REG-SEGRO PLC SEGRO plc: Results for the Year Ended 31 December 2020
19/02/2021 07:00
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SEGRO plc: Results for the Year Ended 31 December 2020
Strong financial results - business well positioned to deliver continued
earnings and dividend growth
SEGRO plc (LSE:SGRO) (Paris:SGRO):
Commenting on the results, David Sleath, Chief Executive, said:
“SEGRO delivered another strong set of financial results in 2020, with
record lettings driven by our customer focus and the increasing demand for
prime industrial properties from a wide occupier base.
“The pandemic has reinforced the importance of efficient and resilient
distribution networks to facilitate the provision of a wide variety of goods
and services, leading to increased demand for warehouse space. 2020 saw a
record level of investment for SEGRO as we seek to capitalise on these
favourable trends, giving us confidence in our ability to drive further growth
in rental income, earnings and dividends over the coming years.
“We have also reviewed, challenged and refreshed our approach to
sustainability. Today we are re-launching our Responsible SEGRO framework,
with three long-term priorities that outline our commitment to society and
position us to truly deliver on our Purpose of ‘creating the space that
enables extraordinary things to happen’.”
HIGHLIGHTS(A):
* Adjusted pre-tax profit of £296.5 million up 10.8 per cent compared with the
prior year (2019: £267.5 million). Adjusted EPS is 25.4 pence (2019: 24.4
pence).
* Adjusted NAV per share is up 16.3 per cent to 814 pence (2019: 700 pence)
mainly due to a 10.3 per cent increase in the valuation of the portfolio
driven by asset management, our development activity and yield compression.
* A record leasing and asset management performance with £77.9 million of new
headline rent in 2020, including £41.1 million of new pre-let agreements.
* Net capital investment of £1.3 billion through key strategic asset
acquisitions, development projects and land purchases.
* Near-term earnings prospects underpinned by 1.2 million sq m of development
projects under construction or in advanced pre-let discussions equating to
£81 million of potential rent, of which 75 per cent has been pre-let,
substantially de-risking the 2021 pipeline.
* Over £1 billion of new equity and debt financing, helping to strengthen the
balance sheet for further, development-led growth. LTV of 24 per cent at 31
December 2020.
* 2020 full year dividend increased by 6.8 per cent to 22.1 pence (2019: 20.7
pence). Final dividend increased by 5.6 per cent to 15.2 pence (2019: 14.4
pence).
RE-LAUNCHING OUR RESPONSIBLE SEGRO FRAMEWORK: NEW FOCUS AREAS AND MORE
AMBITIOUS GOALS
Today we also re-launch our Responsible SEGRO framework with three new
long-term focus areas where we believe we can make the greatest business,
environmental and social impact and where we are setting challenging and
ambitious goals.
* We will Champion low-carbon growth and will be net-carbon neutral by 2030
driven by changes in our development activity and the operation of our
existing buildings.
* We will Invest in our local communities and environments through the creation
and implementation of Community Investment Plans for every key market in our
portfolio. These will focus on supporting local business and economies, the
development of training and employment opportunities and enhancing the local
environment.
* We will Nurture talent and will provide a healthy and supportive working
environment, develop fulfilling and rewarding careers, foster an inclusive
culture and build a more diverse workforce.
FINANCIAL SUMMARY
Income statement metrics 2020 2019 Change
per cent
Adjusted(1) profit before tax (£m) 296.5 267.5 10.8
IFRS profit before tax (£m) 1,464.1 902.0 62.3
Adjusted(2) earnings per share (pence) 25.4 24.4 4.1
IFRS earnings per share (pence) 124.1 79.3 56.5
Dividend per share (pence) 22.1 20.7 6.8
Balance sheet metrics 31 December 31 December Change
2020
2019
per cent
Portfolio valuation (SEGRO share, £m) 12,995 10,251 10.3(3)
Adjusted(4 5 )net asset value per share (pence, diluted) 814 700 16.3
IFRS net asset value per share (pence, diluted) 809 697 16.1
Net debt (SEGRO share, £m) 2,325 1,811 –
Loan to value ratio including joint ventures at share (per cent) 24 24 –
1. A reconciliation between Adjusted profit before tax and IFRS profit before
tax is shown in Note 2 to the condensed financial information.
2. A reconciliation between Adjusted earnings per share and IFRS earnings per
share is shown in Note 11 to the condensed financial information.
3. Percentage valuation movement during the period based on the difference
between opening and closing valuations for all properties including buildings
under construction and land, adjusting for capital expenditure, acquisitions
and disposals.
4. A reconciliation between Adjusted net asset value per share and IFRS net
asset value per share is shown in Note 11 to the condensed financial
information.
5. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA)
which was introduced for accounting periods starting from 1 January 2020 (see
Table 5 in the Supplementary Notes for a NAV reconciliation). The 31 December
2019 adjusted net asset value has been restated to align with the definition
of EPRA NTA. Calculations for EPRA performance measures are shown in the
Supplementary Notes to the condensed financial information.
(A) Figures quoted on pages 1 to 19 refer to SEGRO’s share, except for land
(hectares) and space (square metres) which are quoted at 100 per cent, unless
otherwise stated. Please refer to the Presentation of Financial Information
statement in the Financial Review for further details.
FINANCIAL AND OPERATING HIGHLIGHTS
Strong valuation gains driven by rental value growth, development gains, yield
compression and active asset management of the standing portfolio.
* Portfolio capital valuation surplus of 10.3 per cent driven by a 9.2 per cent
increase in the like-for-like value of our UK portfolio (2019: 2.5 per cent)
and 10.2 per cent in Continental Europe (2019: 13.5 per cent).
* 2.5 per cent rental value growth across the portfolio (UK: 3.1 per cent,
Continental Europe: 1.5 per cent)
Portfolio benefiting from increased customer demand for modern warehouse space
whilst proving resilient to the impacts of the pandemic.
* 18.3 per cent increase in annualised new rent commitments during the period to
£77.9 million (2019: £65.8 million), of which £41.1 million (2019: £33.2
million) is from new development.
* 2.1 per cent like-for-like net rental income growth (0.9 per cent in the UK,
4.3 percent in Continental Europe) aided by an average 19.1 per cent uplift on
rent reviews and renewals. The UK figures include the significant impact of
the final lease re-gear at the Heathrow Cargo Centre.
* Vacancy rate remains low at 3.9 per cent (31 December 2019: 4.0 per cent) and
customer retention high at 86 per cent (2019: 88 per cent), due to increased
demand for space in our high-quality, well located portfolio and focus on
excellent customer service inherent within our platform.
Growing the rent roll through the active development pipeline with significant
additions to the land bank securing opportunities for further growth.
* 835,900 sq m of development completions during 2020, potentially adding £47
million of rent, of which £39 million has been secured. We are targeting
BREEAM ‘Excellent’ or ‘Very Good’ (or local equivalent) on 93 per cent
of the eligible completions.
* £54 million of potential rent from current development pipeline, 66 per cent
of which has been secured. A further £27 million of potential rent from
‘near-term’ pre-let projects which are in advanced stages of negotiation.
* £286 million added to our land bank during the period across key markets.
£1.3 billion of net investment to position the business to respond to the
acceleration of structural drivers.
* £603 million of asset acquisitions in key strategic markets as well as £817
million invested in development capex, infrastructure and land. Partially
offset by £139 million of asset and land sales.
* Development capex for 2021, including infrastructure, expected to exceed £700
million.
Strong balance sheet provides significant capacity to invest for future
growth.
* SEGRO continues to be appropriately and efficiently financed. The average cost
of debt remains attractive at 1.6 per cent (2019: 1.7 per cent), with long
average debt maturity of 9.9 years (2019: 10.0 years) and low look-through LTV
ratio of 24 per cent (31 December 2019: 24 per cent).
* Equity placing of £680 million completed in June 2020 and issuance of €450
million US Private Placement notes ensures the balance sheet is positioned for
further development-led growth.
* SEGRO has £1.2 billion of cash and available facilities at its disposal.
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available from 08:30am (UK
time) at: https://edge.media-server.com/mmc/p/f45hpvpp
(https://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fedge.media-server.com%2Fmmc%2Fp%2Ff45hpvpp&esheet=52381690&newsitemid=20210218006094&lan=en-US&anchor=https%3A%2F%2Fedge.media-server.com%2Fmmc%2Fp%2Ff45hpvpp&index=1&md5=b09deca4e8f886fdc450732c18521a02)
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=52381690&newsitemid=20210218006094&lan=en-US&anchor=http%3A%2F%2Fwww.segro.com%2Finvestors&index=2&md5=0407bf973f07686ff6f497ef9638490e)
by the close of business.
A conference call facility will be available at 08:30 (UK time) on the An audio recording of the conference call will be available until 26 February
following number: 2021 on:
Dial-in: +44 (0)2071 928 338 UK & International: +44 (0) 3333 009785
Access code: 2663737 Access code: 2663737
A video of David Sleath, Chief Executive and Soumen Das, Chief Financial
Officer discussing the results will be available to view on www.segro.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.segro.com&esheet=52381690&newsitemid=20210218006094&lan=en-US&anchor=www.segro.com&index=3&md5=2d4ce4b7ecfadbe659e59b840c8328d6)
, together with this announcement, the Full Year 2020 Property Analysis Report
and other information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Mob: +44 (0) 7771 773 134
(Chief Financial Officer) Tel: + 44 (0) 20 7451 9110
(after 11am)
Claire Mogford Mob: +44 (0) 7710 153 974
(Head of Investor Relations) Tel: +44 (0) 20 7451 9048
(after 11am)
FTI Consulting Richard Sunderland / Claire Turvey / Eve Kirmatzis Tel: +44 (0) 20 3727 1000
FINANCIAL CALENDAR
2020 final dividend ex-div date 18 March 2021
2020 final dividend record date 19 March 2021
2020 final dividend scrip dividend price announced 25 March 2021
2020 final dividend payment date 4 May 2021
2021 First Quarter Trading Update 22 April 2021
Half Year 2021 Results (provisional) 29 July 2021
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), listed on the London Stock
Exchange and Euronext Paris, and is a leading owner, manager and developer of
modern warehouses and industrial property. It owns or manages 8.8 million
square metres of space (95 million square feet) valued at £15.3 billion
serving customers from a wide range of industry sectors. Its properties are
located in and around major cities and at key transportation hubs in the UK
and in seven other European countries.
For over 100 years SEGRO has been creating the space that enables
extraordinary things to happen. From modern big box warehouses, used primarily
for regional, national and international distribution hubs, to urban
warehousing located close to major population centres and business districts,
it provides high-quality assets that allow its customers to thrive.
See www.SEGRO.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.SEGRO.com&esheet=52381690&newsitemid=20210218006094&lan=en-US&anchor=www.SEGRO.com&index=4&md5=7877f8c2292ea0f0840268939843b430)
for further information.
Forward-Looking Statements: This announcement contains certain forward-looking
statements with respect to SEGRO's expectations and plans, strategy,
management objectives, future developments and performance, costs, revenues
and other trend information. These statements are subject to assumptions, risk
and uncertainty. Many of these assumptions, risks and uncertainties relate to
factors that are beyond SEGRO's ability to control or estimate precisely and
which could cause actual results or developments to differ materially from
those expressed or implied by these forward-looking statements. Certain
statements have been made with reference to forecast process changes, economic
conditions and the current regulatory environment. Any forward-looking
statements made by or on behalf of SEGRO are based upon the knowledge and
information available to Directors on the date of this announcement.
Accordingly, no assurance can be given that any particular expectation will be
met and you are cautioned not to place undue reliance on the forward-looking
statements. Additionally, forward-looking statements regarding past trends or
activities should not be taken as a representation that such trends or
activities will continue in the future. The information contained in this
announcement is provided as at the date of this announcement and is subject to
change without notice. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority), SEGRO does not
undertake to update forward-looking statements, including to reflect any new
information or changes in events, conditions or circumstances on which any
such statement is based. Past share performance cannot be relied on as a guide
to future performance. Nothing in this announcement should be construed as a
profit estimate or profit forecast. The information in this announcement does
not constitute an offer to sell or an invitation to buy securities in SEGRO
plc or an invitation or inducement to engage in or enter into any contract or
commitment or other investment activities.
Neither the content of SEGRO's website nor any other website accessible by
hyperlinks from SEGRO's website are incorporated in, or form part of, this
announcement.
CHIEF EXECUTIVE’S REVIEW
Our business is driven by a clear purpose ‘to create the space that enables
extraordinary things to happen’ and 2020 has certainly been a year of the
extraordinary. We started the year confident in the outlook for our business,
believing that our prime portfolio of modern industrial properties in key
strategic markets and our pan-European platform would continue to perform
well. At the same time we were looking forward to celebrating our Centenary
year.
The onset of the Covid-19 pandemic caused widespread disruption and brought
with it much uncertainty in the early months of 2020 but, despite all of this,
our business has proved to be strong and resilient. We have been pleased to be
able to use this relative strength to support those stakeholders who needed it
most, from the customers to whom we’ve been able to offer targeted support,
to our local communities who we were able to help through the launch of our
£10 million Centenary Fund.
The pandemic has highlighted the importance of modern, efficient, resilient
logistics supply chains and has also accelerated the digitalisation of our
economies, most notably through e-commerce. This has resulted in increased
occupier and investor demand for our asset class and has helped to drive
another year of strong financial and operational performance by SEGRO.
Looking back on 2020, the main highlights included:
* The professionalism shown by all of our people in the keeping the business
running as everyone at SEGRO adapted to the new working from home environment.
* Being able to offer additional support to our customers and other stakeholders
through these challenging times and particularly bringing forward the launch
of our £10 million Centenary Fund. We dedicated the first year’s funding to
support those in our local communities most negatively impacted by the
pandemic.
* A record performance in securing new rents, aided by the strength of our
customer relationships. £77.9 million (2019: £65.8 million) was signed in
the period, including £41.1 million (2019: £33.2 million) of rent from new
pre-lets.
* Continued growth of our portfolio with the addition of prime, sustainable
warehouses through our development programme. Despite the disruption caused by
the pandemic we completed 835,900 sq m of space, just short of our 2019 record
(2019: 871,800 sq m). When fully occupied this space will generate £47
million of new income and it was 84 per cent let at 31 December 2020. We are
targeting BREEAM ‘Very Good’ or ‘Excellent’ (or local equivalent) for
93 per cent of the eligible development completions.
* Acquisitions of urban warehouse parks in prime locations such as London and
Paris, adding further space with the potential to generate attractive returns
through our platform’s active asset management and development capabilities.
* Successful pilots of Smart technology and photo-voltaic panels on assets
across Europe, helping us to develop our strategy in these areas to help with
our aim of being net carbon zero by 2030.
* Securing over £1 billion of new funding which has given us the capacity to
continue to add to our development pipeline and help us to grow our rental
income organically.
This activity has been reflected in significant growth across the board in all
of our key operating metrics and our balance sheet remains in good shape and
is positioned to support further growth.
The combination of a strong set of financial results in 2020 and our confident
outlook for 2021 and beyond means that we are recommending a 5.6 per cent
increase in final dividend to 15.2 pence per share, resulting in a total
distribution of 22.1 pence for 2020 as a whole (2019: 20.7 pence).
I will now turn to focus on some of the key themes that have emerged in 2020,
to provide you with a deeper understanding of how we think about our business
today, what it might look like tomorrow and how we intend to continue to
‘create the space that enables extraordinary things to happen’.
LONGER TERM IMPACTS OF COVID-19
The Covid-19 pandemic has had a profound impact on all of our lives and it
will likely change the way that our world functions. The Board and I would
first like to thank all of our colleagues at SEGRO for the dedication and
commitment that they have shown throughout this very difficult period. The
fact that our business has come through such an event so well is a real
testament to all of the hard work that has been done this year and in the past
decade to anticipate and respond to our customers’ needs.
Positioning our portfolio to benefit from the structural changes to society
which have been driving demand for our asset class has been a key part of our
strategy for a number of years, and in 2020 we have seen an acceleration of
these trends.
The increase in e-commerce penetration has been much talked about and there
has some debate over where it will settle once the pandemic has passed. We
believe there has been a step-change in consumer behaviour. Some of the
factors that were considered as barriers to increased levels of online sales
penetration (for example concerns about the quality of food bought online and
reluctance to share financial information over the internet) have been
overcome and habits have potentially changed irrevocably. Our customers
certainly do not expect there to be a significant retreat and are already
preparing to adapt their businesses to respond to levels of online sales that
are well ahead of previous expectations.
Whilst the pandemic may change the way that cities such as London, Paris and
Berlin operate, we continue to believe that they will act as centres of
commerce, innovation and culture and, in our opinion, that they will continue
to attract people to work, live and ‘play’. The nature of our urban
warehouses, being mostly located inside or on the edges of cities, also means
that they attract businesses servicing the commuter belt and beyond. For
example, our Heathrow portfolio has for some time been used to provide goods
and services for those living in the surrounding area and outside the M25 as
well as to service the airport.
Finally, we expect that localisation and the renewed focus on supply chain
resilience will also contribute to occupier demand over the coming years.
We expect these trends to benefit our entire business in the years ahead. In
the UK we have been seeing their effects for a number of years as e-commerce
has taken off and our customers have modernised their supply chains and
distribution networks to respond to it. On the Continent however, our
customers are much less advanced in this journey and e-commerce has been
lagging in the UK. The pandemic has accelerated the need for them to make
these changes. We see this as a significant opportunity going forward and are
well-placed to respond to it with our strong operating platform across France,
Germany, Italy, Spain, Poland, the Netherlands and the Czech Republic.
The pandemic has also impacted the way that we will run our business going
forwards. One of the most significant changes is that it is now very clear
that our people do not need to be based in an office five days a week to do
their jobs efficiently.
Although there are obvious benefits to an office work environment in terms of
ease of communication and collaboration, as well as supporting company
culture, there are also times when it is more appropriate to work quietly at
home. We have always enabled flexible working, which allowed us to transition
from office working to home working quickly and seamlessly and we have now
formally introduced a company-wide Agile Working Policy that gives our
employees the autonomy to decide where they work. This change has the
potential to enhance everyone’s quality of life and also provides greater
flexibility that should help us to increase diversity in our business and
ensure that we continue to retain talent.
One thing that the pandemic has not changed, and in fact has reiterated, is
the importance of our close relationships with our customers, our suppliers,
our investors, our communities and other business partners and we continue to
place the utmost importance on developing and growing these partnerships.
NEW RESPONSIBLE SEGRO TARGETS
‘ESG’, ‘Purpose’, ‘Culture’ and other similar terms have all
become more common words in the past couple of years, and rightly so. Good
businesses need to recognise that their actions are far reaching, and in order
to drive sustainable growth, the considerations of wider stakeholders need to
be taken into account when making decisions that may impact them.
However, this is not something that is new to SEGRO. Throughout the 100 years
that we have been operating as a company we have had a rich history of making
a positive contribution to the society around us. It is also something that
will be just as important to us for the 100 years to come. We have always
prided ourselves on being a company that people want to work for and with,
which is reflected in our goal of being the partner ‘of choice’ for our
people, our customers, our suppliers, our investors and all of our other
stakeholders. We believe that this will enable us to create long-term economic
and social value.
What is new to us is talking about it and measuring it – a genuine culture
is something intangible; something that is embedded within an organisation. It
is integral to the way a business operates day-to-day and guides our actions
and decisions.
Trying to capture it and write it down in black and white can be challenging,
but we recognise that there is a growing interest from our various audiences
to understand how and why we do business using more than purely financial and
quantitative means. In recognition of this we have, for the first time,
integrated our wider stakeholder considerations into the main body of the 2020
Annual Report & Accounts, reflecting the way that we run our business and
make decisions.
We also launch alongside our Full Year 2020 results our new Responsible SEGRO
focus areas and targets, which address the key areas where we believe that we
can make the greatest business, environmental and social contribution, and
will also help to position SEGRO for another 100 years of success.
Our three priorities are:
* Championing low-carbon growth – we recognise the world faces a climate
emergency and are committed to playing our part in tackling climate change.
* Investing in our local communities and environments – as a long-term
investor we are committed to contributing to the vitality of the communities
in which we operate.
* Nurturing talent – our people are vital to and inseparable from our success
and we are committed to attracting, creating and retaining talented
individuals from diverse backgrounds.
Within each area we have also set ambitious new targets, including being net
carbon zero by 2030. We have thought long and hard about these goals, wanting
to make sure that, as with everything else we do as a business, they are
authentic and really challenge us to make a tangible impact.
What is also important to note in respect of these targets is that, for us at
least, it’s how we get there that matters as much as the end goal itself.
For example, we cannot completely eliminate carbon from our buildings as
physical assets inherently produce carbon, but we intend to reduce those
carbon emissions as much as is physically possible through our own actions
before we will consider offsetting.
This framework is a further stepping-stone in a long journey and we look
forward to sharing more of it with you as we travel through it, learning from
and adapting to the inevitable twists and turns ahead.
POSITIONING OUR BUSINESS FOR SUSTAINABLE LONG-TERM PERFORMANCE
The world around us is changing at a great pace and we are in continuous
dialogue with our customers as we strive to understand and prepare to meet the
longer-term trends within our industry. By doing this we are able to ensure
that our portfolio continues to meet the needs of, and play an integral part
in, our customers’ operations and that our business remains relevant.
We have embedded a culture of continuous improvement within SEGRO and are
constantly questioning how and why we do things while pushing ourselves to do
better – this is reflected in some of our values such as ‘does it make the
boat go faster?’ and ‘if the door is closed’.
