021: £8 million) reflects
an effective tax rate of 2.8 per cent (2021: 2.2 per cent).
The Group’s effective tax rate reflects the fact that around three-quarters
of its wholly-owned assets are located in the UK and qualify for REIT status.
This status means that income from rental profits and gains on disposals of
assets in the UK 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 profit/Earnings per share
Adjusted profit after tax increased by £26 million to £374 million (2021:
£348 million) as a result of the above movements primarily growth in rental
income offset by increased finance costs and the recognition of a performance
fee in the prior year.
Adjusted profit is detailed further in Note 2 to the condensed financial
statements.
Adjusted earnings per share are 31.0 pence compared to 29.1 pence in 2021
(28.0 pence excluding the impact of the performance fee) due to the increase
in Adjusted profit slightly offset by the 8.9 million increase in the average
number of shares in issue compared to the prior year.
IFRS loss
IFRS loss before tax in 2022 was £1,967 million (2021: £4,355 million
profit), equating to basic post-tax IFRS loss per share of 159.7 pence
compared with profit per share of 339.0 pence for 2021. A reconciliation
between Adjusted profit before tax and IFRS (loss)/profit before tax is
provided in Note 2 to the condensed financial statements.
The principal drivers of IFRS loss is realised and unrealised property losses
and gains. Total loss on properties is £2,175 million (2021: £4,173 million
gain). This includes a £1,970 million deficit from valuation of wholly-owned
investment properties (2021: £3,617 million surplus) and £236 million
deficit from joint ventures and associates at share (2021: £487 million
surplus). These valuation losses, driven by yield expansion in most markets
partially offset by increases in ERV, are discussed in more detail in the
Performance Review above. Other property movements include profit on sale of
wholly-owned investment properties of £9 million and £nil for investment
properties held by joint ventures and associates at share (2021: wholly-owned
£53 million and £10 million joint ventures and associates at share). In
respect of trading properties, there was a reversal of provision for
impairment of £15 million (2021: increase in provision for impairment of £1
million) and a gain on sale of trading properties of £7 million (2021: £7
million).
IFRS earnings were also impacted by a net fair value loss on interest rate
swaps and other derivatives of £199 million (2021: loss of £82 million)
primarily as a result of adverse movements on interest rate expectations.
In addition, SEGRO recognised a tax credit in respect of adjustments of £48
million (2021: £280 million charge) primarily in relation to property
valuation movements. The 2021 charge includes significant balances in respect
of a £145 million withholding tax in France and a SIIC entry charge of £38
million compared to the equivalent 2022 charges which are £4 million and
£nil respectively. These items are detailed further in Note 9 to the
condensed financial statements.
Balance sheet
£m Shares
million
Pence per
share
EPRA NTA attributable to ordinary shareholders at 31 December 2021 13,704 1,205.5 1,137
Realised and unrealised property loss (2,175) (179)
Adjusted profit after tax and non-controlling interests 374 31
Exchange rate movement (net of hedging) 81 7
Dividend net of scrip shares issued (2021 final and 2022 interim) (222) (25)
Early close out of interest rate swaps (83) (7)
Other 38 2
EPRA NTA attributable to ordinary shareholders at 31 December 2022 11,717 1,212.5 966
At 31 December 2022, IFRS net assets attributable to ordinary shareholders
were £11,373 million (31 December 2021: £13,436 million), reflecting 938
pence per share (31 December 2021: 1,115 pence) on a diluted basis.
Adjusted NAV per share at 31 December 2022 was 966 pence (31 December 2021:
1,137 pence). The 15 per cent decrease primarily reflects property valuation
losses in the year as explained above. The chart highlights the other main
factors behind the decrease. A reconciliation between IFRS and Adjusted NAV is
available in Note 11 to the condensed financial statements.
Cash flow and net debt reconciliation
Cash flows from operating activities of £479 million are £116 million higher
than the prior year. This is primarily due to increased rental income received
during the year, the impact of trading properties, following disposals in the
year, and other working capital movements. As well as finance cost outflows of
£103 million in servicing the debt facilities, a further £77 million was
spent in closing out and reprofiling interest rate derivatives. In addition
there were tax payments of £95 million primarily in Italy and France.
The Group made net investments of £1,246 million in investment and
development properties (including other investments and net investments and
loans to joint ventures and associates) during the year on a cash flow basis
(2021: £1,266 million). This is principally driven by expenditure of £1,472
million (2021: £1,706 million) to purchase and develop investment properties
(mainly to add to the Group’s land bank) to deliver further growth in line
with our strategy.
Disposals of investment properties decreased by £181 million to £310 million
compared to the prior year (2021: £491 million). Disposal proceeds include
£218 million in respect of disposals to the SELP joint venture.
Other significant cash flows include dividends paid of £222 million (2021:
£180 million) where cash flows are lower than the total dividend due to the
level of scrip uptake; an inflow from settlement of foreign exchange
derivatives of £15 million (2021: £40 million).
Overall, net debt has increased in the year from £3,321 million to £4,722
million.
Cash flow and Net Debt Reconciliation
2022 2021(1
£m )
£m
Operating net debt (3,321) (2,301)
Cash flows from operating activities 479 363
Finance costs (net) (103) (52)
Cost of early close out of interest rate derivatives and new interest rate (77) –
derivatives
transacted
Dividends received (net) 9 33
Tax paid (95) (17)
Net cash received from operating activities 213 327
Dividends paid (222) (180)
Purchase and development of investment properties (1,472) (1,706)
Sale of investment properties 310 491
Acquisition of interest in property and other investments (9) (12)
Net investment in joint ventures and associates (75) (39)
Settlement of foreign exchange derivatives 15 40
Proceeds from issue of ordinary shares – 1
Purchase of non-controlling interest – (12)
Other items 15 (8)
Net funds flow (1,225) (1,098)
Non-cash movements (9) (3)
Exchange rate movements (167) 81
Closing net debt (4,722) (3,321)
1 Group Cash and cash equivalents and Trade and other receivables have been
restated as at 31 December 2021 following IFRIC’s agenda decision in respect
of Demand Deposits with Restrictions on Use arising from a Contract with a
Third Party. See Note 1 to the condensed financial statements for details.
Capital expenditure
The table below sets out analysis of the capital expenditure during the year.
This includes acquisition and development spend, on an accruals basis, in
respect of the Group’s wholly-owned investment and trading property
portfolios, as well as the equivalent amounts for joint ventures and
associates, at share.
Total spend for the year was £1,898 million, a decrease of £268 million
compared to 2021. More detail on developments and acquisitions can be found in
the Development and Investment Updates above.
Development capital expenditure was £787 million in the year (2021: £639
million) across all our Business Units, particularly Southern Europe and
National Logistics, reflecting our development-led growth strategy.
Capitalised interest of £24 million (2021: £10 million) has been recognised
in the year.
Spend on existing completed properties, totalled £62 million (2021: £45
million), of which £13 million (2021: £5 million) was for incremental
lettable space. The balance mainly comprises refurbishment and fit-out costs,
which equates to less than one per cent of total spend.
EPRA capital expenditure analysis
2022 2021
Wholly owned Joint ventures and associates Total Wholly owned Joint ventures and associates Total
£m £m £m £m £m £m
Acquisitions 800(1) 176 976(5) 1,280(1) 159 1,439
Development(6) 718(2) 69 787 579(2) 60 639
Capitalised interest(4,6) 22 2 24 9 1 10
Investment properties:
Incremental lettable space 11 2 13 4 1 5
No incremental lettable space 42 7 49 31 9 40
Tenant incentives(3) 39 10 49 22 11 33
Total 1,632 266 1,898 1,925 241 2,166
1 Being £799 million investment property and £1 million trading property
(2021: £1,272 million and £8 million respectively) see Note 12.
2 Being £656 million investment property and £62 million trading property
(2021: £562 million and £17 million respectively) see Note 12.
3 Includes tenant incentives, letting fees and rental guarantees.
4 Capitalised interest on development expenditure.
5 Total acquisitions completed in 2022 shown in the Investment Update, being
asset acquisitions of £155 million and land acquisitions of £712 million,
excludes share of assets acquired by SELP from SEGRO of £109 million.
6 Development and capitalised interest on development expenditure were
previously presented in total as a single line items in the table above. In
line with EPRA BPR Guidelines, development and capitalised interest are now
presented as separate line items and the prior year comparative has been
represented in the table.
Dividend increase reflects the strong operational results and confidence for
the future
Under the UK REIT rules, we are required to pay out 90 per cent of UK-sourced,
tax-exempt rental profits as a ‘Property Income Distribution’ (PID). Since
we also receive income from our properties in Continental Europe, our total
dividend should normally exceed this minimum level and we target a payout
ratio of 85 to 95 per cent of Adjusted profit after tax. We aim to deliver a
progressive and sustainable dividend which grows in line with our
profitability in order to achieve our goal of being a leading income-focused
REIT.
The Board has concluded that it is appropriate to recommend an increase in the
final dividend per share by 1.3 pence to 18.2 pence (2021: 16.9 pence) which
will be paid as an ordinary dividend. The Board’s recommendation is subject
to approval by shareholders at the Annual General Meeting, in which event the
final dividend will be paid on 4 May 2023 to shareholders on the register at
the close of business on 17 March 2023.
In considering the final dividend, the Board took into account:
* the policy of targeting a payout ratio of between 85 and 95 per cent of
Adjusted profit after tax;
* the desire to ensure that the dividend is sustainable and progressive
throughout the cycle; and
* the results for 2022 and the outlook for earnings.
The total dividend for the year will, therefore, be 26.3 pence, a rise of 8
per cent versus 2021 (24.3 pence) and represents distribution of 85 per cent
of Adjusted profit after tax.
The Board has decided to retain a scrip dividend option for the 2022 final
dividend, allowing shareholders to choose whether to receive the dividend in
cash or new shares. In 2021, 41 per cent of the 2021 final dividend and 3 per
cent of the 2022 interim dividend were paid in new shares, equating to £79
million of cash retained on the balance sheet.
PRINCIPAL RISKS
Principal risks and uncertainties
A summary of the Group’s principal risks including an update for changes
during the period and activity during the year, is provided below. The
principal risks remain the same as reported in the Annual Report for 2021
except for the new People and Talent risk. Furthermore, the scope of the
Political and Regulatory and Operational Delivery and Compliance risks have
been rebalanced. Compliance is now included in the former which is now renamed
Legal, Political and Regulatory and the latter now excludes compliance and
people aspects and is renamed Operational Delivery. Management believes this
better reflects the revised scope of the risks. The impact and probability of
each risk has not changed significantly since they were reported in the 2021
Annual Report and the residual risk for each (after factoring in mitigations)
remains within appetite.
Furthermore, the macroeconomic impacts on market cycle, portfolio strategy and
execution and legal, political and regulatory risks have increased during the
year for reasons described in more detail below, whilst the others have
remained in line with the prior year.
1. Macroeconomic impact on market cycle
The property market is cyclical in nature and there is a continuous risk that
the Group could either misread or fail to react appropriately to the changing
property market, cost of finance or wider macroeconomic/geopolitical
conditions. This could result in an incorrect strategy or the ability to
deliver a strategy being inhibited and consequential impact on property
performance and shareholder value.
