TIDMSGRO
RNS Number : 9494L
SEGRO PLC
25 July 2017
25 JULY 2017
RESULTS FOR THE six monthsED 30 june 2017
SEGRO plc ('SEGRO' / 'Company' / 'Group') today announces its
results for the six months ended 30 June 2017.
-- Strong first half results and operating metrics, reflecting a
portfolio which is well-positioned to take advantage of favourable
occupational and investment market conditions.
-- Adjusted pre-tax profit up 23 per cent reflects the
acquisition of the Airport Property Partnership (APP) portfolio,
development-led growth and our focus on customer and portfolio
management, which delivered high customer retention rates, a
continuing low vacancy rate and strong like-for-like rental
growth.
-- Adjusted EPS up 3.2 per cent to 9.7 pence (H1 2016: 9.4
pence(1) ), incorporating the new shares issued in the March rights
issue. IFRS EPS of 41.3 pence (H1 2016: 24.8 pence(1) ), was higher
due mainly to increased valuation gains on our investment
portfolio.
-- EPRA NAV per share up 5.4 per cent to 504 pence (31 December
2016: 478 pence(1) ), driven by a 4.9 per cent increase in the
value of the portfolio, due primarily to development and asset
management gains, as well as yield compression.
-- Successful GBP557 million rights issue has created
significant capacity for growth. Three quarters of the proceeds
already deployed or allocated to specific investment opportunities,
including taking full ownership of the APP portfolio of industrial
property at and around London's airports.
-- Future earnings prospects underpinned by largely de-risked
and fully funded development programme. The current development
pipeline is capable of generating GBP46 million of rent, GBP31
million of which has been secured through pre-lets. In addition,
near-term projects associated with a further GBP14 million of
potential rent are at advanced stages of discussion.
-- Interim dividend increased by 5.0 per cent to 5.25 pence
(2016 interim dividend: 5.0 pence(1) ).
Commenting on the results, David Sleath, Chief Executive,
said:
"SEGRO has delivered another strong set of results in H1 2017,
underpinned by active development and asset management as well as
further portfolio valuation growth.
"Whilst political and economic uncertainty has increased in the
UK, we are encouraged by the continued leasing momentum across our
portfolio. Furthermore, business confidence in Continental Europe
has picked up in recent months and there is no sign of any slowdown
in the growth of internet retailing which is an important driver of
demand for modern warehouse space across our markets, both in big
boxes used for logistics and smaller, urban warehouses used for
last mile delivery. With few signs of any meaningful new supply of
speculatively developed space and investor appetite for good
quality warehouse assets remaining strong, our business is
well-placed to continue outperforming the wider market."
FINANCIAL AND OPERATING HIGHLIGHTS(2)
Strong development and asset management activity, supported by
positive market conditions
-- 28 per cent increase in new rent contracted in the period to
GBP27.5 million (H1 2016: GBP21.5 million), of which GBP18.4
million (H1 2016: GBP8.7 million) is from new development pre-let
agreements and lettings of speculative space prior to
completion.
-- 3.9 per cent like-for-like net rental income growth,
including 5.9 per cent in the UK and stable rents in Continental
Europe, aided by a 15 per cent uplift on rent reviews and renewals
in the UK portfolio, capturing reversionary potential accumulated
in recent years.
-- Portfolio occupancy remains high with a vacancy rate of 5.5
per cent (31 December 2016: 5.7 per cent).
Valuation gains across the portfolio reflecting continued
investor demand and asset management gains
-- Portfolio capital value growth of 4.9 per cent (UK 5.3 per
cent, Continental Europe 3.9 per cent) from asset management
initiatives and market-driven yield compression (20 basis points
across the portfolio), rental value growth (0.9 per cent UK; 0.4
per cent Continental Europe) and development gains.
Capital allocation focused on accretive development programme
and on securing full ownership of the Airport Property Partnership
(APP) portfolio
-- GBP46 million of potential rent from current development
pipeline, of which 68 per cent has been secured through pre-lets.
Completions in the second half of 2017 potentially generate GBP29
million of rent, of which GBP21 million has been secured.
-- Further 'near-term' pre-let and speculative projects
associated with GBP14 million of rent are at advanced stages of
discussion.
-- Total development capex for full year expected to exceed GBP350 million.
-- Acquisition of 50 per cent of the GBP1.1 billion APP
portfolio not previously owned allowing us to add scale in the
attractive Heathrow market and to take full advantage of
significant asset management and development opportunities.
Balance sheet strengthened with GBP1.1 billion of new financing
agreed in the period
-- GBP557 million of (net) proceeds from the rights issue in
March provided capital to acquire APP portfolio and to pursue
further development. Approximately three quarters of the proceeds
have been invested or are allocated to specific current or
near-term development projects.
-- EUR650 million of debt from a US private placement which was
signed during the period and will be drawn in August 2017,
improving the strength and duration of our capital structure and
reducing the overall cost of debt by 30 basis points.
-- Look-through LTV ratio of 29 per cent (31 December 2016: 33 per cent).
(1) Historic metrics for earnings per share, dividend per share
and net asset value per share have been adjusted by a bonus
adjustment factor of 1.046 to reflect the rights issue carried out
in March 2017.
(2) Figures quoted on pages 1 to 13 refer to SEGRO's share,
except for land (hectares) and space (square metres) which are
quoted at 100 per cent, unless otherwise stated. Please refer to
the Presentation of Financial Information statement in the
Financial Review for further details.
FINANCIAL SUMMARY(1)
6 months 6 months
to to
30 June 30 June Change
Income statement metrics 2017 2016 per cent
---------------------------------- -------- -------- ---------
Adjusted(2) profit before tax
(GBPm) 91.2 74.2 22.9
IFRS profit before tax (GBPm) 397.1 200.7 97.9
Adjusted(3) earnings per share
(pence) 9.7 9.4 3.2
IFRS earnings per share (pence) 41.3 24.8 66.5
Dividend per share (pence) 5.25 5.00 5.0
---------------------------------- -------- -------- ---------
30 June 31 December Change
Balance sheet metrics 2017 2016 per cent
--------------------------------- ------- ----------- ---------
Portfolio valuation (SEGRO
share, GBPm) 7,277 6,345 4.6(6)
EPRA(4 5) net asset value per
share (pence, diluted) 504 478 5.4
IFRS net asset value per share
(pence, diluted) 504 480 5.0
Group net borrowings (GBPm) 1,742 1,598 9.0
Loan to value ratio including
joint ventures at share (per
cent) 29 33 -
--------------------------------- ------- ----------- ---------
1 Per share figures have been adjusted by a bonus adjustment
factor of 1.046 to reflect the rights issue in March 2017.
2 A reconciliation between Adjusted profit before tax and IFRS
profit before tax is shown in Note 2 to the condensed financial
information.
3 A reconciliation between Adjusted earnings per share and IFRS
earnings per share is shown in Note 11 to the condensed financial
information.
4 A reconciliation between EPRA net asset value per share and
IFRS net asset value per share is shown in Note 11 to the condensed
financial information.
5 Calculations for EPRA performance measures are shown in the
Supplementary Notes to the condensed financial information.
6 Percentage valuation movement during the period based on the
difference between opening and closing valuations for completed
properties, adjusting for capital expenditure, acquisitions and
disposals.
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available
from 09:00 (UK time) at:
https://secure.emincote.com/client/segro/segro025
The webcast will be available for replay at SEGRO's website at:
http://www.segro.com/investors by the close of business.
A conference call facility An audio recording of the
will be available at 09:00 conference call will be available
(UK time) on the following until 1 August 2017 on:
number: UK & International: +44 (0)
Dial-in: +44 (0) 20 3059 8125 121 260 4861
Access code: SEGRO Half Year USA: +1 844 230 8058
Results Access code: 6449248#
A video interview with David Sleath, Chief Executive, discussing
the results is now available to view on www.segro.com, together
with this announcement, the H1 2017 Property Analysis Report and
other information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Mob: +44 (0) 7771
(Chief Financial Officer) 773 134
Tel: + 44 (0) 20
7451 9110
(after 11am)
Harry Stokes Mob: +44 (0) 7725
(Head of Investor Relations and Research) 735 322
Tel: +44 (0) 20
7451 9124
(after 11am)
FTI Consulting Richard Sunderland / Claire Turvey Tel: +44 (0) 20
3727 1000
-------------- ------------------------------------------ -------------------
FINANCIAL CALAR
2017 interim dividend ex-div date 17 August 2017
2017 interim dividend record date 18 August 2017
2017 interim dividend scrip dividend price announced 24 August
2017
Last date for scrip dividend elections 8 September 2017
2017 interim dividend payment date 29 September 2017
2017 Third Quarter Trading Update 19 October 2017
Full Year 2017 Results 16 February 2018
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), and a leading
owner, manager and developer of modern warehouses and light
industrial property. It owns or manages 6.3 million square metres
of space (68 million square feet) valued at over GBP8 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 nine other European
countries.
See www.SEGRO.com for further information.
Forward-Looking Statements: This announcement contains certain
forward-looking statements with respect to SEGRO's expectations and
plans, strategy, management objectives, future developments and
performances, costs, revenues and other trend information. These
statements are subject to assumptions, risk and uncertainty. Many
of these assumptions, risks and uncertainties relate to factors
that are beyond SEGRO's ability to control or estimate precisely
and which could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements. Certain statements have been made with reference to
forecast process changes, economic conditions and the current
regulatory environment. Any forward-looking statements made by or
on behalf of SEGRO are based upon the knowledge and information
available to Directors on the date of this announcement.
Accordingly, no assurance can be given that any particular
expectation will be met and SEGRO's shareholders are cautioned not
to place undue reliance on the forward-looking statements.
Additionally, forward-looking statements regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. Other than in accordance
with its legal or regulatory obligations (including under the
Financial Conduct Authority's Disclosure Guidance and Transparency
Rules), SEGRO does not undertake to update forward-looking
statements to reflect any changes in events, conditions or
circumstances on which any such statement is based. Past share
performance cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
forecast.
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
STRATEGY
Our goal is to be the best owner-manager and developer of
industrial and warehouse properties in Europe and a leading
income-focused REIT.
To that end, our strategy is to create a portfolio which
generates attractive, low risk, income-led returns with above
average rental and capital growth when market conditions are
positive, and which is also 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 we believe combine to deliver an attractive, income-led total
property return:
-- Disciplined Capital Allocation: picking the right markets and
assets to create the right portfolio shape; by actively managing
the portfolio composition; and by adapting our capital deployment
according to our assessment of the property cycle.
-- Operational Excellence: optimising performance from the
portfolio through dedicated customer service, expert asset
management, development and operational efficiency.
-- Efficient capital and corporate structure: we aim to underpin
the property level returns from our portfolio with a lean overhead
structure and appropriate financial leverage through the cycle.
Together these three elements should translate into sustainable,
attractive returns for our shareholders in the form of progressive
dividends and net asset value growth over time.
Our portfolio comprises modern big box and urban warehouses
which are well specified and located, with good sustainability
credentials, and which should benefit from a low structural void
rate and relatively low-intensity asset management requirements.
Our assets are concentrated in the strongest European sub-markets
which have attractive property market characteristics, including
good growth prospects, limited supply availability and where we
already have, or can achieve, critical mass.
DISCIPLINED capital allocation - ACQUISITION ACTIVITY
During the first half, we took full control of the GBP1.1
billion APP property portfolio through the acquisition of the 50
per cent interest from our joint venture partner, Aviva. There were
no other significant asset acquisitions during the period, although
we have purchased approximately GBP34 million of land, mainly to
facilitate imminent development starts in Northern Italy and East
London.
We now fully own the assets within APP, which will allow us to
plan with greater certainty and flexibility. The Heathrow Cargo
Area offers particular potential for growth. In the short term,
re-gearing leases on peppercorn rents which expire in 2019 offers
reversionary potential of GBP11 million, of which we have already
captured 15 per cent and are in discussion over a further 40 per
cent: these are the main reasons for the low initial yield on the
portfolio of 4.2 per cent which rises to 5.2 per cent if the Cargo
Area is excluded. In the medium term, we expect to redevelop the
Cargo Area which is both one of the oldest and best located
properties in our portfolio.
Excluding APP, we reviewed a number of acquisition
opportunities, and continue to do so, but pricing levels mean that,
for the time being, it remains more accretive to focus our
investment activity on development rather than acquisition.
Acquisitions completed in H1 2017
Asset location / type Purchase price(1) Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
---------------------------------------- -------------------- ----------------- -----------------------
Urban warehousing 550.1 3.6 4.2
Land(3) 34.4 n/a n/a
Total acquisitions completed in H1 2017 584.5 3.6(2) 4.2(2)
---------------------------------------- -------------------- ----------------- -----------------------
1 Excluding acquisition costs.
2 Yield excludes land transactions.
3 Land acquisitions are discussed in Future Development
Projects.
disciplined capital allocation - DISPOSING OF NON-STRATEGIC
ASSETS
During the first half of 2017, we sold GBP206.5 million of
assets at a topped-up net initial yield of 5.2 per cent, including
GBP150 million as part consideration for the acquisition of APP. In
addition, we sold a plot of land in West London to a residential
developer for GBP81 million, well above book value.
In addition to the assets sold to Aviva Investors as part
consideration for its 50 per cent interest in the APP property
portfolio, we sold a portfolio of older industrial estates in
Germany for GBP47 million. This sale continues the process of
focusing our urban warehouse portfolio in Continental Europe on
core markets where we see good demand-supply dynamics.
We will continue to evaluate opportunities to dispose of more
mature assets, deploying the proceeds in our development programme
to allow us to grow and improve our portfolio without over-levering
the balance sheet.
Disposals completed in H1 2017
Asset location / type Gross proceeds Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
-------------------------------------- -------------------- ----------------- ----------------------
Big box logistics (sale to SELP) 9.7 4.7 6.0
Urban warehousing: UK 149.9 3.7 4.8
Urban warehousing: Continental Europe 46.9 6.5 6.5
Land 81.0 n/a n/a
Total disposals completed in H1 2017 287.5 4.4(1) 5.2(1)
-------------------------------------- -------------------- ----------------- ----------------------
1 Yield excludes land transactions.
PROPERTY valuATION GAINS from development activity, asset
management and market-driven yield improvement
The Group's property portfolio was valued at GBP7.3 billion at
30 June 2017 (GBP8.4 billion of assets under management). The
portfolio valuation, including completed assets, land and buildings
under construction, increased by 4.9 per cent on a like-for-like
basis (adjusted for capital expenditure and asset recycling during
the year). This combines a 4.6 per cent increase in the value of
completed properties (including acquisitions and complete
developments), and a 17.2 per cent valuation gain on properties
currently under construction.
Valuation gains were driven primarily by around 20 basis points
of yield compression reflecting the quality of our portfolio,
improved by our active asset management and development
activity.
The UK portfolio of completed properties delivered a 5.5 per
cent valuation uplift, slightly under-performing the MSCI-IPD UK
Industrial Monthly Index which increased by 5.7 per cent in the
first half. The performance reflects a combination of yield shift
across the portfolio and the capture of reversionary potential in
lease reviews and renewals, particularly in London. The average
yield applied to our UK portfolio was 5.4 per cent (true equivalent
yield), a 20 basis point improvement from 31 December 2016, while
rental values improved by 0.9 per cent.