This means we are constantly refining not just our existing portfolio but also
how we design, plan and build our assets, with sustainability and technology
at the heart of our thinking.
The creation of our Strategy, Innovation and Investment team at the start of
2020 was an important part of this process, reflecting our belief that we
should consider investments in data and technology in the same way that we
consider investments in physical assets.
The industry within which we operate offers significant opportunities to make
changes that not only help improve inefficiencies, but also help us make
better and more informed decisions.
Key to this is the use of data and analytics – just as data centres are
becoming a more significant part of our portfolio, so the use of data itself
is becoming a more important part of the way that we do business. We are
excited about the opportunities we believe it will present once we are able to
fully capture and understand this data and its potential.
Over the course of 2020 we worked on a number of exciting projects which we
hope will improve the way we do business, enhance the way our buildings are
used and reduce their impact on the environment, while positioning our
business for sustainable long term success.
OUTLOOK
We remain confident in the outlook for our business, its resilience and its
ability to deliver growth.
We believe that the already prevalent structural drivers, which have been
accelerated by the pandemic, will continue to drive both occupier and investor
demand for our prime portfolio of modern industrial properties for the
foreseeable future. However, we remain alert to potential macroeconomic
headwinds such as the ongoing Covid-19 pandemic as well as the departure of
the UK from the European Union.
Market rental growth has continued, driven by increased occupier demand and a
shortage of modern warehouse space, particularly in our urban markets.
Our development pipeline continues to expand, allowing us to both modernise
our portfolio and generate additional rental income, enhanced by the rental
growth from the active asset management of our existing estate. Whilst
structural trends continue to drive occupier demand we expect to be able to
develop to both meet this elevated level of requirements and maintain our
approach of de-risking the majority of our pipeline through pre-leasing.
We continue to keep one eye on the horizon, staying close to our customers so
that we can anticipate their changing needs and adapt our portfolio to meet
them. We are also very aware of our wider responsibility to society and
believe that our new Responsible SEGRO targets will position us to make a
material difference to the areas in which we can make the most impact and help
us to truly create the space which enables extraordinary things to happen…
for our people, our customers, our communities, our investors and our many
other stakeholders.
A STRATEGY TO GENERATE ATTRACTIVE, SUSTAINABLE RETURNS
Our goal is to be the leading owner-manager and developer of industrial
properties in Europe and the partner of choice for our customers and other
stakeholders.
While our business model describes what we do as a company, our strategy
describes how we do it.
Our strategy operates within the context of our Purpose, our culture, our
Business Model and our Responsible SEGRO approach to doing business, with all
of these factors influencing both how we operate on a day-to-day basis and
also when making key strategic decisions on how to position our business for
the future.
This ensures not only that we manage risk appropriately but it also means that
the decisions that we make take into account the interests of all relevant
parties. It is this that allows us to ‘create the space that enables
extraordinary things to happen’ and also ensures that SEGRO is positioned to
do so over the longer term.
At the heart of it are the relationships that we build with our customers,
helped by the fact that we manage the majority of our portfolio internally and
therefore really get to know their businesses. The insights that we gain from
the partnerships that we build with our customers help us to anticipate longer
term trends and make strategic decisions that shape our portfolio and ensure
the continued success of our business.
Our goal is to be the leading owner-manager and developer of industrial
properties in Europe and the partner ‘of choice’ for our customers and
other stakeholders. The use of the words ‘of choice’ reflects that we
recognise that our customers, employees and other partners have the option to
choose whether they work with SEGRO so we need to continuously improve and
adapt to stay relevant and ensure that they choose to work with us not only
today but also in the future.
On a property level our goal reflects our ambition to create a portfolio of
high-quality industrial properties in the strongest markets – a portfolio
that generates attractive, low risk, income-led returns while providing above
average growth (both in terms of rent and capital values) when market
conditions are positive, and that proves to be resilient in a downturn.
We seek to enhance returns through development, while ensuring that the
short-term income ‘drag’ associated with holding land does not outweigh
the long-term potential benefits.
Fundamental to our strategy are three key pillars of activity which should
combine to deliver the returns that we seek:
* Disciplined Capital Allocation
* Operational Excellence
* Efficient Capital and Corporate Structure.
The combination of these elements should translate into sustainable,
attractive returns for our shareholders in the form of progressive dividends
and net asset value growth over time. This is in addition to all of the other
value that is created in the process of managing and building our portfolio.
Our portfolio comprises modern big box and urban warehouses which are well
specified and located, with good sustainability credentials, and which should
benefit from a low vacancy rate and relatively low-intensity asset management
requirements. Our assets are concentrated in the strongest European submarkets
which display attractive property market characteristics, including good
growth prospects, limited supply availability and where we already have
critical mass, or believe we will be able to achieve it in a reasonable
timeframe.
DELIVERING ON OUR STRATEGY IN 2020
We have continued to follow our strategy during 2020 which has been a
significant contributor to the continued performance of our business during
very challenging times.
OPERATIONAL EXCELLENCE
We have a well-established operating platform that strives for operational
excellence, both in the approach that we take to managing our existing
portfolio as well as in the execution of our development pipeline.
We pride ourselves on the strength of our customer relationships and these
have been built as a result of the excellent customer service that our
property and asset management teams provide. This has been extremely important
throughout the Covid-19 pandemic and has meant that we have been able to help
our customers respond to the various challenges that they have faced and it
also helped us to quickly understand the level of risk within our portfolio.
Our long-standing focus on the active asset management of our portfolio meant
that we went into the crisis in good shape in terms of low vacancy rates and
strong customer covenants. As a result of this the pandemic has had very
little impact on our portfolio and we have been able to continue to grow the
rent roll in 2020 helped by a record lettings performance, as well as the
re-gear of leases and the capture some of the reversionary potential that has
built up over recent years.
Operational Excellence was also important in keeping our development pipeline
on track in 2020 and our strong working relationships with our contractors
meant that we were able to catch up on delays caused by the lockdown without
compromising on safety measures and all of the projects that were due to
complete during the year have done so, with some even finishing ahead of
schedule.
DISCIPLINED APPROACH TO CAPITAL ALLOCATION
Over recent years we have focused more of our investment into our development
pipeline, as we see better returns from this than investing our capital in
completed assets.
This continued in 2020 and we once again increased our spend on development
capex and made some significant land acquisitions, helping us to replenish the
land bank and ensure that we can continue to grow our business.
We did, however, also identify opportunities to acquire some attractive assets
in 2020 and as a result have been more active in the investment markets than
in recent years.
This included the purchase of two urban warehouse estates in London and
another in Paris that we believe offer attractive long-term returns. All three
assets complement our existing portfolio and provide us with a great
opportunity to offer our customers a wider range of choice in these supply
constrained markets.
We have continued with the annual review of our portfolio to identify assets
where we believe have maximised our returns and to dispose of these when the
opportunity arises. As a result of this we disposed of our remaining assets
and land in Austria as well as making some other stand alone disposals with
the proceeds recycled into our future investment.
EFFICIENT CAPITAL AND CORPORATE STRUCTURE
In a year where we have invested over £1.4 billion in the growth of our
business we have also needed to take steps to maintain our Efficient Capital
and Corporate Structure.
We aim to balance operational and financial risk by keeping the loan to value
ratio (‘LTV’) low, making sure that should the property cycle turn we can
absorb lower valuations and also giving us the capacity to take advantage of
any resulting investment opportunities. In 2020 this resulted in us raising
£680 million of new equity and €450 million of US Private Placement debt.
Our LTV at 31 December 2020 was 24 per cent.
In order for us to protect the efficiency of our corporate structure we also
launched a Secondary Listing on Euronext Paris in November 2020 to ensure that
we maintained a listing within the European Union once the UK left following
the end of the Brexit transition period on 31 December 2020.
STRONG PORTFOLIO GROWTH – VALUATION UPDATE
Valuation gains from market-driven yield improvement, asset management and
development
Warehouse property values across Europe increased throughout the year with the
UK, France and Germany seeing the strongest growth. Investment volumes
continued to be healthy, with the UK hitting record levels and Continental
Europe almost level with 2019 figures. Both investor and occupier demand for
the asset class remained strong.
The Group’s property portfolio was valued at £13.0 billion at 31 December
2020 (£15.3 billion of assets under management). The portfolio valuation,
including completed assets, land and buildings under construction, increased
by 10.3 per cent on a like-for-like basis (adjusting for capital expenditure
and asset recycling during the year) compared to 7.5 per cent in 2019.
This primarily comprises a 9.5 per cent increase in the assets held throughout
the year (2019: 5.8 per cent), driven by strong yield compression in most
markets (30 basis points across the whole portfolio) and a 2.5 per cent
increase in our valuer’s estimate of the market rental value of our
portfolio (ERV). In total, our portfolio generated a total property return of
14.6 per cent (2019: 10.5 per cent).
Assets held throughout the year in the UK increased in value by 9.2 per cent
(2019: 2.5 per cent), outperforming the MSCI Real Estate UK All Industrial
Quarterly 2020 index which increased by 4.6 per cent. The performance was due
to yield compression and the continued capture of reversionary potential in
lease reviews and renewals, particularly in London. The true equivalent yield
applied to our UK portfolio was 4.3 per cent, 30 basis points lower than at 31
December 2019 (4.6 per cent) reflecting yield compression, the acquisition of
some low yielding assets, rental growth and the impact of newly completed
developments. Rental values improved by 3.1 per cent (2019: 2.6 per cent).
Assets held throughout the year in Continental Europe increased in value by
10.2 per cent (2019: 13.5 per cent) on a constant currency basis, reflecting a
combination of yield compression to 4.8 per cent (31 December 2019: 5.2 per
cent) and rental value growth of 1.5 per cent (2018: 0.7 per cent).
More details of our property portfolio can be found in the 2020 Property
Analysis Report available at www.segro.com/investors
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.segro.com%2Finvestors&esheet=52381690&newsitemid=20210218006094&lan=en-US&anchor=www.segro.com%2Finvestors&index=5&md5=c1a8162ef07b237cdc5aab6d90a3a2f2)
.
Valuations: What to expect in 2021
Capital growth forecasts are notoriously difficult given the multitude of
drivers (particularly interest rates and credit spreads) most of which are
outside our direct control.
Nevertheless, the prospects for our portfolio of big box and urban warehouses
remain strong, supported by structural drivers of demand and relatively
limited amounts of new supply. This means that we are optimistic about the
potential for further rental value growth, particularly in our urban warehouse
portfolio.
Prime yields continue to appear attractive compared to government (risk-free)
bond yields or most other property types, and this premium should be
supportive for valuations. We believe that our high-quality portfolio and our
focus on asset management will enable us to outperform the wider market.
Property portfolio metrics at 31 December 2020(1)
Portfolio value, £m Yield(3)
Lettable Completed Land & Combined Combined Valuation Topped- Net true Vacancy
area sq m
develop-
property
property
movement(2 3
up net
equivalent
(ERV)(4
ment
portfolio
portfolio )
initial
% )
%
% %
(AUM) (AUM)
UK
Greater London 1,215,206 4,727.0 140.9 4,867.9 4,867.9 10.0 3.5 4.0 5.2
Thames Valley 572,300 1,856.3 140.4 1,966.7 1,996.7 6.8 4.2 4.7 3.0
National Logistics 546,252 831.5 391.8 1,223.3 1,223.3 10.2 5.0 4.6 -
UK Total 2,333,758 7,414.8 673.1 8,087.9 8,087.9 9.2 3.8 4.3 4.0
Continental Europe
Germany 1,499,481 1,277.1 100.6 1,377.7 2,090.9 18.1 3.9 4.1 4.0
Netherlands 219,897 140.0 21.9 161.9 306.1 4.7 4.0 4.7 14.4
France 1,466,481 1,378.8 136.5 1,515.3 1,969.9 9.8 4.5 4.9 4.3
Italy 1,311,999 755.0 151.1 906.1 1,268.5 5.7 4.9 4.8 -
Spain 311,056 199.4 60.9 260.3 398.3 9.4 4.8 4.8 -
Poland 1,453,583 564.2 33.2 597.4 1,050.5 2.1 6.3 6.0 5.2
Czech Republic 169,515 77.9 10.7 88.6 170.8 0.4 5.3 5.5 3.0
Continental Europe Total 6,432,132 4,392.4 514.9 4,907.3 7,255.0 10.2 4.6 4.8 3.7
GROUP TOTAL 8,765,890 11,807.2 1,188.0 12,995.2 15,342.9 9.5 4.1 4.5 3.9
1. Figures reflect SEGRO wholly-owned assets and its share of assets held in
joint ventures unless stated “AUM” which refers to all assets under
management.
2. Valuation movement is based on the difference between the opening and
closing valuations for properties held throughout the period, allowing for
capital expenditure, acquisitions and disposals.
3. In relation to completed properties only.
4. Vacancy rate excluding short term lettings for the Group at 31 December
2020 is 3.9 per cent.
CREATING VALUE THROUGH OPERATIONAL EXCELLENCE – ASSET MANAGEMENT UPDATE
Our portfolio comprises two main asset types: urban warehouses and big box
warehouses. The demand-supply dynamics in both asset classes continue to be
positive.
Urban Warehouses
Urban warehouses account for 66 per cent of our portfolio value. They tend to
be smaller warehouses, and are located mainly in and on the edges of major
cities where land supply is restricted and there is strong demand for
warehouse space, particularly catering for the needs of last mile delivery
and, around London, from data centre users.
Our urban portfolio is concentrated in London and South-East England (80 per
cent) and major cities in Continental Europe (20 per cent), including Paris,
Düsseldorf, Frankfurt, Berlin and Warsaw. These locations share similar
characteristics in terms of limited (and shrinking) supply of industrial land
and growing populations, while occupiers are attracted to modern warehouses
with plenty of yard space to allow easy and safe vehicle circulation. We
believe that this enduring occupier demand and limited supply bodes well for
future rental growth.
Big Box Warehouses
Big box warehouses account for 32 per cent of our portfolio value. They tend
to be used for storage, processing and distribution of goods on a regional,
national or international basis and are, therefore, much larger than urban
warehouses.
They are focused on the major logistics hubs and corridors in the UK
(South-East and Midlands regions), France (the logistics ‘spine’ linking
Lille, Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin, Frankfurt and
Hamburg) and Poland (Warsaw, Łódz, Poznán, and the industrial region of
Silesia). 26 per cent of our big box warehouses are in the UK and the
remaining 74 per cent are in Continental Europe.
Occupier demand continues to be healthy across all of our markets but the
nature (and typical location) of big box warehouses tends to mean that, over
time, supply is able to increase more easily to satisfy demand, as there is
generally more land available in out of town locations.
There was a fairly high level of competing supply in the UK big box market at
the start of 2020 but record levels of take-up during the year have meant that
most of this has been absorbed (and as a result vacancy levels have come
down). On the Continent supply has continued to broadly keep up with occupier
demand.
Overall, we believe the prospects for significant rental growth in big box
warehouses are, and have always been, limited but this asset class brings
other benefits including lower asset management intensity and long leases
which help to ensure a sustainable level of income. In addition, by holding
the majority of our Continental European big box warehouses in SELP, we
receive additional income from managing the joint venture which increases
total returns.
Growing Rental Income from Letting Existing Space and New Developments
At 31 December 2020, our portfolio generated passing rent of £462 million,
rising to £508 million once rent free periods expire (‘headline rent’).
During the year, we contracted £77.9 million of new headline rent, a new
record level for SEGRO. New pre-let agreements continue to contribute strongly
to this number but in 2020 we also grew rent on our existing space
significantly, helped by the last of the lease re-gears at the Heathrow Cargo
Centre.
Our customer base remains well diversified, reflecting the multitude of uses
of warehouse space. Our top 20 customers account for 31 per cent of total
headline rent, and Amazon became our largest customer during 2020, accounting
for 5 per cent of the total.
Just over half of our customers are involved in businesses affected by
e-commerce, including third party logistics and parcel delivery businesses,
and retailers. These businesses accounted for almost 60 per cent of our
take-up during the year.
We monitor a number of asset management performance indicators to assess our
performance:
* Rental growth from lease reviews and renewals. These generated an uplift of
19.1 per cent (2019: 17.8 per cent) for the portfolio as a whole compared to
previous headline rent. During the year, new rents agreed at review and
renewal were 28.2 per cent higher in the UK (2019: 25.1 per cent) as reversion
accumulated over the past five years was reflected in new rents agreed, adding
£10.5 million of headline rent. In Continental Europe, rents agreed on
renewal were 0.5 per cent higher (2019: 0.7 per cent lower), turning positive
for the first time in a number of years as market rental growth starts to
outpace the indexation provisions that have accumulated over recent years.
* High levels of customer satisfaction. Although the quality and location of our
portfolio is important to our customers, we believe that the service we
provide is crucial to maintaining high customer retention and low vacancy. We
carry out a rolling survey of our customer base throughout the year to
identify and rectify issues promptly. In 2020, we surveyed 200 customers and
99 per cent of the respondents said that they would recommend SEGRO to others
(2019: 96 per cent) and 87 per cent said they rated their experience with
SEGRO as ‘Excellent’ or ‘Very Good’ (2019: 88 per cent).
* Vacancy has remained low. The vacancy at 31 December 2020 was 3.9 per cent (31
December 2019: 4.0 per cent). This reduction was mainly due to a very strong
performance in letting recently completed speculatively developed space,
particularly in Germany and Spain. The vacancy rate on our standing stock
remains low at 2.5 per cent (2019: 2.6 per cent). The vacancy rate is now at
the bottom end of our target range of between 4 and 6 per cent. The average
vacancy rate during the period was 4.8 per cent (2019: 4.6 per cent).
* High retention rate of 86 per cent. During the period, space equating to
£12.4 million (2019: £11.0 million) of rent was returned to us, including
£1.5 million of rent lost due to insolvency (2019: £1.1 million). We took
back space equating to £4.0 million of rent for redevelopment. Approximately
£60 million of headline rent was at risk from a break or lease expiry during
the period of which we retained 85 per cent in existing space, with a further
1 per cent retained but in new premises.
* 98 per cent of Group rents collected. Rent collection understandably came into
focus during 2020. The diversity of our customer base meant that whilst some
of their businesses benefited from the acceleration of structural drivers as a
results of the pandemic, others whose business were fundamentally sound
suffered cash flow issues and we were pleased to be able to support them. This
mostly took the form of moving them from quarterly rents in advance, to
monthly payment agreements. 98 per cent of the 2020 rent due has now been paid
with the remaining 2 per cent due in early 2021.
* Lease terms continue to offer attractive income security. The level of
incentives agreed for new leases (excluding those on developments completed in
the period) represented 6.8 per cent of the headline rent (2019: 6.6 per
cent). The portfolio’s weighted average lease length was maintained with 7.5
years to first break and 8.8 years to expiry (31 December 2019: 7.8 years to
first break, 9.2 years to expiry). Lease terms are longer in the UK (8.8 years
to break) than in Continental Europe (5.9 years to break), reflecting the
market convention of shorter leases in countries such as France and Poland.
* £16.1 million of net new rent from existing assets. We generated £15.6
million of headline rent from new leases on existing assets (2019: £13.2
million) and £12.9 million from rent reviews, lease renewals and indexation
(2019: £11.9 million). This was offset by rent from space returned of £12.4
million (2019: £11.0 million).
* Continued strong demand from customers for pre-let agreements. In addition to
increased rents from existing assets, we contracted £41.1 million of headline
rent from pre-let agreements and lettings of speculative developments prior to
completion (2019: £33.2 million). Included in this within the UK are three
new data centres on the Slough Trading Estate, our first letting at SEGRO Park
Hayes and two further big boxes at SEGRO Logistics Park East Midlands Gateway.
On the Continent we signed our largest ever pre-let in Germany for an
e-commerce homewares provider, over 370,000 of space in Southern Europe for
customers including a leading global online retailer and three big box
warehouses in Poznan, helping us to build scale in this attractive market.
* Rent roll growth increased to £60.1 million. An important element of
achieving our goal of being a leading income-focused REIT is to grow our rent
roll, primarily through increasing rent from our existing assets and then from
generating new rent through development. Rent roll growth, which reflects net
new headline rent from existing space (adjusted for takebacks of space for
development), take-up of developments and pre-lets agreed during the period,
increased to £60.1 million in 2020, from £54.5 million in 2019.
Asset Management: What to expect in 2021
We are anticipating strong occupier demand in all of our markets and expect
vacancy rates to remain low. The limited supply in most of our markets,
particularly urban warehousing, means that we expect retention to remain high
with further rental growth.
Summary of key leasing data for 2020
Summary of key leasing data(1) for the year to 31 December 2020 2019
Take-up of existing space(2) (A) £m 15.6 13.2
Space returned(3) (B) £m (12.4) (11.0)
NET ABSORPTION OF EXISTING SPACE(2) (A-B) £m 3.2 2.2
Other rental movements (rent reviews, renewals, indexation)(2) (C) £m 12.9 11.9
RENT ROLL GROWTH FROM EXISTING SPACE £m 16.1 14.1
Take-up of pre-let developments completed in the year (signed in prior £m 32.9 36.3
years)(2) (D)
Take-up of speculative developments completed in the past two years(2) (D) £m 10.2 9.0
TOTAL TAKE-UP(2) (A+C+D) £m 71.6 70.4
Less take-up of pre-lets and speculative lettings signed in prior years(2) £m (34.8) (37.8)
Pre-lets signed in the year for future delivery(2) £m 41.1 33.2
RENTAL INCOME CONTRACTED IN THE YEAR(2) £m 77.9 65.8
Takeback of space for redevelopment £m (4.0) (0.3)
Known Takeback/letting from acquisition £m (1.4) —
Retention rate(4) % 86 88
1. All figures reflect exchange rates at 31 December and include joint
ventures at share.