Current year activity. The heightened geopolitical risks and uncertain
macroeconomic outlook, which created uncertainty over interest rates and
inflation, has led to increased volatility in the capital markets and reduced
liquidity in the property investment market.
In response, we have increased the regularity of our economic outlook
assessments and reassessed their consequences on our portfolio strategy (see
separate principal risk). We are therefore prepared for these pressures if
they persisted across the countries we operate in for some time.
2. 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.
This could result from:
* Unexpected macroeconomic factors;
* Incorrect or ineffective capital allocation decisions;
* Poor or incorrect market or asset level assumptions including disruptions, for
example from changing occupier and customer needs, technological developments
and innovation;
* Inaccurate modelling or forecasting;
* Increased market competition for our assets or target customers; and/or
* Lack of appropriate procedures and inadequate due diligence resulting in
lengthy, onerous or costly transactions and missed opportunities.
Current year activity. The Group’s approach to portfolio management and
capital allocation remains disciplined and responsive to opportunities that
arise. Our portfolio has been positioned to be resilient at all stages in the
cycle as we face the impacts of the macroeconomic uncertainty discussed above.
Our investment criteria and hurdle rates have also been reassessed to reflect
the prevailing conditions impacting our capital allocation and investment
decisions.
3. 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 disruptor may include, but is not limited to a global
financial crisis, health pandemic, power/water shortages, 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.
Current year activity. Whilst the direct impacts of the pandemic have largely
abated, the heightened geopolitical uncertainty (including the ongoing
conflict in Ukraine) and consequential global macroeconomic volatility has
exacerbated increased inflation, financing costs and concerns over the ability
to access energy. This is unlikely to return to previous levels in the
short-term, causing a degree of uncertainty to the Group’s operations and
stakeholders. The Group maintains a robust financing and portfolio strategy in
order to be well positioned and flexible in response to major events/business
disruption. The Board and other committees remain vigilant and responsive in
managing the mitigation of risks as they evolve. Working groups are set up as
required to collate and align the Group’s response in an agile fashion as
issues such as energy availability have arisen, often at short notice. These
groups report directly to the Executive Committee.
4. Health and safety
A health and safety incident may occur which may involve harm to an individual
or loss of life. This may be due to the failure of management processes,
failure of a building or other physical asset, or negligence of a third party.
Furthermore, the Group may breach relevant legislation and fail to provide
suitable employee support. This may consequentially result in litigation,
fines, serious reputational damage and a negative impact on employees. This
risk is heightened by the continued scale of the Group’s development
activity.
Current year activity. The health and safety of the workforce remains a key
priority in locations we operate in, including when working away from the
office. We continue to closely monitor our development sites with in-person
inspections in order to ensure a safe and compliant working environment. This
risk is expected to remain a key focus going forward.
5. Environmental sustainability and climate change
Failure to anticipate and respond to the impact of both physical and
transitional risks from climate change on our business is both a principal and
emerging risk. The likelihood of increased severity and unpredictability of
acute weather-related events, and the rise of chronic climate stressors may
result in more frequent and/or prolonged damage to our buildings causing
disruption and increased costs to SEGRO and our customers. Non-compliance with
changing laws, regulations, policies, taxation and obligations cause loss of
value to the Group. Not keeping pace with social attitudes and customer
behaviours and preferences whereby SEGRO may need to alter the design and
build and/or energy provision of their assets could additionally cause
reputational damage and reduce the attractiveness and value of our assets.
Current year activity. Our ‘Responsible SEGRO’ framework continues to
prioritise our commitment to net-zero carbon by 2030 underpinned by our
Mandatory Sustainability policy for reducing our emissions. This risk is
expected to continue to have increased prominence going forward.
6. Development plan execution
The Group has an extensive current programme and future pipeline of
developments. The Group could suffer significant financial losses from:
Cost over-runs on larger, more complex projects, for example, due to
contractor default or poor performance and management;
Increased construction costs (for example from labour market changes or supply
chain pressures) leading to reduced or uneconomic development yields;
Above-appetite exposure to non-income producing land, infrastructure and
speculatively developed buildings arising from a sharp deterioration in
occupier demand and/or inappropriate land acquisition due diligence (including
energy accessibility); and
Market competition reducing access to suitable land bank and/or increasing
acquisition costs.
Current year activity. During the period pressures in the construction supply
chain for certain materials and labour were experienced and we continue to
work proactively alongside our contractors to mitigate any undue delay and
cost increases as far as is possible. More generally, as market conditions
have evolved, as detailed in the Portfolio Strategy and Execution risk above,
we have reassessed our investment criteria in response. Going forward, with an
expected continuing volatile economic environment, similar pressures are
likely to continue as we balance the needs of our contractors and customers.
7. Financing strategy
The Group could suffer an acute liquidity or solvency crisis, financial loss
or financial distress as a result of a failure in the design or execution of
its financing strategy.
Such an event may be caused by a number of factors including a failure to
obtain debt or equity funding (for example, due to market disruption or rating
downgrade); having an inappropriate debt structure (including leverage level,
debt maturity, interest rate or currency exposure); poor forecasting;
defaulting on loan agreements as a result of a breach of financial or other
covenants; or counterparty default.
Current year activity. The Group has demonstrated strong access to financial
markets as seen by our funding activity (as detailed in the Financial Review),
despite the uncertain economic backdrop and volatile capital markets. The
Group (including its largest joint venture SELP) now has a meaningful presence
in the Euro bond market as well as in the sterling bond and US Private
Placement markets leaving us well positioned financially to fund activity in
line with our strategy priorities. The Group continues to use fixed rate debt
and relevant derivatives to mitigate against the risk of interest rates
increasing both now and going forward.
8. Legal, political and regulatory
The Group could fail to anticipate legal, political, tax or other regulatory
changes, leading to a significant unforeseen financial or reputational impact.
In general, legal, regulatory and tax matters present medium- to long-term
risks with a medium likelihood of causing significant harm to the Group.
Political risks could impact business confidence and conditions in the short
and longer terms.
Current year activity. The legal and regulatory environment remains dynamic.
In response to the conflict in Ukraine, a series of new sanctions were
introduced, including by the UK, EU and US. An internal working group was
created which met regularly to monitor both the impact of the crisis on the
Group and its employees, as well as to ensure that the business continues to
comply with relevant sanctions laws as well as considering the legal
consequences of any energy shortages. The working group took advice from its
external lawyers on these matters.
In addition, we continue to monitor the divergence of UK and EU laws,
including in respect of sanctions and potential privacy laws. We remain
vigilant for other future changes in the legal, and regulatory political
environment.
As governments continue to assess the economic impact of the pandemic, the
likelihood of changes to taxation regulations increases. We have enhanced the
skills and expertise of our tax team as they work closely with local internal
teams and external advisors across each of our jurisdictions.
9. People and talent
The performance of the business could be impaired due to SEGRO:
* Not having the appropriate culture, organisational structure and skilled
people to deliver its strategy and its strategic priorities;
* Failing to attract, motivate, retain and develop diverse talent as part of our
Nurturing Talent ambition; and
* Failing to prepare adequate succession plans.
Current year activity. During the year, the market for talent has changed as
the property cycle has shifted. The competition for talent, which was until
recently very intense, has eased off as economic conditions have become more
uncertain. Our focus will continue to ensure we have the right resources and
skills in place in an appropriate organisational structure and platforms to
support our strategic priorities, particularly in light of our future growth
plans.
Our new Group HR Director has expanded the team which supports this function.
We review talent, succession planning and key person risk at least annually at
senior level. During the year we have created a people planning process with
senior leaders so that we can proactively plan for resourcing and development
needs.
SEGRO has continued to invest in local communities and environments as part of
Responsible SEGRO Framework including delivery of the Community Investment
Plans (CIPs) and employment projects (for example Pathways to Property) which
is managed by the Partnership Development team. We are continuing to promote
our Agile Working as a part of our employment offer.
10. Operational delivery
The Group’s ability to protect its reputation, revenues and shareholder
value could be damaged by operational failures such as: major customer
default, supply chain failure or the structural failure of one of our assets.
This risk previously included details now in the separate People and Talent
risk (discussed in the previous principal risk).
Current year activity. During the period we continue to have enhanced
engagement with our customers in light of the volatile economic conditions and
have continued to consider customer concentration risks.
We work closely with our supply chain and have undertaken a review of key
suppliers to ensure suitable alternatives are in place should one fail.
Critical suppliers include those contractors and, by associate their
sub-contractors (detailed more fully in the Development Plan Execution risk)
and IT suppliers. Furthermore, we continue to ensure our suppliers are paid
promptly.
RESPONSIBILITY STATEMENT
The Statement of Directors’ Responsibilities below has been prepared in
connection with the Company’s full Annual Report and Accounts for the year
ended 31 December 2022. Certain parts of the Annual Report and Accounts have
not been included in this announcement as set out in Note 1 to the condensed
financial information.
The Directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess a Company’s position and performance, business
model and strategy.
Each of the Directors, whose names and functions are listed in the Governance
section of the Annual Report confirm that, to the best of their knowledge:
1. the Group financial statements, which have been prepared in accordance with
UK-adopted international accounting standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards
and international financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the
Group; and
2. the Strategic Report includes a fair review of the development and performance
of the business and the position of the Group, together with a description of
the principal risks and uncertainties that it faces.