During 2017, ERV growth for our portfolio has been lower than
the very strong figures seen in the last two years, particularly in
London. However, we remain confident that the fundamental drivers
of good occupational demand and limited supply of space continue to
offer the potential of attractive rental growth over the coming
years.
In Continental Europe, the completed portfolio value increased
by 2.3 per cent during the period on a constant currency basis
reflecting 20 basis points of yield compression to 6.4 per cent.
Our properties in Germany and France were particularly strong,
delivering a 2.6 per cent and 4.5 per cent uplift, respectively.
Rental values increased by 0.4 per cent for the portfolio as a
whole, with the increases concentrated in the wholly-owned
portfolio of urban warehouses: ERVs grew 0.1 per cent in SELP, and
0.9 per cent for SEGRO's wholly-owned assets, including sizeable
increases in a number of our more modern urban warehouse assets in
Paris.
More details of our property portfolio can be found in Note 12
to the condensed financial information and in the H1 2017 Property
Analysis Report available at www.segro.com/investors.
Property portfolio metrics at 30 June 2017(1)
Portfolio value, GBPm Yield(3)
----------------------------------------------------------------------------------------------- ------------------------------
Net Vacancy
Lettable Valuation movement(2 3) initial Net true equivalent (ERV)(4)
area sq m Completed Land & development Combined property portfolio Combined property portfolio % % % %
(AUM) (AUM)
-------------------- ----------- --------- ------------------ --------------------------- --------------------------- ----------------------- --------- ------------------- ----------
UK
Greater London 1,055,245 2,698.4 168.5 2,866.9 2,866.9 5.7 3.9 5.2 7.0
Thames Valley and
National Logistics 1,106,786 1,920.2 195.7 2,115.9 2,115.9 5.2 4.7 5.6 5.9
UK Total 2,162,031 4,618.6 364.2 4,982.8 4,982.8 5.5 4.2 5.4 6.5
Continental Europe
Germany/Austria 1,167,980 577.5 134.3 711.8 1,091.0 2.6 5.2 5.7 2.8
Belgium/Netherlands 298,882 116.6 19.8 136.4 223.6 0.5 7.2 7.0 9.9
France 1,031,648 507.7 109.7 617.4 884.5 4.5 6.0 6.5 2.4
Italy/Spain 368,655 157.0 196.1 353.1 427.9 1.2 6.1 6.6 0.3
Poland 1,169,112 372.9 35.5 408.4 709.9 (0.1) 6.5 6.9 4.5
Czech
Republic/Hungary 132,534 46.1 21.0 67.1 111.1 2.0 5.4 6.9 6.4
Continental Europe
Total 4,168,811 1,777.8 516.4 2,294.2 3,448.0 2.3 5.9 6.4 3.5
GROUP TOTAL 6,330,842 6,396.4 880.6 7,277.0 8,430.8 4.6 4.7 5.7 5.5
-------------------- ----------- --------- ------------------ --------------------------- --------------------------- ----------------------- --------- ------------------- ----------
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 completed properties (properties
held throughout the period, acquisitions and completed
developments), allowing for capital expenditure, acquisitions and
disposals.
3 In relation to completed properties only.
4 Vacancy rate excluding short term lettings for the Group at 30
June 2017 is 6.0 per cent.
OPERATIONAL EXCELLENCE
At 30 June 2017, our portfolio comprised two main asset types:
urban warehouses and big box warehouses. The demand-supply dynamics
differ, varying by both type and by geography.
-- Urban warehouses account for 54 per cent of our portfolio
value. They are located mainly on the edges of London, Paris,
Düsseldorf, Berlin and Warsaw, where land supply is restricted and
there is strong demand for warehouse space, particularly catering
for the needs of last mile delivery and, in Slough, from data
centre users.
-- Big box warehouses, classed as those over 10,000 sq m in
size, account for 39 per cent of our portfolio value. These are
focused on the major logistics hubs and corridors in the UK
(South-East and Midlands regions), France (the logistics 'spine'
linking Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin,
Leipzig and Hamburg) and Poland (the central core of Poznań, ód and
Warsaw, plus the industrial region of Silesia).
Growing rental income from letting existing space and new
developments
We have continued to see strong occupier demand for warehouses
across our markets, reflected in the 28 per cent increase in
contracted rent compared to the first half of 2016. Our low vacancy
rate means that lettings of existing space are lower than last year
while our success at retaining customers is reflected in less space
returned. Rental growth on existing space has instead been driven
mainly by capturing significant reversionary potential from our UK
portfolio and from indexation provisions attached to leases
equating to approximately 40 per cent of our rent.
Data on the logistics markets in the UK (from JLL) and France
(from CBRE) implies that available space continues to equate to
less than one year of take-up. This supply-demand tension has
manifested itself in our own experience through rent from pre-let
agreements signed during the period more than doubling from the
first half of 2016, as occupiers seek to secure new space in
supply-constrained markets. Colliers International expects
speculative completions in the UK to fall by 60 per cent in 2017 to
just 0.3 million sq m, suggesting that the supply-demand imbalance
is unlikely to be alleviated in the near term.
During H1 2017, we contracted new leases and pre-let agreements
totalling GBP27.5 million of annualised rental income (H1 2016:
GBP21.5 million), 28 per cent higher than in the previous year. We
generated GBP5.9 million from our standing assets (H1 2016: GBP8.8
million), offset by GBP3.0 million of rent lost from space returned
to us (H1 2016: GBP6.6 million), resulting in net take-up of GBP2.9
million of existing space (H1 2016: GBP2.2 million).
-- Retailers and companies involved with retail distribution
accounted for around half of our take-up during the first half,
including Amazon which occupied 59,700 sq m of the Company's space
in the UK (occupying the larger of the two units we developed
speculatively at Rugby Gateway), Germany (in a pre-let unit just
outside Munich) and Spain (occupying both of our speculatively
developed warehouses on the edge of Barcelona).
-- Manufacturing companies accounted for a further 14 per cent
of take-up, including auto exterior manufacturer Plastic Omnium in
Poland and glazing manufacturer Maxlight in London.
Developments completed during the period added GBP6.8 million to
the rent roll, of which GBP3.8 million was contracted in warehouses
built speculatively. Around 15 per cent of the speculative lettings
were agreed prior to practical completion and the average period
between practical completion and letting was approximately four
months.
Summary of key leasing data for H1 2017(1)
Summary of key leasing data for the half H1 2017 H1 2016
year to 30 June(1)
--------------------------------------------------- ------ -------- --------
Take-up of existing space(2) (A) GBPm 3.5 8.0
Space returned(3) (B) GBPm (3.0) (6.6)
NET ABSORPTION OF EXISTING SPACE (A-B) GBPm 0.5 1.4
Other rental movements (rent reviews,
renewals, indexation)(2) (C) GBPm 2.4 0.8
RENT ROLL GROWTH FROM EXISTING SPACE GBPm 2.9 2.2
Take-up of developments completed in the
period - pre-let space(2) (D) GBPm 3.0 6.5
Take-up of speculative developments completed
in the past two years(2) (D) GBPm 3.8 5.0
TOTAL TAKE UP(2) (A+C+D) GBPm 12.7 20.3
Less take-up of pre-lets and speculative
lettings signed in prior periods(2) GBPm (3.6) (7.5)
Pre-lets and lettings on speculative developments
signed in the period for future delivery(2) GBPm 18.4 8.7
RENTAL INCOME CONTRACTED IN THE PERIOD(2) GBPm 27.5 21.5
Take-back of space for redevelopment GBPm (2.6) (0.5)
Retention rate(4) % 92.1 76.1
--------------------------------------------------- ------ -------- --------
1 All figures reflect exchange rates at 30 June and include
joint ventures at share.
2 Annualised rental income, after the expiry of any rent-free
periods.
3 Annualised rental income, excluding space taken back for
redevelopment.
4 Headline rent retained as a percentage of total headline rent
at risk from break or expiry during the period.
Our customers represent a wide range of industries and we
therefore avoid over-reliance on any single sector or individual
customer. Our top 20 customers account for 30 per cent of our rent
roll, and our largest customer represents just under 5 per
cent.
The rent roll from our standing assets is influenced by three
main factors: lettings of available space (discussed above), space
returned to us, and rent agreed at rent reviews and lease renewals.
Overall operating performance is also dependent on the level of
vacancy, pre-let agreements and lease terms agreed, as well as
operating cost efficiencies which are examined in the Financial
Review.
-- Rent reviews and lease renewals: uplift of 11.1 per cent.
During the period, new rents agreed at review and renewal were 15.3
per cent higher in the UK, reflecting the capture of reversion
accumulated over recent years, and adding GBP2 million of passing
rent to the rent roll. In Continental Europe, rents agreed were 1.2
per cent lower than previous headline rents, equating to a
reduction of less than GBP0.1 million of rent.
-- Vacancy remains low at 5.5 per cent. The vacancy rate at 30
June 2017 fell slightly to 5.5 per cent, compared to 5.7 per cent
at 31 December 2016. Approximately a quarter of the vacancy (1.3
percentage points) relates to recently completed speculative
developments. This compares to our target vacancy rate of between 5
and 7 per cent. Treating short-term lettings as vacant space would
increase the vacancy rate to 6.0 per cent (31 December 2016: 6.3
per cent). The average vacancy rate during the period was 5.5 per
cent, slightly higher than in H1 2016 (5.0 per cent) due primarily
to the recently completed big box warehouses in Rugby and the big
box warehouse in Magna Park which was taken back in November
2016.
-- High retention rate of 92 per cent (H1 2016: 76 per cent).
During the period, space equating to just GBP3.0 million (H1 2016:
GBP6.6 million) of rent was returned to us, including GBP0.3
million of rent lost due to insolvency (H1 2016: GBP0.6 million).
We took back space equating to an additional GBP2.6 million for
redevelopment, and this is almost exclusively related to a
well-located, but now redundant, site near Heathrow Airport
following DHL's relocation to its new facility at our Poyle
development in 2016. Approximately GBP22 million of headline rent
was at risk from a break or lease expiry during the period and we
retained 89 per cent in existing space, with a further 3 per cent
retained but in new premises.
-- Lease terms continue to offer attractive income security. The
level of incentives agreed for new leases (excluding those on
developments completed in the period) represented 8.1 per cent of
the headline rent (H1 2016: 7.6 per cent). The portfolio's weighted
average lease length remained stable compared to 31 December 2016
at 7.0 years to first break (8.7 years to expiry). Lease terms are
longer in the UK (8.1 years to break) than in Continental Europe
(5.1 years to break).
-- GBP21.6 million of rent contracted from developments (H1
2016: GBP12.7 million). During the period, we contracted GBP18.4
million of rent from pre-let agreements and lettings of speculative
developments prior to completion (H1 2016: GBP8.7 million), of
which GBP6.4 million was from supermarkets including Carrefour in
France and GBP4.6 million from retailers, including Italian fashion
retailer Yoox Net-a-Porter and Amazon in the second phase of our
big box warehouse development outside Barcelona. We also secured
GBP6.8 million from take-up of developments completed in the
preceding 24 months (H1 2016: GBP11.5 million), of which GBP3.6
million (1H 2016: GBP7.5 million) had been contracted in prior
periods.
DISCIPLINED CAPITAL ALLOCATION AND OPERATIONAL EXCELLENCE -
DELIVERING GROWTH THROUGH DEVELOPMENT
We invested GBP195 million in new developments and GBP20 million
in infrastructure during H1 2017 (H1 2016: GBP115 million) and
GBP34 million in our land bank to expand our development capacity.
The increased pre-let activity means that our expected development
capital expenditure for 2017 as a whole should now exceed GBP350
million (and over GBP400 million including land and infrastructure
expenditure).
Development projects completed
We completed 79,200 sq m of new space during the period. These
projects were 61 per cent pre-let prior to the start of
construction and were 91 per cent let as at 30 June 2017,
generating GBP4.5 million of annualised gross rent, with a
potential further GBP0.5 million to come when the remainder of the
space is let. This translates into a yield on total development
cost (including land, construction and finance costs) of 8.6 per
cent when fully let.
Amongst the development projects completed in the first half
were the warehouses let to Amazon described above. We also
completed further speculative phases of urban warehouses in our
City Park and Rheinpark estates in Düsseldorf, which are both
almost fully let.
The additional capital provided through the two equity raises in
the past 12 months has enabled us to accelerate the investment in
our development pipeline:
-- At the time of the equity placing in September 2016, we
identified projects under development or awaiting approval
associated with GBP456 million of capital expenditure. Projects
associated with over 90 per cent of this capital expenditure have
either completed or are in the current development pipeline.
-- At the time of the rights issue in March 2017, we identified
projects under development or awaiting approval requiring GBP165
million of capital expenditure. Projects associated with
approximately half of this capital expenditure have either
completed or are current development pipeline.
-- The remaining GBP175 million of proceeds of the rights issue
were allocated to future development on our land bank. Since the
time of the rights issue, we have committed, or expect to commit,
approximately GBP125 million to new projects of which GBP60 million
are in the current development pipeline and GBP65 million are
associated with new pre-let requirements.
Current development pipeline
At 30 June 2017, we had development projects approved,
contracted or under construction totalling 920,400 sq m,
representing GBP231 million of future capital expenditure and GBP46
million of annualised gross rental income when fully let. These
projects are 68 per cent pre-let and should yield 7.7 per cent on
total development cost when fully occupied.
-- In the UK, we have 89,900 sq m of space approved or under
construction, including two sites in East London, one of which has
been pre-let to DPD. We are also continuing our rejuvenation of the
Slough Trading Estate with 24,700 sq m of new space, including a
Premier Inn hotel, a car showroom and a data centre.
-- In Continental Europe, we have 830,500 sq m of space approved
or under construction, including a number of pre-let developments
in Italy, including space for Amazon, Yoox Net a Porter, Jaguar
Land Rover and Leroy Merlin.
We continue to focus our speculative developments primarily on
urban warehouse projects, particularly in the UK and Germany, where
modern space is in short supply and occupier demand is strong. In
the UK, our speculative projects are focused on the East Plus site
in East London, Enfield in North London and on the Slough Trading
Estate. In Continental Europe, we continue to build scale in
Germany, where projects are underway in Berlin, Frankfurt and
Cologne.
Future development pipeline
Near-term development pipeline
Within the future development pipeline are projects which are
close to being approved, awaiting either final pre-let conditions
to be met or planning approval to be granted. We expect to commence
these projects within the next six to twelve months.
-- Pre-let near-term projects: We are in discussions with
potential customers or have signed agreements subject to planning
for approximately 169,400 sq m of space, equating to approximately
GBP92 million of additional capital expenditure and GBP9 million of
additional rent.
-- Speculative near-term projects: We have speculative projects
totalling 73,700 sq m of space (potential capital expenditure of
GBP54 million, excluding land) ready to proceed at a time of our
choosing, which could generate a further GBP5 million of rent.