2. Headline rent.
3. Headline rent, excluding space taken back for redevelopment.
4. Headline rent retained as a percentage of total headline rent at risk from
break or expiry during the period.
GROWING THROUGH DEVELOPMENT – DEVELOPMENT ACTIVITY AND PIPELINE UPDATE
Development Activity
During 2020, we invested £817 million in our development pipeline which
comprised £531 million (2019: £409 million) in development spend, of which
£74 million was for infrastructure, and a further £286 million to replenish
our land bank to enable future development.
Development Projects Completed
We completed 835,900 sq m of new space during the year, with all of our
projects completing on time (or in some cases ahead of schedule) despite the
pandemic. These projects were 71 per cent pre-let prior to the start of
construction and were 84 per cent let as at 31 December 2020, generating £39
million of headline rent, with a potential further £8 million to come when
the remainder of the space is let. This translates into a yield on total
development cost (including land, construction and finance costs) of 6.8 per
cent when fully let.
We completed 652,400 sq m of big box warehouse space, including a further unit
at SEGRO Logistics Park East Midlands Gateway and our first unit at SEGRO
Logistics Park Kettering Gateway. Within this was also 614,000 sq m of big box
warehouses across all of our major European markets, let to customers such as
third party logistics operators, online retailers, food retailers and
businesses linked to electronic vehicles.
We completed 170,000 sq m of urban warehouses, of which 65 per cent is already
let. This included SEGRO Park Enfield in North London, which has set a new
benchmark for industrial and warehouse space and has been designed to take the
wellness of its occupiers into account. In the UK we also completed three new
data centres on the Slough Trading Estate and our largest London pre-let in a
decade. On the Continent we completed urban warehouse parks in the key markets
of Frankfurt, Düsseldorf and Paris as well as a number of delivery stations
for a global online retailer in Southern Europe.
Of the eligible space completed in 2020, 93 per cent has been, or is in the
process of being, accredited as BREEAM ‘Excellent’ or ‘Very Good’ (or
a local equivalent).
Development also helped us to increase our renewable energy capacity by 45 per
cent in 2020, bringing it to 26.8 MW, enough to power over 8,000 homes.
Current Development Pipeline
At 31 December 2020, we had development projects approved, contracted or under
construction totalling 838,100 sq m, representing £397 million of future
capital expenditure to complete and £54 million of annualised gross rental
income when fully let. 66 per cent of this rent has already been secured and
these projects should yield 6.5 per cent on total development cost when fully
occupied.
* In the UK, we have 207,300 sq m of space approved or under construction.
Within this are three more data centres on the Slough Trading Estate (taking
the total number to 32), developments in all of our key London markets and two
large pre-lets at our big box logistics park SEGRO Logistics Park East
Midlands Gateway.
* In Continental Europe, we have 570,000 sq m of space approved or under
construction. This includes pre-let big box warehouses for a variety of
different occupiers, from retailers to manufacturers, across all of our
European markets. We are also developing further phases of our successful
urban warehouse parks in Berlin, Cologne and Düsseldorf.
* In addition to the above projects that we are developing ourselves, we also
have 60,800 sq m of space under construction as part of forward-funded
agreements with local developers. This is proving to be a very effective way
to get access to opportunities in competitive markets where accessing land is
more difficult.
We continue to focus our speculative developments primarily on urban warehouse
projects, particularly in the UK, France and Germany, where modern space is in
short supply and occupier demand is strong. In the UK, our speculative
projects are focused in London and on the Slough Trading Estate. In
Continental Europe, we continue to build scale in Germany, where projects are
underway in a number of major cities. Within our Continental European
development programme, approximately £15.5 million of potential gross rental
income is associated with big box warehouses developed outside our SELP joint
venture. Under the terms of the joint venture, SELP has the option, but not
the obligation, to acquire these assets shortly after completion. Assuming
SELP exercises its option, we would retain a 50 per cent share of the rent
after disposal. In 2020, SEGRO sold £93 million of completed assets to SELP,
representing a net disposal of £47 million.
FUTURE DEVELOPMENT PIPELINE
Near-Term Development Pipeline
Within the future development pipeline are a number of pre-let projects which
are close to being approved, awaiting either final conditions to be met or
planning approval to be granted. We expect to commence these projects within
the next six to 12 months.
These projects total 385,500 sq m of space, equating to approximately £302
million of additional capital expenditure and £27 million of additional rent.
Land Bank
Our land bank identified for future development (including the near-term
projects detailed above) totalled 654 hectares at 31 December 2020, valued at
£636 million, roughly 5 per cent of our total portfolio value. We invested
£286 million in acquiring new land during the year, including land associated
with developments already underway or expected to start in the short term.
We estimate that our land bank can support 2.8 million sq m of development
over the next five years. The prospective capital expenditure associated with
the future pipeline is approximately £1.6 billion. It could generate £157
million of gross rental income, representing a yield on total development cost
(including land and notional finance costs) of around 6-7 per cent. These
figures are indicative based on our current expectations and are dependent on
our ability to secure pre-let agreements, planning permissions, construction
contracts and on our outlook for occupier conditions in local markets.
Conditional Land Acquisitions and Land Held Under Option Agreements
Land acquisitions (contracted but subject to further conditions) and land held
under option agreements are not included in the figures above but together
represent significant further development opportunities. These include sites
for big box warehouses in the UK Midlands as well as in Germany and Italy.
They also include urban warehouse sites in East London and close to Heathrow.
The options are held on the balance sheet at a value of £16 million
(including joint ventures at share). Those we expect to exercise over the next
two to three years are for land capable of supporting just under 1.0 million
sq m of space and generating approximately £62 million of headline rent
(SEGRO share) for a blended yield of approximately 6-7 per cent.
Development: What to expect in 2021
We have 838,100 sq m of development projects under way, capable of generating
£54 million of new headline rent, of which 66 per cent has been secured.
We expect to invest in excess of £700 million in development capex, including
approximately £90 million of infrastructure expenditure.
A RECORD YEAR OF INVESTMENT IN OUR BUSINESS – INVESTMENT UPDATE
We invested £1.4 billion in our portfolio during 2020: development capital
expenditure of £531 million, £603 million of assets and £286 million of
land. This was partly offset by £139 million of disposals.
Acquisitions Focused on Building Scale in Urban Warehousing
We found a number of compelling acquisition opportunities in 2020 and as a
result were more active on the investment front than we have been in recent
years.
We bought two very attractive urban warehouse parks in London, one close to
our existing assets in Park Royal and the other that complements our East Plus
portfolio and is now our most centrally located asset in London.
We also acquired a further 75 per cent of the shares of the listed French
urban warehouse company Sofibus Patrimoine SA whose main asset is a large
industrial warehouse estate close to the centre of Paris.
Other acquisitions included an urban warehouse park that adjoins the Slough
Trading Estate and a big box warehouse in Łódz.
The consideration for the asset acquisitions was £603 million, reflecting a
blended topped-up initial yield of 4.0 per cent.
Acquisitions completed in 2020
Asset type Purchase price Net initial yield Topped-up
(£m, SEGRO share)
(%)
net initial yield (%)
Big box logistics 9.3 6.7 6.7
Urban warehousing 556.2 3.9 4.0
Other 37.5 3.5 3.5
Land(2) 285.9 — —
Acquisitions completed in 2020(3) 888.9 3.9 4.0
1. Yield excludes land transactions.
2. Land acquisitions are discussed in Future Development Pipeline.
3. A reconciliation of acquisitions completed to the Financial Statements is
provided in the EPRA capital expenditure analysis on page 24.
Asset Recycling to Improve Portfolio Focus
During 2020, we sold £139 million of land and assets, taking advantage of
strong investor demand to realise profits and release capital to reinvest in
our business.
These disposals included our land and assets in Austria, some older big box
warehouses in France and an urban warehouse in West London where we believe we
had maximised the potential returns and could take advantage of a strong
investor market to crystalise some profits.
As in previous years, we sold a portfolio of Continental European big box
warehouses developed by SEGRO to SELP for which we received £47 million net
proceeds from an effective sale of a 50 per cent interest.
The consideration for the asset disposals was £123 million, reflecting a
blended topped-up initial yield of 4.7 per cent. The disposals generated a
modest gain on sale compared to book values at 31 December 2019.
Additionally, we disposed of £16 million of land, primarily comprising plots
in non-core markets (including the land mentioned in Austria above).
Disposals completed in 2020
Asset type Disposal proceeds Net initial yield Topped-up
(£m, SEGRO share)
(%)
net initial yield (%)
Big box logistics 49.7 5.0 5.0
Urban warehousing 73.5 4.2 4.2
Land 15.6 — —
Disposals completed in 2020(2) 138.8 4.7 4.7
1. Yield excludes land transactions.
2. A reconciliation of disposals completed to the Financial Statements is
provided in Table 3 of the Supplementary Notes.
Investments: What to expect in 2021
We will continue to look for acquisitions of income-producing assets in line
with our strategy and which offer attractive risk adjusted returns. However,
the majority of our investment is likely to remain focused on development.
While investor demand for industrial properties remains strong, we expect to
continue to recycle assets where we believe we can generate better returns
from deploying our capital in other opportunities A typical run rate would be
£150-250 million per year.
FINANCE REVIEW: AN ACTIVE YEAR OF FINANCING AND STRONG FINANCIAL RESULTS
Financial highlights
31 December 31 December
2020
2019
IFRS(1 )net asset value (NAV) per share (diluted) (p) 809 697
Adjusted(1 )NAV per share (diluted) (p) 814 700
IFRS profit before tax (£m) 1,464.1 902.0
Adjusted(2) profit before tax (£m) 296.5 267.5
IFRS earnings per share (EPS) (p) 124.1 79.3
Adjusted(2) EPS (p) 25.4 24.4
1. A reconciliation between IFRS NAV and its Adjusted NAV equivalent is shown
in Note 11.
2. A reconciliation between IFRS profit before tax and Adjusted profit before
tax is shown in Note 2 and between IFRS EPS and Adjusted EPS is shown in Note
11.
Presentation of financial information
The condensed financial statements are prepared under IFRS where the Group’s
interests in joint ventures are shown as a single line item on the income
statement and balance sheet and subsidiaries are consolidated at 100 per cent.
The Adjusted profit measure reflects the underlying financial performance of
the Group’s property rental business, which is our core operating activity.
It is based on EPRA earnings as set out the Best Practices Recommendations
Guidelines of the European Public Real Estate Association (EPRA) which are
widely used alternate metrics to their IFRS equivalents within the European
real estate sector (further details can be found at www.epra.com
(https://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.epra.com&esheet=52381690&newsitemid=20210218006094&lan=en-US&anchor=www.epra.com&index=6&md5=5ad7d0969ff3460255db18cc91ea9b0b)
). In calculating Adjusted profit, the Directors may also exclude additional
items considered to be non-recurring, unusual, or significant by virtue of
size and nature. In the current and prior periods there have been no such
adjustments and therefore Adjusted profit and EPRA earnings are the same.
A detailed reconciliation between Adjusted profit after tax and IFRS profit
after tax is provided in Note 2 to the condensed financial statements. This is
not on a proportionally consolidated basis. The Adjusted NAV per share measure
reflects the EPRA Net Tangible Asset metric and based on the updated EPRA Best
Practice Reporting Guidelines as discussed further in Note 11.
Reconciliations between SEGRO Adjusted metrics and EPRA metrics are provided
in the Supplementary Notes to the condensed financial statements, which also
include EPRA metrics as well as SEGRO’s Adjusted income statement and
balance sheet presented on a proportionally consolidated basis.
SEGRO monitors these alternative metrics, as well as the EPRA metrics for
vacancy rate, net asset value, capital expenditure and total cost ratio, as
they provide a transparent and consistent basis to enable comparison between
European property companies.
ADJUSTED PROFIT
Adjusted profit
2020 2019
£m
£m
Gross rental income 392.9 362.0
Property operating expenses (88.3) (80.7)
Net rental income 304.6 281.3
Joint venture fee income 21.6 20.4
Administration expenses (51.5) (51.5)
Share of joint ventures’ Adjusted profit(1) 61.5 54.0
Adjusted operating profit before interest and tax 336.2 304.2
Net finance costs (including adjustments) (39.7) (36.7)
Adjusted profit before tax 296.5 267.5
Tax on Adjusted profit (4.0) (3.2)
Non-controlling interests share of Adjusted profit (0.2) (0.2)
Adjusted profit after tax 292.3 264.1
1. Comprises net property rental income less administration expenses, net
interest expenses and taxation.
Adjusted profit before tax increased by 10.8 per cent to £296.5 million
(2019: £267.5 million) during 2020 as a result of the movements described
below (see Note 2).
Net rental income
Net rental income increased by £23.3 million to £304.6 million (or by £32.7
million to £385.1 million including joint ventures at share), reflecting the
positive net impact of like-for-like rental growth, development completions
and investment activity during the period, offset by the impact of disposals.
Rent collection levels across the real estate industry were significantly
impacted by the Covid-19 pandemic. Within our business, rent collections in
the second quarter were initially lower than typical levels as our customers
reacted to the lockdown, and we offered help on a case-by-case basis to those
customers who most required support. However, collection levels increased
during the year, and 98 per cent of 2020 rent has been collected so far. Much
of the remainder is expected to be collected through payment plans during
2021, but having assessed the unpaid balance, a provision for bad debts (being
loss allowance and impairment of receivables) including joint ventures at
share of £4.1 million (1 per cent of the total rent roll) has been made.
On a like-for-like basis, before other items (primarily corporate centre and
other costs not specifically allocated to a geographic Business Unit), net
rental income increased by £6.7 million, or 2.1 per cent, compared to 2019
(increased by £9.3 million, or 2.9 per cent before the impact of bad debts).
This is due to strong rental performance across our portfolio in the UK: 0.9
per cent increase and Continental Europe: 4.3 per cent increase (or UK: 2.0
per cent increase and Continental Europe: 4.6 per cent increase before bad
debts).
Like-for-like net rental income (including JVs at share) 2020 2019 Change
£m
£m
%
UK 205.8 204.0 0.9
Continental Europe 119.9 115.0 4.3
Like-for-like net rental income before other items(1) 325.7 319.0 2.1
Other(2) (5.9) (5.9)
Like-for-like net rental income (after other) 319.8 313.1 2.1
Development lettings 46.0 15.0
Properties taken back for development 2.3 3.3
Like-for-like net rental income plus developments 368.1 331.4
Properties acquired 9.5 2.1
Properties sold 3.1 14.0
Net rental income before surrenders, dilapidations and exchange 380.7 347.5
Lease surrender premiums and dilapidations income 1.0 0.5
Other items and rent lost from lease surrenders 13.0 14.1
Impact of exchange rate difference between periods – (1.1)
Net rental income (including joint ventures at share) 394.7 361.0
Share of joint venture management fees (9.6) (8.6)
Net rental income after SEGRO share of joint venture fees 385.1 352.4
1. Includes expense for loss allowance and impairment receivables for the
Group of £3.8 million (2019: £1.2 million); UK £2.7 million (2019: £0.5
million); CE £1.1 million (2019: £0.7 million). Excluding these expenses,
the like-for-like change would be Group 2.9%; UK 2.0%; CE 4.6%.
2. Other includes the corporate centre and other costs relating to the
operational business which are not specifically allocated to a geographical
Business Unit.
Income from joint ventures
Joint venture fee income increased by £1.2 million to £21.6 million. This
increase is due to an increase in the SELP management fee as the size of the
portfolio has grown.
In 2018 SEGRO received a performance fee from SELP, of which £26.2 million is
subject to possible clawback and consequently has been not been recognised as
income but deferred until such time that the risk of clawback becomes less
likely (see Note 6 for further details). The performance fee is calculated and
receivable on the fifth and tenth year anniversaries of the joint venture,
should the SELP property portfolio meet certain performance criteria. It does
not meet the recognition criteria in this period due to the volatility and
uncertainty around its measurements.
SEGRO’s share of joint ventures’ Adjusted profit after tax increased by
£7.5 million from £54.0 million in 2019 to £61.5 million in 2020 almost
entirely from the growth in the SELP joint venture.
Administrative and operating costs
The Group is focused on managing its cost base and uses a Total Cost Ratio
(TCR) as a key measure of cost management. The TCR for 2020 has improved to
21.1 per cent compared to 22.9 per cent in 2019, but still above our 20 per
cent target. The calculation is set out in Table 8 of the Supplementary Notes
to the condensed financial statements.
Excluding share-based payments, the cost ratio would be 18.8 per cent, an
improvement from 19.9 per cent in 2019.
The cost ratio calculation is detailed in Table 8, which shows that the
reduction in the ratio has been primarily caused by the increase in gross
rental income by £33.5 million to £448.4 million reflecting the growth
through development and like-for-like income discussed in the Net Rental
Income section above. Total costs in respect of the TCR remained relatively
stable at £94.8 million compared to £95.2 million in 2019. Whilst
wholly-owned administration expenses have remained flat at £51.5 million,
property operating expenses have increased by £7.6 million to £88.3 million
in 2020, primarily from the increase in service charge expenses, which are
netted against service charge income in the cost ratio calculation (as
detailed in Table 8). Costs grew less than anticipated as a result of our
response to the pandemic, with lower levels of travel and a slowdown in the
pace of recruitment.
Total costs (see Note 5) have decreased by £19.6 million to £104.3 million.
This balance includes trading property cost of sales which have decreased by
£27.2 million.
Net finance costs
Net finance costs (including adjustments) increased by £3.0 million in 2020
to £39.7 million primarily as a result of higher debt levels compared to the
prior period primarily funding our development programme.
Taxation
The tax charge on Adjusted profit of £4.0 million (2019: £3.2 million)
reflects an effective tax rate of 1.3 per cent (2019: 1.2 per cent),
consistent with a Group target tax rate of less than 3 per cent. The Group’s
target tax rate reflects the fact that over three-quarters of its assets are
located in the UK and France and qualify for REIT and SIIC status respectively
in those countries. This status means that income from rental profits and
gains on disposals of assets in the UK and France are exempt from corporation
tax, provided SEGRO meets a number of conditions including, but not limited
to, distributing 90 per cent of UK taxable profits.
Adjusted earnings per share
Adjusted earnings per share are 25.4 pence compared to 24.4 pence in 2019. The
lower growth rate compared to Adjusted profit reflects the increase in the
average number of shares (the denominator in the earnings per share
calculation) by 69 million shares compared to 2019 primarily due to the equity
placing undertaken in June 2020.
IFRS PROFIT
IFRS profit before tax in 2020 was £1,464.1 million (2019: £902.0 million),
equating to basic post-tax IFRS earnings per share of 124.1 pence compared
with 79.3 pence for 2019, principally reflecting higher realised and
unrealised gains in the property portfolio.
A reconciliation between Adjusted profit before tax and IFRS profit before tax
is provided in Note 2 to the condensed financial statements.
Realised and unrealised gains on wholly-owned investment properties of £975.7
million in 2020 (2019: £483.9 million) and realised and unrealised gains on
trading and other property interests of £14.1 million (2019: £12.2 million)
have been recognised in the Income Statement as the value of our portfolio
increased during the year. These primarily relate to an unrealised valuation
surplus on invested properties of £970.6 million (2019: £476.7 million).
SEGRO’s share of realised and unrealised gains on properties held in joint
ventures was £215.6 million (2019: £214.2 million) largely in respect of the
SELP portfolio and is further analysed in Note 6.
The cost of closing out debt in the year was £10.9 million (2019: £18.6
million) following the buy-back of the small outstanding amount of the SEGRO
bonds maturing in 2021 and 2022. IFRS earnings were also impacted by a net
fair value gain on interest rate swaps and other derivatives of £13.7 million
(2019: £7.9 million) and a tax charge of £35.0 million (2019: £41.4
million) of which £31.0 million (2019: £38.2 million) arises in respect of
adjustments, primarily in relation to property valuation movements.
BALANCE SHEET
Adjusted net asset value
£m Shares Pence per
million
share
Adjusted NAV attributable to ordinary shareholders at 31 December 2019 7,712.1 1,102.1 700
Realised and unrealised property gain 1,205.4
Adjusted profit after tax and non-controlling interests 292.3
Dividend net of scrip shares issued (2019 final and 2020 interim) (179.5)
Early repayment of debt (10.9)
Issue of shares 672.1
Other including exchange rate movement 33.7
Adjusted NAV attributable to ordinary shareholders at 31 December 2020 9,725.2 1,194.7 814
At 31 December 2020, IFRS net assets attributable to ordinary shareholders
were £9,659.2 million (31 December 2019: £7,677.6 million), reflecting 809
pence per share (31 December 2019: 697 pence) on a diluted basis.
Adjusted NAV per share at 31 December 2020 was 814 pence (31 December 2019:
700 pence). The 16.3 per cent increase primarily reflects property gains in
the period. Note that the comparative balance has changed from the amount
previously reported of 708 pence in respect of EPRA NAV, following the
issuance of new EPRA guidance applicable in the current period (see Note 11
for further details). The table above highlights the other principal factors
behind the increase. A reconciliation between IFRS and Adjusted NAV is
available in Note 11 to the condensed financial statements.