The responsibility statement was approved by the Board of Directors on 16
February 2023 and signed on its behalf by:
David Sleath
Chief Executive
16 February 2023
Soumen Das
Chief Financial Officer
16 February 2023
CONDENSED GROUP INCOME STATEMENT
For the year ended 31 December 2022
Notes 2022 2021
£m £m
Revenue 4 669 546
Costs 5 (214) (140)
455 406
Administrative expenses (59) (59)
Share of (loss)/profit from joint ventures and associates after tax 6 (144) 461
Realised and unrealised property (loss)/gain 7 (1,946) 3,669
Operating (loss)/profit (1,694) 4,477
Finance income 8 67 35
Finance costs 8 (340) (157)
(Loss)/profit before tax (1,967) 4,355
Tax 9 37 (288)
(Loss)/profit after tax (1,930) 4,067
Attributable to equity shareholders (1,927) 4,060
Attributable to non-controlling interests (3) 7
Earnings per share (pence)
Basic 11 (159.7) 339.0
Diluted 11 (159.7) 338.1
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
2022 2021
£m £m
(Loss)/profit for the year (1,930) 4,067
Items that may be reclassified subsequently to profit or loss
Foreign exchange movement arising on translation of international operations 179 (184)
Fair value movements on derivatives and borrowings in effective hedge (98) 74
relationships
81 (110)
Tax on components of other comprehensive income/(expense) – –
Other comprehensive income/(expense) 81 (110)
Total comprehensive (expense)/income for the year (1,849) 3,957
Attributable to equity shareholders (1,845) 3,949
Attributable to non-controlling interests (4) 8
CONDENSED GROUP BALANCE SHEET
As at 31 December 2022
2022 2021
£m
(restated)(1
)£m
Assets
Non-current assets
Intangible assets 12 9
Investment properties 12 14,939 15,492
Other interests in property 30 24
Plant, property and equipment 23 22
Investments in joint ventures and associates 6 1,768 1,795
Other investments 9 5
Other receivables 81 35
Derivative financial instruments 58 50
16,920 17,432
Current assets
Trading properties 12 35 45
Trade and other receivables 199 207
Tax asset 21 –
Derivative financial instruments 11 14
Cash and cash equivalents 13 162 85
428 351
Total assets 17,348 17,783
Liabilities
Non-current liabilities
Borrowings 13 4,884 3,406
Deferred tax liabilities 9 226 274
Trade and other payables 77 75
Derivative financial instruments 188 56
Tax liabilities 10 19
5,385 3,830
Current liabilities
Trade and other payables 560 463
Derivative financial instruments 14 –
Tax liabilities 16 54
590 517
Total liabilities 5,975 4,347
Net assets 11,373 13,436
Equity
Share capital 121 120
Share premium 3,449 3,371
Capital redemption reserve 114 114
Own shares held (1) (1)
Other reserves 227 140
Retained earnings brought forward 9,692 5,897
(Loss)/profit for the year attributable to owners of the parent (1,927) 4,060
Other movements (302) (265)
Retained earnings 7,463 9,692
Total shareholders’ equity 11,373 13,436
Non-controlling interests – –
Total equity 11,373 13,436
Net assets per ordinary share (pence)
Basic 11 941 1,118
Diluted 11 938 1,115
1 Group Cash and cash equivalents and Trade and other receivables have been
restated as at 31 December 2021 following IFRIC’s agenda decision in respect
of Demand Deposits with Restrictions on Use arising from a Contract with a
Third Party. See Note 1 for further details.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Attributable to owners of the parent
Other reserves
Ordinary Share Capital Own Share- Translation, Merger Retained earnings Total Non- Total
share
premium
redemption
shares
based
hedging
reserve
£m
equity attributable
controlling
equity
capital
£m
held
payments reserves
to owners
interests(1)
£m reserve
£m
£m and other £m
of the
£m
£m
parent £m
reserve
£m
£m
Balance at 1 120 3,371 114 (1) 20 (49) 169 9,692 13,436 – 13,436
January 2022
Loss for the year – – – – – – – (1,927) (1,927) (3) (1,930)
Other – – – – – 82 – – 82 (1) 81
comprehensive
income/(expense)
Total – – – – – 82 – (1,927) (1,845) (4) (1,849)
comprehensive
income/(expense)
for the year
Transactions with
owners of the
Company
Own shares acquired – – – (4) – – – – (4) – (4)
Equity-settled share- – – – 4 5 – – 2 11 – 11
based transactions
Dividends 1 78 – – – – – (301) (222) – (222)
Movement in non- – – – – – – – (3) (3) 4 1
controlling interest(1)
Total transaction 1 78 – – 5 – – (302) (218) 4 (214)
with owners
of the Company
Balance at 31 121 3,449 114 (1) 25 33 169 7,463 11,373 – 11,373
December 2022
1 Non-controlling interests relate to Vailog S.r.l.
For the year ended 31 December 2021
Attributable to owners of the parent
Other reserves
Ordinary Share Capital redemption Own Share- Translation, Merger Retained earnings Total Non-controlling Total
share
premium
shares
based
hedging
reserve
£m
equity
interests(1)
equity
capital
£m reserve
held
payments reserves
and other
attributable
£m
£m
£m
£m
reserves £m
to owners £m £m
of the
£m
parent
£m
Balance at 1 January 119 3,277 114 (1) 22 62 169 5,897 9,659 12 9,671
2021
Profit for the year – – – – – – – 4,060 4,060 7 4,067
Other comprehensive – – – – – (111) – – (111) 1 (110)
(expense)/income
Total comprehensive – – – – – (111) – 4,060 3,949 8 3,957
(expense)/income for
the year
Transactions with
owners of the
Company
Issue of shares – 1 – – – – – – 1 – 1
Own shares acquired – – – (3) – – – – (3) – (3)
Equity-settled share- – – – 3 (2) – – 6 7 – 7
based transactions
Dividends 1 93 – – – – – (270) (176) (4) (180)
Movement in non- – – – – – – – (1) (1) (16) (17)
controlling interest(1)
Total transaction with 1 94 – – (2) – – (265) (172) (20) (192)
owners of the
Company
Balance at 31 120 3,371 114 (1) 20 (49) 169 9,692 13,436 – 13,436
December 2021
1 Non-controlling interests relate to Vailog S.r.l and Sofibus Patrimoine SA.
During 2021 the non-controlling interests held in Sofibus Patrimoine SA were
acquired by the Group.
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 31 December 2022
2022 2021
£m
(restated)(1)
£m
Cash flows from operating activities
Cash generated from operations 14(i) 479 363
Interest received 28 48
Dividends received 9 33
Interest paid (131) (100)
Cost of early close out of interest rate derivatives and new interest rate (77) –
derivatives
transacted
Tax paid (95) (17)
Net cash received from operating activities 213 327
Cash flows from investing activities
Purchase and development of investment properties(2) (1,472) (1,706)
Sale of investment properties 310 491
Acquisition of other interest in property (6) (8)
Purchase of plant and equipment and intangibles (9) (7)
Acquisition of other investments (3) (4)
Investment and loans to joint ventures and associates (112) (74)
Divestment from and repayment of loans by joint ventures and associates 37 35
Net cash received used in investing activities (1,255) (1,273)
Cash flows from financing activities
Dividends paid(3) (222) (180)
Proceeds from borrowings 2,752 1,214
Repayment of borrowings (1,421) (140)
Principal element of lease payments (2) (2)
Settlement of foreign exchange derivatives 15 40
Purchase of non-controlling interest – (12)
Proceeds from issue of ordinary shares – 1
Purchase of ordinary shares (4) (3)
Net cash generated from financing activities 1,118 918
Net increase/(decrease) in cash and cash equivalents 76 (28)
Cash and cash equivalents at the beginning of the year 85 113
Effect of foreign exchange rate changes 1 –
Cash and cash equivalents at the end of the year 13 162 85
1 Group Cash and cash equivalents and Trade and other receivables have been
restated as at 31 December 2021 following IFRIC’s agenda decision in respect
of Demand Deposits with Restrictions on Use arising from a Contract with a
Third Party. See Note 1 for further details.
2 Group cash payment for the purchase and development of investment properties
of £1,472 million (2021: £1,706 million) represents total costs for property
acquisitions and additions to existing investment properties per Note 12(i) of
£1,530 million (2021: £1,878 million) adjusted for the following cash and
non-cash movements: deducts interest capitalised of £22 million (2021: £9
million); deducts net movement in capital accruals and prepayments of £23
million (2021: £23 million); deducts non-cash movements of £13 million
(2021: £140 million) from asset swaps.
3 Group dividends paid in 2022 of £222 million (2021: £180 million) includes
£222 million (2021: £176 million) paid to ordinary shareholders (see Note
10) and £nil (2021: £4 million) paid to non-controlling interest.
Notes to the CONDENSED Financial Statements
1. Significant Accounting Policies
The financial information set out in this announcement does not constitute the
consolidated statutory accounts for the years ended 31 December 2022 and 2021,
but is derived from those accounts. Statutory accounts for 2021 have been
delivered to the Registrar of Companies and those for 2022 (approved by the
Board on 16 February 2023) will be delivered following the Company’s annual
general meeting. The external auditor has reported on the accounts and their
reports did not contain any modifications.
Given due consideration to the nature of the Group’s business and financial
position, including the financial resources available to the Group, the
Directors consider that the Group is a going concern and this financial
information is prepared on that basis.
The financial information set out in this announcement is based on the
consolidated financial statements which are prepared in accordance with
UK-adopted International Accounting Standards (IAS) and the requirements of
the Companies Act 2006 as applicable to companies reporting under those
standards and International Financial Reporting Standards (IFRS) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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 Financial Statements for the
periods presented, which therefore also comply with International Reporting
Standards as adopted by the EU.
The financial information is in accordance with the accounting policies set
out in the 2021 financial statements apart from as detailed below.
While the financial information included in these condensed financial
statements has been prepared in accordance with the recognition and
measurement criteria of UK-adopted IAS and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards
and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union, this announcement does not itself contain sufficient
information to comply with IASs and IFRSs. The Company expects to publish full
financial statements that comply with IASs and IFRSs by March 2023.
The principal exchange rates used to translate foreign currency denominated
amounts are: Balance sheet: £1 = €1.13 (31 December 2021: £1 = €1.19)
and Income statement: £1 = €1.17 (2021: £1 = €1.16).
New and amended standards adopted by the Group
The new accounting standards and amendments that became applicable for the
current reporting year did not have any impact on the amounts recognised in
prior period and are not expected to significantly affect the current or
future periods.
The Group has assessed the impact of the IFRS Interpretation Committee’s
recent Agenda Decision in respect of Demand Deposits with Restrictions on Use
arising from a Contract with a Third Party (IAS 7). The Group holds tenant
deposits in separate designated bank accounts where the use of the monies is
restricted and defined in the lease agreements, however the access to these
monies by the Group is not restricted. Following the clarification by IFRIC
these tenant deposits have been judged to meet the definition of ‘cash’
under IAS 7. The tenant deposits were previously classified as ‘Other
receivables’ and have been classified as ‘Cash and cash equivalents’ at
31 December 2022. The Group comparative balances have been restated where
applicable to reflect this change in classification which resulted in £40
million of tenant deposits as at 31 December 2021 being reclassified from
‘Other receivables’ to ‘Cash and cash equivalents’.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amount of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revisions and future periods if the revision affects both current and
future periods.
Significant areas of estimation uncertainty
Property valuations
Valuation of property is a central component of the business. In estimating
the fair value, the Group engages third party qualified valuers to perform the
valuation.
Performance fee
As detailed further in Note 6, performance fees are payable from the SELP
joint venture to SEGRO. The fee is based on the joint venture’s performance
over the 10 year performance period since inception and payable subject to
meeting certain criteria and hurdle rates at the end of the period.
Performance fee income is recognised during the performance period to the
extent that the fee can be reliably estimated and that it is highly probable
there will not be a significant future reversal.
The internal rate of return (IRR) calculation to determine whether the hurdle
rates will be met, and if so to what extent, at the end of the performance
period in October 2023 is currently an estimation and sensitive to movements
and assumptions in property valuations over the remaining performance period.
As detailed above, property valuations is an area of significant estimation
uncertainty.
Determining whether it is highly probable there will not be a significant
future change in the performance fee is dependent on the probability and
magnitude of future changes in property values over the remaining performance
period. Note 6 provides details of the estimated performance fee due in
October 2023 and sensitivity of this estimation to movements in property
values from 31 December 2022 to the end of the performance period.
The corresponding performance fee expense recognised by SELP is a significant
estimate for the same reasons as detailed above. The SELP performance fee
expense is accounted for under the equity method within share of profit from
joint ventures and associates after tax.
Significant areas of judgements in applying the Group’s accounting policies
Accounting for significant property transactions
Property transactions are complex in nature. Management considers each
material transaction separately, with an assessment carried out to determine
the most appropriate accounting treatment and judgements applied. The
judgements include whether the transaction represents an asset acquisition or
business combination and the cut-off for property transactions on recognition
of property assets and revenue recognition. In making its judgement over the
cut-off for property transactions, management considers whether the control of
ownership of the assets acquired or disposed of has transferred to or from the
Group (this consideration includes the revenue recognition criteria set out in
IFRS 15 for the sale of trading properties).