Land bank
Our land bank identified for future development totalled 610
hectares at 30 June 2017, equating to GBP388 million, or around 5
per cent of our total portfolio. We invested GBP34 million in
acquiring new land during the first half of the year, including
land sourced from the Roxhill and East Plus agreements and land
associated with developments expected to start in the short
term.
We estimate that our land bank, including the near-term projects
above, can support 2.5 million sq m of development over the next
five years. The prospective capital expenditure associated with the
future pipeline is GBP1.2 billion. It could generate GBP127 million
of gross rental income, representing a yield on total development
cost (including land and notional finance costs) of 7.8 per cent.
These figures are indicative of our current expectations but are
dependent on our ability to secure pre-let agreements, planning
permissions, construction contracts and on our outlook for occupier
conditions in local markets.
Land with a total value of GBP61 million has been identified as
suited to alternative use or surplus to our short term
requirements, halving from GBP125 million at 31 December, following
the sale of the former Northfields industrial estate in Park Royal
to a residential developer. The largest single component is a
brownfield site in Hayes, West London, which was formerly a Nestlé
factory. Along with our residential partner, Barratt London, we
have submitted a planning application for a mixed use scheme
comprising over 1,000 homes and 21,000 sq m of urban warehousing.
On receipt of planning consent, we will sell the land zoned for
residential use to Barratt and will develop the warehouse element
ourselves.
Land held under option agreements
Land sites held under option agreements are not included in the
figures above but together represent significant further
development opportunities, primarily in the UK, including sites for
urban warehousing in East London and for big box warehouses in the
Midlands and South East regions. The options, held on the balance
sheet at a value of GBP19 million (including joint ventures at
share), are exercisable in both the short and the longer term:
those in the short term are for land capable of supporting just
under 750,000 sq m of space and generating GBP50 million of
headline rent for a blended yield of approximately 7 per cent.
Further details of our completed projects and current
development pipeline are available in the H1 2017 Property Analysis
Report, which is available to download at
www.segro.com/investors.
maintaining AN EFFICIENT AND RESILIENT CAPITAL STRUCTURE
Net debt, including our share of joint venture net debt, was
broadly stable from 31 December at GBP2.1 billion. The look-through
loan to value ratio (LTV) improved to 29 per cent (31 December
2016: 33 per cent) due both to the proceeds from the rights issue
and to improvement in asset values. This is consistent our aim to
have an LTV ratio closer to 35 per cent than our through-cycle
target of 40 per cent.
The small movement in net debt, including our share of debt in
joint ventures, from GBP2,091 million to GBP2,086 million,
primarily reflects receipt of the net proceeds from the rights
issue, offset by the GBP216 million cash consideration for, and the
GBP190 million of net debt associated with, the acquisition of the
50 per cent interest in the APP property portfolio, and by GBP215
million of development capex (including GBP20 million of
infrastructure expenditure), as well as disposals, acquisitions and
exchange rate movements.
In the first half of 2017, we have strengthened and improved our
capital structure:
-- We raised GBP573 million of gross proceeds (GBP557 million
net proceeds) through a fully underwritten rights issue to fund the
cash consideration for a 50 per cent interest in APP (GBP216
million), GBP165 million of development capital expenditure on
identified projects and GBP175 million for future development
projects on land owned and under option. Take up of the offer was
high at 98 per cent, with the residual shares placed into the
market.
-- We signed a US private placement debt issue, raising EUR650
million of 10, 12 and 15 year senior unsecured notes at a weighted
average coupon of 1.9 per cent and a weighted average maturity of
11.2 years. The debt, which will be drawn during August 2017, will
be used to refinance the 2018 sterling bonds (which were repaid
early) and the secured debt within the Airport Property
Partnership. In addition to improving the average duration and cost
of our debt, the raising of euro denominated debt increases the
natural currency hedge: our euro denominated assets are
approximately 70 per cent hedged, of which half is now natural,
reducing the need for synthetic hedging through currency swaps.
The combination of the financing activity during the first half,
including the impact of the US private placement once drawn, will
reduce our look-through cost of debt by 30 basis points to 3.1 per
cent.
The actions we have taken over the past five years to improve
the quality of our portfolio and the strength of our balance sheet,
including GBP3.3 billion of disposals and GBP0.9 billion of new
equity, means that we estimate that our entire portfolio would have
to fall in value by 55 per cent before breaching the gearing
covenant threshold on our debt of 160 per cent (equating to a pro
forma look-through LTV ratio of around 64 per cent at 30 June
2017).
The number of pre-let agreements signed during the first half
means that we will increase the pace of development this year and
now expect to invest in excess of GBP350 million (from GBP300
million expected at the time of our 2016 full year results) during
2017. In addition, we expect to invest over GBP50 million in
infrastructure spend and further land acquisitions to facilitate
future development.
INTERIM DIVID OF 5.25 PENCE PER SHARE
Consistent with its previous guidance that the interim dividend
would normally be set at one-third of the previous year's total
dividend, the Board has declared an increase in the interim
dividend of 0.25 pence per share to 5.25 pence (H1 2016: 5.0 pence,
adjusted for the rights issue bonus adjustment factor), a rise of
5.0 per cent. This will be paid as an ordinary dividend on 29
September 2017 to shareholders on the register at the close of
business on 18 August 2017.
The Board will offer a scrip dividend option for the 2017
interim dividend, allowing shareholders to choose whether to
receive the dividend in cash or new shares. 13 per cent of the 2016
final dividend was paid in new shares, equating to GBP9.6 million
of cash retained on the balance sheet and 2.1 million new shares
being issued.
OUTLOOK
The outlook for our occupational markets remains broadly
positive, given the continued shift towards online retailing,
supply chain restructuring and limited speculative supply of new
warehousing in core logistics and urban locations. The growth of
e-commerce is gathering pace in Continental Europe and, when
combined with an improving economic outlook for our major markets,
the prospects for strengthening occupier demand here are good. In
the UK, Brexit negotiations and the less stable political situation
appear to be weighing somewhat on consumer confidence which could
impact the pace of economic growth. However, online sales continue
to grow strongly and increase as a proportion of total retail
sales. This dynamic plays to our strength in well located, modern
warehouse assets.
Investor demand for good quality, well-located warehouse assets
also remains positive, attracted by the occupational market
fundamentals and yield profile of the sector.
We enter the second half of the year with 920,400 sq m of
buildings in the current development pipeline, 169,400 sq m of
further pre-let projects in advanced discussions and numerous other
opportunities on our substantial land bank. Our vacancy rate is low
and our balance sheet has been significantly strengthened by the
refinancing activity undertaken in the first half of the year.
Accordingly, we are well-placed to continue adding to our low risk
development programme and expect the overall level of development
expenditure for the year to exceed GBP350 million, well above the
level of GBP300 million indicated at the time of the rights issue,
should occupier market conditions remain supportive.
Overall, our business is well placed to continue outperforming
the wider real estate market.
FINANCIAL REVIEW
The acquisition of the remaining 50 per cent of the APP property
portfolio, development lettings and like-for-like net rental income
growth were the primary drivers of the 22.9 per cent increase in
Adjusted profit before tax compared to H1 2016. EPRA NAV per share
increased by 5.4 per cent to 504 pence compared to December 2016
and the balance sheet has been strengthened by the rights issue
during the first half. The LTV ratio has improved to 29 per cent
from 33 per cent at December 2016.
Financial highlights
30 June 30 June
2017 2016 31 December 2016
---------------------------------------------- ------- ------- ----------------
Total property return (%) 7.2 4.3 9.3
IFRS(1 3) net asset value (NAV) per share (p) 504 461 480
EPRA(1 3) NAV per share (diluted) (p) 504 454 478
IFRS profit before tax (GBPm) 397.1 200.7 426.4
Adjusted(2) profit before tax (GBPm) 91.2 74.2 154.5
IFRS earnings per share (EPS) (p)(3) 41.3 24.8 51.6
Adjusted(2 3) EPS (p) 9.7 9.4 18.8
1 A reconciliation between IFRS NAV and its EPRA equivalent is
shown in Note 11.
2 A reconciliation between IFRS profit before tax and Adjusted
profit before tax is shown in Note 2 and between IFRS EPS and
Adjusted EPS is shown in Note11.
3 The comparatives in pence per share have been re-presented to
reflect the impact of the rights issue in March 2017 by applying a
bonus adjustment factor of 1.046 as detailed in Note 11.
Presentation of financial information
The condensed financial information is prepared under IFRS where
the Group's interests in joint ventures are shown as a single line
item on the income statement and balance sheet and subsidiaries are
consolidated at 100 per cent.
The Adjusted profit measure better reflects the underlying
recurring performance of the Group's property rental business,
which is SEGRO's core operating activity. It is based on the Best
Practices Recommendations of the European Public Real Estate
Association (EPRA) which are widely used alternate metrics to their
IFRS equivalents (further details on EPRA Best Practices
Recommendations can be found at www.epra.com). In calculating
Adjusted profit, the Directors may also exclude additional items
considered to be non-recurring, not in the ordinary course of
business, and significant by virtue of size and nature. There are
no such items reported in the current or comparative periods.
Consequently the SEGRO Adjusted metrics and EPRA metrics are
consistent.
A detailed reconciliation between Adjusted profit after tax and
IFRS profit after tax is provided in Note 2 of the condensed
financial information.
The Supplementary Notes to the enclosed financial information
include other EPRA metrics as well as SEGRO's Adjusted income
statement and balance sheet presented on a proportionately
consolidated basis.
SEGRO monitors the above alternative metrics, as well as the
EPRA metrics for vacancy rate, net asset value and total cost
ratio, as they provide a transparent and consistent basis to enable
comparison between European property companies.
Look-through metrics for like-for-like net rental income and
loan to value ratio are also provided, with joint ventures included
at share, in order that our full operations are captured, therefore
providing more meaningful analysis.
Adjusted profit
Adjusted profit
Six months to Six months to
30 June 2017 30 June 2016
GBPm GBPm
====================================================== ============= =============
Gross rental income 127.3 110.7
Property operating expenses (23.9) (22.1)
====================================================== ============= =============
Net rental income 103.4 88.6
Joint venture management fee income 16.5 9.1
Administration expenses (17.5) (15.5)
Share of joint ventures' Adjusted profit after tax(1) 22.1 25.5
====================================================== ============= =============
Adjusted operating profit before interest and tax 124.5 107.7
Net finance costs (33.3) (33.5)
====================================================== ============= =============
Adjusted profit before tax 91.2 74.2
Tax on Adjusted profit (0.7) (0.8)
====================================================== ============= =============
Adjusted profit after tax(2) 90.5 73.4
====================================================== ============= =============
1 Comprises net property rental income less administration
expenses, net interest expenses and taxation.
2 A detailed reconciliation between Adjusted profit after tax
and IFRS profit after tax is provided in Note 2 to the condensed
financial information.
Adjusted profit before tax increased by 22.9 per cent to GBP91.2
million (H1 2016: GBP74.2 million). The primary driver was a
GBP14.8 million increase in net rental income to GBP103.4 million,
mainly reflecting the acquisition of the remaining 50 per cent of
the APP property portfolio on 9 March 2017, growth in like-for-like
net rental income and the positive net impact of development
completions during the period. In addition there was a significant
increase in joint venture fee income (see Income from joint
ventures below). This was partially offset by a reduction in
Adjusted profit from joint ventures (due to the APP portfolio
becoming wholly owned during the period) and higher operating and
central administrative costs. Interest costs remained stable. The
average sterling-euro exchange rate during the period was
EUR1.16:GBP1 which was 9 per cent stronger than during H1 2016
(EUR1.28:GBP1) which added around GBP3 million to Adjusted profit
after tax.
Like-for-like net rental income (including joint ventures at
share)
Six months Six months
to to Variance Change
30 June 30 June GBPm %
2017 2016
Like-for-like net rental income GBPm GBPm
========== ========== ========== ========
UK 79.1 74.7 4.4 5.9
Continental Europe 36.7 36.7 - -
====================================== ========== ========== ========== ========
Like-for-like net rental income
before other items 115.8 111.4 4.4 3.9
Other(1) (2.3) (1.6) (0.7)
-------------------------------------- ---------- ---------- ---------- --------
Like-for-like net rental income 113.5 109.8 3.7 3.4
Development lettings 10.6 2.0
Properties taken back for development 0.3 1.1
====================================== ========== ========== ========== ========
Like-for-like net rental income
plus developments 124.4 112.9
Properties acquired 11.0 0.4
Properties sold 2.2 13.4
====================================== ========== ========== ========== ========
Net rental income before surrenders,
dilapidations and exchange 137.6 126.7
Lease surrender premiums and
dilapidations income 0.5 0.6
Rent lost from lease surrenders
and other items 0.5 2.1
Impact of exchange rate difference
between periods - (4.1)
Net rental income before joint
venture fees 138.6 125.3
====================================== ========== ========== ========== ========
Share of joint venture fees (7.9) (4.4)
====================================== ========== ========== ========== ========
Net rental income per income
statements 130.7 120.9
====================================== ========== ========== ========== ========
1 Other includes the corporate centre and other costs relating
to the operational business which are not specifically allocated to
a geographical business unit.
The like-for-like rental growth metric, which is based on
properties held throughout both H1 2017 and H1 2016, includes
wholly owned assets (net rental income of GBP103.4 million) and
SEGRO's share of net rental income held in joint ventures (GBP35.2
million, before the impact of fees paid to joint venture partners
of GBP7.9 million). Net rental income on this basis increased by
GBP13.3 million which mainly reflects GBP8.6 million of income from
development lettings and GBP4.4 million of like-for-like net rental
income growth (3.9 per cent higher than in H1 2016). The growth in
like-for-like net rental income was mainly due to rental increases
on review and renewal in our UK portfolio.
Investment activity had a neutral impact on net rental income:
the additional income from the APP acquisition was offset by income
lost from disposals, primarily those completed during 2016 and the
assets sold in part consideration for APP.
The GBP3.5 million of additional joint venture fee costs (mainly
those within APP which crystallised on acquisition) resulted in an
overall increase in net rental income per the financial statements
of GBP9.8 million.
Where an asset has been sold into SELP, the 50 per cent share
owned throughout the period is included in the like-for-like
calculation, with the balance shown as a disposal. Similarly, the
50 per cent of APP owned throughout the period is included in the
like-for-like calculation, but the income for the 50 per cent of
APP acquired during H1 2017 is shown within properties
acquired.
Income from joint ventures
Joint venture management fee income increased by GBP7.4 million
to GBP16.5 million. This increase was mainly due to higher
performance fees from the APP joint venture which crystallised on
acquisition.
SEGRO's share of joint ventures' Adjusted profit after tax
decreased by GBP3.4 million, mainly reflecting the acquisition of
the remaining 50 per cent of the APP property portfolio in March
2017. After this date all of the income from APP was recognised
within wholly owned net rental income rather than within the share
of joint ventures' Adjusted profit after tax.
Administrative and operating costs
The Group is focused on managing its cost base. The Total Cost
Ratio for H1 2017 decreased to 22.9 per cent from 23.2 per cent in
H1 2016. Excluding the impact of share based payments the Cost
Ratio decreased to 20.4 per cent in H1 2017 from 21.5 per cent in
H1 2016. The calculations are set out in Table 6 of the
Supplementary Notes to the condensed financial information.