Cash flow and net debt reconciliation
Cash flows from operating activities of £233.2 million are £58.4 million
lower than the prior year. This is primarily due to the impact of trading
properties, for which there was an outflow of £19.6 million in the current
year, following an acquisition and development expenditure, compared to an
inflow of £30.9 million in the prior period following a disposal. Excluding
trading properties, which are transaction driven and therefore not consistent
year on year by their nature, the cashflows from operations is £252.8 million
in the current year which is £7.9 million below the prior year primarily due
to the deferral rentals agreed with certain tenants in light of the Covid-19
pandemic.
The Group made net investments of £1,100.7 million of investment and
development properties (including options and loans to joint ventures) during
the year on a cash flow basis (2019: £217.2 million). This is principally
driven by expenditure of £1,215.9 million (2019: £602.9 million) to purchase
and develop investment properties to deliver our strategy of growth. Disposals
of investment properties reduced by £253.2 million to £159.2 million
compared to the prior period (2019: £412.4 million).
The largest financing cash flow arose in respect of net proceeds from the
issue of shares of £672.1 million primarily from an equity placing undertaken
in June 2020. Other significant cash flows include dividends paid of £179.5
million (2019: £141.7 million) where cash flows are lower than the total
dividend due to the level of scrip uptake.
Overall, net debt has increased in the year from £1,811.0 million to
£2,325.0 million.
Cash flow and net debt reconciliation
2020 2019
£m
£m
Opening net debt (1,811.0) (2,177.0)
Cash flow from operating activities 233.2 291.6
Finance costs (net) (51.6) (44.6)
Debt close out costs (10.9) (23.1)
Dividends received (net) 33.8 33.3
Tax paid (5.2) (46.9)
Net cash received from operating activities 199.3 210.3
Dividends paid (179.5) (141.7)
Acquisitions and development of investment properties (1,215.9) (602.9)
Sale of investment properties 159.2 412.4
Acquisition of interests in property and other investments (4.2) (14.5)
Net investment in joint ventures (39.8) (12.2)
Net settlement of foreign exchange derivatives (55.0) 26.9
Proceeds from issue of ordinary shares 672.1 444.0
Other items (4.4) 4.1
Net funds flow (468.2) 326.4
Non-cash movements (2.4) (20.9)
Exchange rate movements (31.3) 60.5
Gross debt acquired (12.1) -
Closing net debt (2,325.0) (1,811.0)
Capital expenditure
The table below sets out analysis of the capital expenditure during the year.
This includes acquisition and development spend, on an accruals basis, in
respect of the Group’s wholly-owned investment and trading property
portfolios, as well as the equivalent amounts for joint ventures, at share.
Total spend for the year was £1,548.4 million, an increase of £655.6 million
compared to 2019.
Development capital expenditure of £531.4 million was spent in the year
(2019: £408.7 million) across all our Business Units, particularly Southern
Europe and National Logistics, reflecting our development-led growth strategy.
Development spend incorporates interest capitalised of £7.5 million (2019:
£9.0 million) including joint ventures at share.
Spend on existing completed properties, totalled £40.1 million (2019: £30.8
million), of which £24.2 million (2019: £17.4 million) was for major
refurbishment, infrastructure and fit-out costs prior to re-letting. The
balance mainly comprises more minor refurbishment and fit-out costs, which
equates to 5 per cent of Adjusted profit before tax and less than 1 per cent
of total spend. Of the total spend £2.5 million (2019: £nil) increased
lettable space.
EPRA capital expenditure analysis
2020 2019
Wholly Joint Total Wholly Joint Total
owned
ventures
£m
owned
ventures
£m
£m
£m
£m
£m
Acquisitions 858.5(1) 82.0 940.5(7) 233.9 164.1 398.0
Development(4) 484.9(2) 46.5 531.4 345.2 63.5 408.7
Completed properties(6) 34.0(3) 6.1 40.1 25.2 5.6 30.8
Other(5) 27.0 9.4 36.4 44.7 10.6 55.3
Total 1,404.4 144.0 1,548.4 649.0 243.8 892.8
1. Being £824.3 million investment property and £34.2 million trading
property (2019: £233.9 million and £nil respectively) see Note 12.
2. Being £471.0 million investment property and £13.9 million trading
property (2019: £336.8 million and £8.4 million respectively) see Note 12.
3. Being £34.0 million investment property and £nil trading property (2019:
£25.2 million and £nil respectively) see Note 12.
4. Includes wholly-owned capitalised interest of £7.0 million (2019: £8.2
million) as further analysed in Note 8 and share of joint venture capitalised
interest of £0.5 million (2019: £0.8 million).
5. Tenant incentives, letting fees and rental guarantees and other items.
6. Being £37.6 million expenditure used for enhancing existing space (2019:
£30.8 million) and £2.5 million used for creation of additional lettable
space (2019: £nil).
7. Total acquisitions completed in 2020 detailed in the Investment Update
above of £888.9 million excludes share of assets acquired by SELP from SEGRO
of £46.5 million (all of which was completed property, see Note 12) and
certain land acquisitions relating to trading properties of £5.1 million.
FINANCING
In May 2020, SEGRO extended the maturity of €1.1 billion of revolving credit
facilities for a further year to 2025. This was followed by amendments to
transition the facilities from sterling LIBOR to SONIA in anticipation of the
ending of LIBOR in 2021.
In June 2020, SEGRO issued 83 million new shares, raising £680 million of
gross proceeds to help to fund our development programme while also retaining
an appropriate capital structure. The shares were issued at 820.0 pence per
share, a 4.5 per cent discount to the prior day’s closing share price.
In July 2020, SEGRO agreed a third US private placement debt issue of €450
million across four tranches with a number of institutional investors. The
notes have an average maturity of 16.8 years and a weighted average coupon of
1.6 per cent. Closing took place in August 2020 followed by funding in October
and December 2020.
In August 2020, SEGRO redeemed its £79.3 million 6.75 per cent sterling bonds
due to mature in 2021, followed by redemption in September of its £39.1
million 7.0 per cent sterling bonds due to mature in 2022. The combined cash
settlement for the bonds redeemed was £130.5 million, which included £1.4
million of accrued interest.
In November 2020, SEGRO completed its secondary listing on Euronext Paris. The
Secondary Listing reflects the growth and importance to the Company of its
Continental European investor base and operations and ensures that SEGRO
maintains an optimum and efficient holding structure following the end of the
Brexit transition period on 31 December 2020.
As 31 December 2020, the gross borrowings of SEGRO Group and its share of
gross borrowings in joint ventures totalled £3,201.2 million (31 December
2019: £2,637.8 million), of which only £21.1 million (31 December 2019:
£27.6 million) are secured by way of legal charges over specific assets. The
remainder of gross borrowings are unsecured. Cash and cash equivalent balances
were £113.2 million (31 December 2019: £153.5 million). Average debt
maturity was 9.9 years (31 December 2019: 10.0 years) and average cost of debt
(excluding non-cash interest and commitment fees) was 1.6 per cent (31
December 2019: 1.7 per cent).
Funds available to SEGRO Group (including its share of joint venture funds) at
31 December 2020 totalled £1,189.3 (31 December 2019: £1,370.0 million),
comprising £113.2 million cash and short term investments and £1,076.1
million of undrawn revolving credit facilities of which only £11.6 million
was uncommitted. Cash and cash equivalent balances, together with the
Group’s interest rate and foreign exchange derivatives portfolio, are spread
amongst a strong group of banks, all of which have a credit rating of A- or
better.
Financial Position and Funding
31 December 2020 31 December 2019
SEGRO Group SEGRO Group and SEGRO Group SEGRO Group and
JVs at share
JVs at share
Net borrowings (£m) 2,325.0 3,088.0 1,811.0 2,484.3
Available cash and undrawn facilities (£m) 1,061.4 1,189.3 1,173.2 1,370.0
Balance sheet gearing (%) 24 N/A 23 N/A
Loan to value ratio (%) 22 24 22 24
Weighted average cost of debt(1) (%) 1.7 1.6 1.8 1.7
Interest cover(2) (times) 6.6 6.5 6.2 6.3
Average duration of debt (years) 11.7 9.9 11.6 10.0
1. Based on gross debt, excluding commitment fees and non-cash interest.
2. Net rental income/Adjusted net finance costs (before capitalisation).
TREASURY POLICIES AND GOVERNANCE
The Group Treasury function operates within a formal policy covering all
aspects of treasury activity, including funding, counterparty exposure and
management of interest rate, currency and liquidity risks. Group Treasury
reports on compliance with these policies on a quarterly basis and policies
are reviewed regularly by the Board.
GEARING AND FINANCIAL COVENANTS
The key leverage metric for SEGRO is its proportionally consolidated
(‘look-through’) loan to value ratio (LTV) which incorporates assets and
net debt on SEGRO’s balance sheet and SEGRO’s share of assets and net debt
on the balance sheets of its joint ventures. The LTV at 31 December 2020 on
this basis was 24 per cent (31 December 2019: 24 per cent).
SEGRO’s borrowings contain gearing covenants based on Group net debt and net
asset value, excluding debt in joint ventures. The gearing ratio of the Group
at 31 December 2020, as defined within the principal debt funding arrangements
of the Group, was 24 per cent (31 December 2019: 23 per cent). This is
significantly lower than the Group’s tightest financial gearing covenant
within these debt facilities of 160 per cent.
Property valuations would need to fall by around 64 per cent from their 31
December 2020 values to reach the gearing covenant threshold of 160 per cent.
A 64 per cent fall in property values would equate to an LTV ratio of
approximately 66 per cent.
The Group’s other key financial covenant within its principal debt funding
arrangements is interest cover, requiring that net interest before
capitalisation be covered at least 1.25 times by net property rental income.
At 31 December 2020, the Group comfortably met this ratio at 6.6 times. Net
property rental income would need to fall by around 81 per cent from 2020
levels to reach the interest cover covenant threshold of 1.25 times. On a
proportionally consolidated basis, including joint ventures, the interest
cover ratio was 6.5 times.
We mitigate the risk of over-gearing the Company and breaching debt covenants
by carefully monitoring the impact of investment decisions on our LTV and by
stress-testing our balance sheet to potential changes in property values.
Our intention for the foreseeable future is to maintain our LTV at around 30
per cent. This provides the flexibility to take advantage of investment
opportunities arising and ensures significant headroom compared to our
tightest gearing covenants should property values decline.
At 31 December 2020, the only debt maturity falling due within 12 months is a
€1 million principal repayment on an amortising loan, acquired with Sofibus
Patrimoine SA. The weighted average maturity of the gross borrowings of the
Group (including joint ventures at share) was 9.9 years. With the majority of
the Group’s revolving credit facilities not due to mature until 2025, and no
material Group debt maturities until 2024, this long average debt maturity
translates into a favourable, well spread debt funding maturity profile which
reduces future refinancing risk.
INTEREST RATE RISK
The Group’s interest rate risk policy is designed to ensure that we limit
our exposure to volatility in interest rates. The policy states that between
50 and 100 per cent of net borrowings (including the Group’s share of
borrowings in joint ventures) should be at fixed or capped rates, including
the impact of derivative financial instruments.
At 31 December 2020, including the impact of derivative instruments, 70 per
cent (2019: 89 per cent) of the net borrowings of the Group (including the
Group’s share of borrowings within joint ventures) were at fixed or capped
rates. The fixed only level of debt is 44 per cent at 31 December 2020 (31
December 2019: 57 per cent).
As a result of the fixed rate cover in place, if short-term interest rates had
been 1 per cent higher throughout the year to 31 December 2020, the adjusted
net finance cost of the Group would have increased by approximately £12.6
million representing around 4 per cent of Adjusted profit after tax.
The Group elects not to hedge account its interest rate derivatives portfolio.
Therefore, movements in its fair value are taken to the income statement but,
in accordance with EPRA Best Practices Recommendations Guidelines, these gains
and losses are eliminated from Adjusted profit after tax.
FOREIGN CURRENCY TRANSLATION RISK
The Group has minimal transactional foreign currency exposure, but does have a
potentially significant currency translation exposure arising on the
conversion of its substantial foreign currency denominated assets (mainly
euro) and euro denominated earnings into sterling in the Group consolidated
accounts.
The Group seeks to limit its exposure to volatility in foreign exchange rates
by hedging its foreign currency gross assets using either borrowings or
derivative instruments. The Group targets a hedging range of between the last
reported LTV ratio (31 December 2020: 24 per cent) and 100 per cent. At 31
December 2020, the Group had gross foreign currency assets which were 61 per
cent hedged by gross foreign currency denominated liabilities (31 December
2019: 65 per cent).
Including the impact of forward foreign exchange and currency swap contracts
used to hedge foreign currency denominated net assets, if the value of the
other currencies in which the Group operates at 31 December 2020 weakened by
10 per cent against sterling (to €1.23, in the case of euros), net assets
would have decreased by approximately £158 million and there would have been
a reduction in gearing of approximately 1.7 per cent and in the LTV of 1.3 per
cent.
The average exchange rate used to translate euro denominated earnings
generated during 2020 into sterling within the consolidated income statement
of the Group was €1.13:£1. Based on the hedging position at 31 December
2020, and assuming that this position had applied throughout 2020, if the euro
had been 10 per cent weaker than the average exchange rate (€1.24:£1),
Adjusted profit after tax for the year would have been approximately £9.7
million (3.3 per cent) lower than reported. If it had been 10 per cent
stronger, Adjusted profit after tax for the year would have been approximately
£11.9 million (4.1 per cent) higher than reported.
GOING CONCERN
As noted in the Financial Position and Funding section above, the Group has
significant available liquidity to meet its capital commitments, a long-dated
debt maturity profile and substantial headroom against financial covenants.
* In 2020, the Group has raised £680 million of new equity and secured €450
million of new debt as well as extending the term of €1.1 billion of
revolving credit facilities by one year, significantly enhancing its
liquidity.
* Cash and available facilities at 31 December 2020 were £1.1 billion, well in
excess of the Group’s capex commitment of £0.6 billion.
* The Group continuously monitors its liquidity position compared to committed
and expected capital and operating expenses on a rolling forward 18 month
basis. The quantum of committed capital expenditure at any point in time is
typically low due to the short timeframe to construct warehouse buildings.
* The Group also regularly stress-tests its financial covenants. As noted above,
at 31 December 2020, property values would need to fall by around 64 per cent
before breaching the gearing covenant. In terms of interest cover, net rental
income would need to fall by 81 per cent before breaching the interest cover
covenant. Both would be significantly in excess of the Group’s experience
during the financial crisis, its experience in 2020 and in 2021 to date, and
the plausible scenarios modelled.
* Customer rent collections remain high, with 98 per cent of rent collected for
the year ending 2020. The results of our Covid-19 stress test (modelling 20
per cent of customers delaying rent payments and 10 per cent of customer
defaulting on their rent payments) was that the Group would continue as a
going concern.
Having made enquiries and having considered the principal risks facing the
Group, including liquidity and solvency risks, and material uncertainties, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future (a period of at least 12 months from the date of approval of the
financial statements). Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
DIVIDEND INCREASE REFLECTS A STRONG YEAR AND CONFIDENCE FOR THE FUTURE
Under the UK REIT rules, we are required to pay out 90 per cent of UK-sourced,
tax-exempt rental profits as a ‘Property Income Distribution’ (PID). Since
we also receive income from our properties in Continental Europe, our total
dividend should normally exceed this minimum level and we target a pay-out
ratio of 85 to 95 per cent of Adjusted profit after tax. We aim to deliver a
progressive and sustainable dividend which grows in line with our
profitability in order to achieve our goal of being a leading income-focused
REIT.
The Board has concluded that it is appropriate to recommend an increase in the
final dividend per share by 0.8 pence to 15.2 pence (2019: 14.4 pence) which
will be paid as a PID. The Board’s recommendation is subject to approval by
shareholders at the Annual General Meeting, in which event the final dividend
will be paid on 4 May 2021 to shareholders on the register at the close of
business on 19 March 2021.
In considering the final dividend, the Board took into account:
* the policy of targeting a pay-out ratio of between 85 and 95 per cent of
Adjusted profit after tax;
* the desire to ensure that the dividend is sustainable and progressive
throughout the cycle; and
* the results for 2020 and the outlook for earnings.
The total dividend for the year will, therefore, be 22.1 pence, a rise of 6.8
per cent versus 2019 (20.7 pence) and represents distribution of 87 per cent
of Adjusted profit after tax.
The Board has decided to retain a scrip dividend option for the 2020 final
dividend, allowing shareholders to choose whether to receive the dividend in
cash or new shares. In 2020, 35 per cent of the 2019 final dividend and 7 per
cent of the 2020 interim dividend was paid in new shares, equating to £61
million of cash retained on the balance sheet.
STATEMENT OF PRINCIPAL RISKS
Dynamic risk management is embedded in our business and ensures we are able to
adapt to the ever-changing environment in which we do business.
The continually evolving circumstances caused by the Covid-19 pandemic,
coupled with the backdrop of geopolitical and macroeconomic uncertainty, has,
and continues to present a rapidly changing operating environment for the
business to navigate. Despite this, the Group’s performance has continued to
be positive, as evidenced by our financial results, and demonstrates the
importance of our risk process which is embedded within our business to enable
effective, responsive decision-making.
Looking forward to 2021, whilst there is still much uncertainty, it is
anticipated that Covid-19 will still be prevalent in society, notwithstanding
the efficacy of the vaccine roll out. Therefore risk management and controls,
and the Group’s continued ability to be flexible in responding to the risks
presented, will be fundamental to our ability to continue to operate
successfully.
COVID-19
The impact of the pandemic continues to evolve and impact our entire risk
landscape. We have incorporated commentary into each relevant principal risk
and continue to monitor a new wave of infections and/or prolonged impact as an
emerging risk. In most cases Covid-19 has acted to increase either the impact,
the probability, or both in respect of risks already identified on the Risk
Register. Major event/business disruption has been specifically identified and
reported as a principal risk this year (as detailed further below).
During the year, the Group’s Board and key Committees continued to meet
regularly to identify, assess and record the Covid-19 related risks as they
arose and evolved and to consider appropriate responses and mitigations
accordingly.
Areas of particular concern relate to our people, customers, development
programme, other suppliers, communities and financing and investor engagement.
Some key areas specific to risk management include:
* Our people: The top priority was the health and well-being of our people. A
central incident management team oversaw the process to ensure each local
office maintained safe working conditions in line with local regulations and
this was managed and regularly updated. As the working environment changed,
staff were supplied with the necessary tools including IT equipment to be able
to work effectively at home. This is detailed in the Health and Safety section
and Principal Risk sections below.
* Customers: We maintained regular communication with our customers to ensure
they were properly supported such as offering financial flexibility and
facilities maintenance. The elevated risk of tenant default is covered further
in the Operational Delivery and Compliance principal risk below.
* Our development programme and other suppliers: We worked closely with our
supply chain during the pandemic with many sites subject to closure and other
local regulations in the response to the outbreak. We reopened the sites as
soon as it was possible and have worked collaboratively with our contractors
to ensure a safe, compliant working environment on our sites. Whilst there
were some delays in sourcing labour and raw materials, the mitigations such as
sourcing locally where possible, have meant there have been no significant
delays in delivering the projects. We have also continued to pay suppliers
promptly. This is detailed further in the Development Plan Execution principal
risk below. We have worked closely with our other suppliers even though face
to face interactions have been less frequent and continue to pay suppliers
promptly.
* Operations and financing: A full, detailed assessment of our key operations
was undertaken to ensure we could continue to operate under the new working
environment and that appropriate process and controls were in place, including
the robustness of our IT systems. For example, during the year we worked
closely with our banks and other providers of finance in order to undertake
various fund raises remotely thanks to the internal processes in place
supported by our IT systems. For more information please refer to the
Operational Delivery and Compliance principal risk below.
Disciplined Capital Allocation
We have continued to pursue opportunities to invest capital in line with the
Group’s investment stance and appetite for risk. In 2020, this focused again
on our development pipeline (bearing in mind our appetite for non-income
producing assets – discussed further below) but was notably supplemented by
a small number of large acquisitions in our key strategic markets. Relevant
Key Risk Indicators are considered each month by the Investment Committee to
inform its decisions.
We continue to manage our risk exposure by:
* utilising options on land whenever feasible;
* maintaining a balanced exposure to speculative development;
* using a broad range of key contractors and closely managing them during our
developments;
* maintaining an efficient capital structure and liquidity position to fund the
development activity; and
* planning for the combined impact of significant decisions – land
acquisitions, infrastructure commitments and development commitments – that
will be required by our pipeline of development opportunities.
Environmental Sustainability and Climate Change
Environmental sustainability is an ever more important risk for the business
and has been separately reported on as a new Principal risk in the year.
The risk includes the short to medium-term impacts including transitional
changes (for example legislation and financial) which we closely monitor and
the long-term emerging risk of climate change (for example physical changes
including the increased likelihood of extreme weather events) for which we
have undertaken extensive research.
The environmental and climate change related risks are managed by our Group
Sustainability Manager and his dedicated sustainability team, reporting to the
Executive Committee and ultimately the Board.
BREXIT
Brexit and particularly a disruptive Brexit, was a key focus for the Group
during the year. The UK and EU reached a trade agreement shortly before the
end of the transition period, which redefined the UK’s relationship with the
EU on trade and other areas of cooperation. The risk of what might have been
the most disruptive form of Brexit was, at least in part, mitigated. While the
new arrangements bed in and their implications become better understood and
more transparent, the risk that future issues may arise remain elevated. The
Group continue to actively monitor and manage the identified risks and remain
alert to new issues which may arise.
The responsibility for monitoring and managing the risk of a disruptive Brexit
is the responsibility of a Brexit Committee made up of senior management from
across the business, reporting to the Executive Committee. This Committee
maintains a dedicated Risk Register to identify and prioritise key risks
actions and mitigations.