In making its judgement on whether the acquisition of property through the
purchase of a corporate vehicle represents an asset acquisition or business
combination, management considers whether the integrated set of assets and
activities acquired contain both inputs and processes along with the ability
to create outputs. Management also applies the optional ‘concentration
test’ allowed under IFRS 3. When applying the optional test, management
considers if substantially all of the fair value of gross assets acquired is
concentrated in a single asset (or a group of similar assets). Where
management judge that substantially all of the fair value of the gross assets
acquired are concentrated in a single asset (or a group of similar assets) and
the ‘concentration test’ met, the assets acquired would not represent a
business and the purchase would be treated as an asset acquisition.
REIT status
The Company has elected for UK REIT and French SIIC status. To continue to
benefit from these tax regimes, the Group is required to comply with certain
conditions as outlined in Note 9. Management intends that the Group should
continue as a UK REIT and a French SIIC for the foreseeable future.
Uncertain tax positions
The Group is subject to periodic challenges by local tax authorities on a
range of tax matters during the normal course of business. The tax impact can
be uncertain until a conclusion is reached with the relevant tax authority or
through a legal process. Management judgement is required in assessing the
likelihood of whether a liability, including any associated penalties, will
arise and the most significant assessment relates to the recognition of
withholding tax in France and is discussed further in Note 9.
2. Adjusted Profit
Adjusted profit is a non-GAAP measure and is the Group’s measure of
underlying profit, which is used by the Board and senior management to measure
and monitor the Group’s income performance.
It is based on the Best Practices Recommendations Guidelines of European
Public Real Estate Association (EPRA), which calculate profit excluding
investment and development property revaluations and gains or losses on
disposals. Changes in the fair value of financial instruments and associated
close-out costs and their related taxation, as well as other permitted one-off
items, are also excluded. Refer to the Supplementary Notes for all EPRA
adjustments.
The Directors may also exclude from the EPRA profit measure additional items
(gains and losses) which are considered by them to be non-recurring, unusual
or significant by virtue of size and nature. No non-EPRA adjustments to
underlying profit were made in the current or prior period.
Notes 2022 2021(3)
£m £m
Gross rental income 4 488 398
Property operating expenses 5 (76) (57)
Net rental income(3) 412 341
Joint venture fee income 4 30 52
Management and development fee income 4 5 5
Net solar energy income(2) 1 1
Administrative expenses (59) (59)
Share of joint ventures and associates ’ Adjusted profit after tax(1) 6 71 56
Adjusted operating profit before interest and tax 460 396
Net finance costs 8 (74) (40)
Adjusted profit before tax 386 356
Adjustments to reconcile to IFRS:
Adjustments to the share of (loss)/profit from joint ventures and 6 (215) 405
associates’ after tax(1)
Realised and unrealised property (loss)/gain 7 (1,946) 3,669
Profit on sale of trading properties 12 7 7
Net fair value loss on interest rate swaps and other derivatives 8 (199) (82)
Total adjustments (2,353) 3,999
(Loss)/profit before tax (1,967) 4,355
Tax
On Adjusted profit 9 (11) (8)
In respect of adjustments 9 48 (280)
Total tax adjustments 37 (288)
(Loss)/profit after tax before non-controlling interests (1,930) 4,067
Non-controlling interests:
Less: share of adjusted profit attributable to non‑controlling interests (1) –
share of adjustments attributable to non‑controlling interests 4 (7)
(Loss)/profit after tax and non-controlling interests (1,927) 4,060
Of which:
Adjusted profit after tax and non-controlling interests 374 348
Total adjustments after tax and non-controlling interests (2,301) 3,712
(Loss)/profit attributable to equity shareholders (1,927) 4,060
1 A detailed breakdown of the adjustments to the share of (loss)/profit from
joint ventures and associates is included in Note 6.
2 Net solar income of £1 million (2021: £1 million) is calculated as Solar
energy income of £2 million (2021: £2 million) shown in Note 4, less Solar
energy expenses of £1 million (2021: £1 million) shown in Note 5.
3 The composition of gross and net rental income has changed in 2022 to provide
a better measure of the underlying rental income from the property portfolio.
Management and development fee income; service charge income and expense; and
solar energy income and expense are now presented outside of gross and net
rental income. Details of the change is disclosed further in Note 4 and 5.
Service charge income is netted against the equal and opposite service charge
expense and are not shown as separate line items in the table above. There is
no impact on Adjusted operating profit before interest and tax from this
change and the prior year comparatives in the table above have been
represented to reflect this change.
3. Segmental Analysis
The Group’s reportable segments are the geographical Business Units: Greater
London, Thames Valley, National Logistics, Northern Europe (principally
Germany), Southern Europe (principally France and Italy) and Central Europe
(principally Poland), which are managed and reported to the Board as separate
distinct Business Units.
31 December 2022 Gross Net Share of Adjusted Total Investments Capital
rental
rental
joint
PBIT(2)
directly
in joint
expenditure(3)
income(5)
income(5)
ventures
owned
ventures
and £m
property
and £m
£m £m
associates’
associates
Adjusted assets
profit
£m
£m
£m
Thames Valley 116 109 – 107 3,011 – 80
National Logistics 47 43 – 45 1,721 – 362
Greater London 203 185 – 183 6,401 11 325
Northern Europe 33 23 29 60 1,149 958 345
Southern Europe 82 63 40 114 2,503 1,191 474
Central Europe 7 3 22 31 189 616 7
Other – (14)(1) (20)(1) (80)(1) – (1,008)(4) 9
Total 488 412 71 460 14,974 1,768 1,602
31 December 2021 Gross Net Share of Adjusted Total Investments Capital
rental
rental
joint
PBIT(2)
directly
in joint
expenditure(3)
income(5)
income(5)
ventures
owned
ventures
and associates’ £m
property
and £m
£m £m
Adjusted
assets
associates
profit
£m £m
£m
Thames Valley 86 80 – 79 3,102 – 454
National Logistics 35 33 – 34 1,717 – 213
Greater London 173 163 – 161 7,325 8 678
Northern Europe 26 18 26 52 928 911 93
Southern Europe 71 56 35 100 2,285 1,178 443
Central Europe 7 4 22 31 180 559 22
Other – (13)(1) (27)(1) (61)(1) – (861)(4) 7
Total 398 341 56 396 15,537 1,795 1,910
1 ‘Other’ category includes the corporate centre, SELP holding companies and
costs relating to the operational business which are not specifically
allocated to a geographical Business Unit. In 2021 the impact of the SELP
performance fee (detailed in Note 6) on Share of joint ventures and associates
Adjusted profit (being the performance fee expense recognised by SELP of
£13 million) and Adjusted PBIT (being the net profit impact to the Group of
£13 million) is shown within Other.
2 A reconciliation of total Adjusted PBIT to the IFRS (loss)/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 Includes the bonds held by SELP Finance S.à r.l, a Luxembourg entity.
5 The composition of gross and net rental income has changed in 2022. Management
and development fee income, service charge income and expenses, and solar
energy income and expenses are now presented outside of gross and net rental
income. See Notes 4 and 5 for further details. The prior year comparatives in
the table above have been represented to reflect this change.
Revenues from the most significant countries within the Group were: UK £451
million (2021: £374 million), France £77 million (2021: £71 million), Italy
£36 million (2021: £35 million), Germany £46 million (2021: £38 million),
Netherlands £30 million (2021: £2 million) and Poland £17 million (2021:
£15 million).
4. Revenue
2022 2021(2)
£m £m
Rental income from investment and trading properties 473 382
Rent averaging 14 13
Surrender premia 1 3
Gross rental income(1,2) 488 398
Joint venture fee income – management fees* 30 26
– performance fees*(3) – 26
Joint venture fee income 30 52
Management and development fee income*(2) 5 5
Service charge income*(2) 44 42
Solar energy income*(2) 2 2
Proceeds from sale of trading properties* 100 47
Total revenue 669 546
* The above income streams reflect revenue recognition under IFRS 15 ‘Revenue
from Contracts with Customers’ and total £181 million (2021: £148
million).
1 Net rental income of £412 million (2021: £341 million) is calculated as
gross rental income of £488 million (2021: £398 million) less total property
operating expenses of £76 million (2021: £57 million) shown in Note 5.
2 The composition of gross rental income within Total Revenue has changed in
2022. Management and development fee, Service charge income and Solar energy
income are now presented outside of gross rental income. The prior year
comparatives in the table above have been represented to reflect this change.
Development fee income (2021: £2 million) and Solar energy income (2021:
£2 million) were previously presented within the Rental income from
investment and trading properties line in the table above.
3 See Note 6(ii) for further details on the performance fee from SELP.
5. Costs
2022 2021(3)
£m £m
Vacant property costs 10 5
Letting, marketing, legal and professional fees 17 11
Loss allowance and impairment of receivables 3 –
Other expenses 12 11
Property management expenses 42 27
Property administrative expenses(1) 45 39
Costs capitalised(2) (11) (9)
Total property operating expenses(3) 76 57
Service charge expense(3) 44 42
Solar energy expense(3) 1 1
Trading properties cost of sales 93 40
Total costs 214 140
1 Property administrative expenses predominantly relate to the employee staff
costs of personnel directly involved in managing the property portfolio.
2 Costs capitalised primarily relate to internal employee staff costs directly
involved in developing the property portfolio.
3 The composition of Property management expenses within Total costs has changed
in 2022. Service charge expense and Solar energy expense are now presented
outside of Property management expenses. The prior year comparatives in the
table above have been represented to reflect this change. Solar energy expense
was previously presented within the Other expenses line in the table above.
6. Investments in Joint Ventures and Associates
6(i) – Profit from joint ventures and associates after tax
The table below presents a summary Income Statement of the Group’s largest
joint ventures and associates, all of which are accounted for using the equity
method. SEGRO European Logistics Partnership (SELP) is incorporated in
Luxembourg and owns logistics property assets in Continental Europe. The Group
holds 50 per cent of the share capital and voting rights in the material joint
ventures. During the year SEGRO acquired a 49 per cent share in Reprendre
Racines SAS and is accounted for as an associate within the ‘Other’ column
in tables 6(i) and (ii).
SELP Other At 100% At 100% At share At share
£m £m 2022 2021(4) 2022 2021(4)
£m £m £m £m
Revenue(1) 303 – 303 270 152 135
Gross rental income(4) 237 – 237 210 119 105
Property operating expenses:
– underlying property operating expenses (16) – (16) (12) (8) (6)
– vacant property costs (1) – (1) (2) (1) (1)
– property management fees(2) (25) – (25) (22) (13) (11)
– performance fees(3) – – – (26) – (13)
Net rental income(4) 195 – 195 148 97 74
Management fee income(4) 3 – 3 4 2 2
Administrative expenses (6) – (6) (3) (3) (2)
Finance costs (including adjustments) (34) – (34) (26) (17) (13)
Adjusted profit before tax 158 – 158 123 79 61
Tax (16) – (16) (11) (8) (5)
Adjusted profit after tax 142 – 142 112 71 56
Adjustments:
Profit on sale of investment properties – – – 19 – 10
Valuation (deficit)/surplus on investment (464) (8) (472) 974 (236) 487
properties
Early close out of debt (3) – (3) – (2) –
Tax in respect of adjustments 46 – 46 (183) 23 (92)
Total adjustments (421) (8) (429) 810 (215) 405
(Loss)/profit after tax (279) (8) (287) 922 (144) 461
Other comprehensive income – – – – – –
Total comprehensive (expense)/income for (279) (8) (287) 922 (144) 461
the year
1 Total revenue at 100% of £303 million (2021: £270 million) includes: Gross
rental income of £237 million (2021: £210 million); service charge income of
£63 million (2021: £56 million) and management fee income of £3 million
(2021: £4 million). Service charge income is netted against the equal and
opposite service charge expense in calculating Adjusted profit before tax.