The main reason behind the increase in total costs used for the
numerator of these ratios were an increase in staff related costs,
particularly share based payments which were GBP1.6 million higher
in H1 2017 than in H1 2016.
Net finance costs
Net finance costs were broadly stable during the period compared
to H1 2016 at GBP33.3 million, driven by a combination of a
slightly lower average cost of debt, offset by the impact of
weakening sterling against the euro.
Taxation
The tax charge on Adjusted profit of GBP0.7 million (H1 2016:
GBP0.8 million) reflects an effective tax rate of 0.8 per cent (H1
2016: 1.1 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 were 9.7 pence (H1 2016: 9.4 pence)
reflecting the combination of a GBP17.1 million improvement in
Adjusted profit after tax, but an increased average number of
shares, mainly as a result of the equity share placing in 2016 and
the rights issue in 2017.
TOTAL PROPERTY RETURN
The total property return (TPR) for the portfolio in H1 2017 (as
defined in the Glossary) was 7.2 per cent, higher than for H1 2016
(4.3 per cent), reflecting primarily a higher capital return on the
portfolio. The TPR comprises an income return of 2.3 per cent (H1
2016: 2.4 per cent) and a capital return of 4.9 per cent (H1 2016:
1.9 per cent). More detail on the performance of the property
portfolio can be found in the Chief Executive's Review.
IFRS PROFIT
IFRS profit before tax in H1 2017 was GBP397.1 million (H1 2016:
GBP200.7 million), equating to post-tax IFRS earnings per share of
41.3 pence compared with 24.8 pence for H1 2016. The increase in
IFRS profits is driven primarily by unrealised and realised gains
on our property portfolio which were GBP228.8 million higher in H1
2017 than in the same period a year ago.
A reconciliation between Adjusted profit before tax and IFRS
profit before tax is provided in Note 2 to the condensed financial
information.
Realised and unrealised gains on wholly owned investment and
trading properties of GBP309.9 million in H1 2017 (H1 2016: GBP81.1
million gain) have been recognised in the income statement, mainly
comprising an unrealised valuation surplus of GBP302.9 million (H1
2016: GBP76.0 million surplus) and a profit of GBP7.7 million on
asset disposals (H1 2016: GBP6.4 million profit).
SEGRO's share of realised and unrealised gains on properties
held in joint ventures was GBP21.1 million (H1 2016: GBP27.9
million) and is further analysed in Note 6 to the condensed
financial information.
BALANCE SHEET
EPRA net asset value
GBPm Shares million Pence per share
-------------------------------------------------------------------------- ------- -------------- ---------------
EPRA net assets attributable to ordinary shareholders at 31 December 2016 4,162.1 871.5(1) 478
Realised and unrealised property gain 309.9
Adjusted profit after tax 90.5
Dividend net of scrip shares issued (2016 final) (83.4)
Net proceeds from the rights issue 556.5
Exchange rate movement (net of hedging) 14.7
Other 3.2
-------------------------------------------------------------------------- ------- -------------- ---------------
EPRA net assets attributable to ordinary shareholders at 30 June 2017 5,053.5 1,002.9 504
-------------------------------------------------------------------------- ------- -------------- ---------------
1 Re-presented for a bonus adjustment factor of 1.046.
At 30 June 2017, IFRS net assets attributable to ordinary
shareholders were GBP5,054.1 million (31 December 2016: GBP4,182.1
million), equating to 504 pence per share on a diluted basis (31
December 2016: 480 pence).
On 28 March 2017, the Company issued 166,033,133 new ordinary
shares of 10 pence each through a rights issue which generated net
proceeds of GBP556.5 million. Further details of the rights issue
are provided in Note 14. To reflect the rights issue, the number of
shares previously used to calculate diluted net assets per share
and adjusted earnings per share have been amended in both the table
and the narrative above.
A bonus adjustment factor of 1.046 has been applied, based on
the ratio of an adjusted closing share price of 468.6 pence per
share on 10 March 2017, the last business day before the shares
started trading ex-rights and the theoretical ex-rights price at
that date of 448.0 pence per share.
EPRA net asset value per share at 30 June 2017 was 504 pence (31
December 2016: 478 pence), the 5.4 per cent increase mainly
reflecting property gains in the period. The table above highlights
the other principal factors behind the increase. A reconciliation
between IFRS and EPRA net assets is available in Note 11 to the
condensed financial information.
Cash flow and net debt reconciliation
Free cash flow for the period was GBP80.9 million, a GBP20.7
million increase from H1 2016 (GBP60.2 million). Cash flow from
operations has increased by GBP17.4 million and is primarily
attributed to the acquisition of the APP property portfolio in the
first half of H1 2017. Free cash flow was also impacted by the
early repayment of bonds amounting to GBP10.3 million in H1 2017.
The H1 2016 free cash flow was impacted by an outflow of GBP10.1
million of tax paid in H1 2016 relating to capital gains taxes on
2015 disposals.
The acquisition of APP in H1 2017 is the largest cash outflow in
the period and represents the purchase of the remaining 50 per cent
of the joint venture SEGRO did not already own. The property
portfolio was acquired for a cash outflow of GBP217.2 million
(which includes transaction costs of GBP1.2 million) and GBP149
million of property assets as part consideration.
Cash flows from acquisitions (excluding the APP property
portfolio) and developments of investment properties at GBP202.3
million are GBP56.2 million higher than H1 2016 and is primarily
driven by the increased level of development activity (see Capital
Expenditure section for more details). Cash flows from investment
property sales are GBP143.6 million, which is at a lower level than
in H1 2016, largely due to the receipt of GBP321 million from the
sale of the Bath Road office portfolio in H1 2016.
The largest cash inflow during the period was GBP556.8 million,
being proceeds from the issue of ordinary shares of which GBP556.5
million relates to the net proceeds from the rights issue. Further
details of the rights issue are provided in Note 14.
Other significant cash flows include the dividends paid of
GBP70.4 million which is GBP24.0 million higher than the prior
period, mainly due to a lower level of scrip dividend take-up and
the impact of a higher number of shares following the share placing
in 2016. The net investment in joint ventures has fallen by GBP63.8
million to GBP8.2 million primarily due to a lower level of
acquisitions in SELP in H1 2017 compared to H1 2016. Additionally,
GBP26.6 million has been paid to settle foreign exchange
derivatives (H1 2016: GBP18.8 million), reflecting the
strengthening of the euro exchange rate against sterling during H1
2017.
As a result of these factors there was a net funds inflow of
GBP252.6 million during the period (H1 2016: GBP127.9 million
inflow).
Cash flow and net debt reconciliation
Six months Six months
to 30 to 30
June 2017 June 2016
GBPm GBPm
Opening net debt (1,598.4) (1,806.5)
Cash flow from operations 116.2 98.8
Finance costs (net) (41.0) (43.3)
Early close out of debt (10.3) -
Dividends received 16.2 14.8
Tax paid (0.2) (10.1)
============================================ =========== ===========
Free cash flow 80.9 60.2
Dividends paid (70.4) (46.4)
Acquisitions and development of investment
properties (202.3) (146.1)
Investment property sales 143.6 391.2
Acquisition of APP (217.2) -
Acquisition of interests in property (2.5) (36.7)
Net settlement of foreign exchange
derivatives (26.6) (18.8)
Proceeds from issue of ordinary shares 556.8 -
Net investment in joint ventures (8.2) (72.0)
Other items (1.5) (3.5)
============================================ =========== ===========
Net funds flow 252.6 127.9
Non-cash movements (1.7) (2.4)
Debt acquired with APP (390.4) -
Exchange rate movements (3.7) (25.9)
============================================ =========== ===========
Closing net debt (1,741.6) (1,706.9)
============================================ =========== ===========
Capital expenditure
The table below sets out analysis of the capital expenditure on
property assets during the period. This includes acquisition and
development spend, on an accruals basis, in respect of the Group's
wholly--owned investment and trading property portfolios, as well
as the equivalent amounts for joint ventures at share.
Total spend for the period was GBP1,390.6 million, an increase
of GBP1,146.5 million compared to H1 2016, mainly due to the APP
property portfolio acquisition (GBP1,112.6 million) and higher
development expenditure.
Development capital expenditure increased by GBP100.3 million to
GBP215.0 million, reflecting the ongoing momentum in our
development programme. Development spend incorporates interest
capitalised of GBP2.8 million (H1 2016: GBP2.9 million) including
joint ventures at share.
Spend on existing completed properties totalled GBP9.9 million
(H1 2016: GBP11.8 million), of which GBP4.9 million was for
value-enhancing major refurbishment and fit-out costs prior to
re-letting. The balance mainly comprises minor refurbishment costs,
which equates to 5 per cent of Adjusted profit before tax.
EPRA capital expenditure analysis
Six months to Six months to
30 June 2017 30 June 2016
------------------------ -------------------------------------- -----------------------------------
Wholly owned Joint ventures Total Wholly owned Joint ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------- -------------- ------- ------------ -------------- -----
Acquisitions 1,143.6(1) 15.5 1,159.1 65.5(1) 39.8 105.3
Development(4) 184.0(2) 31.0 215.0 97.1(2) 17.6 114.7
Completed properties(4) 7.9(3) 2.0 9.9 9.8(3) 2.0 11.8
Other(5) 5.0 1.6 6.6 10.2 2.1 12.3
Total 1,340.5 50.1 1,390.6 182.6 61.5 244.1
------------------------ ------------- -------------- ------- ------------ -------------- -----
1 Being GBP1,143.6 million investment property and GBPnil
trading property (2016: GBP65.5 million and GBPnil million
respectively) see Note 12.
2 Being GBP184.0 million investment property and GBPnil trading
property (2016: GBP96.8 million and GBP0.3 million respectively)
see Note 12.
3 Being GBP7.9 million investment property and GBPnil trading
property (2016: GBP9.7 million and GBP0.1 million respectively) see
Note 12.
4 Includes wholly owned capitalised interest of GBP2.5 million
(2016: GBP2.4 million) as further analysed in Note 8 and share of
joint venture capitalised interest of GBP0.3 million (2016: GBP0.5
million).
5 Tenant incentives, letting fees and rental guarantees.
TREASURY POLICIES AND GOVERNANCE
The Group Treasury function operates within a formal treasury
policy covering all aspects of treasury activity, including
funding, counterparty exposure and management of interest rate,
currency and liquidity risks. Group Treasury policies are reviewed
by the Board at least once a year, most recently in September
2016.
Group Treasury reports on compliance with these policies on a
quarterly basis to the Finance Committee, which includes the Chief
Executive and is chaired by the Chief Financial Officer.
FINANCIAL POSITION AND FUNDING
Financial Key Performance Indicators
30 June 30 June 2016
GROUP ONLY 2017 31 December 2016
--------------------------------------------------- ------- ------------ ----------------
Net borrowings (GBPm) 1,742 1,707 1,598
Available Group cash and undrawn facilities (GBPm) 644 440 567
Gearing (%) 34 47 38
Weighted average cost of debt13 (%) 3.5 3.7 3.9
Interest cover2 (times) 2.9 2.4 2.4
---------------------------------------------------- ------- ------------ ----------------
INCLUDING JOINT VENTURES AT SHARE
Net borrowings (GBPm) 2,086 2,112 2,091
LTV ratio (%) 29 36 33
Weighted average cost of debt13 (%) 3.1 3.4 3.4
Average duration of debt (years)(3) 7.8 6.3 6.2
---------------------------------------------------- ------- ------------ ----------------
1 Based on gross debt, excluding commitment fees and amortised
costs.
2 Net rental income/Adjusted net finance costs (before
capitalisation).
3 30 June 2017 figures are pro forma for the impact of the USPP
debt issuance and the APP term debt repayment and associated
derivative transactions.
At 30 June 2017, the Group's net borrowings (including the
Group's share of borrowings in joint ventures) were GBP2,086
million (31 December 2016: GBP2,091 million).
Excluding the Group's share of borrowings in joint ventures, net
borrowings at 30 June 2017 were GBP1,741.6 million comprising gross
borrowings of GBP1,804.4 million (of which GBP323.8 million, mainly
relating to APP, were secured) and cash and cash equivalent
balances of GBP62.8 million. The APP debt was repaid in July 2017
(see below).
The Group's share of the net borrowings in its joint ventures
was GBP344.6 million comprising gross borrowings of GBP383.1
million and cash and cash equivalent balances of GBP38.5
million.
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 but one of which
currently have long-term credit ratings of A- or better.
Funds available (excluding cash and undrawn facilities held in
joint ventures) at 30 June 2017 totalled GBP644 million, comprising
GBP62.8 million of cash and short-term investments and GBP581.2
million of undrawn bank facilities provided by the Group's
relationship banks, of which only GBP5.0 million is uncommitted
The Group announced in July that it had signed a EUR650 million
US Private Placement Debt issue across three maturities with a
number of institutional investors with an average maturity of 11.2
years and a weighted average coupon of 1.9 per cent. Closing and
funding are due to take place in August 2017. The proceeds will be
used to re-finance the 2018 sterling bonds and the APP secured
debt. This transaction, combined with the extension of the Group's
largest revolving credit facility (EUR610 million) to 2022 has
increased the average maturity of the gross borrowings of the Group
(including joint ventures at share) to 7.8 years (31 December 2016:
6.2 years).
The Group seeks to maintain, over the medium term, an
appropriate mix of debt funding between longer-dated core funding
provided by bonds or private placement notes, and shorter-dated
bank facilities providing funding headroom and more flexible
borrowings that are cheaper and easier to repay. At 30 June 2017
(pro forma for the USPP debt issuance and the APP debt repayment),
71 per cent of the debt facilities of the Group were bonds or
private placement notes and 29 per cent were bank borrowings.
The market value of the gross borrowings of the Group (including
debt funding arrangements within joint ventures) at 30 June 2017
was GBP326 million higher than the balance sheet carrying value.
This difference mainly relates to the sterling bond portfolio which
have fixed interest coupons above current market rates. The
majority (GBP1,109 million) of the sterling bonds have been swapped
into floating sterling debt or floating euro debt via a combination
of interest rate and currency swaps and forward foreign exchange
contracts.
The market value (including accrued interest) of the Group's
derivative financial instruments (mainly interest rate and currency
swaps used to hedge interest rate and currency exposures) at 30
June 2017 was an asset of GBP52.5 million (31 December 2016: an
asset of GBP66.9 million). The decrease in the asset during the
period was mainly due to the reduction in maturity of the various
swap portfolios, bringing the APP swap portfolio within derivatives
on the balance sheet and a slight strengthening in the euro
exchange rate, partly offset by the impact of a reduction in medium
term sterling interest rates. These instruments are held at fair
value on the Group's balance sheet within debtors and
creditors.
GEARING AND FINANCIAL COVENANTS
The loan to value (LTV) ratio of the Group at 30 June 2017 on a
look-through basis (including the borrowings and property assets of
the Group's share of joint ventures) was 29 per cent (31 December
2016: 33 per cent).