Key elements of such risk included macro factors which would impact the
Group’s performance which we had to be aware of and responsive to but could
do little to proactively mitigate. A small number of risks at a corporate
level merited further focus, including compliance with a new regulatory
regime, and actions were taken to mitigate their impact insofar as was
possible and practicable. Other impacts were more indirect, such as those on
our suppliers and customers, with whom we maintain a close and transparent
dialogue.
The risk of a disruptive Brexit continues to be reported as a principal risk
until the situation clarifies further, after which, it is envisaged the
specific risks arising will be reported and monitored within their relevant
areas of impact. To date, whilst we remain constantly vigilant, no elements of
Brexit risk have come to light which would be outside the Group tolerance.
Financing
The Group’s financing strategy is balanced between supporting investment in
our growth, and to enable the Group to be well positioned and resilient
against potential risks faced in both the short and long term, including the
impact of the pandemic. The Group maintains a low appetite to liquidity and
solvency risk.
The Group’s management of its capital structure, including extending debt
facilities and maturities, is described in the Finance Review.
Health and Safety
Health and Safety remains at the very heart of our business. The Health and
Safety Working Group oversees the Health and Safety Policy and Safety
Management System to ensure further proactive collaboration and communication
to mitigate health and safety risk across the Group. During the year, the
Health and Safety team was instrumental in the Group’s response to the
pandemic and the relevant regulations as they evolved, including in respect of
employees as they worked away from the office and on our building sites.
Technology
The Group remains alert to the risks and opportunities that potentially
disruptive technology could have on the business. We continued to engage with
a number of external organisations – both in the property sector and in the
wider technology realm – to assist us in identifying and assessing
potentially disruptive technologies, none of which currently is believed to
present an imminent significant risk to the Group.
During 2020 we created a Strategy, Investment and Innovation function to
assess the potential impacts of a wide range of technologies; evolving our
digital and technology strategy; and continuing to invest in this function in
order to deliver that strategy.
OUR RISK APPETITE
The Group recognises that its ability to manage risk effectively throughout
the organisation continues to be central to its success. Our approach to risk
management aims to bring controllable risks within our appetite, and to enable
our decision making to balance uncertainty against the objective of creating
and protecting, now and in the long-term, value for our shareholders and other
stakeholders.
The Group’s risk appetite is reviewed annually and approved by the Board in
order to guide management. As well as qualitative descriptions, the risk
appetite defines tolerances and targets for key metrics. It is equally
applicable to wholly-owned operations and joint ventures.
While our appetite for risk will vary over time and during the course of the
property cycle, in general the Group maintains a fairly low appetite for risk,
appropriate to our strategic objectives of delivering sustainable, attractive
returns in the form of progressive dividends and net asset value growth over
time.
Property Risk
We recognise that, in seeking outperformance from our portfolio, the Group
must accept a balanced level of property risk – with diversity in geographic
locations and asset types and an appropriate mixture of stabilised income
producing and opportunity assets – in order to enhance opportunities for
superior returns. This is balanced against the backdrop of the macroeconomic
climate and its impact on the property cycle.
Our target portfolio should deliver attractive, low risk income returns with
strong rental and capital growth when market conditions are positive and show
relative resilience in a downturn. We aim to enhance these returns through
development, but we seek both to ensure that the ‘drag’ associated with
holding development land does not outweigh the potential benefits, and to
mitigate the risks – including letting, construction and contractor risks
– inherent in development.
In line with our income focus, we have a low appetite for risks to income from
customer default or insolvency, and accordingly seek to maintain a diverse
occupier base with strong covenants and avoid over-exposure to individual
occupiers in specialist properties.
Financial Risk
The Group maintains a low to moderate appetite for financial risk in general,
with a very low appetite for risks to solvency and gearing covenant breaches.
As an income-focused REIT we have a low appetite for risks to maintaining
stable progression in earnings and dividends over the long term. We are,
however, prepared to tolerate fluctuations in dividend cover as a consequence
of capital recycling activity.
We also seek long-term growth in net asset value. Our appetite for risks to
net asset value from the factors within our control is low, albeit
acknowledging that our appetite for moderate leverage across the cycle
amplifies the impact of market driven asset valuation movements on net asset
value.
Corporate Risk
We have a very low appetite for risks to our good reputation and risks to
being well-regarded by our customers and wider stakeholders, including
investors, regulators, employees, business partners, suppliers, lenders and by
the communities in which we operate.
Our responsibilities to these stakeholders include compliance with all
relevant laws; accurate and timely reporting of financial and other regulatory
information; safeguarding the health and safety of employees, suppliers,
customers and other users of our assets; our impact on the environment; the
impact of new and evolving technologies; compliance with codes of conduct and
ethics; ensuring business continuity; and making a positive contribution to
the communities in which we operate.
OUR INTEGRATED AND ROBUST APPROACH TO RISK MANAGEMENT
The Board has overall responsibility for ensuring that risk is effectively and
consistently managed across the Group. The Audit Committee monitors the
effectiveness of the Group’s risk management process on behalf of the Board.
The risk management process is designed to identify, evaluate and mitigate the
significant risks (including emerging risks) that the Group faces. The process
aims to understand and mitigate, rather than eliminate, the risk of failure to
achieve business objectives, and therefore can only provide reasonable and not
absolute assurance.
Identification and review of emerging risks are integrated into our risk
review process. Emerging risks are those risks or combination of risks which
are often rapidly evolving for which the impact and probability of occurrence
have not yet been fully understood and consequently necessary mitigations have
not yet fully evolved. All risk owners and managers within the business are
challenged to consider emerging risks and this is enhanced through formal
twice-yearly horizon scans with the Executive Committee.
The Board recognises that it has limited control over many of the external
risks it faces, such as the pandemic, as well as the macroeconomic,
geopolitical, and regulatory environment, but it reviews the potential impact
of such risks on the business and consequential decision making.
The Board also monitors internal risks and ensures that appropriately designed
controls are in place and operate in order to manage them.
The Board has performed a robust assessment of the principal and emerging
risks facing the Group. The Board has formally reviewed the principal and
emerging risks twice during the year. The Board has also completed its annual
review and approval of the Group’s risk appetite, and the Group’s risk
management policy. The Audit Committee reviews the process over how the Group
Risk Register has been compiled twice a year.
The Group adopts the ‘three lines of defence’ model of risk management.
Operational management, the individual risk manager and risk owner provide the
first line of defence. The Executive Committee, other monitoring committees,
and the risk management function overseen by the Group Risk Committee provide
the second line of defence.
Finally, Internal Audit provides the third line of defence. Risks are
considered within each area of the business to ensure that risk management is
fully embedded within the Group’s operations, culture and decision-making
processes.
We have put risk appetite at the heart of our risk management processes. Risk
appetite is integral both to our consideration of strategy and to our
medium-term planning process. Risk appetite also defines specific tolerances
and targets for key metrics and the criteria for assessing the potential
impact of risks and our mitigation of them.
The most significant risks and mitigating controls are detailed in the Group
Risk Register. Risks are assessed in both unmitigated (assuming that no
controls are in place) and residual (with mitigating controls operating
normally) states. This assessment directly relates potential impact to risk
appetite so that it is clear whether each risk is comfortably within appetite,
tolerable, intolerable or below appetite. We also formally assess the velocity
of the most significant risks to determine how quickly they might become
intolerable.
A Key Risk Indicator (KRI) dashboard is produced and monitored regularly to
show actual and forecast performance against risk appetite metrics, allowing
informed decision-making. KRIs are considered regularly by the relevant
monitoring committees as well as being integral to the Group’s Medium Term
Plan.
Mitigations for each risk are documented and monitored in the Group Risk
Register. The Register is used as a key input to determine priorities for the
Group’s internal audit assurance programme. Furthermore, management’s
annual assessment of control effectiveness is driven by the Group’s Risk
Register.
PRINCIPAL RISKS
The principal risks have the potential to affect SEGRO’s business
materially. Risks are classified as ‘principal’ based on their potential
to intolerably exceed our appetite (considering both inherent and residual
impact) and cause material harm to the Group.
Some risks that may be unknown at present, as well as other risks that are
currently regarded as immaterial and therefore not detailed here, could turn
out to be material in the future.
The current principal risks facing the Group are described across the
following pages.
The descriptions indicate the potential areas of impact on the Group’s
strategy; the time-horizon and probability of the risk; the principal
activities that are in place to mitigate and manage such risks; the committees
that provide second line of defence oversight; changes in the level of risk
during the course of 2020; whether the risk is within our appetite (after the
application of our mitigations); and links to further relevant information in
this report.
Management has actively considered emerging risks during the year. To this
end, the Executive Committee undertakes a risk ‘horizon scan’ twice a
year, and the risk management function undertakes an annual survey of peers
and other listed companies to identify potential risks for consideration.
Two principal risks have been added in 2020 being the Major Event/Business
Disruption risk in response to the pandemic arising during the year and
Environmental Sustainability in light of its significance to the Group. Both
risks have been specifically identified as standalone principal risks whereas
previously they were part of the Operational Delivery and Compliance risk.
Two previously reported principal risks, Portfolio Strategy and Investment
Plan Execution, have been combined below (called Portfolio Strategy and
Execution) to recognise the congruent nature of the original risks as part of
one contiguous process. The Market Cycle risk now also includes reference to
macroeconomic impacts in order to highlight the external aspect of this risk.
Furthermore, two of our risks, Political and Regulatory and Operational
Delivery and Compliance have increased, as discussed further below, whilst the
others have remained in line with the prior year.
PRINCIPAL RISK MITIGATIONS AND CURRENT YEAR ACTIVITY IMPACT AND
CHANGE IN 2020
1. Macroeconomic impact on Market Cycle The property market is cyclical and there is a continuous external risk that The Board, Executive Committee and Investment Committee monitor the property Impact on strategy:
the Group could either misread the market or fail to react appropriately to market cycle on a continual basis and adapt the Group’s
changing market and wider related geopolitical conditions, which could result investment/divestment stance in anticipation of changing market conditions. Disciplined Capital Allocation
in capital being invested or disposals taking place at the wrong price or time
in the cycle. Multiple, diverse investment and occupier market intelligence is regularly
reviewed and considered – both from internal ‘on the ground’ sources and
from independent external sources. Change in 2020: Similar risk
Upside and downside scenarios are incorporated into Investment Committee
papers to assess the impact of differing market conditions.
Risk is within appetite.
During the year, the pandemic has led to greater market volatility and less
predictability and in response we have increased the regularity of our
economic outlook assessments. Whilst we are not entirely immune to these
fluctuations, the most material adverse impacts appear to be focussed in
sectors where we do not have significant exposures.
2. Portfolio Strategy and Execution The Group’s Total Property and/or Shareholder Returns could underperform in The Group’s portfolio strategy is subject to regular review by the Board to Impact on strategy:
absolute or relative terms as a result of an inappropriate portfolio strategy. consider the desired shape of the portfolio in order to meet the Group’s
This could result from: overall objectives and to determine our response to changing opportunities and Disciplined Capital Allocation
market conditions.
*Holding the wrong balance of prime or secondary assets;
*Holding the wrong amounts or types of land, leading to diluted returns and/or The Group’s Disciplined Capital Allocation is informed by comprehensive
constraints on development opportunities; asset plans and independent external assessments of market conditions and Change in 2020: Similar risk
*Holding the wrong mix of risk assets (for example between higher risk forecasts.
‘opportunity’ assets and lower risk ‘core’ assets) or too many old or
obsolete assets which dilute returns; and Regular portfolio analysis enables the portfolio to be correctly positioned in
*Holding assets in the wrong geographical markets; missing opportunities in new terms of location and asset type, and retains the right mix of core and Risk is within appetite.
markets or lacking critical mass in existing markets. opportunity assets. The annual asset planning exercise provides a bottom-up
assessment of the performance and potential for all assets to identify
underperforming assets that are considered for sale. Asset plans are prepared
annually for all estates to determine where to invest capital in existing
assets and to identify assets for disposal. Locally based property investment
and operational teams provide market intelligence and networking to source
attractive opportunities. Policies are in place to govern evaluation, due
diligence, approval, execution and subsequent review of investment activity.
Investment hurdle rates are regularly reappraised taking into account
estimates of our weighted average cost of capital. Major capital investment
and disposal decisions are subject to Board approval in line with portfolio
strategy.
During the year, the potential market volatility caused by the pandemic,
discussed in the Macroeconomic Impact on Market Cycle risk, has led to a
degree of caution in our approach to portfolio management and capital
allocation. We do, however, continue to closely monitor the situation and take
advantage of opportunities as they arise.
3. Major event/business disruption Unexpected global, regional or national events result in severe adverse In “normal” circumstances, the Group positions itself to withstand a Impact on strategy:
disruption to SEGRO, such as sustained asset value or revenue impairment, global event and business disruption through its financing strategy (see
solvency or covenant stress, liquidity or business continuity challenges. A separate principal risk); diverse portfolio strategy (see separate principal Disciplined Capital Allocation, Operational Excellence and Efficient Capital
global event or business disruptor may include, but is not limited to a global risk) including a diverse portfolio, staying close to customers to understand and Corporate Structure
financial crisis, health pandemic, civil unrest, act of terrorism, their changing needs, property insurance and strong customer base;
cyber-attack or other IT disruption. Events may be singular or cumulative, and organisational resilience of the work force; and detailed business continuity
lead to acute/systemic issues in the business and/or operating environment. and disaster recovery plans. Going concern and viability is assessed through a
detailed bottom up medium-term planning process including a business stress Change in 2020: New risk identified following pandemic impact during the year
test and downside scenarios.
During the year, the pandemic was a significant factor in the risks facing the
Group, as detailed further above. This includes the instigation of our Risk is within appetite.
incident management team to oversee our initial response to the pandemic;
ensuring employees were working in safe and secure conditions with the
appropriate equipment; our Health and Safety team working closely with local
teams to ensure compliance with local regulations both at our offices and
building sites; working closely with our customers and being flexible for
their requirements in both providing safe space and financially; working
closely with our contractors to maintain safe building sites and reviewing our
core processes in light of the new working conditions in order to maintain
appropriate internal controls and operational resilience.
4. Disruptive Brexit The agreement of the trade deal between the UK and the EU in December 2020 The Group is mindful of continuing political and economic uncertainties but Impact on strategy:
provided clarity around the future trade relationship between the EU and UK remains focused on controlling what it can within its own business. Much of
and consequently reduced but not fully mitigated the risk of disruption caused the potential short-term economic impact has been overshadowed by the Disciplined Capital Allocation and Operational Excellence
by Brexit. Ongoing risks around how this trade deal and the wider implications pandemic. We continue to engage in dialogue with key customers, and with key
of Brexit may impact investment, capital, financial (including exchange suppliers to understand labour and material supply risks. To date, we have not
rates), occupier and labour markets in the UK are yet to be fully understood. observed significant adverse factors. Structural drivers of demand appear to
have continued to outweigh any Brexit-related uncertainties. Change in 2020: Similar risk
In the long-term, exit from the EU could impact levels of investor and
occupier demand as a result of reduced trade, in particular those in The Group has, however, continued to adopt a disciplined approach to land
industries more at risk to the impact of a disruptive Brexit, and/or the acquisition and speculative development.
relocation of corporations and financial institutions away from the UK.
Risk is within appetite.
The Group’s strategy provides resilience through the market cycle. As well
Nevertheless, the likelihood of severe adverse impact on the Group is judged as the underlying quality and diversity (in terms of both asset type and
to be low location) of the portfolio, mitigations include substantial covenant headroom,
access to diverse sources of funding, exchange rate and interest rate hedging,
and short development lead-times.
During the year, the Brexit Committee has continued to meet regularly to
monitor risks and associated mitigating actions arising using a dedicated
Brexit Risk Register. This includes a limited number of corporate level
actions in response to the new regulatory regime. Whilst the Trade Agreement
signed in December 2020 averted the most disruptive outcome, the Committee and
wider business continue to monitor the position to ensure issues arising are
appropriately identified and mitigated.
5. Health and Safety Health and safety management processes could fail, leading to a loss of life, The Group manages an active health and safety management system, with a Impact on strategy:
litigation, fines and serious reputational damage to the Group. This risk is particular focus on managing the quality and compliance to good health and
somewhat increased by the scale of the Group’s development activity safety practice of all our suppliers. Operational Excellence
A published Health and Safety policy is supported by annual site inspections
of existing assets, as part of proactive management, and development project
inspections against SEGRO’s Health & Safety Construction Standard. Change in 2020: Similar risk
We continue to improve health and safety standards on our development sites
and work more closely with our suppliers and health and safety consultants to
increase understanding and implementation of SEGRO’s requirements. Risk is within appetite.
The Health and Safety Working Group is responsible for overseeing the
implementation of, and compliance with, the Health and Safety Policy and
Safety Management System. We undertake continuous monitoring of health and
safety practices, including incidents, inspections and training tracked across
the Group. Legal guidance and further support is provided through local health
and safety consultants who provide regulatory assurance support to the Group.
During the year, the pandemic has meant the safety of the internal workforce
in working away from the office and the management of available office space
to the extent permitted by local regulations, has been a priority for the
Health and Safety team. Furthermore, the team has also worked with our
contractors to ensure that work on our development sites was undertaken in a
safe and compliant manner.
6. Environmental Sustainability Failure to anticipate and respond to the impact of both physical and A dedicated sustainability team is in place who regularly update the Executive Impact on strategy:
transitional risks from climate change on the sustainability of our Committee and Board, including monitoring against our stated sustainability
environment as both a principal and emerging risk. Changes in social targets. We actively participate and engage in several Real Estate and Disciplined Capital Allocation and Operational Excellence
attitudes, laws, regulations, policies, taxation, obligations, and customer Sustainability organisations (such as EPRA and the World Green Building
preferences associated with environmental sustainability could cause Council) to ensure we are aware of future initiatives and challenges. We set
significant reputational damage and impact on our business, through minimum standards for developments to ensure all are undertaken to achieve, if
non-compliance with laws and regulations, increased costs of tax and energy not exceed, the highest environmental standards. All acquisitions include an Change in 2020: This is a new risk rating which reflects the increased
and loss of value through not meeting stakeholder expectations in addressing assessment for climate related risk. The portfolio is reviewed against future environmental challenges facing the business and wider communities
these challenges when reporting. climate related metrics such as increasing temperature to mitigate against
future obsolescence. Group and local teams are constantly kept up to date with
new laws and regulations as they become relevant through regular training and
use of a panel of expert advisors. Risk is within appetite.
During the year, we have launched our “Responsible SEGRO” framework which
details how we will rise to this challenge. We will lead a low carbon
transformation in our industry to address climate change, working with our
customers in order to achieve this. We have reviewed our targets including
seeking to be Net Zero Carbon by 2030.
7. Development Plan execution The Group has an extensive current programme and future pipeline of Our appetite for exposure to non-income producing assets (including land, Impact on strategy:
developments. The Group could suffer significant financial losses from: infrastructure and speculative developments) is monitored closely, for example
when acquisition decisions are being made by the Investment Committee. Disciplined Capital Allocation and Operational Excellence
*Cost over-runs on larger, more complex projects, including for example, due to
contractor default or poor performance and management. We retain a high level of optionality in our future development programme
*Increased competition and/or construction costs (from labour market changes or including at the point of land acquisition, commitment to infrastructure and
supply chain pressures) leading to reduced or uneconomic development yields. commitment to building. Change in 2020:
*Above-appetite exposure to non-income producing land, infrastructure and
speculatively developed buildings arising from a sharp deterioration in The development programme remains weighted towards pre-let opportunities. Similar risk
occupier demand.
The risk of cost-overruns is mitigated by our experienced development teams
and the use of trusted advisors and contractors.
Risk is within appetite.
The risk of contractor default is mitigated by using a diversified selection
of companies who have been through a rigorous onboarding process and closely
monitoring their financial strength.
Our short development lead-times enable a quick response to changing market
conditions.
During the year, development sites initially experienced delays following
shutdowns due to the pandemic. As discussed above in our Health and Safety
risk, our teams worked closely with contractors to ensure working practices on
all sites complied with local regulations and were operated in a safe and
compliant manner. We continue to regularly monitor the performance and
financial strength of our contractors as contracts are awarded through the
year.
8. Financing Strategy The Group could suffer an acute liquidity or solvency crisis, financial loss The Group’s financing strategy is aligned with our long-term business Impact on strategy:
or financial distress as a result of a failure in the design or execution of strategy, the Medium Term Plan and our risk appetite. The Treasury policy
its financing strategy. defines key policy parameters and controls to support execution of the Efficient Capital and Corporate Structure
strategy.
Such an event may be caused by: a failure to obtain debt or equity funding
(for example, due to market disruption or rating downgrade); having an The Group regularly reviews its changing financing requirements in light of
inappropriate debt structure (including leverage level, debt maturity, opportunities and market conditions and maintains a good long-term Change in 2020: Similar risk
interest rate or currency exposure); poor forecasting; default on loan relationship with a wide range of sources of finance.
agreements as a result of a breach of financial or other covenants; or
counterparty default. Liquidity remains strong and there is substantial headroom against all of our
financial covenants.
During the year, financing activity has strengthened the balance sheet, Risk is within appetite.
increased average debt maturity, lowered the average cost of debt, and
demonstrated our ability to access a range of debt capital markets.
9. Political and Regulatory The Group could fail to anticipate significant political, legal, tax or Emerging risks in this category are reviewed regularly by the Executive Impact on strategy:
regulatory changes, leading to a significant un-forecasted financial or Committee.
reputational impact.