2 Property management fees paid to SEGRO.
3 Performance fees recognised by SEGRO. In the condensed set of financial
statement for the six months ended 30 June 2022 a performance fee of £42
million was recognised by SEGRO. Due to changes in the estimation of the
performance fee, as further discussed in the Fees section below, no fee has
been recognised for the year ended 31 December 2022.
4 The composition of gross and net rental income has changed in 2022. Management
fee income and service charge income and expense are now presented outside of
gross and net rental income. Service charge income is netted against the equal
and opposite service charge expense in the table above and are not shown as
separate line items. There is no impact on Adjusted operating profit before
interest and tax from this change and the prior year comparatives in the table
above have been represented to reflect this change.
The Group has not recognised losses totalling £12 million at share (2021:
£nil) in relation to its interests in associates, because the Group has no
obligation in respect of these losses.
6(ii) – Summarised Balance Sheet information in respect of the Group’s
joint ventures and associates
SELP Other At 100% At 100% At share At share
£m £m 2022 2021 2022 2021
£m £m £m £m
Investment properties(1) 6,017 27 6,044 5,818 3,022 2,909
Property, plant and equipment 6 – 6 – 3 –
Other receivables 3 – 3 – 1 –
Total non-current assets 6,026 27 6,053 5,818 3,026 2,909
Other receivables 65 7 72 78 36 39
Cash and cash equivalents 57 6 63 43 32 22
Total current assets 122 13 135 121 68 61
Total assets 6,148 40 6,188 5,939 3,094 2,970
Borrowings (2,005) – (2,005) (1,723) (1,003) (862)
Deferred tax (482) – (482) (504) (241) (252)
Other liabilities – (40) (40) – (20) –
Total non-current liabilities (2,487) (40) (2,527) (2,227) (1,264) (1,114)
Other liabilities (145) (3) (148) (122) (74) (61)
Total current liabilities (145) (3) (148) (122) (74) (61)
Total liabilities (2,632) (43) (2,675) (2,349) (1,338) (1,175)
Unrecognised share of losses – 23 23 – 12 –
Net assets 3,516 20 3,536 3,590 1,768 1,795
1 Investment properties held by SELP include assets held for sale of £nil (at
100%) at 31 December 2022 (2021: £97 million).
Fees
SEGRO provides certain services, including venture advisory and asset
management, to the SELP joint venture and receives fees for doing so.
A 10 year performance fee, denominated in euros, is payable from SELP to SEGRO
in October 2023 based on SELP’s internal rate of return (IRR) subject to
certain hurdle rates. The IRR calculation is based on a 10 year performance
period from the inception of SELP in October 2013 to October 2023. The IRR
calculation to determine whether the hurdle rates will be met when the
performance period ends is currently an estimation and sensitive to movements
and assumptions in property valuations over the remaining performance period.
In the year ended 31 December 2021, SEGRO recognised a performance fee of £26
million (€29 million) in its Income Statement. An equivalent performance fee
expense at share of £13 million was recognised within the share of profit
from joint ventures and associates.
In the year ended 31 December 2022, no further performance fee has been
recognised by SEGRO, and therefore no equivalent performance fee expense has
been recognised within the share of profit from joint ventures and associates
and reflected in table 6(i) above.
This means the cumulative 10 year performance fee recognised by SEGRO to 31
December 2022 totals £26 million (€29 million) (2021: £26 million (€29
million) plus 2022: £nil). The full amount of the cumulative performance fee
recognised is subject to future reversal based on performance over the
remaining period to October 2023.
Performance fee income is recognised during the performance period to the
extent that it is highly probable there will not be a significant future
reversal and the fee can be reliably estimated. None of the cumulative £26
million performance fee recognised will be reversed if property values fall by
up to 12 per cent between 31 December 2022 and the end of the performance
period in October 2023. If property values fall by over 14 per cent, all of
the £26 million cumulative performance fee recognised to date would be
reversed.
SEGRO management notes the inherent and increased uncertainty caused by the
market conditions at the period end and the sensitivities detailed below. The
volatility has impacted management’s consideration of the point at which it
is highly probable that there will not be a significant reversal relative to
the estimations undertaken in the prior year and at the half year. Having
considered these market conditions, the market outlook and the track record of
property market trends, management believes it highly probable that there will
not be a significant reversal of the cumulative performance fee recognised to
date.
Sensitivity
Based on current estimates of the IRR of SELP from inception in October 2013
to 31 December 2022, an additional performance fee (beyond the cumulative fee
of €29 million recognised to 31 December 2022) due to SEGRO in October 2023
could be in the region of €164 million (€82 million at share after
accounting for the corresponding performance fee expense recognised in SELP).
However, this is dependent on future events, in particular property valuation
movements, to the end of the performance period in October 2023. The current
estimate of the IRR is based on property values as at 31 December 2022; a 10
per cent decrease in property values from 31 December 2022 would result in a
€142 million decrease in the estimated fee and a 10 per cent increase in
property values would result in a €142 million increase in the estimated
fee. Whilst property valuations have become more volatile since the prior
year, using a 10 per cent increase/decrease is still considered appropriate to
provide transparency on the relative sensitivity of the estimate.
If property values decreased by 12 per cent from 31 December 2022 no
additional performance fee would be due beyond the cumulative amount
recognised to 31 December 2022. A further performance fee above the £26
million cumulative amount recognised to 31 December 2022 has not been
recognised as management has not concluded that it is highly probable that
there will not be a significant reversal.
7. Realised and Unrealised Property (Loss)/Gain
2022 2021
£m £m
Profit on sale of investment properties 9 53
Valuation (deficit)/surplus on investment properties(1) (1,970) 3,617
Decrease/(increase) in provision for impairment of trading properties 15 (1)
Total realised and unrealised property (loss)/gain (1,946) 3,669
1 Includes £1,970 million valuation deficit on investment properties (2021:
£3,618 million surplus) less £nil valuation loss on head lease ROU asset
(2021: £1 million).
The total valuation deficit on investment and trading properties total £2,191
million (2021: £4,103 million surplus). This comprises £1,970 million
deficit from investment properties (2021: £3,617 million surplus), £15
million reversal of impairment from trading properties (2021: £1 million
charge), £236 million deficit from joint ventures and associates at share
(2021: £487 million surplus).
The total property loss on investment and trading properties total £2,175
million (2021: £4,173 million gain). This comprises the total valuation
deficit above of £2,191 million (2021: £4,103 million surplus) plus £9
million profit on sale of investment property (2021: £53 million), £7
million profit on sale of trading property (2021: £7 million), £nil profit
on sale of investment property from joint ventures and associates at share
(2021: £10 million).
Details of profit on sale of trading properties are given in Note 12(ii).
8. Net Finance Costs
Finance income 2022 2021
£m £m
Interest received on bank deposits and related derivatives 21 24
Fair value gain on interest rate swaps and other derivatives 46 11
Total finance income 67 35
Finance costs
Interest on overdrafts, loans and related derivatives (104) (67)
Amortisation of issue costs (9) (3)
Interest on lease liabilities (3) (3)
Total borrowing costs (116) (73)
Less amounts capitalised on the development of properties 22 9
Net borrowing costs (94) (64)
Fair value loss on interest rate swaps and other derivatives (245) (93)
Exchange differences (1) –
Total finance costs (340) (157)
Net finance costs (273) (122)
Net finance costs (including adjustments) in Adjusted profit (Note 2) are £74
million (2021: £40 million). This excludes net fair value gains and losses on
interest rate swaps and other derivatives of £199 million loss (2021: £82
million loss).
The interest capitalisation rates for 2022 ranged from 1.9 per cent to 4.0 per
cent (2021: 1.9 per cent to 2.2 per cent). Interest is capitalised gross of
tax relief.
9. Tax
9(i) – Tax on (loss)/profit
2022 2021
£m £m
Tax:
On Adjusted profit (11) (8)
In respect of adjustments:
– French withholding tax (4) (145)
– SIIC entry charge – (38)
– Other (primarily in respect of property valuation movements) 52 (97)
Total tax in respect of adjustments 48 (280)
Total tax credit/(charge) 37 (288)
Current tax
United Kingdom
Current tax credit 7 4
Total UK current tax credit 7 4
Overseas
Current tax charge (30) (40)
French withholding tax (1) (16)
SIIC entry charge – (38)
Total overseas current tax charge (31) (94)
Total current tax charge (24) (90)
Deferred tax
Origination and reversal of temporary differences (13) (34)
Released in respect of property disposals in the year 25 22
On valuation movements 50 (173)
Total deferred tax in respect of investment properties 62 (185)
Other deferred tax (1) (13)
Total deferred tax credit/(charge) 61 (198)
Total tax credit/(charge) on (loss)/profit on ordinary activities 37 (288)
9(ii) – REIT and SIIC regimes and other tax judgements
SEGRO is a Real Estate Investment Trust (REIT) and does not pay tax on its UK
property income or gains on property sales, provided that at least 90 per cent
of the Group’s UK property income is distributed as a dividend to
shareholders, which becomes taxable in their hands. In addition, the Group has
to meet certain conditions such as ensuring its worldwide property rental
business represents more than 75 per cent of total profits and assets. Any
potential or proposed changes to the REIT legislation are monitored and
discussed with HMRC. It is management’s intention that the Group will
continue as a REIT for the foreseeable future.
SEGRO is also a SIIC in France, and does not pay corporation tax on its French
property income or gains on property sales, provided that at least 95 per cent
of the relevant Group French subsidiaries’ property income is distributed to
their immediate shareholder. In addition, the Group has to meet certain
conditions such as ensuring the property rental business of each French
subsidiary represents more than 80 per cent of its assets. Any potential or
proposed changes to the SIIC legislation are monitored. It is management’s
intention that the Group will continue as a SIIC for the foreseeable future.
In 2021 a formal tax assessment in relation to the applicability of a 25 per
cent withholding tax on distributions from the SIIC was received from the
French tax authorities and a tax charge was recognised. A legal conclusion has
not been reached and communication with the French tax authorities remains
ongoing. As a result, a tax charge on adjustments of £4 million has been
recognised in the year ended 31 December 2022 (of which £1 million is current
tax and £3 million is deferred tax) (2021: total tax charge of £145 million,
of which £16 million is current tax and £129 million is deferred tax). As
noted below, until a legal conclusion has been reached, it is possible further
tax charges may arise in relation to this matter.
In addition, during 2021, the Group elected Sofibus Patrimoine S.A. into the
SIIC regime in France. The entire entry cost of £38 million, payable over a 4
year period, was recognised in the Income Statement for the year ended 31
December 2021 and accordingly no cost has been recognised in the year ended 31
December 2022.