The gearing ratio of the Group at 30 June 2017, as defined
within the principal debt funding arrangements of the Group
(excluding debt funding arrangements within joint ventures), was 34
per cent (31 December 2016: 38 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 55 per cent
from their 30 June 2017 values to reach the gearing covenant
threshold of 160 per cent. A 55 per cent fall in property values
would equate to a look-through LTV ratio of around 64 per cent.
The Group's other key financial covenant within its principal
debt funding arrangements is interest cover, requiring that net
interest before capitalisation be covered at least 1.25 times by
net property rental income. At 30 June 2017, the Group's multiple
is comfortably above this threshold at 2.9 times. On a look-through
basis, including joint ventures, the multiple was 3.4 times.
INTEREST RATE EXPOSURE
The Group's interest rate risk policy is 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
both at a Group level and by major borrowing currency (currently
euro and sterling), including the impact of derivative financial
instruments.
At 30 June 2017, (pro forma for the impact of the USPP debt
issuance and the APP debt repayment and including the impact of
derivative instruments), 70 per cent of the net borrowings of the
Group (including the Group's share of borrowings within joint
ventures) were at fixed rates and the weighted average maturity of
fixed cover was 12 years.
At 30 June 2017, again pro forma for the USPP debt issuance and
the APP debt repayment, the weighted average interest rate for
gross borrowings (excluding those within joint ventures) was 3.5
per cent (31 December 2016: 3.9 per cent) before commitment fees
and amortised costs. Including the impact, at share, of gross
borrowings in joint ventures, the weighted average interest rate of
the Group at 30 June 2017, before commitment fees and amortised
costs, was 3.1 per cent (31 December 2016: 3.4 per cent).
As a result of fixed rate cover in place, if short-term interest
rates had been 1 per cent higher throughout the year to 30 June
2016, the adjusted net finance cost of the Group would have
increased by approximately GBP1.7 million, representing around 2
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, these gains and losses are eliminated
from Adjusted profit after tax.
FOREIGN CURRENCY TRANSLATION EXPOSURE
The Group has negligible transactional foreign currency
exposure, but does have a potentially significant currency
translation exposure arising on the conversion of its substantial
foreign currency denominated assets (mainly euro) and euro
denominated earnings into sterling in the Group consolidated
accounts. At 30 June 2017, the Group had gross foreign currency
assets which were 68 per cent hedged by gross foreign currency
denominated liabilities (including the impact of derivative
financial instruments).
Including the impact of forward foreign exchange and currency
swap contracts used to hedge foreign currency denominated net
assets, a 5 per cent strengthening against sterling in the value of
the other currencies in which the Group operates at 30 June 2017
would have increased net assets by approximately GBP34 million and
there would have been an increase in gearing of approximately 0.9
per cent and in the look-through LTV of 0.6 per cent.
The average exchange rate used to translate euro denominated
earnings generated during the period into sterling within the
consolidated income statement of the Group was EUR1.16:GBP1. Based
on the hedging position at 30 June 2017, if the euro had been 5 per
cent stronger than it was against sterling throughout the first
half of the year (EUR1.10: GBP1), Adjusted profit after tax for the
period would have been approximately GBP1.7 million (1.9 per cent)
higher than reported.
In the event of the euro weakening 5 per cent, the impact on
income, net assets, gearing and LTV is approximately equal and
opposite to the figures above.
GOING CONCERN
As noted in the Financial Position and Funding section, the
Group has a strong liquidity position, a favourable debt maturity
profile (enhanced by the recently contracted USPP which will be
drawn down in August) and substantial headroom against financial
covenants. Accordingly, it can reasonably expect to continue to
have good access to capital markets and other sources of
funding.
Having made enquiries and having considered the principal risks
facing the Group (see Statement of Principal Risks for further
information), 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 condensed
financial information). Accordingly, they continue to adopt the
going concern basis in preparing the condensed financial
statements.
STATEMENT OF PRINCIPAL RISKS
The Group recognises that its ability to manage risk effectively
throughout the organisation continues to be central to its success.
Our approach to risk management aims to bring controllable risks
within our appetite, and to enable our decision making to balance
uncertainty against the objective of creating value for our
shareholders.
The Group's risk appetite, its integrated approach to managing
risk, and the governance arrangements in place are described in the
Principal Risks section of the 2016 Annual Report on pages 54 to
57.
The Group notes the outcome of the UK General Election held on 8
June 2017, and the subsequent formation of a minority Government.
Whilst this development does not significantly change our
assessment of risk to the Group, we observe that it has increased
the level of uncertainty in the UK political environment
generally.
Nevertheless, there are no significant changes to the risks
presented in the 2016 Annual Report on pages 58 to 61. A summary of
the Group's principal risks for the second half of 2016 is provided
below.
1. Property Risks
These are risks to achieving above average rental and capital
growth from our portfolio, including external market and
competitive conditions, portfolio strategy, and execution of
acquisitions and disposals.
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 provide opportunities for superior
returns.
Market cycle. The property market is cyclical and there is a
continuous risk that the Group could either misinterpret the market
or fail to react appropriately to changing market conditions, which
could result in capital being invested or disposals taking place at
the wrong price or time in the cycle.
Portfolio strategy. The Group's Total Property and/or
Shareholder Returns could underperform in absolute or relative
terms as a result of an inappropriate portfolio strategy.
Execution of investment plans. Decisions to buy, hold, sell or
develop assets could be flawed due to uncertainty in analysis,
quality of assumptions, poor due diligence or unexpected changes in
the economic or operating environment.
2. Financial Risks
These are risks to the revenues, costs, cash flows, equity
capital and solvency of the Group resulting from the capital
structure of the Group and changes in external factors such as
interest rates, foreign exchange rates and the creditworthiness of
the Group's major financial counterparties.
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.
Solvency and covenant breach. A substantial fall in the Group's
property asset values or rental income levels could lead to a
breach of financial covenants within its debt funding arrangements.
This could lead to a cancellation of debt funding which could, in
turn, leave the Group without sufficient long-term resources
(solvency) to meet its commitments.
UK exit from the EU. The uncertainty associated with the UK's
decision to exit the EU may impact investment, capital, financial
(including foreign exchange) and occupier markets in the UK during
the transition period as the terms of exit and future relationships
are negotiated, and in the long term. In the long term, exit from
the EU could reduce levels of investor and occupier demand as a
result of reduced trade and/or the relocation of corporations and
financial institutions away from the UK, and London in
particular.
European economic environment. The risk of a significant adverse
impact to the Group's earnings, net asset value, financial
covenants or investor confidence arising from a major disruption to
the economic and business environment in Europe, sustained poor
economic performance in the Eurozone, or the exit of a significant
economy from the Eurozone.
Financial leverage. The Group could maintain an inappropriate
capital structure. Financial leverage (usually expressed as the LTV
ratio, but in financial covenants defined as gearing) needs to be
managed depending on the direction of the economic and property
market cycle. If gearing is too high when property valuations are
falling, net asset value movements can be exacerbated and financial
covenants put at risk. Equally, if gearing is too conservative,
there is a risk that attractive growth opportunities could be
missed and the benefits of leverage not maximised.
Interest rates. A significant adverse movement in interest rates
could have an unacceptable impact on the Group's earnings, on
investment market conditions or on tenant covenant strength.
Counterparty default. A bank or other counterparty could default
while holding SEGRO deposits or derivative assets, resulting in a
significant financial loss to the Group. This could also include
the loss of solvency headroom from lost undrawn committed bank
facilities.
3. Corporate Risks
These are risks to business performance, legal and regulatory
compliance, health and safety, environmental impact, reputation and
business continuity arising from external factors or inadequate
internal processes, people or systems.
We have a very low appetite for risks to our good reputation and
risks to being well-regarded by our investors, regulators,
employees, customers, business partners, suppliers, lenders and by
the wider communities and environments in which we operate.
Operational delivery and compliance. The Group's ability to
protect its reputation, revenues and shareholder value could be
damaged by operational failures such as: environmental damage;
failing to attract, retain and motivate key staff; a breach of
anti-bribery and corruption or other legislation; major customer
default; supply chain failure; the structural failure of one of our
assets; a major high-profile incident involving one of our assets;
or a cyber-security failure. Compliance failures, such as breaches
of joint venture shareholders' agreements, secured loan agreements
or tax legislation could also damage reputation, revenue and
shareholder value.
Health and safety. Health and safety management processes could
fail, leading to a loss of life, litigation, fines and serious
reputational damage to the Group.
Regulatory environment. The Group could fail to anticipate legal
or regulatory changes, leading to a significant unforecasted
financial or reputational impact.
RESPONSiBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.28R (disclosure of related parties'
transactions and changes therein).
By order of the Board,
David Sleath Soumen Das
Chief Executive Chief Financial Officer
Independent review report to SEGRO plc
Report on the condensed set of financial statements
Our conclusion
We have reviewed SEGRO plc's condensed set of financial
statements (the "interim financial statements") in the half-yearly
report of SEGRO plc for the 6 month period ended 30 June 2017.
Based on our review, nothing has come to our attention that causes
us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed group balance sheet as at 30 June 2017;
-- the condensed group income statement and condensed group
statement of comprehensive income for the period then ended;
-- the condensed group cash flow statement for the period then ended;
-- the condensed group statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in Note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the
half-yearly report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
24 July 2017
Notes:
a) The maintenance and integrity of the SEGRO plc website is the
responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial statements since
they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2017
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
====================================== ===== ============= ============= ============
Revenue 4 155.0 136.7 283.5
====================================== ===== ============= ============= ============
Gross rental income 4 127.3 110.7 225.5
Property operating expenses 5 (23.9) (22.1) (44.9)
====================================== ===== ============= ============= ============
Net rental income 103.4 88.6 180.6
Joint venture management fee income 16.5 9.1 18.6
Administration expenses (17.5) (15.5) (31.4)
Share of profit from joint ventures
after tax 6 36.3 63.4 85.1
Realised and unrealised property
gain 7 309.9 81.1 246.0
Goodwill and other amounts written
off on acquisitions and amortisation
of intangibles (0.6) (0.1) (0.2)
============
Operating profit 448.0 226.6 498.7
Finance income 8 26.0 47.7 46.7
Finance costs 8 (76.9) (73.6) (119.0)
============
Profit before tax 397.1 200.7 426.4
Tax 9 (9.6) (5.9) (7.7)
============
Profit after tax 387.5 194.8 418.7
====================================== ===== ============= ============= ============
Attributable to equity shareholders 385.7 194.1 417.7
Attributable to non-controlling
interests 1.8 0.7 1.0
====================================== ===== ============= ============= ============
387.5 194.8 418.7
====================================== ===== ============= ============= ============
Earnings per share (pence)(1)
Basic 11 41.3 24.8 51.6
Diluted 11 41.1 24.7 51.3
====================================== ===== ============= ============= ============
1 The comparative earning per share has been re-presented
following the rights issue detailed in Note 11.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2017
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
====================================================== ====== ============= ============= ==============
Profit for the period 387.5 194.8 418.7
Items that will not be reclassified subsequently
to profit or loss
Actuarial (loss)/gain on defined benefit pension
schemes (9.0) 0.3 15.0
-------------------------------------------------------------- ------------- ------------- ==============
(9.0) 0.3 15.0
Items that may be reclassified subsequently to profit
or loss
Foreign exchange movement arising on translation
of international operations 20.1 92.7 114.1
Decrease in value of available-for-sale investments - (0.3) (0.3)
Fair value movements on derivatives in effective
hedge relationships (5.4) (72.4) (86.4)
-------------------------------------------------------------- ------------- ------------- ==============
14.7 20.0 27.4
Tax on components of other comprehensive income - - -
====================================================== ====== ============= ============= ==============
Other comprehensive profit before transfers 5.7 20.3 42.4
Transfer to income statement of amount realised on
fair value of interest rate swaps and derivatives 3.1 - -
Transfer to income statement of realised foreign
exchange movements - - (2.0)
==============
Total comprehensive profit for the period 396.3 215.1 459.1
============================================================== ============= ============= ==============
Attributable to - equity shareholders 394.5 214.4 458.5
- non-controlling interests 1.8 0.7 0.6
============================================================== ============= ============= ==============
Total comprehensive profit for the period 396.3 215.1 459.1
============================================================== ============= ============= ==============
CONDENSED GROUP BALANCE SHEET
As at 30 June 2017
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
========================================= ===== ============= ============= ============
Assets
Non-current assets
Goodwill and other intangibles 2.8 4.5 3.1
Investment properties 12 6,097.2 4,394.5 4,714.4
Other interests in property 12.1 42.4 9.6
Plant and equipment 15.8 16.5 16.1
Investments in joint ventures 6 761.3 1,050.7 1,066.2
Available-for-sale investments - 0.6 0.7
Derivative financial instruments 72.3 112.3 80.1
Pension assets 41.5 24.6 45.7
========================================= ===== ============= ============= ============
7,003.0 5,646.1 5,935.9
Current assets
Trading properties 12 25.4 33.0 25.4
Trade and other receivables 137.5 98.1 102.8
Derivative financial instruments 9.7 4.5 12.6
Cash and cash equivalents 13 62.8 10.9 32.0
235.4 146.5 172.8
Total assets 7,238.4 5,792.6 6,108.7
========================================= ===== ============= ============= ============
Liabilities
Non-current liabilities
Borrowings 13 1,484.4 1,717.8 1,630.4
Deferred tax provision 9 23.5 13.7 16.3
Trade and other payables 4.8 - 4.7
Derivative financial instruments 9.3 21.7 14.7
----------------------------------------- ----- ------------- ------------- ------------
1,522.0 1,753.2 1,666.1
Current liabilities
Trade and other payables 317.1 255.0 246.5
Derivative financial instruments 20.2 131.6 11.1
Borrowings 13 320.0 - -
Tax liabilities 7.0 5.3 4.1
664.3 391.9 261.7
Total liabilities 2,186.3 2,145.1 1,927.8
========================================= ===== ============= ============= ============
Net assets 5,052.1 3,647.5 4,180.9
========================================= ===== ============= ============= ============
Equity
Share capital 14 99.8 75.4 83.0
Share premium 1,980.7 1,113.1 1,431.1
Capital redemption reserve 113.9 113.9 113.9
Own shares held (4.7) (5.8) (5.5)
Other reserves 216.8 187.6 196.2
Retained earnings 2,647.6 2,164.7 2,363.4
========================================= ===== ============= ============= ------------
Total shareholders' equity 5,054.1 3,648.9 4,182.1
Non-controlling interests (2.0) (1.4) (1.2)
========================================= ===== ============= ============= ------------
Total equity 5,052.1 3,647.5 4,180.9
========================================= ===== ============= ============= ============
Net assets per ordinary share (pence)(1)
Basic 11 507 464 482
Diluted 11 504 461 480
----------------------------------------- ----- ------------- ------------- ------------
1 The comparative net assets per ordinary share have been
re-presented as detailed in Note 11.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2017
Items
taken Balance
Balance directly 30
1 January Exchange Retained to Shares June
2017 movement profit reserves issued Other Dividends Transfers 2017
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========== ========= ======== ========= ======= ====== ========= ========= =======
Ordinary share capital 83.0 - - - 16.6 - 0.2 - 99.8
Share premium 1,431.1 - - - 540.2 - 9.4 - 1,980.7
Capital redemption
reserve 113.9 - - - - - - - 113.9
Own shares held (5.5) - - - - (1.7) - 2.5 (4.7)
Other reserves:
Share based payments
reserve 13.5 - - - - 5.8 - (3.0) 16.3
Fair value reserve
for AFS(1) (0.2) - - - - - - 0.2 -
Translation, hedging
and other reserves 13.8 20.1 - (5.4) - 3.1 - (0.2) 31.4
Merger reserve 169.1 - - - - - - - 169.1
========================== ========== ========= ======== ========= ======= ====== ========= ========= =======
Total other reserves 196.2 20.1 - (5.4) - 8.9 - (3.0) 216.8
Retained earnings 2,363.4 - 385.7 (9.0) - - (93.0) 0.5 2,647.6
========================== ========== ========= ======== ========= ======= ====== ========= ========= =======
Total equity attributable
to equity shareholders 4,182.1 20.1 385.7 (14.4) 556.8 7.2 (83.4) - 5,054.1
========================== ========== ========= ======== ========= ======= ====== ========= ========= =======
Non-controlling
interests(2) (1.2) - 1.8 - - (2.6) - - (2.0)
========================== ========== ========= ======== ========= ======= ====== ========= ========= =======
Total equity 4,180.9 20.1 387.5 (14.4) 556.8 4.6 (83.4) - 5,052.1
========================== ========== ========= ======== ========= ======= ====== ========= ========= =======
For the six months ended 30 June 2016
Items
taken Balance
Balance directly 30
1 January Exchange Retained to Shares June
2016 movement profit reserves issued Other Dividends Transfers 2016
(unaudited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ========== ========= ======== ========= ======= ===== ========= ========= ===========
Ordinary share capital 74.8 - - - 0.1 - 0.5 - 75.4
Share premium 1,091.4 - - - 0.1 - 21.6 - 1,113.1
Capital redemption
reserve 113.9 - - - - - - - 113.9
Own shares held (6.3) - - - - (2.2) - 2.7 (5.8)
Other reserves:
Share based payments
reserve 8.5 - - - - 3.5 - (2.0) 10.0
Fair value reserve
for AFS(1) 0.1 - - (0.3) - - - - (0.2)
Translation, hedging
and other reserves (11.9) 93.0 - (72.4) - - - - 8.7
Merger reserve 169.1 - - - - - - - 169.1
========== ========= ======== ========= ======= ===== ========= ========= ===========
Total other reserves 165.8 93.0 - (72.7) - 3.5 - (2.0) 187.6
Retained earnings 2,050.3 - 194.1 0.3 - - (79.3) (0.7) 2,164.7
======================= ========== ========= ======== ========= ======= ===== ========= ========= ===========
Total equity
attributable
to equity shareholders 3,489.9 93.0 194.1 (72.4) 0.2 1.3 (57.2) - 3,648.9
======================= ========== ========= ======== ========= ======= ===== ========= ========= ===========
Non-controlling
interests(2) (1.8) (0.3) 0.7 - - - - - (1.4)
======================= ========== ========= ======== ========= ======= ===== ========= ========= ===========
Total equity 3,488.1 92.7 194.8 (72.4) 0.2 1.3 (57.2) - 3,647.5
======================= ========== ========= ======== ========= ======= ===== ========= ========= ===========
1 AFS is the term used for "Available-for-sale investments" and
is shown net of deferred tax.