Efficient Capital and Corporate Structure
Corporate heads of function consult with external advisers, attend industry
In general, regulatory matters present medium- to long-term risks with a and specialist briefings, and sit on key industry bodies such as EPRA and BPF.
medium likelihood of causing significant harm to the Group.
As countries respond to the economic impact of the pandemic, the likelihood of Change in 2020:
Political risks could impact business confidence and conditions in the short changes to taxation regulations increases. We continue to closely monitor the
and longer terms. taxation regulations with our advisors to ensure changes which may impact the Increased risk
Group or our customers, are identified and addressed accordingly in a timely
fashion.
During the year, as detailed in the Brexit risk above, there has been The increased rating reflects levels of political and regulatory uncertainty
heightened uncertainty around the future legal and regulatory environments. in response to the pandemic across our geographies and Brexit in the UK.
The situation has been closely monitored by the Brexit Committee who have
sought flexible and pragmatic mitigations as the circumstances evolved.
Risk is within appetite.
10. Operational delivery and compliance The Group’s ability to protect its reputation, revenues and shareholder The Group maintains a strong focus on Operational Excellence. The Executive, Impact on strategy:
value could be damaged by operational failures such as: failing to attract, Operations, and Technology Committees regularly monitor the range of risks to
retain and motivate key staff; major customer default; supply chain failure or property management, construction, compliance, organisational effectiveness Operational Excellence
the structural failure of one of our assets. and customer management.
Compliance failures, such as breaches of joint venture shareholders’ The Group’s tax compliance is managed by an experienced internal tax team.
agreements, loan agreements or tax legislation could also damage reputation, REIT and SIIC tax regime compliance is demonstrated at least bi-annually. Change in 2020: Increased risk
revenue and shareholder value. Compliance with joint venture shareholder agreements is managed by experienced
property operations, finance and legal employees. The SELP joint venture
additionally has comprehensive governance and compliance arrangements in
place, including dedicated management, operating manuals, and specialist The increased rating reflects the impact of the pandemic on employees
third-party compliance support. resilience in light of working conditions and elevated tenant default risk.
During the year, the working life of staff has been significantly impacted and
we have continually monitored the organisational resilience to respond to
this, for example ensuring that staff have the ability and resources to work Risk is within appetite.
away from the office for sustained periods, and that the resilience and
security of our technology systems is fully maintained.
We continue to work closely with our customers to manage rent collection
whilst balancing the challenges they are facing. The depth of knowledge of our
customers has abled us to estimate the impact on our customers from the
particular circumstances of this global event, based initially on the
twice-yearly, customer-by-customer assessment of default risk.
RESPONSIBILITY STATEMENT
The Statement of Directors’ Responsibilities below has been prepared in
connection with the Company’s full Annual Report and Accounts for the year
ended 31 December 2020. Certain parts of the Annual Report and Accounts have
not been included in this announcement as set out in Note 1 to the condensed
financial information.
The Directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess a Company’s position and performance, business
model and strategy.
Each of the Directors, whose names and functions are listed in the Governance
section of the Annual Report confirm that, to the best of their knowledge:
1. the Group financial statements, which have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group; and
2. the Strategic Report includes a fair review of the development and performance
of the business and the position of the Group, together with a description of
the principal risks and uncertainties that it faces.
The responsibility statement was approved by the Board of Directors on 18
February 2021 and signed on its behalf by:
David Sleath
Chief Executive
18 February 2021
Soumen Das
Chief Financial Officer
18 February 2021
CONDENSED GROUP INCOME STATEMENT
For the year ended 31 December 2020
Notes 2020 2019
£m
£m
Revenue 4 431.7 432.5
Costs 5 (104.3) (123.9)
327.4 308.6
Administration expenses (51.5) (51.5)
Share of profit from joint ventures after tax 6 236.5 203.1
Realised and unrealised property gain 7 988.6 489.2
Operating profit 1,501.0 949.4
Finance income 8 50.0 65.3
Finance costs 8 (86.9) (112.7)
Profit before tax 1,464.1 902.0
Tax 9 (35.0) (41.4)
Profit after tax 1,429.1 860.6
Attributable to equity shareholders 1,426.9 857.9
Attributable to non-controlling interests 2.2 2.7
Earnings per share (pence)
Basic 11 124.1 79.3
Diluted 11 123.6 78.9
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
2020 2019
£m £m
Profit for the year 1,429.1 860.6
Items that may be reclassified subsequently to profit or loss
Foreign exchange movement arising on translation of international operations 111.9 (110.2)
Fair value movements on derivatives and borrowings in effective hedge (52.5) 57.6
relationships
59.4 (52.6)
Tax on components of other comprehensive income/(expense) – –
Other comprehensive income/(expense) 59.4 (52.6)
Total comprehensive income for the year 1,488.5 808.0
Attributable to equity shareholders 1,486.9 804.7
Attributable to non-controlling interests 1.6 3.3
CONDENSED GROUP BALANCE SHEET
As at 31 December 2020
Notes 2020 2019
£m
£m
Assets
Non-current assets
Intangible assets 1.6 2.5
Investment properties 12 10,671.4 8,401.7
Other interests in property 16.2 28.3
Property, plant and equipment 26.6 23.0
Investments in joint ventures 6 1,423.0 1,121.4
Other investments 1.6 27.5
Other receivables 37.2 110.6
Derivative financial instruments 63.2 59.7
12,240.8 9,774.7
Current assets
Trading properties 12 52.1 20.2
Trade and other receivables 269.4 146.6
Derivative financial instruments 15.2 8.7
Cash and cash equivalents 13 89.0 132.5
425.7 308.0
Total assets 12,666.5 10,082.7
Liabilities
Non-current liabilities
Borrowings 13 2,413.1 1,943.5
Deferred tax liabilities 9 87.0 53.2
Trade and other payables 109.4 102.9
Derivative financial instruments 5.2 –
2,614.7 2,099.6
Current liabilities
Trade and other payables 372.0 298.6
Borrowings 13 0.9 –
Derivative financial instruments 4.9 1.7
Tax liabilities 2.9 5.2
380.7 305.5
Total liabilities 2,995.4 2,405.1
Net assets 9,671.1 7,677.6
Equity
Share capital 14 119.1 109.6
Share premium 3,277.5 2,554.3
Capital redemption reserve 113.9 113.9
Own shares held (1.1) (2.6)
Other reserves 252.6 199.5
Retained earnings brought forward 4,702.9 4,056.9
Profit for the year attributable to owners of the parent 1,426.9 857.9
Other movements (232.6) (211.9)
Retained earnings 5,897.2 4,702.9
Total equity attributable to owners of the parent 9,659.2 7,677.6
Non-controlling interests 11.9 –
Total equity 9,671.1 7,677.6
Net assets per ordinary share (pence)
Basic 11 811 700
Diluted 11 809 697
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Attributable to owners of the parent
Other reserves
Ordinary Share Capital Own Share Translation, Merger Retained Total equity Non- Total
share
premium
redemption
shares
based
hedging and
reserve
earnings
attributable to
controlling
equity
capital
£m
reserve
held
payments
other
£m
£m
equity
interests(1
£m
£m
£m
£m
reserves
reserves
shareholders
)£m
£m
£m
£m
Balance at 1 January 2020 109.6 2,554.3 113.9 (2.6) 28.8 1.6 169.1 4,702.9 7,677.6 – 7,677.6
Profit for the year – – – – – – – 1,426.9 1,426.9 2.2 1,429.1
Other comprehensive income – – – – – 60.0 – – 60.0 (0.6) 59.4
Total comprehensive income for the year – – – – – 60.0 – 1,426.9 1,486.9 1.6 1,488.5
Transactions with owners of the Company
Issue of shares 8.7 663.4 – – – – – – 672.1 – 672.1
Own shares acquired – – – (2.0) – – – – (2.0) – (2.0)
Equity-settled share-based transactions – – – 3.5 (6.9) – – 8.9 5.5 – 5.5
Dividends 0.8 59.8 – – – – – (240.1) (179.5) – (179.5)
Movement in non-controlling interest(1) – – – – – – – (1.4) (1.4) 10.3 8.9
Total transaction with owners of the Company 9.5 723.2 – 1.5 (6.9) – – (232.6) 494.7 10.3 505.0
Balance at 31 December 2020 119.1 3,277.5 113.9 (1.1) 21.9 61.6 169.1 5,897.2 9,659.2 11.9 9,671.1
1. Non-controlling interests relate to Vailog S.r.l. and Sofibus Patrimoine
SA. During the year non-controlling interests of £11.9 million were
recognised upon the acquisition of Sofibus Patrimoine SA, see Note 7 for
further details.
For the year ended 31 December 2019
Attributable to owners of the parent
Other reserves
Ordinary Share Capital Own Share Translation, Merger Retained Total equity Non- Total
share
premium
redemption
shares
based
hedging and
reserve
earnings
attributable to
controlling
equity
capital
£m
reserve
held
payments
other
£m
£m
owners of the
interests(1
£m
£m
£m
£m
reserves
reserves
parent
)£m
£m
£m
£m
Balance at 1 January 2019 101.3 2,047.7 113.9 (2.0) 22.3 54.8 169.1 4,056.9 6,564.0 – 6,564.0
Profit for the year – – – – – – – 857.9 857.9 2.7 860.6
Other comprehensive income – – – – – (53.2) – – (53.2) 0.6 (52.6)
Total comprehensive income for the year – – – – – (53.2) – 857.9 804.7 3.3 808.0
Transactions with owners of the Company
Issue of shares 7.3 436.7 – – – – – – 444.0 – 444.0
Own shares acquired – – – (3.4) – – – – (3.4) – (3.4)
Equity-settled share-based transactions – – – 2.8 6.5 – – 3.1 12.4 – 12.4
Dividends 1.0 69.9 – – – – – (212.6) (141.7) – (141.7)
Movement in non-controlling interest(1) – – – – – – – (2.4) (2.4) (3.3) (5.7)
Total transaction with owners of the Company 8.3 506.6 – (0.6) 6.5 – – (211.9) 308.9 (3.3) 305.6
Balance at 31 December 2019 109.6 2,554.3 113.9 (2.6) 28.8 1.6 169.1 4,702.9 7,677.6 – 7,677.6
1. Non-controlling interests relate to Vailog S.r.l.
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 31 December 2020
Notes 2020 2019
£m
£m
Cash flows from operating activities 15(i) 233.2 291.6
Interest received 42.6 47.1
Dividends received 33.8 33.3
Interest paid (94.2) (91.7)
Cost of new interest rate derivatives transacted (12.4) (11.4)
Proceeds from early close out of interest rate derivatives 12.4 6.9
Cost of early close out of debt (10.9) (18.6)
Tax paid (5.2) (46.9)
Net cash received from operating activities 199.3 210.3
Cash flows from investing activities
Purchase and development of investment properties(1) (1,215.9) (602.9)
Sale of investment properties 159.2 412.4
Acquisition of other interests in property (3.9) (13.3)
Purchase of plant and equipment and intangibles (4.9) (2.7)
Acquisition of other investments (0.3) (1.2)
Investment and loans to joint ventures (39.8) (148.6)
Divestment and repayment of loans from joint ventures – 136.4
Net cash used in investing activities (1,105.6) (219.9)
Cash flows from financing activities
Dividends paid to ordinary shareholders (179.5) (141.7)
Proceeds from borrowings 550.6 10.2
Repayment of borrowings (122.1) (251.1)
Principal element of lease payments (1.6) (0.9)
Settlement of foreign exchange derivatives (55.0) 26.9
Purchase of non-controlling interest – (7.9)
Proceeds from issue of ordinary shares 672.1 444.0
Purchase of ordinary shares (2.0) (3.4)
Net cash generated from financing activities 862.5 76.1
Net (decrease)/increase in cash and cash equivalents (43.8) 66.5
Cash and cash equivalents at the beginning of the year 132.5 66.5
Effect of foreign exchange rate changes 0.3 (0.5)
Cash and cash equivalents at the end of the year 13 89.0 132.5
1. Cash payment for the purchase and development of investment properties of
£1,215.9 million (2019: £602.9 million) represents total costs for property
acquisitions and additions to existing investment properties per Note 12 of
£1,329.3 million (2019: £595.9 million) adjusted for the following cash and
non-cash movements: deducts interest capitalised of £6.8 million (2019: £8.2
million); deducts net movement in capital accruals and prepayments of £29.8
million (2019: adds back £15.2 million); deducts other non-cash movements of
£76.8 million (2019: £nil) mainly for transfers from other interests in
properties and investments and the acquisition of Sofibus Patrimoine SA.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The financial information set out in this announcement does not constitute the
consolidated statutory accounts for the years ended 31 December 2020 and 2019,
but is derived from those accounts. Statutory accounts for 2019 have been
delivered to the Registrar of Companies and those for 2020 (approved by the
Board on 18 February 2021) will be delivered following the Company’s annual
general meeting. The external auditor has reported on the accounts and their
reports did not contain any modifications.
Given due consideration to the nature of the Group’s business and financial
position, including the financial resources available to the Group, the
Directors consider that the Group is a going concern and this financial
information is prepared on that basis.
The financial information set out in this announcement is based on the
consolidated financial statements which are prepared in accordance with
International Accounting Standards (IAS) in conformity with the requirements
of the Companies Act 2006 and International Financial Reporting Standards
(IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and complies with the disclosure requirements of the Listing
Rules of the UK Financial Conduct Authority. The financial information is in
accordance with the accounting policies set out in the 2019 financial
statements apart from as detailed below.
While the financial information included in these condensed financial
statements has been prepared in accordance with the recognition and
measurement criteria of IAS in conformity with the requirements of the
Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union, this announcement does not itself contain
sufficient information to comply with IASs and IFRSs. The Company expects to
publish full financial statements that comply with IASs and IFRSs by March
2021.
The principal exchange rates used to translate foreign currency denominated
amounts are: Balance sheet: £1 = €1.12 (31 December 2019: £1 = €1.18)
and Income statement: £1 = €1.13 (31 December 2019: £1 = €1.14).
New and amended standards adopted by the Group
A number of new or amended standards become applicable for the current
reporting year.
Amendments to IFRS 3 ‘Business Combinations’, Definition of a Business,
provides a revised framework for evaluating a business and introduces an
optional ‘concentration test’. The amendment impacts the assessment and
judgements used in determining whether property transactions represent an
asset acquisition or business combination. As a result of the amendment it is
expected that future transactions are more likely to be treated as an asset
acquisition. The optional ‘concentration test’ has been applied for the
acquisition of Sofibus Patrimoine SA in the year, see Note 7 for further
details.
The other standards and amendments did not have any impact on the amounts
recognised in prior period and are not expected to significantly affect the
current or future periods.
2. ADJUSTED PROFIT
Adjusted profit is a non-GAAP measure and is the Group’s measure of
underlying profit, which is used by the Board and senior management to measure
and monitor the Group’s income performance.
It is based on the Best Practices Recommendations Guidelines of European
Public Real Estate Association (EPRA), which calculate profit excluding
investment and development property revaluations and gains or losses on
disposals. Changes in the fair value of financial instruments and associated
close-out costs and their related taxation, as well as other permitted one-off
items, are also excluded. Refer to the Supplementary Notes for all EPRA
adjustments.
The Directors may also exclude from the EPRA profit measure additional items
(gains and losses) which are considered by them to be non-recurring, unusual
or significant by virtue of size and nature. No non-EPRA adjustments to
underlying profit were made in the current or prior period.
Notes 2020 2019
£m
£m
Gross rental income 4 392.9 362.0
Property operating expenses 5 (88.3) (80.7)
Net rental income 304.6 281.3
Joint venture fee income 4 21.6 20.4
Administration expenses (51.5) (51.5)
Share of joint ventures’ Adjusted profit after tax(1) 6 61.5 54.0
Adjusted operating profit before interest and tax 336.2 304.2
Net finance costs (including adjustments) 8 (39.7) (36.7)
Adjusted profit before tax 296.5 267.5
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from joint ventures after tax(1) 6 175.0 149.1
Realised and unrealised property gain 7 988.6 489.2
Gain on sale of trading properties 12 1.2 6.9
Cost of early close out of debt 8 (10.9) (18.6)
Net fair value gain on interest rate swaps and other derivatives 8 13.7 7.9
Total adjustments 1,167.6 634.5
Profit before tax 1,464.1 902.0
Tax
On Adjusted profit 9 (4.0) (3.2)
In respect of adjustments 9 (31.0) (38.2)
Total tax adjustments (35.0) (41.4)
Profit after tax before non-controlling interests 1,429.1 860.6
Non-controlling interests:
Less: share of adjusted profit attributable to non-controlling interests (0.2) (0.2)
: share of adjustments attributable to non-controlling interests (2.0) (2.5)
Profit after tax and non-controlling interests 1,426.9 857.9
Of which:
Adjusted profit after tax and non-controlling interests 292.3 264.1
Total adjustments after tax and non-controlling interests 1,134.6 593.8
Profit attributable to equity shareholders 1,426.9 857.9
1. A detailed breakdown of the adjustments to the share of profit from joint
ventures is included in Note 6.
3. SEGMENTAL ANALYSIS
The Group’s reportable segments are the geographical Business Units: Greater
London, Thames Valley, National Logistics, Northern Europe (principally
Germany), Southern Europe (principally France) and Central Europe (principally
Poland), which are managed and reported to the Board as separate distinct
Business Units.
31 December 2020 Gross Net rental Share of Adjusted Total directly Investments Capital
rental
income
joint
PBIT(2
owned
in joint
expenditure(3
income
£m
ventures’
)£m
property
ventures
)£m
£m
Adjusted
assets
£m
profit
£m
£m
Thames Valley 83.7 78.3 – 75.8 1,996.7 – 57.5
National Logistics 34.1 33.9 (0.1) 33.3 1,223.3 0.6 267.1
Greater London 160.3 140.3 – 137.7 4,867.0 – 453.9
Northern Europe 29.4 17.9 25.2 47.7 682.3 803.3 29.2
Southern Europe 74.8 43.9 30.4 79.5 1,803.3 914.3 566.0
Central Europe 10.6 4.2 22.0 30.3 150.9 495.7 3.7
Other(1) – (13.9) (16.0) (68.1) – (790.9) 5.0
Total 392.9 304.6 61.5 336.2 10,723.5 1,423.0 1,382.4
31 December 2019 Gross Net rental Share of Adjusted Total directly Investments Capital
rental
income
joint
PBIT(2
owned
in joint
expenditure(3
income
£m
ventures’
)£m
property
ventures
)£m
£m
Adjusted
assets
£m
profit
£m
£m
Thames Valley 78.9 72.8 – 70.9 1,752.4 – 38.4
National Logistics 40.2 36.8 0.5 37.8 871.6 3.9 50.1
Greater London 142.6 129.7 – 127.0 4,001.0 – 199.5
Northern Europe 26.9 15.6 21.8 42.4 573.4 604.3 53.3
Southern Europe 61.9 35.7 24.4 64.1 1,085.6 735.9 254.8
Central Europe 11.5 4.5 19.6 27.3 137.9 435.9 8.2
Other(1) – (13.8) (12.3) (65.3) – (658.6) 2.7
Total 362.0 281.3 54.0 304.2 8,421.9 1,121.4 607.0
1. Other includes the corporate centre, SELP holding companies and costs
relating to the operational business which are not specifically allocated to a
geographical Business Unit. This includes the bonds held by SELP Finance S.à
r.l, a Luxembourg entity.
2. A reconciliation of total Adjusted PBIT to the IFRS profit before tax is
provided in Note 2.
3. Capital expenditure includes additions and acquisitions of investment and
trading properties but does not include tenant incentives, letting fees and
rental guarantees. Part of the capital expenditure incurred is in response to
climate change including the reduction of the carbon footprint of the
Group’s existing investment properties and developments. The ‘Other’
category includes non-property related spend, primarily IT.
4. REVENUE
2020 2019
£m
£m
Rental income from investment and trading properties 335.6 306.9
Rent averaging 18.2 25.1
Service charge income* 35.0 27.6
Management fees* 3.3 1.4
Surrender premiums and dividend income from property related investments 0.8 1.0
Gross rental income(1) 392.9 362.0
Joint venture fee income - management fees* 21.6 20.4
Proceeds from sale of trading properties* 17.2 50.1
Total revenue 431.7 432.5
* The above income streams reflect revenue recognition under IFRS 15
‘Revenue from Contracts with Customers’ and total £77.1 million (2019:
£99.5 million).
1. Net rental income of £304.6 million (2019: £281.3 million) is calculated
as gross rental income of £392.9 million (2019: £362.0 million) less total
property operating expenses of £88.3 million (2019: £80.7 million) shown in
Note 5.
5. COSTS
2020 2019
£m
£m
Vacant property costs 3.4 4.8
Letting, marketing, legal and professional fees 10.1 8.5
Loss allowance and impairment of receivables 3.8 1.0
Service charge expense 35.0 27.6
Other expenses 8.7 10.5
Property management expenses 61.0 52.4
Property administration expenses(1) 36.0 35.6
Costs capitalised(2) (8.7) (7.3)
Total property operating expenses 88.3 80.7
Trading properties cost of sales 16.0 43.2
Total costs 104.3 123.9
1. Property administration expenses predominantly relate to the employee staff
costs of personnel directly involved in managing the property portfolio.
2. Costs capitalised primarily relate to internal employee staff costs
directly involved in developing the property portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Profit from joint ventures after tax
The table below presents a summary Income Statement of the Group’s largest
joint ventures, all of which are accounted for using the equity method.