The Group operates in a number of jurisdictions and is subject to periodic
challenges by local tax authorities on a range of tax matters during the
normal course of business. The tax impact can be uncertain until a conclusion
is reached with the relevant tax authority or through a legal process. The
Group uses in-house expertise when assessing uncertain tax positions and seeks
the advice of external professional advisors where appropriate. The Group
believes that its provisions for tax liabilities and associated penalties are
adequate for all open tax years based on its assessment of many factors,
including tax laws and prior experience. The most significant assessment
relating to the recognition of withholding tax in France is discussed above.
9(iii) – Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Exchange Acquisitions/ Recognised Balance
1 January movement disposals in income 31 December
£m £m £m £m £m
Valuation surpluses and deficits on properties/accelerated tax allowances 259 12 – (62) 209
Others 15 1 – 1 17
Total deferred tax liabilities 274 13 – (61) 226
10. Dividends
2022 2021
£m £m
Ordinary dividends paid
Interim dividend for 2022 @ 8.1 pence per share 98 –
Final dividend for 2021 @ 16.9 pence per share 203 –
Interim dividend for 2021 @ 7.4 pence per share – 89
Final dividend for 2020 @ 15.2 pence per share – 181
Total dividends 301 270
The Board recommends a final dividend for 2022 of 18.2 pence which is
estimated to result in a distribution of up to £220 million. The total
dividend paid and proposed per share in respect of the year ended 31 December
2022 is 26.3 pence (2021: 24.3 pence).
The total dividend in 2022 of £301 million (2021: £270 million) was paid:
£222 million as cash (2021: £176 million) and £79 million in scrip
dividends (2021: £94 million).
11. Earnings and Net Assets Per Share
The earnings per share calculations use the weighted average number of shares
in issue during the year and the net assets per share calculations use the
number of shares in issue at year end. Earnings per share calculations exclude
0.2 million shares (2021: 0.2 million) being the average number of shares held
on trust for employee share schemes and net assets per share calculations
exclude 0.2 million shares (2021: 0.2 million) being the actual number of
shares held on trust for employee share schemes at year end.
11(i) – Earnings per ordinary share (EPS)
2022 2021
Earnings Shares Pence Earnings Shares Pence
£m million per share £m million per share
Basic EPS (1,927) 1,206.6 (159.7) 4,060 1,197.7 339.0
Dilution adjustments:
Share and save as you earn – – – – 3.3 (0.9)
schemes
Diluted EPS(2) (1,927) 1,206.6 (159.7) 4,060 1,201.0 338.1
Basic EPS (1,927) 1,206.6 (159.7) 4,060 1,197.7 339.0
Adjustments to (loss)/profit before tax(1) 2,353 195.0 (3,999) (333.9)
Tax in respect of Adjustments (48) (4.0) 280 23.4
Non-controlling interest on (4) (0.3) 7 0.6
Adjustments
Adjusted Basic EPS 374 1,206.6 31.0 348 1,197.7 29.1
Adjusted Diluted EPS 374 1,210.0 30.9 348 1,201.0 29.0
1 Details of adjustments are included in Note 2.
2 In the year ended 31 December 2022, share options are excluded from the
weighted average diluted number of shares when calculating IFRS diluted loss
per share because they are not dilutive.
11(ii) – Net assets 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 5 of the Supplementary Notes provides a reconciliation from IFRS NAV for
each of the three EPRA net asset value metrics.
2022 2021
Equity Shares Pence Equity Shares Pence
attributable million per share attributable million per share
to ordinary to ordinary
shareholders shareholders
£m £m
Basic NAV 11,373 1,209.1 941 13,436 1,202.3 1,118
Dilution adjustments:
Share and save as you earn – 3.4 (3) – 3.2 (3)
schemes
Diluted NAV 11,373 1,212.5 938 13,436 1,205.5 1,115
Fair value adjustment in respect 131 11 24 2
of interest rate derivatives –
Group
Fair value adjustment in respect 2 – 1 –
of trading properties – Group
Deferred tax in respect of 104 8 129 11
depreciation and valuation
surpluses – Group(1)
Deferred tax in respect of 119 10 123 10
depreciation and valuation
surpluses – Joint ventures and
associates(1)
Intangible assets (12) (1) (9) (1)
Adjusted NAV 11,717 1,212.5 966 13,704 1,205.5 1,137
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 2022 13,815 1,461 15,276
At 1 January 2022 13,815 1,461 15,276
Exchange movement 143 42 185
Property acquisitions 117 682 799
Additions to existing investment properties 53 678 731
Disposals (314) (1) (315)
Transfers on completion of development and completed properties taken back for 340 (340) –
redevelopment
Transfer from/(to) trading properties 3 (7) (4)
Revaluation (deficit)/surplus during the year (2,044) 74 (1,970)
At 31 December 2022 12,113 2,589 14,702
Add tenant lease incentives, letting fees and rental guarantees 164 – 164
Investment properties excluding head lease ROU assets at 31 December 2022 12,277 2,589 14,866
Add head lease liabilities (ROU assets)(1) 73 – 73
Total investment properties at 31 December 2022 12,350 2,589 14,939
1 At 31 December 2022 investment properties included £73 million (2021: £70
million) for the head lease liabilities recognised under IFRS 16.
Investment properties are stated at fair value as at 31 December 2022 based on
external valuations performed by professionally qualified, independent
valuers. The Group’s wholly-owned, joint venture and associate property
portfolio is valued by CBRE Ltd on a half-yearly basis (apart from two assets
valued by Knight Frank).
The valuations conform to International Valuation Standards and were arrived
at by reference to market evidence of the transaction prices paid for similar
properties. In estimating the fair value of the properties, the valuers
consider the highest and best use of the properties. There has been no change
to the valuation technique during the year.
CBRE Ltd also undertakes some professional and agency work on behalf of the
Group. This is carried out by departments separate from the Valuation team in
CBRE and overall the total fees earned from the Group are below 5% of CBRE’s
total income. This work does not therefore lead to a conflict of interest for
the properties being valued by CBRE at the period end.
Completed properties include buildings that are occupied or are available for
occupation. Development properties include land available for development
(land bank), land under development, construction in progress and covered
land. To provide additional transparency over the future development pipeline
of the Group, the ‘covered land’ category has been identified in the year.
This new category consists of income producing assets acquired with the
explicit intention to redevelop them in the short to medium term. Valued on
the balance sheet as land plus remaining contracted income. As a result of the
new covered land category, £474 million (carrying value as at 31 December
2021) of standing assets acquired in 2021 have been identified as covered
land, these assets were classified as Completed property as at 31 December
2021 and during the period transferred to Development property in the table
above. The carrying value of covered land held within Development properties
as at 31 December 2022 is £656 million (2021: £nil).
The carrying value of investment properties situated on land held under
leaseholds is £209 million (excluding head lease ROU assets) (2021: £206
million).
Sensitivity analysis
An increase/decrease to ERV will increase/decrease valuations, while an
increase/decrease to yield will decrease/increase valuations. Sensitivity
analysis showing the impact on valuations of changes in yields and ERV on the
property portfolio (including joint ventures and associates at share) and the
impact on valuations of changes in development costs on the development
property and land portfolio (including joint ventures and associates at share)
is shown below.
The valuation deficit recognised by the Group in the year ended 31 December
2022 primarily reflects the impact of higher property yields applied to our
portfolio during the second half of 2022. This is reflected in the Group’s
net true equivalent yield increasing from 3.8 per cent at 31 December 2021 to
4.8 per cent at 31 December 2022. As the change in market conditions and
corresponding valuation correction occurred prior to the 31 December 2022
valuation date, management still considers a 25bp movement in yields reflects
an appropriate sensitivity as at 31 December 2022.
Impact on valuation Impact on valuation Impact on valuation
of 25bp change in
of 5% change in
of 10% change
nominal equivalent
estimated rental
in estimated
yield
value (ERV)
development costs
Group Increase Decrease Increase Decrease Increase Decrease
£m
£m
£m
£m
£m
£m £m
2022
Completed property 15,191 (793) 883 580 (576) - -
Development property and land 2,734 (226) 245 295 (295) (321) 321
Group total property portfolio 17,925 (1,019) 1,128 875 (871) (321) 321
Impact on valuation of Impact on valuation of Impact on valuation of
25bp change in
5% change in
10% change
nominal equivalent
estimated rental
in estimated
yield
value (ERV)
development costs
Group Increase Decrease Increase Decrease Increase Decrease
£m
£m
£m
£m
£m
£m £m
2021
Completed property 16,739 (1,057) 1,211 628 (625) - -
Development property and land 1,638 (164) 172 192 (199) (232) 225
Group total property portfolio 18,377 (1,221) 1,383 820 (824) (232) 225
12(ii) Trading properties
2022 2021
£m
£m
At 1 January 45 52
Exchange movement 1 (2)
Property acquisitions 1 8
Additions to existing trading properties 62 17
Disposals(1) (93) (40)
Decrease/(increase) in provision for impairment during the year 15 (1)
Transfer from investment properties 4 11
At 31 December 35 45
1 Profit on sale of trading properties of £7 million in the year (2021: £7
million) have been generated from total proceeds of £100 million (2021: £47
million), see Note 4, less costs of £93 million (2021: £40 million), see
Note 5.
Trading properties were externally valued, as detailed in Note 12(i),
resulting in a decrease in the provision for impairment of £15 million (2021:
£1 million increase). Based on the fair value at 31 December 2022, the
portfolio has unrecognised surplus of £2 million (2021: £1 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
2022 2021
£m
(restated)(1
)
£m
In one year or less – -
In more than one year but less than two 83 -
In more than two years but less than five 1,562 877
In more than five years but less than ten 1,662 1,308
In more than ten years 1,577 1,221
In more than one year 4,884 3,406
Total borrowings 4,884 3,406
Cash and cash equivalents(1,2) (162) (85)
Net borrowings 4,722 3,321
Total borrowings is split between secured and unsecured as follows:
Secured (on land, buildings and other assets) 1 2
Unsecured 4,883 3,404
Total borrowings 4,884 3,406
Currency profile of total borrowings after derivative instruments
Sterling 1,120 617
Euros 3,764 2,789
Total borrowings 4,884 3,406
Maturity profile of undrawn borrowing facilities
In one year or less 150 8
In more than one year but less than two - 630
In more than two years but less than five 1,608 210
Total available undrawn borrowing facilities 1,758 848
1 Group Cash and cash equivalents have been restated as at 31 December 2021
following IFRIC’s agenda decision in respect of Demand Deposits with
Restrictions on Use arising from a Contract with a Third Party. See Note 1 for
further details.
2 Group Cash and cash equivalents also include tenant deposits held in separate
designated bank accounts of £50 million (2021: £40 million), the use of the
deposits is subject to restrictions as set out in the tenant lease agreement
and therefore not available for general use by the Group.
14. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
14(i) Reconciliation of cash generated from operations
2022 2021 (restated)(1
£m )
£m
Operating (loss)/profit (1,694) 4,477
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangibles 4 5
Share of loss/(profit) from joint ventures and associates after tax 144 (461)
Profit on sale of properties (9) (53)
Revaluation deficit/(surplus) on investment properties 1,970 (3,617)
Other provisions (6) 9
409 360
Changes in working capital:
Decrease in trading properties 33 12
Increase in debtors and tenant incentives (6) (33)
Increase in creditors 43 24
Net cash inflow generated from operations 479 363
1 Group Cash and cash equivalents and Trade and other receivables have been
restated as at 31 December 2021 following IFRIC’s agenda decision in respect
of Demand Deposits with Restrictions on Use arising from a Contract with a
Third Party. See Note 1 for further details.