2 Non-controlling interests relate to Vailog Sarl and is shown
net of the estimated gross settlement amount of a put option held
by the minority shareholder.
For the year ended 31 December 2016
Items
taken
Balance directly Balance
1 January Exchange Retained to Shares 31 December
2016 movement profit reserves issued Other Dividends Transfers 2016
(audited) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================== ========== ========= ======== ========= ======= ===== ========= ========= ============
Ordinary share capital 74.8 - - - 7.5 - 0.7 - 83.0
Share premium 1,091.4 - - - 310.9 - 28.8 - 1,431.1
Capital redemption
reserve 113.9 - - - - - - - 113.9
Own shares held (6.3) - - - - (2.3) - 3.1 (5.5)
========== ========= ======== ========= ======= ===== ========= ========= ============
Other reserves:
Share based payments
reserve 8.5 - - - - 7.0 - (2.0) 13.5
Fair value reserve
for AFS(1) 0.1 - - (0.3) - - - - (0.2)
Translation, hedging
and other reserves (11.9) 114.1 - (86.4) - (2.0) - - 13.8
Merger reserve 169.1 - - - - - - - 169.1
====================== ========== ========= ======== ========= ======= ===== ========= ========= ============
Total other reserves 165.8 114.1 - (86.7) - 5.0 - (2.0) 196.2
Retained earnings 2,050.3 - 417.7 15.0 - - (118.5) (1.1) 2,363.4
====================== ========== ========= ======== ========= ======= ===== ========= ========= ============
Total equity
attributable
to equity
shareholders 3,489.9 114.1 417.7 (71.7) 318.4 2.7 (89.0) - 4,182.1
====================== ========== ========= ======== ========= ======= ===== ========= ========= ============
Non-controlling
interests(2) (1.8) (0.4) 1.0 - - - - - (1.2)
====================== ========== ========= ======== ========= ======= ===== ========= ========= ============
Total equity 3,488.1 113.7 418.7 (71.7) 318.4 2.7 (89.0) - 4,180.9
====================== ========== ========= ======== ========= ======= ===== ========= ========= ============
1 AFS is the term used for "Available-for-sale investments" and
is shown net of deferred tax.
2 Non-controlling interests relate to Vailog Sarl and is shown
net of the estimated gross settlement amount of a put option held
by the minority shareholder.
CONDENSED GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2017
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
======================================== ===== ============ ============ ============
Cash flows from operating activities 15 116.2 98.8 156.7
Interest received 32.8 32.6 69.8
Dividends received 16.2 14.8 26.5
Interest paid (73.8) (75.9) (140.9)
Cost of early close out of debt (10.3) - -
Tax paid (0.2) (10.1) (10.9)
======================================== ===== ============ ============ ============
Net cash received from operating
activities 80.9 60.2 101.2
======================================== ===== ============ ============ ============
Cash flows from investing activities
Purchase and development of investment
properties (202.3) (146.1) (429.7)
Acquisition of APP(1) (217.2) - -
Sale of investment properties 143.6 391.2 614.0
Acquisition of other interests
in property (2.5) (36.7) (36.7)
Purchase of plant and equipment (0.4) (3.7) (3.5)
Sale of available-for-sale investments 0.6 - -
Investment in joint ventures (32.0) (73.6) (184.3)
Divestment in joint ventures 23.8 1.6 120.9
======================================== ===== ============ ============ ============
Net cash (used in)/received from
investing activities (286.4) 132.7 80.7
======================================== ===== ============ ============ ============
Cash flows from financing activities
Dividends paid to ordinary shareholders (70.4) (46.4) (89.0)
Proceeds from borrowings 186.1 36.7 42.5
Repayment of borrowings (408.1) (170.4) (267.7)
Net settlement of foreign exchange
derivatives (26.6) (18.8) (168.4)
Proceeds from issue of ordinary
shares 556.8 0.2 318.4
Purchase of ordinary shares (1.7) - (2.3)
======================================== ===== ============ ============ ============
Net cash received from/(used
in) financing activities 236.1 (198.7) (166.5)
======================================== ===== ============ ============ ============
Net increase/(decrease) in cash
and cash equivalents 30.6 (5.8) 15.4
Cash and cash equivalents at
the beginning of the period 32.0 16.4 16.4
Effect of foreign exchange rate
changes 0.2 0.3 0.2
======================================== ===== ============ ============ ============
Cash and cash equivalents at
the end of the period 13 62.8 10.9 32.0
======================================== ===== ============ ============ ============
1 Acquisition of APP includes
GBP1.2 million of transaction
costs.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed set of financial statements for the six months
ended 30 June 2017 were approved by the Board of Directors on 24
July 2017.
The condensed set of financial statements for the six months
ended 30 June 2017 is unaudited and does not constitute statutory
accounts within the meaning of S434 of the Companies Act 2006. The
financial information contained in this report for the year ended
31 December 2016 does not constitute statutory accounts within the
meaning of S434 of the Companies Act 2006 and has been extracted
from the statutory accounts, which were prepared in accordance with
EU-endorsed International Financial Reporting Standards (IFRSs) and
were delivered to the Registrar of Companies. The auditor's opinion
on these accounts was unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement made
under S498(2) or S498(3) of the Companies Act 2006. The condensed
set of financial statements included in this half-yearly report has
been prepared in accordance with International Accounting Standard
34 'Interim Financial Reporting', as adopted by the European Union
and the Disclosure Rules and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest financial statements. A
number of amendments to IFRSs became effective for the financial
year beginning on 1 January 2017, however the Group did not have to
change its accounting policies or make material retrospective
adjustments as a result of adopting these new standards. These
amendments are listed below:
-- Amendment to IAS 12, 'Income taxes', regarding recognition of
deferred tax assets for unrealised losses (Not yet EU endorsed)
-- Amendment to IAS 7, 'Cash flow statements', regarding the
Disclosure initiative (Not yet EU endorsed)
-- Annual improvements 2014-2016 IFRS 12, 'Disclosure of
interest in other entities' (Not yet EU endorsed)
The condensed set of financial statements has been prepared on a
going concern basis. This is discussed in the Financial Review.
The principal exchange rates used to translate foreign currency
denominated amounts are:
Balance sheet: GBP1 = EUR1.14 (30 June 2016: GBP1 = EUR1.20; 31
December 2016: GBP1 = EUR1.17)
Income statement: GBP1 = EUR1.16 (30 June 2016: GBP1 = EUR1.28;
31 December 2016: GBP1 = EUR1.22)
The Group's business is not seasonal and the results relate to
continuing operations unless otherwise stated.
2. Adjusted profit
Adjusted profit is a non-GAAP measure and is the Group's measure
of underlying profit, which is used by the Board and senior
management to measure and monitor the Group's income
performance.
It is based on the Best Practices Recommendations of European
Public Real Estate Association (EPRA), which calculate profit
excluding investment and development property revaluations and
gains or losses on disposals, changes in the fair value of
financial instruments and associated close-out costs and their
related taxation, as well as other permitted one-off items. Refer
to the Supplementary Notes for all EPRA adjustments.
The Directors may also exclude from the EPRA profit measure
additional items (gains and losses) which are considered by them to
be non-recurring, not in the ordinary course of business and
significant by virtue of size and nature. No non-EPRA adjustments
to underlying profit were made in the current or comparative
periods.
The following table provides a reconciliation of Adjusted profit
to IFRS profit:
Half year Half year
to to
30 June 30 June Year to
2017 2016 31 December 2016
GBPm GBPm GBPm
============================================ ========= ========= =================
Gross rental income 127.3 110.7 225.5
Property operating expenses (23.9) (22.1) (44.9)
============================================ ========= ========= =================
Net rental income 103.4 88.6 180.6
Joint venture management fee income 16.5 9.1 18.6
Administration expenses (17.5) (15.5) (31.4)
Share of joint ventures' adjusted
profit after tax 22.1 25.5 55.4
============================================ ========= ========= =================
Adjusted operating profit before
interest and tax 124.5 107.7 223.2
Net finance costs (33.3) (33.5) (68.7)
============================================ ========= ========= =================
Adjusted profit before tax 91.2 74.2 154.5
============================================ ========= ========= =================
Adjustments to reconcile to IFRS:
Adjustments to the share of profit
from joint ventures after tax(1) 14.2 37.9 29.7
Profit on sale of investment properties 7.7 6.4 16.4
Valuation surplus on investment properties 302.9 76.0 231.3
(Loss)/gain on sale of trading properties - (0.1) 0.3
Increase in provision for impairment
of trading properties (0.7) (1.2) (2.0)
Goodwill and other amounts written
off on acquisitions and amortisation
of
intangibles (0.6) (0.1) (0.2)
Cost of early close out of debt (10.6) (1.0) (1.0)
Net fair value (loss)/profit on interest
rate swaps and other derivatives (7.0) 8.6 (2.6)
Total adjustments 305.9 126.5 271.9
============================================ ========= ========= =================
Profit before tax 397.1 200.7 426.4
============================================ ========= ========= =================
Tax
On Adjusted profit (0.7) (0.8) (1.8)
In respect of adjustments (8.9) (5.1) (5.9)
============================================ ========= ========= =================
(9.6) (5.9) (7.7)
Profit after tax before non-controlling
interests 387.5 194.8 418.7
============================================ ========= ========= =================
Non-controlling interests:
Less: share of adjusted profit attributable
to non-controlling interests - - (0.1)
: share of adjustments attributable
to non-controlling interests (1.8) (0.7) (0.9)
============================================ ========= ========= =================
Profit after tax and non-controlling
interests 385.7 194.1 417.7
Of which:
Adjusted profit after tax 90.5 73.4 152.6
Adjustments 295.2 120.7 265.1
============================================ ========= ========= =================
Profit after tax 385.7 194.1 417.7
============================================ ========= ========= =================
1 A detailed breakdown of the adjustments to the share of profit
from joint ventures is included in Note 6.
3. SEGMENTAL REPORTING
The Group's reportable segments are the geographical business
units: Greater London, Thames Valley and National Logistics,
Northern Europe, Southern Europe and Central Europe, which are
managed and reported to the Board as separate and distinct business
units.
Share Total
of joint directly
Gross ventures' Adjusted owned Investments
rental Net rental Adjusted operating property in joint Capital
income income profit PBIT assets ventures expenditure(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================== ======= ========== ========== ========== ========= =========== ===============
30 June
2017
======================== ======= ========== ========== ========== ========= =========== ===============
Greater London(3) 51.3 47.2 (1.8) 53.7 2,866.9 - 1,144.3
Thames Valley
and National Logistics 49.2 45.7 - 45.6 2,115.8 9.3 45.2
Northern Europe 10.6 6.0 10.4 18.5 381.4 424.5 28.5
Southern Europe 13.5 9.7 7.6 18.6 628.6 265.8 110.6
Central Europe 2.7 1.7 8.2 11.4 129.9 324.6 6.9
Other(1) - (6.9) (2.3) (23.3) - (262.9) 0.2
======================== ======= ========== ========== ========== ========= =========== ===============
Total 127.3 103.4 22.1 124.5 6,122.6 761.3 1,335.7
======================== ======= ========== ========== ========== ========= =========== ===============
30 June
2016
======================== ======= ========== ========== ========== ========= =========== ===============
Greater London 38.5 33.5 7.1 44.2 1,740.9 355.9 15.5
Thames Valley
and National Logistics 47.3 43.6 - 43.5 1,805.5 12.5 79.5
Northern Europe 11.2 7.8 7.5 16.5 402.6 247.5 24.0
Southern Europe 11.2 7.9 5.0 13.0 358.5 189.4 47.6
Central Europe 2.5 1.3 6.1 8.8 120.0 230.8 5.8
Other(1) - (5.5) (0.2) (18.3) - 14.6 0.9
======================== ======= ========== ========== ========== ========= =========== ===============
Total 110.7 88.6 25.5 107.7 4,427.5 1,050.7 173.3
======================== ======= ========== ========== ========== ========= =========== ===============
31 December
2016
------------------------ ------- ---------- ---------- --------------------- ----------- ---------------
Greater London 76.7 67.5 14.5 88.5 1,777.5 363.4 28.6
Thames Valley
and National Logistics 95.6 88.7 (0.1) 88.5 1,991.7 12.6 230.2
Northern Europe 25.0 17.5 16.5 36.5 378.8 396.9 88.4
Southern Europe 22.9 15.5 12.6 28.9 474.6 222.3 179.5
Central Europe 5.3 2.9 13.2 19.1 117.2 319.5 10.3
Other(1) - (11.5) (1.3) (38.3) - (248.5) 0.8
======================== ======= ========== ========== ========== ========= =========== ===============
Total 225.5 180.6 55.4 223.2 4,739.8 1,066.2 537.8
======================== ------- ---------- ---------- ---------- --------- ----------- ---------------
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 bond issued and revolving credit facility both held by
SELP Finance SARL, a Luxembourg entity, during 2016. This replaced
debt held by SELP entities within the business units.