Roxhill operates in the UK and develops big box logistics assets and SEGRO
European Logistics Partnership (SELP) is incorporated in Luxembourg and owns
logistics property assets in Continental Europe. The Group holds 50 per cent
of the share capital and voting rights in the material joint ventures.
SELP Roxhill Other At 100% At 100% At 50% At 50%
£m
£m
£m
2020
2019
2020
2019
£m
£m
£m
£m
Revenue(1) 242.4 6.9 – 249.3 223.5 124.7 111.8
Gross rental income 242.4 – – 242.4 214.1 121.2 107.1
Property operating expenses
-underlying property operating expenses (11.1) – (0.2) (11.3) (8.5) (5.7) (4.2)
-vacant property costs (2.8) – – (2.8) (2.1) (1.4) (1.1)
-property management fees(2) (19.2) – – (19.2) (17.1) (9.6) (8.6)
-service charge expense (48.0) – – (48.0) (44.1) (24.0) (22.1)
Net rental income 161.3 – (0.2) 161.1 142.3 80.5 71.1
Administration expenses (3.2) – – (3.2) (3.3) (1.6) (1.6)
Finance costs (24.5) – – (24.5) (20.1) (12.3) (10.0)
Adjusted profit/(loss) before tax 133.6 – (0.2) 133.4 118.9 66.6 59.5
Tax (10.3) – – (10.3) (10.9) (5.1) (5.5)
Adjusted profit/(loss) after tax 123.3 – (0.2) 123.1 108.0 61.5 54.0
Adjustments:
Profit/(loss) on sale of investment properties 1.9 – – 1.9 (1.1) 1.0 (0.6)
Valuation surplus on investment properties 424.0 – – 424.0 437.0 212.0 218.6
Impairment of other interests in properties – – – – (9.7) – (4.9)
Profit on sale of trading properties – 0.1 – 0.1 2.1 – 1.1
Other investment income – 5.2 – 5.2 – 2.6 –
Tax in respect of adjustments (81.2) – – (81.2) (130.2) (40.6) (65.1)
Total adjustments 344.7 5.3 – 350.0 298.1 175.0 149.1
Profit/(loss) after tax 468.0 5.3 (0.2) 473.1 406.1 236.5 203.1
Other comprehensive income – – – – – – –
Total comprehensive income/(expense) for the year 468.0 5.3 (0.2) 473.1 406.1 236.5 203.1
1. Total revenue at 100% of £249.3 million (2019: £223.5 million) includes:
Gross rental income £242.4 million (2019: £214.1 million) and proceeds from
sale of trading properties £6.9 million (2019: £9.4 million). Proceeds from
sale of trading properties is presented net of cost of sale and shown in the
line item ‘Profit on sale of trading properties’ in the table above.
2. Property management fees paid to SEGRO.
6(ii) Summarised Balance Sheet information in respect of the Group’s joint
ventures
SELP Roxhill Other At 100% At 100% At 50% At 50%
£m
£m
£m
2020
2019
2020
2019
£m
£m
£m
£m
Investment properties 4,695.3 – – 4,695.3 3,796.7 2,347.7 1,898.3
Other interests in property – 0.2 – 0.2 16.6 0.1 8.3
Total non-current assets 4,695.3 0.2 – 4,695.5 3,813.3 2,347.8 1,906.6
Trading properties – – – – 1.9 – 1.0
Other receivables 111.2 0.9 2.5 114.6 127.3 57.3 63.7
Cash and cash equivalents 46.6 0.1 1.6 48.3 42.0 24.2 21.0
Total current assets 157.8 1.0 4.1 162.9 171.2 81.5 85.7
Total assets 4,853.1 1.2 4.1 4,858.4 3,984.5 2,429.3 1,992.3
Borrowings (1,574.4) – – (1,574.4) (1,338.4) (787.2) (669.2)
Deferred tax (345.5) – – (345.5) (243.2) (172.8) (121.6)
Total non-current liabilities (1,919.9) – – (1,919.9) (1,581.6) (960.0) (790.8)
Borrowings – – – – (50.1) – (25.1)
Other liabilities (92.6) – – (92.6) (110.0) (46.3) (55.0)
Total current liabilities (92.6) – – (92.6) (160.1) (46.3) (80.1)
Total liabilities (2,012.5) – – (2,012.5) (1,741.7) (1,006.3) (870.9)
Net assets 2,840.6 1.2 4.1 2,845.9 2,242.8 1,423.0 1,121.4
The external borrowings of the joint ventures are non-recourse to the Group.
At 31 December 2020, the fair value of £1,574.4 million (2019: £1,388.4
million) of borrowings was £1,651.0 million (2019: £1,427.3 million). This
results in a fair value adjustment decrease in EPRA NDV net asset value of
£76.6 million (2019: £38.9 million decrease), at share £38.3 million (2019:
£19.4 million), see Table 5 of the Supplementary Notes.
SEGRO provides certain services, including venture advisory and asset
management to the SELP joint venture and receives fees for doing so.
Performance fees are payable from SELP to SEGRO based on its IRR subject to
certain hurdle rates. The first calculation and payment was on the fifth
anniversary of the inception of SELP, being October 2018, but 50 per cent of
this is subject to clawback based on performance over the period to the tenth
anniversary, October 2023. If performance has improved at this point,
additional fees might be triggered.
In 2018 SELP paid a £52.4 million performance fee including the amount
subject to clawback (fee denominated in euros). Only £26.2 million,
representing the 50 per cent of the performance fee paid not subject to future
clawback, was recognised by SEGRO in the 2018 Income Statement (SELP
recognised a corresponding performance fee expense of £26.2 million (at share
£13.1 million) in the SELP 2018 Income Statement).
SEGRO has not recognised the 50 per cent of the performance fee income subject
to future clawback in the Income Statement as management have judged the
revenue recognition criteria has not been met (accordingly the performance fee
expense has not been recognised in the share of profits from joint ventures in
table 6(i)). The IRR calculation to determine whether the hurdle rates will be
met when the performance period ends in October 2023 is an estimation and
sensitive to movements and assumptions in property valuations over the
remaining performance period. Due to the estimation uncertainties that exist
in calculating the IRR management do not consider it highly probable there
will not be a significant reversal of the fee subject to clawback over the
remaining performance period. The performance fee subject to clawback has been
recognised by SEGRO as a contract liability within Trade and other payables at
31 December 2020 and 31 December 2019.
6(iii) Investments by Group
2020 2019
£m
£m
Cost or valuation at 1 January 1,121.4 999.9
Exchange movement 62.0 (65.2)
Net investments(1) 39.8 16.9
Disposals (2.9) –
Dividends received(2) (33.8) (33.3)
Share of profit after tax 236.5 203.1
Cost or valuation at 31 December 1,423.0 1,121.4
1. Net investments represent the net movement of capital injections, loans and
divestments with joint ventures during the period.
2. Dividends received from SELP and Roxhill.
7. REALISED AND UNREALISED PROPERTY GAIN
2020 2019
£m
£m
Profit on sale of investment properties 5.1 7.2
Valuation surplus on investment properties(1) 970.6 476.7
(Increase)/decrease in provision for impairment of trading properties (0.1) 1.4
Increase in provision for impairment of other interests in property (0.6) (0.4)
Valuation surplus on other investments(2) 13.6 4.3
Total realised and unrealised property gain 988.6 489.2
1. Includes £971.1 million valuation surplus on investment properties (2019:
£477.1 million) less £0.5 million valuation loss on head lease ROU asset
(2019: £0.4 million).
2. On 15 December 2020 SEGRO acquired an additional 74.9 per cent of the share
capital of Sofibus Patrimoine SA (Sofibus) for €178.6 million. This
increased SEGRO’s total shareholding in Sofibus to 94.4 per cent and as a
result Sofibus is now controlled by the Group. As control of Sofibus was
achieved in stages, the carrying value of the previously held 19.5 per cent
equity interest which was classified as Other investments has been remeasured
to fair value at the acquisition date. This resulted in a fair value gain of
£13.6 million which has been recognised in the Income Statement within
realised and unrealised property gain and shown in the table above. The
transaction has been treated as an asset acquisition and therefore the
property acquired is reflected in the ‘Property acquisitions’ line in the
tables shown in Note 12. In February 2021 SEGRO filed a draft offer document
with the French financial market authority as part of the process to acquire
the remaining 5.6% shares in Sofibus at a price of €313.71 per share
(€13.7 million in total). SEGRO intends to enter Sofibus into the French
SIIC regime during 2021.
Total valuation surplus on investment and trading properties total £1,182.5
million (2019: £696.7 million). This comprises £970.6 million surplus from
investment properties (2019: £476.7 million), £0.1 million impairment from
trading properties (2019: £1.4 million surplus) and £212.0 million surplus
from joint ventures at share (2019: £218.6 million).
Details of realised gains on sale of trading properties are given in Note
12(ii).
8. NET FINANCE COSTS
Finance income 2020 2019
£m
£m
Interest received on bank deposits and related derivatives 27.0 32.0
Fair value gain on interest rate swaps and other derivatives 23.0 33.1
Exchange differences – 0.2
Total finance income 50.0 65.3
Finance costs 2020 2019
£m
£m
Interest on overdrafts, loans and related derivatives (68.0) (71.8)
Cost of early close out of debt (10.9) (18.6)
Amortisation of issue costs (2.4) (2.3)
Interest on lease liabilities (3.1) (3.0)
Total borrowing costs (84.4) (95.7)
Less amount capitalised on the development of properties 7.0 8.2
Net borrowing costs (77.4) (87.5)
Fair value loss on interest rate swaps and other derivatives (9.3) (25.2)
Exchange differences (0.2) –
Total finance costs (86.9) (112.7)
Net finance costs (36.9) (47.4)
Net finance costs (including adjustments) in Adjusted profit (Note 2) are
£39.7 million (2019: £36.7 million). This excludes net fair value gains and
losses on interest rate swaps and other derivatives of £13.7 million gain
(2019: £7.9 million gain) and the cost of early close out of debt of £10.9
million (2019: £18.6 million).
9. TAX
9(i) Tax on profit
2020 2019
£m
£m
Tax:
On Adjusted profit (4.0) (3.2)
In respect of adjustments (31.0) (38.2)
Total tax charge (35.0) (41.4)
Current tax
United Kingdom
Current tax credit 0.9 0.3
Total UK current tax credit 0.9 0.3
Overseas
Current tax charge (8.1) (12.0)
Adjustments in respect of earlier years 4.4 (0.3)
Total overseas current tax charge (3.7) (12.3)
Total current tax charge (2.8) (12.0)
Deferred tax
Origination and reversal of temporary differences (3.2) (6.1)
Released in respect of property disposals in the year 5.0 4.7
On valuation movements (39.0) (39.2)
Total deferred tax in respect of investment properties (37.2) (40.6)
Other deferred tax 5.0 11.2
Total deferred tax charge (32.2) (29.4)
Total tax charge on profit on ordinary activities (35.0) (41.4)
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Exchange Acquisitions/ Recognised in Balance
1 January 2020
movement
disposals
income
31 December 2020
£m
£m
£m
£m
£m
Valuation surpluses and deficits on properties/accelerated tax allowances 51.4 3.6 (1.9) 31.3 84.4
Deferred tax asset on revenue losses (0.5) – – – (0.5)
Others 2.3 0.1 (0.2) 0.9 3.1
Total deferred tax liabilities 53.2 3.7 (2.1) 32.2 87.0
10. DIVIDENDS
2020 2019
£m
£m
Ordinary dividends paid
Interim dividend for 2020 @ 6.90 pence per share 82.2 –
Final dividend for 2019 @ 14.40 pence per share 157.9 –
Interim dividend for 2019 @ 6.30 pence per share – 68.9
Final dividend for 2018 @ 13.25 pence per share – 143.7
Total dividends 240.1 212.6
The Board recommends a final dividend for 2020 of 15.2 pence which is
estimated to result in a distribution of up to £181.1 million. The total
dividend paid and proposed per share in respect of the year ended 31 December
2020 is 22.1 pence (2019: 20.7 pence).
The total dividend in 2020 of £240.1 million (2019: £212.6 million) was
paid: £179.5 million as cash (2019: £141.7 million) and £60.6 million in
scrip dividends (2019: £70.9 million).
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average number of shares
in issue during the year and the net assets per share calculations use the
number of shares in issue at year end. Earnings per share calculations exclude
0.4 million shares (2019: 0.4 million) being the average number of shares held
on trust for employee share schemes and net assets per share calculations
exclude 0.3 million shares (2019: 0.6 million) being the actual number of
shares held on trust for employee share schemes at year end.
11(i) Earnings per ordinary share (EPS)
2020 2019
Earnings Shares Pence per Earnings Shares Pence per
£m
million
share
£m
million
share
Basic EPS 1,426.9 1,149.8 124.1 857.9 1,081.3 79.3
Dilution adjustments:
Share and save as you earn schemes – 4.7 (0.5) – 5.8 (0.4)
Diluted EPS 1,426.9 1,154.5 123.6 857.9 1,087.1 78.9
Basic EPS 1,426.9 1,149.8 124.1 857.9 1,081.3 79.3
Adjustments to profit before tax(1) (1,167.6) (101.6) (634.5) (58.7)
Tax in respect of Adjustments 31.0 2.7 38.2 3.6
Non-controlling interest on Adjustments 2.0 0.2 2.5 0.2
Adjusted Basic EPS 292.3 1,149.8 25.4 264.1 1,081.3 24.4
Adjusted Diluted EPS 292.3 1,154.5 25.3 264.1 1,087.1 24.3
1. Details of adjustments are included in Note 2.
11(ii) Net asset value per share (NAV)
In October 2019, EPRA issued new Best Practices Recommendations guidelines for
Net Asset Value (NAV) metrics, these recommendations are effective for
accounting periods starting on 1 January 2020 and have been adopted by the
Group in reporting the 31 December 2020 position.
EPRA have introduced three new NAV metrics: EPRA Net Tangible Assets (NTA),
EPRA Net Reinstatement Value (NRV) and EPRA Net Disposal Value (NDV).
EPRA NTA is considered to be most consistent with the nature of SEGRO’s
business as a UK REIT providing long-term progressive and sustainable returns.
EPRA NTA now acts as the primary measure of net asset value and is also
referred to as Adjusted Net Asset Value (or Adjusted NAV).
A reconciliation from IFRS NAV to Adjusted NAV as at 31 December 2020 is set
out in the table below along with the net asset per share metrics. The 31
December 2019 position has been represented on a comparable basis.
Table 5 of the Supplementary Notes provides more details of the changes and
the calculation for each of the three new EPRA net asset value metrics.
2020 2019
Equity Shares Pence Equity Shares Pence
attributable to
million
per share
attributable to
million
per share
ordinary
ordinary
shareholders
shareholders
£m
£m
Basic NAV 9,659.2 1,191.3 811 7,677.6 1,096.1 700
Dilution adjustments:
Share and save as you earn schemes – 3.4 (2) – 6.0 (3)
Diluted NAV 9,659.2 1,194.7 809 7,677.6 1,102.1 697
Fair value adjustment in respect of interest rate derivatives – Group (61.0) (5) (50.5) (5)
Fair value adjustment in respect of trading properties – Group 0.9 – – –
Fair value adjustment in respect of trading properties – Joint ventures – – 0.9 –
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 42.2 3 26.0 2
Deferred tax in respect of depreciation and valuation surpluses – Joint 85.5 7 60.6 6
ventures(1)
Intangible assets (1.6) – (2.5) –
Adjusted NAV 9,725.2 1,194.7 814 7,712.1 1,102.1 700
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating Adjusted NAV in line with option 3
of EPRA Best Practices Recommendations guidelines.
12. PROPERTIES
12(i) Investment properties
Completed Development Total
£m
£m
£m
At 1 January 2020 7,407.2 807.9 8,215.1
Exchange movement 75.9 20.9 96.8
Property acquisitions 564.0 260.3 824.3
Additions to existing investment properties 34.0 471.0 505.0
Disposals (140.3) (14.6) (154.9)
Transfers on completion of development 620.6 (620.6) –
Transfer from trading properties – 1.5 1.5
Revaluation surplus during the year 835.6 135.5 971.1
At 31 December 2020 9,397.0 1,061.9 10,458.9
Add tenant lease incentives, letting fees and rental guarantees 135.6 – 135.6
Investment properties excluding head lease ROU assets at 31 December 2020 9,532.6 1,061.9 10,594.5
Add head lease liabilities (ROU assets)(1) 76.9 – 76.9
Total investment properties at 31 December 2020 9,609.5 1,061.9 10,671.4
1. At 31 December 2020 investment properties included £76.9 million (2019:
£70.2 million) for the head lease liabilities recognised under IFRS 16.
Investment properties are stated at fair value as at 31 December 2020 based on
external valuations performed by professionally qualified, independent
valuers. The Group’s wholly-owned and joint venture property portfolio is
valued by CBRE Ltd on a half-yearly basis. The valuations conform to
International Valuation Standards and were arrived at by reference to market
evidence of the transaction prices paid for similar properties. In estimating
the fair value of the properties, the valuers consider the highest and best
use of the properties. There has been no change to the valuation technique
during the year.
CBRE Ltd also undertakes some professional and agency work on behalf of the
Group, although this is limited relative to the activities provided by other
advisors to the Group as a whole.
Completed properties include buildings that are occupied or are available for
occupation. Development properties include land available for development
(land bank), land under development and construction in progress.
The carrying value of investment properties situated on land held under
leaseholds is £178.9 million (excluding head lease ROU assets) (2019: £151.5
million).
The disposals of investment properties during the year include properties with
a carrying value of £92.1 million (2019: £221.0 million) sold to the SELP
joint venture. Total proceeds received by SEGRO was £92.9 million (2019:
£229.0 million).
12(ii) Trading properties
2020 2019
£m
£m
At 1 January 20.2 51.7
Exchange movement 1.4 (1.2)
Property acquisitions 34.2 –
Additions to existing trading properties 13.9 8.4
Disposals(1) (16.0) (43.2)
(Increase)/decrease in provision for impairment during the year (0.1) 1.4
Transfer (to)/from investment properties (1.5) 3.1
At 31 December 52.1 20.2
1. Gain on sale of trading properties of £1.2 million in the year (2019:
£6.9 million) have been generated from total proceeds of £17.2 million
(2019: £50.1 million), see Note 4, less costs of £16.0 million (2019: £43.2
million), see Note 5.
Trading properties were externally valued, as detailed in Note 12(i),
resulting in an increase in the provision for impairment of £0.1 million
(2019: decrease of £1.4 million). Based on the fair value at 31 December
2020, the portfolio has unrecognised surplus of £0.9 million (2019: £nil).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
2020 2019
£m
£m
In one year or less 0.9 –
In more than one year but less than two 0.9 79.3
In more than two years but less than five 217.8 120.6
In more than five years but less than ten 934.2 896.5
In more than ten years 1,260.2 847.1
In more than one year 2,413.1 1,943.5
Total borrowings 2,414.0 1,943.5
Cash and cash equivalents (89.0) (132.5)
Net borrowings 2,325.0 1,811.0
Total borrowings is split between secured and unsecured as follows:
Secured (on land, buildings and other assets) 14.5 2.6
Unsecured 2,399.5 1,940.9
Total borrowings 2,414.0 1,943.5
Currency profile of total borrowings after derivative instruments
Sterling 179.5 184.7
Euros 2,234.5 1,758.8
Total borrowings 2,414.0 1,943.5
Maturity profile of undrawn borrowing facilities
In one year or less 18.8 8.5
In more than one year but less than two – –
In more than two years 953.6 1,032.2
Total available undrawn facilities 972.4 1,040.7
During the year the Group undertook a debt refinancing exercise including
issuing €450 million of US Private Placement notes and redeemed £118
million of sterling bonds due in 2021 and 2022 at a cost of £10.9 million
above carrying value (see Note 8). The debt refinancing is discussed in more
detail in the Finance Review.
14. SHARE CAPITAL
Number of Par value of
shares
shares
£m
£m
Issued and fully paid ordinary shares at 10p each:
At 1 January 2020 1,096.7 109.6
Issue of shares – placing 82.9 8.3
Issue of shares – scrip dividends 8.2 0.8
Issue of shares – other 3.8 0.4
At 31 December 2020 1,191.6 119.1
On 9 June 2020 the Company announced the placing of 82.9 million ordinary
shares of 10 pence each in the capital of the Company at a price of 820 pence
per share. The Company raised £680.0 million, before £8.7 million expenses
and as a result the Company’s share capital increased by £8.3 million and
share premium by £663.0 million.
15. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
15(i) Reconciliation of cash generated from operations
2019 2019
£m
£m
Operating profit 1,501.0 949.4
Adjustments for:
Depreciation of property, plant and equipment 3.6 3.4
Share of profit from joint ventures after tax (236.5) (203.1)
Profit on sale of investment properties (5.1) (7.2)
Revaluation surplus on investment properties (970.6) (476.7)
Valuation gain on other investments (13.6) (4.3)
Other provisions 3.9 8.2
282.7 269.7
Changes in working capital:
(Increase)/decrease in trading properties (19.6) 30.9
Increase in debtors and tenant incentives (52.4) (59.3)
Increase in creditors 22.5 50.3
Net cash inflow generated from operations 233.2 291.6
15(ii) Analysis of net debt
Cash Non-cash adjustments
movements
At Acquired(4 Exchange Fair value Cost of early Other At
1 January
)£m
movement
changes
close out of
non-cash
31 December
2020
£m
£m
debt
Adjustment(3
2020
£m
£m
)£m
£m
Cash Cash
inflow(1
outflow(2
)£m
)£m
Bank loans and loan capital 1,958.3 12.1 550.6 (133.0) 31.6 – 10.9 – 2,430.5
Capitalised finance costs (14.8) – – (4.1) – – – 2.4 (16.5)
Total borrowings 1,943.5 12.1 550.6 (137.1) 31.6 – 10.9 2.4 2,414.0
Cash in hand and at bank (132.5) (19.6) – 63.4 (0.3) – – – (89.0)
Net debt 1,811.0 (7.5) 550.6 (73.7) 31.3 – 10.9 2.4 2,325.0
1. Proceeds from borrowings of £550.6 million.
2. Group cash outflow of £137.1 million, comprises the repayment of
borrowings of £122.1 million, cash settlement for early repayment of debt of
£10.9 million and capitalised issue costs of £4.1 million.