14(ii) Analysis of net debt
Cash movements Non-cash adjustments
At 1 January Exchange Other non-cash At 31 December
movement
2022
2022 Cash inflow(2) Cash outflow(3)
£m adjustments(1)
£m
£m
£m £m £m
Bank loans and loan capital 3,429 2,752 (1,421) 168 – 4,928
Capitalised finance costs (23) – (30) – 9 (44)
Total borrowings 3,406 2,752 (1,451) 168 9 4,884
Cash in hand and at bank(4) (85) (76) – (1) – (162)
Net debt 3,321 2,676 (1,451) 167 9 4,722
1 Total other non-cash adjustments of £9 million relates to the amortisation of
issue costs. See Note 8.
2 Proceeds from borrowings of £2,752 million.
3 Group cash outflow of £1,451 million, comprises repayment of borrowings of
£1,421 million and capitalised finance costs of £30 million.
4 Group Cash and cash equivalents and Trade and other receivables have been
restated as at 31 December 2021 following IFRIC’s
agenda decision in respect of Demand Deposits with Restrictions on Use arising
from a Contract with a Third Party. See Note 1 for further
details.
15. Subsequent events
On 10 January 2023 the Group acquired Bath Road Shopping Park in Slough (UK)
for £120 million.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
2022 2021
£m Pence per share £m Pence per share
Notes
EPRA Earnings Table 4 374 31.0 348 29.1
EPRA NTA Table 5 11,717 966 13,704 1,137
EPRA NRV Table 5 12,879 1,062 14,986 1,243
EPRA NDV Table 5 12,170 1,004 13,155 1,091
EPRA LTV Table 6 34.2% 24.6%
EPRA net initial yield Table 7 3.7% 3.0%
EPRA ‘topped up’ net initial yield Table 7 3.9% 3.3%
EPRA vacancy rate Table 8 4.0% 3.2%
EPRA cost ratio (including vacant property costs) Table 9 20.3% 20.2%
EPRA cost ratio (excluding vacant property costs) Table 9 18.5% 19.0%
TABLE 2: INCOME STATEMENT, PROPORTIONAL CONSOLIDATION
2022 2021
Notes Group JVs and Total Group JVs and Total
associates
associates
£m
£m £m
£m
£m £m
Gross rental income 2, 6 488 119 607 398 105 503
Property operating expenses 2, 6 (76) (9) (85) (57) (7) (64)
Net rental income(2) 412 110 522 341 98 439
Joint venture fee income(1) 2, 6 30 (13) 17 52 (24) 28
Management and development fee income(2) 2, 6 5 2 7 5 2 7
Net solar energy income(2) 2 1 - 1 1 - 1
Administrative expenses 2, 6 (59) (3) (62) (59) (2) (61)
Adjusted operating profit before interest and 389 96 485 340 74 414
tax
Net finance costs (including adjustments) 2, 6 (74) (17) (91) (40) (13) (53)
Adjusted profit before tax 315 79 394 300 61 361
Tax on adjusted profit 2, 6 (11) (8) (19) (8) (5) (13)
Adjusted/EPRA earnings before non- 304 71 375 292 56 348
controlling interests
Non-controlling interest on adjusted profit 2 (1) – (1) – – –
Adjusted/EPRA earnings after tax and 303 71 374 292 56 348
non-controlling interests
Number of shares, million 11 1,206.6 1,197.7
Adjusted/EPRA EPS, pence per share 31.0 29.1
Number of shares, million 11 1,210.0 1,201.0
Adjusted/EPRA EPS, pence per share – diluted 30.9 29.0
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.
2 The composition of gross and net rental income has changed in 2022 to give a
better measure of the underlying rental income from the property portfolio.
Management and development fee income; service charge income and expense; and
solar energy income and expense are now presented outside of gross and net
rental income. Details of the change is disclosed further in Notes 4, 5 and 6.
Service charge income is netted against the equal and opposite service charge
expense and are not shown as separate line items in the table above. There is
no impact on Adjusted operating profit before interest and tax from this
change and the prior year comparatives in the table above have been
represented to reflect this change.
As discussed in Note 2 there were no non-EPRA adjustments to underlying profit
made in the current or prior period, therefore Adjusted earnings is equal to
EPRA earnings in the table above.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
2022 2021
(restated)(2)
Notes Group JV and Total Group JV and Total
associates
associates
£m
£m £m
£m
£m £m
Investment properties 12, 6 14,939 3,022 17,961 15,492 2,909 18,401
Trading properties 12 35 – 35 45 – 45
Total properties 14,974 3,022 17,996 15,537 2,909 18,446
Investment in joint ventures and associates 6 1,768 (1,768) – 1,795 (1,795) –
Other net liabilities (647) (283) (930) (575) (274) (849)
Net borrowings 13,6 (4,722) (971) (5,693) (3,321) (840) (4,161)
Total shareholders’ equity(1) 11,373 – 11,373 13,436 – 13,436
EPRA adjustments 11 344 268
Adjusted NAV 11 11,717 13,704
Number of shares, million 11 1,212.5 1,205.5
Adjusted NAV, pence per share 11 966 1,137
1 After non-controlling interests.
2 Group Cash and cash equivalents and Trade and other receivables have been
restated as at 31 December 2021 following IFRIC’s agenda decision in respect
of Demand Deposits with Restrictions on Use arising from a Contract with a
Third Party. See Note 1 for further details.
The portfolio valuation deficit of 11.0 per cent shown in the Performance
Review section cannot be directly derived from the condensed financial
statements and is calculated to be comparable with published MSCI Real Estate
indices against which SEGRO is measured. Based on the condensed financial
statements there is a valuation deficit of £2,191 million (see Note 7) and
property value of £17,925 million (see Table 7) giving a valuation deficit of
10.9 per cent. The primary differences are that the deficit excludes the
impact of rent free incentives (£23 million, +0.1 per cent) and other
movements (-£32 million, -0.2 per cent) primarily due to foreign exchange
based on closing rate as opposed to average used in the condensed financial
statements.
Total assets under management of £20,947 million (2021: £21,286 million)
includes Group total properties of £14,903 million (2021: £15,468 million)
(which excludes head lease ROU asset of £73 million and includes valuation
surplus not recognised on trading properties of £2 million) and 100 per cent
of total properties owned by joint ventures and associates of £6,044 million
(2021: £5,818 million) (see Note 6(ii)).
Total disposals completed in 2022 of £367 million shown in the Investment
Update includes: Carrying value of investment properties disposed by SEGRO
Group of £315 million (see Note 12) and profit generated on disposal of £9
million (see Note 7); proceeds from the sale of trading properties by SEGRO
Group of £100 million (see Note 4); share of joint venture and associates
disposal proceeds of £50 million; carrying value of lease incentives, letting
fees and rental guarantees disposed by SEGRO Group and joint ventures and
associates (at share) of £2 million; and excludes 50 per cent of the disposal
proceeds for assets sold by SEGRO to SELP JV of £109 million.
TABLE 4: EPRA EARNINGS
Notes 2022 2021
£m
£m
Equity shareholder earnings per IFRS income statement (1,927) 4,060
Adjustments to calculate EPRA Earnings, exclude:
Valuation deficit/(surplus) on investment properties 7 1,970 (3,617)
Profit on sale of investment properties 7 (9) (53)
Profit on sale trading properties 12 (7) (7)
(Decrease)/increase in provision for impairment of trading properties 7 (15) 1
Tax on profits on disposals(1) 15 10
Net fair value loss on interest rate swaps and other derivatives 8 199 82
Deferred tax (credit)/charge in respect of EPRA adjustments(1) (63) 232
SIIC entry tax charge(1) 9 – 38
Adjustments to the share of loss/(profit) from joint ventures 6 215 (405)
and associates after tax
Non-controlling interests in respect of the above 2 (4) 7
EPRA earnings 374 348
Basic number of shares, million 11 1,206.6 1,197.7
EPRA Earnings per Share (EPS) (pence) 31.0 29.1
Company specific adjustments:
Non-EPRA adjustments 2 – –
Adjusted earnings 374 348
Adjusted EPS (pence) 11 31.0 29.1
1 Total tax credit in respect of adjustments per Note 2 of £48 million (2021:
£280 million charge) comprises tax charge on profits on disposals of £15
million (2021: £10 million) and deferred tax credit of £63 million (2021:
£232 million charge) and SIIC entry charge of £nil (2021: £38 million).
TABLE 5: 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 31 December 2022 EPRA EPRA EPRA
NTA
NRV
NDV
£m £m £m
Equity attributable to ordinary shareholders 11,373 11,373 11,373
Fair value adjustment in respect of interest rate derivatives – Group 131 131 -
Fair value adjustment in respect of trading properties – Group 2 2 2
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 104 208 -
Deferred tax in respect of depreciation and valuation surpluses – 119 238 -
Joint ventures and associates(1)
Intangible assets (12) - -
Fair value adjustment in respect of debt – Group - - 672
Fair value adjustment in respect of debt – Joint ventures and associates - - 123
Real estate transfer tax(2) - 927 -
Net assets 11,717 12,879 12,170
Diluted shares (million) 1,212.5 1,212.5 1,212.5
Diluted net assets per share 966 1,062 1,004
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 2021 EPRA NTA EPRA NRV EPRA NDV
£m £m £m
Equity attributable to ordinary shareholders 13,436 13,436 13,436
Fair value adjustment in respect of interest rate derivatives – Group 24 24 -
Fair value adjustment in respect of trading properties – Group 1 1 1
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 129 259 -
Deferred tax in respect of depreciation and valuation surpluses – 123 245 -
Joint ventures and associates(1)
Intangible assets (9) - -
Fair value adjustment in respect of debt – Group - - (260)
Fair value adjustment in respect of debt – Joint ventures - - (22)
Real estate transfer tax(2) - 1,021 -
Net assets 13,704 14,986 13,155
Diluted shares (million) 1,205.5 1,205.5 1,205.5
Diluted net assets per share 1,137 1,243 1,091
1 50 per cent of deferred tax in respect of depreciation and valuation surpluses
has been excluded in calculating EPRA NTA in line with option 3 of EPRA BPR
guidelines.
2 EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’
costs. Purchasers’ costs are added back when calculating EPRA NRV.
TABLE 6: EPRA LTV, Proportional consolidation
2022 2021
Notes Group Joint Total Group Joint Total
ventures
ventures
£m
and £m £m
and £m
associates
associates
£m £m
Borrowings(1,2) 2,085 15 2,100 1,976 28 2,004
Bonds(1,2) 2,843 996 3,839 1,453 840 2,293
Exclude:
Cash and cash equivalents 13 (162) (32) (194) (85) (22) (107)
Net Debt (before capitalised finance 4,766 979 5,745 3,344 846 4,190
costs) (a)
Foreign currency derivatives 2 – 2 (32) – (32)
Net payables(3) 362 57 419 369 22 391
Adjusted Net Debt (b) 5,130 1,036 6,166 3,681 868 4,549
Investment properties at fair 12 14,866 3,022 17,888 15,422 2,909 18,331
value (excluding head lease ROU asset)
Trading properties 12 35 – 35 45 – 45
Trading Property Value (c) 14,901 3,022 17,923 15,467 2,909 18,376
Head lease ROU asset 12 73 – 73 70 – 70
Unrecognised valuation surplus on 12 2 – 2 1 – 1
trading properties
Other interest in property 30 – 30 24 – 24
Intangibles 12 – 12 9 – 9
Adjusted Total Property Value (d) 15,018 3,022 18,040 15,571 2,909 18,480
LTV (a/c) 32.0% 32.1% 21.6% 22.8%
EPRA LTV (b/d) 34.2% 34.2% 23.6% 24.6%
1 Total Group borrowings as at 31 December 2022 per Note 13 of £4,884 million
(2021: £3,406 million) consists of: Nominal value of borrowings from
financial institutions of £2,085 million (2021: £1,976 million) less
unamortised finance costs of £14 million (2021: £10 million) and nominal
value of bond loans of £2,843 million (2021: £1,453 million) less
unamortised finance costs of £30 million (2021: £13 million).