2 Capital expenditure includes additions and acquisitions of
investment and trading properties but does not include tenant
incentives, letting fees and rental guarantees. The "Other"
category includes non-property related spend, primarily IT.
3 Greater London includes the impact of the acquisition of the
APP property portfolio during 2017 as discussed further in Note
6.
4. REVENUE
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
=============================================================================== ========= ========= ============
Rental income from investment
properties 119.9 103.2 210.6
Rental income from trading
properties 0.8 0.9 1.8
Rent averaging 5.9 6.0 11.8
Management fees 0.6 0.6 1.2
Surrender premiums 0.1 - 0.1
Gross rental income 127.3 110.7 225.5
Joint venture management fee
- property management 9.0 8.2 17.7
- performance and other fees 7.5 0.9 0.9
Service charge income 11.2 8.8 19.4
Proceeds from sale of trading
properties - 8.1 20.0
=============================================================================== ========= ========= ============
Total revenue 155.0 136.7 283.5
=============================================================================== ========= ========= ============
5. PROPERTY OPERATING EXPENSES
Half year
to Year to
Half year to 30 June 31 December
30 June 2017 2016 2016
GBPm GBPm GBPm
==================================== ============= ========= ============
Vacant property costs 3.0 3.7 5.6
Letting, marketing, legal and
professional fees 3.7 3.8 7.9
Bad debt expense 0.5 0.1 0.2
Other expenses, net of service
charge income 4.9 4.2 9.8
==================================== ============= ========= ============
Property management expenses 12.1 11.8 23.5
Property administration expenses(1) 13.6 11.8 25.0
Costs capitalised(2) (1.8) (1.5) (3.6)
==================================== ============= ========= ============
Total property operating expenses 23.9 22.1 44.9
==================================== ============= ========= ============
1 Property administration expenses predominantly relate to the
employee staff costs of personnel directly involved in managing the
property portfolio.
2 Costs capitalised relate to staff costs of those internal
employees directly involved in developing the property
portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Share of profit from joint ventures after tax
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
========================================================== ========= ========= ============
Gross rental income 74.5 76.5 165.5
Property operating expenses
-underlying property operating expenses (3.0) (2.3) (5.7)
-vacant property costs (1.1) (0.9) (2.1)
-property management fees (7.3) (8.0) (16.8)
-performance and other fees (8.5) (0.7) (0.7)
========================================================== ========= ========= ============
Net rental income 54.6 64.6 140.2
Administration expenses (0.9) (0.2) (1.6)
Net finance costs (6.7) (12.4) (24.5)
========================================================== ========= ========= ============
Adjusted profit before tax 47.0 52.0 114.1
Tax (2.8) (1.1) (3.3)
========================================================== ========= ========= ============
Adjusted profit after tax 44.2 50.9 110.8
========================================================== --------- --------- ------------
At share 22.1 25.5 55.4
========================================================== --------- --------- ------------
Adjustments:
Profit on sale of investment properties 0.6 4.5 6.9
Valuation surplus on investment properties 41.6 51.3 78.6
Cost of early close out of debt and related derivatives - (2.8) (13.6)
Goodwill and other amounts written off on acquisitions
and amortisation of intangibles (0.1) (0.1) (2.8)
Fair value loss realised on interest rate swaps and other
derivatives (6.2) - -
Tax in respect of adjustments (7.5) 22.9 (9.8)
========================================================== ========= ========= ============
Total adjustments 28.4 75.8 59.3
========================================================== --------- --------- ------------
At share 14.2 37.9 29.7
========================================================== --------- --------- ------------
Profit after tax 72.6 126.7 170.1
========================================================== --------- --------- ------------
At share 36.3 63.4 85.1
========================================================== --------- --------- ------------
Other comprehensive income/(loss) 6.2 (8.2) (4.2)
========================================================== --------- --------- ------------
At share 3.1 (4.1) (2.1)
========================================================== --------- --------- ------------
Total comprehensive income for the year 78.8 118.5 165.9
========================================================== --------- --------- ------------
At share 39.4 59.3 83.0
========================================================== --------- --------- ------------
6(ii) Summarised balance sheet information of the Group's share
of joint ventures
As at As at As at 31
30 June 30 June December
2017 2016 2016
GBPm GBPm GBPm
================================= ======== ========= =========
Investment properties 2,307.8 2,966.8 3,210.0
Other interests in property 14.6 12.8 13.3
Other investments - 0.3 0.2
=================================== ======== ========= =========
Total non-current assets 2,322.4 2,979.9 3,223.5
=================================== ======== ========= =========
Trading properties 1.1 1.1 1.1
Other receivables 70.6 76.7 80.9
Cash 76.9 131.5 123.9
=================================== ======== ========= =========
Total current assets 148.6 209.3 205.9
=================================== ======== ========= =========
Total assets 2,471.0 3,189.2 3,429.4
=================================== ======== ========= =========
Borrowings (766.1) (941.8) (1,109.1)
Deferred tax (85.6) (37.8) (76.0)
Other liabilities - (1.4) (5.3)
=================================== ======== ========= =========
Total non-current liabilities (851.7) (981.0) (1,190.4)
=================================== ======== ========= =========
Other liabilities (96.7) (95.9) (99.8)
Derivative financial instruments - (10.8) (6.9)
=================================== ======== ========= =========
Total current liabilities (96.7) (106.7) (106.7)
=================================== ======== ========= =========
Total liabilities (948.4) (1,087.7) (1,297.7)
=================================== ======== ========= =========
Net assets 1,522.6 2,101.5 2,132.3
=================================== -------- --------- ---------
At share 761.3 1,050.7 1,066.2
=================================== -------- --------- ---------
On 9 March 2017 SEGRO acquired the remaining 50 percent interest
in the Airport Property Partnership ("APP") joint venture it did
not already own. Consequently, the APP share of profit is only
included in the above table to 9 March 2017 (the date of
acquisition) and no balance sheet in respect of APP is included at
30 June 2017. This asset acquisition transaction has primarily
resulted in property acquisitions of GBP1,112.6 million being
recognised (see Note 12) and associated net debt of GBP379.2
million (see Note 15).
7. REALISED AND UNREALISED PROPERTY GAIN
Half Half
year year
to to Year to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
=========================================== ======== ======== ============
Profit on sale of investment properties 7.7 6.4 16.4
Valuation surplus on investment properties 302.9 76.0 231.3
(Loss)/gain on sale of trading properties - (0.1) 0.3
Increase in provision for impairment
of trading properties (0.7) (1.2) (2.0)
=========================================== ======== ======== ============
Total realised and unrealised property
gain 309.9 81.1 246.0
=========================================== ======== ======== ============
Valuation surpluses are discussed further in the Chief
Executive's Review.
8. NET FINANCE COSTS
Half Half
year year
to to 30 Year to
30 June June 31 December
2017 2016 2016
Finance income GBPm GBPm GBPm
=========================================== ======== ====== ============
Interest received on bank deposits
and related derivatives 18.3 16.8 32.0
Fair value gain on interest rate swaps
and other derivatives 6.9 30.1 13.8
Net interest income on defined benefit
obligations 0.6 0.5 0.9
Exchange differences 0.2 0.3 -
=========================================== ======== ====== ============
Total finance income 26.0 47.7 46.7
Finance costs
=========================================== ======== ====== ============
Interest on overdrafts, loans and
related derivatives (53.5) (52.1) (103.4)
Amortisation of issue costs (1.4) (1.4) (2.9)
Net interest expense on defined benefit
obligations - - -
Cost of early close out of debt (10.6) (1.0) (1.0)
Total borrowing costs (65.5) (54.5) (107.3)
Less amount capitalised on the development
of properties 2.5 2.4 5.0
=========================================== ======== ====== ============
Net borrowing costs (63.0) (52.1) (102.3)
Fair value loss on interest rate swaps
and other derivatives (13.9) (21.5) (16.4)
Exchange differences - - (0.3)
Total finance costs (76.9) (73.6) (119.0)
=========================================== ======== ====== ============
Net finance costs (50.9) (25.9) (72.3)
=========================================== ======== ====== ============
9. TAX
9(i) Tax on profit
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
======================================================= ========= ======================== ============
Tax on:
Adjusted profits (0.7) (0.8) (1.8)
In respect of adjustments (8.9) (5.1) (5.9)
Total tax charge (9.6) (5.9) (7.7)
======================================================= ========= ======================== ============
Current tax
Current tax charge (3.0) (6.4) (5.6)
Adjustments in respect of earlier years 0.1 (0.1) 0.1
Total current tax charge (2.9) (6.5) (5.5)
======================================================= ========= ======================== ============
Deferred tax
Origination and reversal of temporary differences - (0.5) (1.1)
Released in respect of property disposals in the
year 1.0 - 4.8
On valuation movements (7.7) 1.4 (5.1)
======================================================= ========= ======================== ============
Total deferred tax in respect of investment properties (6.7) 0.9 (1.4)
Other deferred tax - (0.3) (0.8)
======================================================= ========= ======================== ============
Total deferred tax (6.7) 0.6 (2.2)
======================================================= ========= ======================== ============
Total tax charge on profit on ordinary activities (9.6) (5.9) (7.7)
======================================================= ========= ======================== ============
9(ii) Deferred tax provision
Movement in deferred tax was as follows:
Balance Balance Balance
1 January Exchange Recognised Acquisitions/ 30 June 30 June
2017 movement in income (disposals) 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ========== ========= ========== ============= ======== ===================
Valuation 8.2 0.3 7.7 (1.0) 15.2 2.9
Accelerated tax allowances 6.1 0.2 - - 6.3 9.3
Deferred tax asset
on revenue losses (0.3) - - - (0.3) (0.2)
Others 2.3 - - - 2.3 1.7
=========================== ========== ========= ========== ============= ======== ===================
Total deferred tax
provision 16.3 0.5 7.7 (1.0) 23.5 13.7
=========================== ========== ========= ========== ============= ======== ===================
10. DIVIDS
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
================================ ========= ========= ============
Ordinary dividends paid
Final dividend for 2016 @ 10.7
pence per share(1) 93.0 - -
Interim dividend for 2016 @ 5.0
pence per share(1) - - 39.2
Final dividend for 2015 @ 10.1
pence per share(1) - 79.3 79.3
================================ ========= ========= ============
93.0 79.3 118.5
================================ ========= ========= ============
1 As adjusted by a bonus adjustment factor, see Note 11.
The Board has declared an interim dividend of 5.25 pence per
ordinary share (2016: 5.0 pence). This dividend has not been
recognised in the condensed financial statements.
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average
number of shares in issue during the period and the net assets per
share calculations use the number of shares in issue at the period
end. Earnings per share calculations exclude 1.4 million shares
(1.5 million for the full year 2016 and 1.5 million for half year
2016) being the average number of shares held on trust during the
period for employee share schemes and net assets per share exclude
1.2 million shares (1.4 million for the full year 2016 and 1.5
million for the half year 2016) being the actual number of shares
held on trust for employee share schemes at period end.
11(i) Earnings per ordinary share (EPS)
Half year to Half year to 30 June Year to 31 December
30 June 2017 2016 2016
========================== ================================ ================================
Pence Pence Pence
Earnings Shares per Earnings Shares per Earnings Shares per
GBPm million share GBPm million(3) share(3) GBPm million(3) share(3)
================== ======== ======== ====== ======== =========== ========= ======== =========== =========
Basic EPS 385.7 934.0 41.3 194.1 782.4 24.8 417.7 809.9 51.6
Dilution
adjustments:
Employee share
schemes - 5.1 (0.2) - 3.8 (0.1) - 4.6 (0.3)
================== ======== ======== ====== ======== =========== ========= ======== =========== =========
Diluted EPS 385.7 939.1 41.1 194.1 786.2 24.7 417.7 814.5 51.3
================== ======== ======== ====== ======== =========== ========= ======== =========== =========
Basic EPS 385.7 934.0 41.3 194.1 782.4 24.8 417.7 809.9 51.6
Adjustments to
profit
before tax(1) (305.9) (32.8) (126.5) (16.2) (271.9) (33.6)
Deferred tax on
investment
property
which does not
crystallise
unless sold 6.7 0.8 (0.9) (0.1) 1.4 0.2
Other tax 2.2 0.2 6.0 0.8 4.5 0.5
Non-controlling
interest on
adjustments 1.8 0.2 0.7 0.1 0.9 0.1
Adjusted EPS(2) 90.5 934.0 9.7 73.4 782.4 9.4 152.6 809.9 18.8
================== ======== ======== ====== ======== =========== ========= ======== =========== =========
1 Details of adjustments are included in Note 2.
2 Based on basic number of shares.
3 Comparative number of shares and pence per share re-presented
for a bonus adjustment factor of 1.046.
On 28 March 2017, the Company issued 166,033,133 new ordinary
shares of 10 pence each through a rights issue. Further details of
the rights issue are provided in Note 14. To reflect the rights
issue, the number of shares previously used to calculate basic and
diluted and earnings per share and adjusted earnings per share have
been amended in the table above. A bonus adjustment factor of 1.046
has been applied, based on the ratio of an adjusted closing share
price of 468.6 pence per share on 10 March 2017, the business day
before the shares started trading ex-rights and the theoretical
ex-rights price at that date of 448.0 pence per share.
Prior to this re-presentation, the EPS for the half year to June
2016 was 25.9 pence (basic), 25.8 pence (diluted) and 9.8 pence
(adjusted). The EPS for the full year to December 2016 prior to
this re-presentation was 53.9 pence (basic), 53.6 pence (diluted)
and 19.7 pence (adjusted).