3. The other non-cash adjustment relates to the amortisation of issue costs.
See Note 8.
4. Acquired represents cash and borrowings assumed from the acquisition of
Sofibus detailed further in Note 7.
16. RELATED PARTY TRANSACTIONS
There have been no undisclosed material changes in the related party
transactions as described in the last annual report, other than those
disclosed elsewhere in this condensed set of financial information.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
2020 2019
£m Pence per £m Pence per
share
share
Notes
EPRA Earnings Table 4 292.3 25.4 264.1 24.4
EPRA NTA Table 5 9,725.2 814 7,712.1 700
EPRA NRV Table 5 10,571.2 885 8,370.7 760
EPRA NDV Table 5 9,155.3 766 7,425.8 674
EPRA net initial yield Table 6 3.8% 3.8%
EPRA ‘topped up’ net initial yield Table 6 4.1% 4.3%
EPRA vacancy rate Table 7 3.9% 4.0%
EPRA cost ratio (including vacant property costs) Table 8 21.1% 22.9%
EPRA cost ratio (excluding vacant property costs) Table 8 20.1% 21.5%
TABLE 2: INCOME STATEMENT, PROPORTIONAL CONSOLIDATION
2020 2019
Notes Group JV Total Group JV Total
£m
£m
£m
£m
£m
£m
Gross rental income 2,6 392.9 121.2 514.1 362.0 107.1 469.1
Property operating expenses 2,6 (88.3) (31.1) (119.4) (80.7) (27.4) (108.1)
Net rental income 304.6 90.1 394.7 281.3 79.7 361.0
Joint venture fee income(1) 2 21.6 (9.6) 12.0 20.4 (8.6) 11.8
Administration expenses 2,6 (51.5) (1.6) (53.1) (51.5) (1.6) (53.1)
Adjusted operating profit before interest and tax 274.7 78.9 353.6 250.2 69.5 319.7
Net finance costs (including adjustments) 2,6 (39.7) (12.3) (52.0) (36.7) (10.0) (46.7)
Adjusted profit before tax 235.0 66.6 301.6 213.5 59.5 273.0
Tax on adjusted profit 2,6 (4.0) (5.1) (9.1) (3.2) (5.5) (8.7)
Adjusted/EPRA earnings before non-controlling interests 231.0 61.5 292.5 210.3 54.0 264.3
Non-controlling interest on adjusted profit 2,6 (0.2) – (0.2) (0.2) – (0.2)
Adjusted/EPRA earnings after non-controlling interests 230.8 61.5 292.3 210.1 54.0 264.1
Number of shares, million 11 1,149.8 1,081.3
Adjusted/EPRA EPS, pence per share 25.4 24.4
Number of shares, million 11 1,154.5 1,087.1
Adjusted/EPRA EPS, pence per share – diluted 25.3 24.3
1. Joint venture fee income includes the cost of such fees borne by the joint
ventures which are shown in Note 6 within net rental income.
As discussed in Note 2 there were no non-EPRA adjustments to underlying profit
made in the current or prior period, therefore Adjusted earnings is equal to
EPRA earnings in the table above.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
2020 2019
Notes Group JV Total Group JV Total
£m
£m
£m
£m
£m
£m
Investment properties 12,6 10,671.4 2,347.7 13,019.1 8,401.7 1,898.3 10,300.0
Trading properties 12,6 52.1 – 52.1 20.2 1.0 21.2
Total properties 10,723.5 2,347.7 13,071.2 8,421.9 1,899.3 10,321.2
Investment in joint ventures 6 1,423.0 (1,423.0) – 1,121.4 (1,121.4) –
Other net liabilities (162.3) (161.7) (324.0) (54.7) (104.6) (159.3)
Net borrowings 13,6 (2,325.0) (763.0) (3,088.0) (1,811.0) (673.3) (2,484.3)
Total shareholders’ equity(1) 9,659.2 – 9,659.2 7,677.6 – 7,677.6
EPRA adjustments 11 66.0 34.5
Adjusted NAV 11 9,725.2 7,712.1
Number of shares, million 11 1,194.7 1,102.1
Adjusted NAV, pence per share 11 814 700
1. After non-controlling interests.
Loan to value of 23.8 per cent is calculated as net borrowings of £3,088.0
million divided by total properties (excluding head lease ROU asset of £76.9
million) of £12,994.3 million (2019: 24.2 per cent; £2,484.3 million net
borrowings; £10,251.0 million total properties).
The portfolio valuation uplift of 10.3 per cent shown in the Investment Update
section cannot be directly derived from the Financial Statements and is
calculated to be comparable with published MSCI Real Estate indices against
which we are measured. Based on the Financial Statements there is a valuation
surplus of £1,182.5 million (see Note 7) and property value of £12,994.3
million (paragraph above) giving a valuation uplift of 10.0 per cent. The
primary differences are that the uplift excludes the impact of rent free
incentives (£23.5 million, +0.2 per cent) and other movements (£7.0 million,
+0.1 per cent) primarily due to foreign exchange based on closing rate as
opposed to average used in the Financial Statements.
Total assets under management of £15,342.8 million (2019: £12,220.5 million)
includes Group total properties of £10,647.5 million (which excludes head
lease ROU asset of £76.9 million and includes valuation surpluses not
recognised on trading properties of £0.9 million) and 100 per cent of total
properties owned by joint ventures of £4,695.3 million (see Note 6 (ii)).
Total disposals completed in 2020 of £138.8 million shown in the Investment
Update section includes: Carrying value of investment properties disposed by
SEGRO Group of £154.9 million (see Note 12) and profit generated on disposal
of £5.1 million (see Note 7); proceeds from the sale of trading properties by
SEGRO Group of £17.2 million (see Note 4); share of joint venture disposal
proceeds of £7.6 million; carrying value of lease incentives, letting fees
and rental guarantees disposed by SEGRO Group and joint venture (at share) of
£3.0 million; and excludes 50 per cent of the disposal proceeds for assets
sold by SEGRO to SELP JV of £46.5 million (see Note 12) and certain proceeds
from the sale of trading properties of £2.5 million.
TABLE 4: EPRA EARNINGS
Notes 2020 2019
£m
£m
Earnings per IFRS income statement 1,426.9 857.9
Adjustments to calculate EPRA Earnings, exclude:
Valuation surplus on investment properties 7 (970.6) (476.7)
Profit on sale of investment properties 7 (5.1) (7.2)
Gain on sale trading properties 12 (1.2) (6.9)
Increase/(decrease) in provision for impairment of trading properties 7 0.1 (1.4)
Increase in provision for impairment of other interests in property 7 0.6 0.4
Valuation surplus on other investments 7 (13.6) (4.3)
Tax on profits on disposals(1) (0.3) 9.2
Costs of early close out of debt 8 10.9 18.6
Net fair value gain on interest rate swaps and other derivatives 8 (13.7) (7.9)
Deferred tax charge in respect of EPRA adjustments(1) 31.3 29.0
Adjustments to the share of profit from joint ventures after tax 6 (175.0) (149.1)
Non-controlling interests in respect of the above 2 2.0 2.5
EPRA earnings 292.3 264.1
Basic number of shares, million 11 1,149.8 1,081.3
EPRA Earnings per Share (EPS) 25.4 24.4
Company specific adjustments:
Non-EPRA adjustments 2 – –
Adjusted earnings 292.3 264.1
Adjusted EPS 11 25.4 24.4
1. Total tax charge in respect of adjustments per Note 2 of £31.0 million
(2019: £38.2 million charge) comprises tax credit on profits on disposals of
£0.3 million (2019: £9.2 million charge) and deferred tax charge of £31.3
million (2019: £29.0 million charge).
TABLE 5: EPRA NET ASSET MEASURES
In October 2019, the European Public Real Estate Association (EPRA) published
new Best Practices Recommendations (BPR) for financial disclosures by public
real estate companies. The BPR introduced three new measures of net asset
value: EPRA net tangible assets (NTA), EPRA net reinstatement value (NRV) and
EPRA net disposal value (NDV).
These recommendations are effective for accounting periods starting on 1
January 2020 and have been adopted by the Group in reporting the 31 December
2020 position.
EPRA NTA is considered to be most consistent with the nature of SEGRO’s
business as a UK REIT providing long-term progressive and sustainable returns.
EPRA NTA now acts as the primary measure of net asset value and is also
referred to as Adjusted Net Asset Value (or Adjusted NAV).
A reconciliation of the three new EPRA NAV metrics from IFRS NAV is shown in
the table below. The previously reported EPRA NAV and EPRA NNNAV have also
been included for comparative purposes.
Current measures Previously reported measures
As at 31 December 2020 EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
£m
£m
£m
£m
£m
Equity attributable to ordinary shareholders 9,659.2 9,659.2 9,659.2 9,659.2 9,659.2
Fair value adjustment in respect of interest rate derivatives – Group (61.0) (61.0) - (61.0) -
Fair value adjustment in respect of trading properties – Group 0.9 0.9 0.9 0.9 0.9
Fair value adjustment in respect of trading properties – Joint ventures - - - - -
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 42.2 84.4 - 84.4 -
Deferred tax in respect of depreciation and valuation surpluses – Joint 85.5 171.0 - 171.0 -
ventures(1)
Intangible assets (1.6) - - - -
Fair value adjustment in respect of debt – Group - - (466.5) - (466.5)
Fair value adjustment in respect of debt – Joint ventures - - (38.3) - (38.3)
Real estate transfer tax(2) - 716.7 - - -
Net assets 9,725.2 10,571.2 9,155.3 9,854.5 9,155.3
Diluted shares (million) 1,194.7 1,194.7 1,194.7 1,194.7 1,194.7
Diluted new assets per share 814 885 766 825 766
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’
costs. Purchasers’ costs are added back when calculating EPRA NRV.
Current measures Previously reported measures
As at 31 December 2019 EPRA NTA EPRA NRV EPRA NDV EPRA NAV EPRA NNNAV
£m
£m
£m
£m
£m
Equity attributable to ordinary shareholders 7,677.6 7,677.6 7,677.6 7,677.6 7,677.6
Fair value adjustment in respect of interest rate derivatives – Group (50.5) (50.5) - (50.5) -
Fair value adjustment in respect of trading properties – Group - - - - -
Fair value adjustment in respect of trading properties – Joint ventures 0.9 0.9 0.9 0.9 0.9
Deferred tax in respect of depreciation and valuation surpluses – Group(1) 26.0 51.9 - 51.9 -
Deferred tax in respect of depreciation and valuation surpluses – Joint 60.6 121.1 - 121.1 -
ventures(1)
Intangible assets (2.5) - - - -
Fair value adjustment in respect of debt – Group - - (233.3) - (233.3)
Fair value adjustment in respect of debt – Joint ventures - - (19.4) - (19.4)
Real estate transfer tax(2) - 569.7 - - -
Net assets 7,712.1 8,370.7 7,425.8 7,801.0 7,425.8
Diluted shares (million) 1,102.1 1,102.1 1,102.1 1,102.1 1,102.1
Diluted new assets per share 700 760 674 708 674
1. 50 per cent of deferred tax in respect of depreciation and valuation
surpluses has been excluded in calculating EPRA NTA in line with option 3 of
EPRA BPR guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS values which are net of purchasers’
costs. Purchasers’ costs are added back when calculating EPRA NRV.
TABLE 6: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL YIELD
Combined property portfolio including joint ventures at share – 2020 Notes UK Continental Total
£m
Europe
£m
£m
Total properties per financial statements Table 3 8,087.0 4,984.2 13,071.2
Add valuation surplus not recognised on trading properties(1) 12 0.9 – 0.9
Less head lease ROU assets 12 – (76.9) (76.9)
Combined property portfolio per external valuers’ report 8,087.9 4,907.3 12,995.2
Less development properties (investment, trading and joint ventures) (673.1) (514.9) (1,188.0)
Net valuation of completed properties 7,414.8 4,392.4 11,807.2
Add notional purchasers’ costs 501.6 215.1 716.7
Gross valuation of completed properties including notional purchasers’ costs A 7,916.4 4,607.5 12,523.9
Income
Gross passing rents(2) 282.3 198.5 480.8
Less irrecoverable property costs (3.0) (7.5) (10.5)
Net passing rents B 279.3 191.0 470.3
Adjustment for notional rent in respect of rent frees 23.7 22.2 45.9
Topped up net rent C 303.0 213.2 516.2
Including fixed/minimum uplifts(4) 10.8 0.1 10.9
Total topped up net rent 313.8 213.3 527.1
Yields – 2020 % % %
EPRA net initial yield(3) B/A 3.5 4.1 3.8
EPRA topped up net initial yield(3) C/A 3.8 4.6 4.1
Net true equivalent yield 4.3 4.8 4.5
1. Trading properties are recorded in the Financial Statements at the lower of
cost and net realisable value, therefore valuations above cost have not been
recognised.
2. Gross passing rent excludes short-term lettings and licences.
3. In accordance with the Best Practices Recommendations of EPRA.
4. Certain leases contain clauses which guarantee future rental increases,
whereas most leases contain five-yearly, upwards only rent review clauses (UK)
or indexation clauses (Continental Europe).
TABLE 7: EPRA VACANCY RATE
2020 2019
£m
£m
Annualised estimated rental value of vacant premises 21.8 19.2
Annualised estimated rental value for the completed property portfolio 560.9 474.2
EPRA vacancy rate 3.9% 4.0%
TABLE 8: TOTAL COST RATIO/EPRA COST RATIO
Notes 2020 2019
£m
£m
Costs
Property operating expenses(1) 5 88.3 80.7
Administration expenses 51.5 51.5
Share of joint venture property operating and administration expenses 6 42.3 37.6
Less:
Joint venture property management fee income, service charge income, (87.3) (74.6)
management fees and other costs recovered through rents but not separately
invoiced(2)
Total costs (A) 94.8 95.2
Gross rental income
Gross rental income 4 392.9 362.0
Share of joint venture property gross rental income 6 121.2 107.1
Less:
Service charge income, management fees and other costs recovered through rents (65.7) (54.2)
but not separately invoiced(2)
Total gross rental income (B) 448.4 414.9
Total cost ratio (A)/(B) 21.1% 22.9%
Total costs (A) 94.8 95.2
Share based payments (10.4) (12.5)
Total costs after share based payments (C) 84.4 82.7
Total cost ratio after share based payments (C)/(B) 18.8% 19.9%
EPRA cost ratio
Total costs (A) 94.8 95.2
Non-EPRA adjustments 2 – –
EPRA total costs including vacant property costs (D) 94.8 95.2
Group vacant property costs 5 (3.4) (4.8)
Share of joint venture vacant property costs 6 (1.4) (1.1)
EPRA total costs excluding vacant property costs (E) 90.0 89.3
Total gross rental income (B) 448.4 414.9
Total EPRA cost ratio (including vacant property costs) (D)/(B) 21.1% 22.9%
Total EPRA cost ratio (excluding vacant property costs) (E)/(B) 20.1% 21.5%
1. Property operating expenses are net of costs capitalised in accordance with
IFRS of £8.7 million (2019: £7.3 million) (see Note 5 for further detail on
the nature of costs capitalised).
2. Total deduction of £87.3 million (2019: £74.6 million) from costs
includes: joint venture management fees income of £21.6 million (2019: £20.4
million), service charge income including joint ventures of £59.0 million
(2019: £49.7 million) and management fees and other costs recovered through
rents but not separately invoiced, including joint ventures, of £6.7 million
(2019: £4.5 million). These items have been represented as an offset against
costs rather than a component of income in accordance with EPRA BPR Guidelines
as they are reimbursing the Group for costs incurred. Gross rental income of
£392.9 million (2019: £362.0 million) does not include joint venture
management fees income of £21.6 million (2019: £20.4 million) and are not
included in the total deduction to income of £65.7 million (2019: £54.2
million).
GLOSSARY OF TERMS
Completed portfolio: The completed investment properties and the Group’s
share of joint ventures’ completed investment properties. Includes
properties held throughout the period, completed developments and properties
acquired during the period.
Development pipeline: The Group’s current programme of developments
authorised or in the course of construction at the Balance Sheet date (Current
Pipeline), together with potential schemes not yet commenced on land owned or
controlled by the Group (Future Pipeline).
EPRA: The European Public Real Estate Association, a real estate industry
body, which has issued Best Practices Recommendations in order to provide
consistency and transparency in real estate reporting across Europe.
Estimated cost to completion: Costs still to be expended on a development or
redevelopment to practical completion, including attributable interest.
Estimated rental value (ERV): The estimated annual market rental value of
lettable space as determined biannually by the Group’s valuers.
This will normally be different from the rent being paid.
Gearing: Net borrowings divided by total shareholders’ equity excluding
intangible assets and deferred tax provisions.
Gross rental income: Contracted rental income recognised in the period in the
Income Statement, including surrender premiums.
Lease incentives, initial costs and any contracted future rental increases are
amortised on a straight-line basis over the lease term.
Headline rent: The annual rental income currently receivable on a property as
at the Balance Sheet date (which may be more or less than the ERV) ignoring
any rent-free period.
Hectares (Ha): The area of land measurement used in this analysis. The
conversion factor used, where appropriate, is 1 hectare = 2.471 acres.
IFRS: International Financial Reporting Standards, the standards under which
SEGRO reports its financial accounts.
Investment property: Completed land and buildings held for rental income
return and/or capital appreciation.
Joint venture: An entity in which the Group holds an interest and which is
jointly controlled by the Group and one or more partners under a contractual
arrangement whereby decisions on financial and operating policies essential to
the operation, performance and financial position of the venture require each
partner’s consent.
Loan to value (LTV): Net borrowings divided by the carrying value of total
property assets (investment, owner occupied, trading properties and, if
appropriate, assets held for sale on the balance sheet) and excludes head
lease ROU asset. This is reported on a ‘look-through’ basis (including
joint ventures at share).
MSCI: MSCI Real Estate calculates indices of real estate performance around
the world.
Net initial yield: Passing rent less non-recoverable property expenses such as
empty rates, divided by the property valuation plus notional purchasers’
costs. This is in accordance with EPRA’s Best Practices Recommendations.
Net rental income: Gross rental income less ground rents paid, net service
charge expenses and property operating expenses.
Net true equivalent yield: The internal rate of return from an investment
property, based on the value of the property assuming the current passing rent
reverts to ERV and assuming the property becomes fully occupied over time. It
assumes that rent is received quarterly in advance.
Passing rent: The annual rental income currently receivable on a property as
at the Balance Sheet date (which may be more or less than the ERV). Excludes
rental income where a rent free period is in operation. Excludes service
charge income (which is netted off against service charge expenses).
Pre-let: A lease signed with an occupier prior to commencing construction of a
building.
REIT: A qualifying entity which has elected to be treated as a Real Estate
Investment Trust for tax purposes. In the UK, such entities must be listed on
a recognised stock exchange, must be predominantly engaged in property
investment activities and must meet certain ongoing qualifications. SEGRO plc
and its UK subsidiaries achieved REIT status with effect from 1 January 2007.
Rent-free period: An incentive provided usually at commencement of a lease
during which a customer pays no rent. The amount of rent free is the
difference between passing rent and headline rent.
Rent roll: See Passing Rent.
SELP: SEGRO European Logistics Partnership, a 50-50 joint venture between
SEGRO and the Public Sector Pension Investment Board (PSP Investments)
established in 2013 to own big box warehouses in Continental Europe.
SIIC: Sociétés d’investissements Immobiliers Cotées are the French
equivalent of UK Real Estate Investment Trusts (see REIT).
Speculative development: Where a development has commenced prior to a lease
agreement being signed in relation to that development.
SPPICAV: Société de Placement à Prépondérance Immobilière à Capital
Variable is a French equivalent of UK Real Estate Investment Trusts (see
REIT).
Square metres (sq m): The area of buildings measurements used in this
analysis. The conversion factor used, where appropriate, is one square metre =
10.7639 square feet.
Takeback: Rental income lost due to lease expiry, exercise of break option,
surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted to include notional
rent in respect of let properties which are subject to a rent free period at
the valuation date. This is in accordance with EPRA’s Best Practices
Recommendations.
Total property return (TPR): A measure of the ungeared return for the
portfolio and is calculated as the change in capital value, less any capital
expenditure incurred, plus net income, expressed as a percentage of capital
employed over the period concerned, as calculated by MSCI Real Estate and
excluding land.
Total shareholder return (TSR): A measure of return based upon share price
movement over the period and assuming reinvestment of dividends.
Trading property: Property being developed for sale or one which is being held
for sale after development is complete.
Yield on cost: The expected gross yield based on the estimated current market
rental value (ERV) of the developments when fully let, divided by the book
value of the developments at the earlier of commencement of the development or
the balance sheet date plus future development costs and estimated finance
costs to completion.
Yield on new money: The yield on cost excluding the book value of land if the
land is owned by the Group in the reporting period prior to commencement of
the development.
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