2 Joint ventures and associates borrowings as at 31 December 2022 per Note 6 of
£1,003 million at share (2021: £862 million) consists of: Nominal value of
borrowings from financial institutions of £15 million (2021: £28 million)
less unamortised finance costs of £2 million (2021: £nil) and nominal value
of bond loans of £996 million (2021: £840 million) less unamortised finance
costs of £6 million (2021: £6 million).
3 Net payables is calculated as the net position of the following line items
shown on the Balance Sheet: Non-current other receivables, current trade and
other receivables, tax asset, non-current trade and other payables,
non-current tax liabilities, current trade and other payables and current tax
liabilities.
TABLE 7: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL YIELD
Combined property portfolio including joint ventures and associates at Notes UK Continental Total
share – 2022
Europe £m
£m £m
Total properties per financial statements Table 3 11,142 6,854 17,996
Add valuation surplus not recognised on trading properties(1) 12 2 – 2
Less head lease ROU assets 12 – (73) (73)
Combined property portfolio per external valuers’ report 11,144 6,781 17,925
Less development properties (investment, trading, joint ventures and (1,587) (1,147) (2,734)
associates)
Net valuation of completed properties 9,557 5,634 15,191
Add notional purchasers’ costs 649 278 927
Gross valuation of completed properties including notional purchasers’ A 10,206 5,912 16,118
costs
Income
Gross passing rents(2) 357 242 599
Less irrecoverable property costs (2) (8) (10)
Net passing rents B 355 234 589
Adjustment for notional rent in respect of rent frees 21 25 46
Topped up net rent C 376 259 635
Including fixed/minimum uplifts(4) 10 1 11
Total topped up net rent 386 260 646
Yields – 2022 % % %
EPRA net initial yield(3) B/A 3.5 4.0 3.7
EPRA topped up net initial yield(3) C/A 3.7 4.4 3.9
Net true equivalent yield 4.8 4.8 4.8
1 Trading properties are recorded in the Financial Statements at the lower of
cost and net realisable value, therefore valuations above cost have not been
recognised.
2 Gross passing rent excludes short-term lettings and licences.
3 In accordance with the Best Practices Recommendations of EPRA.
4 Certain leases contain clauses which guarantee future rental increases,
whereas most leases contain five-yearly, upwards only rent review clauses (UK)
or indexation clauses (Continental Europe).
TABLE 8: EPRA VACANCY RATE
2022 2021
£m
£m
Annualised estimated rental value of vacant premises 32 22
Annualised estimated rental value for the completed property portfolio 797 693
EPRA vacancy rate(1,2) 4.0% 3.2%
1 Vacancy rate percentages have been calculated using the figures presented in
the table above in millions accurate to one decimal place.
2 There are no significant or distorting factors influencing the EPRA vacancy
rate.
TABLE 9: TOTAL COST RATIO/EPRA COST RATIO
Notes 2022 2021(5
£m )
£m
Costs
Property operating expenses(1) 5 76 57
Administrative expenses 59 59
Share of joint venture and associates property operating and administrative 6 25 20
expenses(2)
Less:
Joint venture management fees income, management fees and other costs (37) (34)
recovered through
rents but not separately invoiced(3)
Total costs (A) 123 102
Gross rental income
Gross rental income 4 488 398
Share of joint venture and associates gross rental income 6 119 105
Less:
Other costs recovered through rents but not separately invoiced(3) (3) (3)
Total gross rental income (B) 604 500
Total cost ratio (A)/(B)(4) 20.3% 20.2%
Total costs (A) 123 102
Share based payments (9) (13)
Total costs after share based payments (C) 114 89
Total cost ratio after share based payments (C)/(B)(4) 18.8% 17.6%
EPRA cost ratio
Total costs (A) 123 102
Non-EPRA adjustments – –
EPRA total costs including vacant property costs (D) 123 102
Group vacant property costs (10) (5)
Share of joint venture and associates vacant property costs (1) (1)
EPRA total costs excluding vacant property costs (E) 112 96
Total gross rental income (B) 604 500
Total EPRA cost ratio (including vacant property costs) (D)/(B)(4) 20.3% 20.2%
Total EPRA cost ratio (excluding vacant property costs) (E)/(B)(4) 18.5% 19.0%
1 Property operating expenses are net of costs capitalised in accordance with
IFRS of £11 million (2021: £9 million) (see Note 5 for further detail on the
nature of costs capitalised).
2 Share of joint venture and associates property operating and administrative
expenses after deducting costs related to performance fees.
3 Total deduction of £37 million (2021: £34 million) from costs includes:
joint venture management fees income of £30 million (2021: £26 million) and
management fees and other costs recovered through rents but not separately
invoiced, including joint ventures and associates, of £7 million (2021: £8
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 £488 million
(2021: £398 million) does not include joint venture management fees income of
£30 million (2021: £26 million) and management fee income of £4 million
(2021: £5 million). These fees are not required to be included in the total
deduction to income of £3 million (2021: £3 million).
4 Cost ratio percentages have been calculated using the figures presented in the
table above in millions accurate to one decimal place.
5 As detailed in Note 4 and 5, the composition of Gross rental income and
Property operating expenses have changed in 2022. The prior year comparatives
have been represented in the table above to reflect the impact on the cost
ratio calculation. This change resulted in Total gross rental income
decreasing by £4 million for 2021 to exclude Solar energy income and
Development fee income which is no longer included within Gross rental income.
Total Costs decreased by £1 million for 2021 to exclude Solar energy
expenses. This had nil impact on the cost ratio percentage when calculating
using the represented figures presented in the table above in millions
accurate to one decimal place.
GLOSSARY OF TERMS
Associates: An entity in which the Group has significant influence but not
control or joint control. This is generally the case where the Group holds
between 20 per cent and 50 per cent of the voting rights.
BREEAM: BREEAM provides sustainability assessment and certification for real
estate assets.
Completed portfolio: The completed investment properties and the Group’s
share of joint ventures and associates’ completed investment properties.
Includes properties held throughout the period, completed developments and
properties acquired during the period.
Covered land: Income-producing assets acquired with the explicit intention to
redevelop them in the short to medium term.
Development pipeline: The Group’s current programme of developments
authorised or in the course of construction at the Balance Sheet date (Current
Pipeline), together with potential schemes not yet commenced on land owned or
controlled by the Group (Future Pipeline).
EPRA: The European Public Real Estate Association, a real estate industry
body, which has issued Best Practices Recommendations in order to provide
consistency and transparency in real estate reporting across Europe.
ESG: Environmental, Social and Governance issues.
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.
GRESB: An organisation which provides independent benchmarking of ESG metrics
for the property industry.
Gross rental income: Contracted rental income recognised in the period in the
Income Statement, including surrender premiums. Lease incentives, initial
costs and any contracted future rental increases are amortised on a
straight-line basis over the lease term.
Headline rent: The annual rental income currently receivable on a property as
at the Balance Sheet date (which may be more or less than the ERV) ignoring
any rent-free period.
Hectares (Ha): The area of land measurement used in this analysis. The
conversion factor used, where appropriate, is 1 hectare = 2.471 acres.
IAS: International Accounting Standards, the standards under which SEGRO
reports its financial statements.
IFRS: International Financial Reporting Standards, the standards under which
SEGRO reports its financial accounts.
Investment property: Completed land and buildings held for rental income
return and/or capital appreciation.
Joint venture: An entity in which the Group holds an interest and which is
jointly controlled by the Group and one or more partners under a contractual
arrangement whereby decisions on financial and operating policies essential to
the operation, performance and financial position of the venture require each
partner’s consent.
Life cycle assessments: Life cycle assessment (LCA) is a methodology for
assessing the environmental impacts associated with all the stages of the life
cycle of a building.
Loan to value (LTV): Net borrowings divided by the carrying value of total
property assets (investment, owner occupied, trading properties and, if
appropriate, assets held for sale on the balance sheet) and excludes head
lease ROU asset. This is reported on a ‘look-through’ basis (including
joint ventures and associates at share).
MSCI: MSCI Real Estate calculates indices of real estate performance around
the world.
Net initial yield: Passing rent less non-recoverable property expenses such as
empty rates, divided by the property valuation plus notional purchasers’
costs. This is in accordance with EPRA’s Best Practices Recommendations.
Net rental income: Gross rental income less ground rents paid, net service
charge expenses and property operating expenses.
Net true equivalent yield: The internal rate of return from an investment
property, based on the value of the property assuming the current passing rent
reverts to ERV and assuming the property becomes fully occupied over time. It
assumes that rent is received quarterly in advance.
Passing rent: The annual rental income currently receivable on a property as
at the Balance Sheet date (which may be more or less than the ERV). Excludes
rental income where a rent free period is in operation. Excludes service
charge income (which is netted off against service charge expenses).
Pre-let: A lease signed with an occupier prior to commencing construction of a
building.
REIT: A qualifying entity which has elected to be treated as a Real Estate
Investment Trust for tax purposes. In the UK, such entities must be listed on
a recognised stock exchange, must be predominantly engaged in property
investment activities and must meet certain ongoing qualifications. SEGRO plc
and its UK subsidiaries achieved REIT status with effect from 1 January 2007.
Rent-free period: An incentive provided usually at commencement of a lease
during which a customer pays no rent. The amount of rent free is the
difference between passing rent and headline rent.
Rent roll: See Passing Rent.
SELP: SEGRO European Logistics Partnership, a 50-50 joint venture between
SEGRO and the Public Sector Pension Investment Board (PSP Investments)
established in 2013 to own big box warehouses in Continental Europe.
SIIC: Sociétés d’investissements Immobiliers Cotées are the French
equivalent of UK Real Estate Investment Trusts (see REIT).
Speculative development: Where a development has commenced prior to a lease
agreement being signed in relation to that development.
SPPICAV: Société de Placement à Prépondérance Immobilière à Capital
Variable is a French equivalent of UK Real Estate Investment Trusts (see
REIT).
Square metres (sq m): The area of buildings measurements used in this
analysis. The conversion factor used, where appropriate, is one square metre =
10.7639 square feet.
Takeback: Rental income lost due to lease expiry, exercise of break option,
surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted to include notional
rent in respect of let properties which are subject to a rent free period at
the valuation date. This is in accordance with EPRA’s Best Practices
Recommendations.
Total accounting return (TAR): A measure of the Group’s return, calculated
as the change in adjusted NAV per share during the period adding back
dividends paid during 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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