11(ii) Net asset value per share (NAV)
As at 30 June As at 30 June As at 31 December
2017 2016 2016
============================ =================================== ==================================
Equity Equity Equity
attributable attributable attributable
to ordinary Pence to ordinary Pence to ordinary Pence
shareholders Shares per shareholders Shares per shareholders Shares per
GBPm million share GBPm million(1) share(1) GBPm million(1) share(1)
============= ============ ======= ===== ============ ========== ========= ============ ========== ========
Basic NAV 5,054.1 997.3 507 3,648.9 786.9 464 4,182.1 866.8 482
Dilution
adjustments:
Employee
schemes - 5.6 (3) - 3.9 (3) - 4.7 (2)
============= ============ ======= ===== ============ ========== ========= ============ ========== ========
Diluted NAV 5,054.1 1,002.9 504 3,648.9 790.8 461 4,182.1 871.5 480
Fair value
adjustment
in respect
of interest
rate swap
derivatives
- Group (64.1) (6) (90.6) (11) (76.5) (9)
Fair value
adjustment
in respect
of interest
rate swap
derivatives
- Joint
ventures - - 5.4 - 3.4 -
Deferred tax
in
respect of
depreciation
and
valuation
surpluses
- Group 20.4 2 12.2 2 14.3 2
Deferred tax
in
respect of
depreciation
and
valuation
surpluses
- Joint
ventures 43.1 4 17.9 2 38.8 5
============= ============ ======= ===== ============ ========== ========= ============ ========== ========
EPRA NAV 5,053.5 1,002.9 504 3,593.8 790.8 454 4,162.1 871.5 478
============= ============ ======= ===== ============ ========== ========= ============ ========== ========
Fair value
adjustment
in respect
of debt
- Group (325.9) (32) (352.7) (45) (359.7) (41)
Fair value
adjustment
in respect
of debt
- Joint
ventures 0.6 - (10.7) (1) 0.2 -
Fair value
adjustment
in respect
of interest
rate swap
derivatives
- Group 64.1 6 90.6 11 76.5 9
Fair value
adjustment
in respect
of interest
rate swap
derivatives
- Joint
ventures - - (5.4) - (3.4) -
Deferred tax
in
respect of
depreciation
and
valuation
surpluses
- Group (20.4) (2) (12.2) (2) (14.3) (2)
Deferred tax
in
respect of
depreciation
and
valuation
surpluses
- Joint
ventures (43.1) (4) (17.9) (2) (38.8) (5)
============= ============ ======= ===== ============ ========== ========= ============ ========== ========
EPRA triple
net
NAV (NNNAV) 4,728.8 1,002.9 472 3,285.5 790.8 415 3,822.6 871.5 439
============= ============ ======= ===== ============ ========== ========= ============ ========== ========
1 Comparative number of shares and pence per share re-presented
for a bonus adjustment factor of 1.046.
As set out in Note 11(i), the number of shares used to calculate
basic and diluted NAV and EPRA and EPRA triple net NAV have been
amended in the table above by a bonus adjustment factor of
1.046.
Prior to this re-presentation, the NAV for the half year to June
2016 was 485 pence (basic), 483 pence (diluted), 475 pence (EPRA)
and 435 pence (EPRA triple net). The NAV for the full year to
December 2016 prior to this re-presentation was 505 pence (basic),
502 pence (diluted), 500 pence (EPRA) and 459 pence (EPRA triple
net).
12. PROPERTIES
12(i) Investment properties
Completed Development Total
GBPm GBPm GBPm
============================================ ========= =========== =======
At 1 January 2017 4,045.2 597.7 4,642.9
Exchange movement 18.0 9.5 27.5
Property acquisitions 1,082.1 61.5 1,143.6
Additions to existing investment properties 7.9 184.0 191.9
Disposals (212.9) (71.0) (283.9)
Transfers between completed and development
properties 47.0 (47.0) -
Revaluation surplus during the period 261.0 41.9 302.9
============================================ ========= =========== =======
At 30 June 2017 5,248.3 776.6 6,024.9
Add tenant lease incentives, letting
fees and rental guarantees 72.3 - 72.3
Total investment properties at 30 June
2017 5,320.6 776.6 6,097.2
============================================ ========= =========== =======
Total investment properties at 30 June
2016 3,875.2 519.3 4,394.5
============================================ ========= =========== =======
Investment properties are stated at fair value based on external
valuations performed by independent, professionally qualified
valuers. The Group's wholly owned property portfolio and all its
joint venture properties were performed by CBRE Ltd. 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 in the valuation technique during the
period. The valuation surplus recognised during the period is
discussed further in the Chief Executive's Review.
CBRE Ltd also undertake some professional and agency work on
behalf of the Group, although this is limited in relation to the
activities of the Group as a whole. CBRE Ltd advise us that the
total fees paid by the Group represent less than 5 per cent of
their total revenue in any year.
Completed properties include buildings that are occupied or are
available for occupation. Development properties include land
available for development (land bank), land under development and
construction in progress.
Property acquisitions include GBP1,112.6 million in respect of
the APP property portfolio acquisition, discussed further in Note
6.
At 30 June 2017 investment properties included GBP72.3 million
tenant lease incentives, letting fees and rent guarantees (31
December 2016: GBP71.5 million; 30 June 2016: GBP73.6 million).
In July 2017, the Group completed the disposal of a warehouse in
France valued at GBP29.6 million.
12(ii) Trading properties
Completed Development Total
GBPm GBPm GBPm
===================================== ========= =========== ======
At 1 January 2017 15.1 9.9 25.0
Exchange movement 0.4 0.3 0.7
Increase in provision for impairment
in the period (0.7) - (0.7)
===================================== ========= =========== ======
At 30 June 2017 14.8 10.2 25.0
===================================== ========= =========== ======
Add tenant lease incentives, letting
fees and rental guarantees 0.4 - 0.4
Total trading properties at 30 June
2017 15.2 10.2 25.4
===================================== ========= =========== ======
Total trading properties at 30 June
2016 15.5 17.5 33.0
===================================== ========= =========== ======
Trading properties were externally valued resulting in a net
increase in the provision for impairment of GBP0.7 million (31
December 2016: GBP2.0 million; 30 June 2016: GBP1.2 million).
At 30 June 2017 trading properties included GBP0.4 million
tenant lease incentives, letting fees and rental guarantees (31
December 2016: GBP0.4 million; 30 June 2016: GBP0.3 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
========================================= ======= ======= ===========
In one year or less 320.0 - -
========================================= ======= ======= ===========
In more than one year but less
than two - - 199.6
In more than two years but less
than five 1,063.5 849.9 860.6
In more than five years but less
than ten 222.6 669.6 371.9
In more than ten years 198.3 198.3 198.3
========================================= ======= ======= -----------
In more than one year 1,484.4 1,717.8 1,630.4
========================================= ======= ======= ===========
Total borrowings 1,804.4 1,717.8 1,630.4
========================================= ======= ======= ===========
Cash and cash equivalents (62.8) (10.9) (32.0)
Net borrowings 1,741.6 1,706.9 1,598.4
Total borrowings is split between
secured and unsecured as follows:
Secured (on land and buildings) 323.8 4.0 3.9
Unsecured 1,480.6 1,713.8 1,626.5
========================================= ======= ======= ===========
Total borrowings 1,804.4 1,717.8 1,630.4
========================================= ======= ======= ===========
Currency profile of total borrowings
after derivative instruments
Sterling 651.8 426.4 562.4
Euros 1,168.4 1,305.1 1,083.3
US dollars (15.8) (13.7) (15.3)
Total borrowings 1,804.4 1,717.8 1,630.4
========================================= ======= ======= ===========
Maturity profile of undrawn borrowing
facilities
In one year or less 5.0 5.0 5.0
In more than one year but less
than two - - -
In more than two years 576.2 423.9 529.9
========================================= ======= ======= ===========
Total available undrawn facilities 581.2 428.9 534.9
========================================= ======= ======= ===========
Fair value of financial instruments
Book value of debt 1,804.4 1,717.8 1,630.4
Interest rate derivatives (64.1) (90.6) (76.5)
Foreign exchange derivatives 11.6 127.1 9.6
========================================= ======= ======= ===========
Book value of debt including derivatives 1,751.9 1,754.3 1,563.5
Net fair market value 2,077.8 2,107.0 1,923.2
========================================= ======= ======= ===========
Mark to market adjustment (pre-tax) 325.9 352.7 359.7
========================================= ======= ======= ===========
The Group announced in July 2017 that it had signed a EUR650
million US Private Placement Debt issuance. The weighted average
coupon is 1.9 per cent and the weighted average maturity is 11.2
years. Closing and funding of the transaction will occur in August
2017. This is discussed further in the Finance Review.
Furthermore, on 6 July 2017 SEGRO gave notice to the lenders of
its intention to repay its GBP320 million syndicated term loan,
which was acquired through the Airport Property Partnership
transaction. On 17 July 2017 the loan was prepaid, prior to its
contractual maturity date. This liability has been shown in current
liabilities in the balance sheet. This is discussed further in the
Finance Review.
Fair value measurements recognised in the Balance Sheet
The financial instruments that are measured subsequent to
initial recognition at fair value are available-for-sale
investments, forward exchange and currency swap contracts and
interest rate swaps. All of these financial instruments would be
classified as level 2 fair value measurements, as defined by IFRS
13, being those derived from inputs other than quoted prices
(included within level 1) that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices). There were no transfers between categories in
the current or prior year.
The fair values of financial assets and financial liabilities
are determined as follows:
- Forward foreign exchange contracts are measured using quoted
forward exchange rates and yield curves derived from quoted
interest rates with matching maturities of the contracts.
- Interest rate swaps and currency swap contracts are measured
at the present value of future cash flows estimated and discounted
based on the applicable yield curves derived from quoted interest
rates and the appropriate exchange rate at the Balance Sheet
date.
- The fair value of non-derivative financial assets and
financial liabilities traded on active liquid markets is determined
with reference to the quoted market prices. Unlisted investments,
such as those classified as available-for-sale investments, are
typically valued by the Fund Manager based on the amount at which
the asset would be exchanged between knowledgeable, willing parties
in an arm's length transaction. The methodology used to estimate
fair value will depend on the nature and facts and circumstances of
the investment but will use one of the following bases: transaction
value, earnings multiple, net assets, price of recent investment
and sale price, where appropriate a marketability discount will be
applied.
14. SHARE CAPITAL
Number Par value
of shares of shares
GBPm GBPm
========================================= ========== ==========
Issued and fully paid ordinary shares at
10p each:
At 1 January 2017 830.1 83.0
Issue of shares - rights issue 166.0 16.6
Issue of shares - scrip dividends 2.1 0.2
Issue of shares - other 0.3 -
========================================= ========== ==========
At 30 June 2017 998.5 99.8
========================================= ========== ==========
At 30 June 2016 753.7 75.4
========================================= ========== ==========
On 10 March 2017 the Company announced a 1 for 5 rights issue of
166,033,133 ordinary shares of 10 pence each in the capital of the
Company at a price of 345 pence per share. The combined impact was
that the Company raised a total of GBP572.8 million, before GBP16.3
million expenses, and as a result on 28 March 2017 the Company's
share capital increased by GBP16.6 million and share premium by
GBP539.9 million.
On 4 May 2017 the Company issued 2,098,735 shares relating to
the scrip dividend in respect of the 2016 final dividend.
15. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
15(i) Reconciliation of cash generated from operations
Half year Half year Year
to to to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
========================================== ========= ========= ============================
Operating profit 448.0 226.6 498.7
Adjustments for:
Depreciation of property, plant
and equipment 1.0 1.5 3.1
Share of profit from joint ventures
after tax (36.3) (63.4) (85.1)
Profit on sale of investment properties (7.7) (6.4) (16.4)
Goodwill and other amounts written
off on acquisitions and amortisation
of intangibles 0.6 0.1 0.2
Revaluation surplus on investment
properties (302.9) (76.0) (231.3)
Pension settlement costs - - (2.3)
Pensions and other provisions - (3.2) (1.2)
========================================== ========= ========= ============================
102.7 79.2 165.7
Changes in working capital:
Decrease in trading properties 0.7 9.0 17.6
Decrease/(increase) in debtors 7.9 (15.3) (31.2)
Increase in creditors 4.9 25.9 4.6
========================================== ========= ========= ============================
Net cash inflow generated from
operations 116.2 98.8 156.7
========================================== ========= ========= ============================
15(ii) Analysis of net debt
Non-cash adjustments
=========================
Other
At 1 January Cash Exchange non-cash At 30 June
2017 Acquired(2) flow movement Adjustment(1) 2017
GBPm GBPm GBPm GBPm GBPm GBPm
==================== ============ =========== ======== ========= ============== ==========
Bank loans and loan
capital 1,642.8 390.4 (221.6) 3.9 - 1,815.5
Capitalised finance
costs (12.4) - (0.4) - 1.7 (11.1)
Total borrowings 1,630.4 390.4 (222.0) 3.9 1.7 1,804.4
Cash in hand and
at bank(3) (32.0) (11.2) (19.4) (0.2) - (62.8)
==================== ============ =========== ======== ========= ============== ==========
Net debt 1,598.4 379.2 (241.4) 3.7 1.7 1,741.6
==================== ============ =========== ======== ========= ============== ==========
1 The other non-cash adjustment relates to the amortisation of
issue costs offset against borrowings and the cost of early close
out of debt.
2 Acquired represents cash and debt assumed from the APP asset
acquisition as detailed further in Note 6.
3 Total increase in cash and cash equivalents of GBP30.6 million
as detailed in the cash flow statement compromise an increase in
cash of GBP19.4 million and cash acquired in the APP property
transaction of GBP11.2 million.
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
statements.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
Half year to 30 June 2017 Half year to 30 June 2016 Year to 31 December 2016
========================= ========================= =========================
Notes GBPm Pence per share GBPm Pence per share GBPm Pence per share
================== ======= ======== =============== ======== =============== ======== ===============
EPRA Earnings Table 2 90.5 9.7 73.4 9.4 152.6 18.8
EPRA NAV Table 3 5,053.5 504 3,593.8 454 4,162.1 478
EPRA NNNAV 11 4,728.8 472 3,285.5 415 3,822.6 439
EPRA net initial
yield Table 4 4.7% 4.9% 4.8%
EPRA 'topped up'
net initial yield Table 4 5.0% 5.4% 5.3%
EPRA vacancy rate Table 5 5.5% 4.8% 5.7%
Total EPRA cost
ratio (including
vacant property
costs) Table 6 22.9% 23.2% 23.0%
Total EPRA cost
ratio (excluding
vacant property
costs) Table 6 20.7% 20.4% 20.8%
================== ======= ======== =============== ======== =============== ======== ===============
TABLE 2: EPRA INCOME STATEMENT, PROPORTIONAL CONSOLIDATION
Half year to June 2017 Half year to June 2016 Year to December 2016
====================== ========================================== ==============================
Group JV Total Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ===== ====== ====== ====== ================= ========= ============ ============== ====== ======
Gross rental
income 2, 6 127.3 37.3 164.6 110.7 38.3 149.0 225.5 82.7 308.2
Property
operating
expenses 2, 6 (23.9) (10.0) (33.9) (22.1) (6.0) (28.1) (44.9) (12.6) (57.5)
================ ===== ====== ====== ====== ================= ========= ============ ============== ====== ======
Net rental
income 103.4 27.3 130.7 88.6 32.3 120.9 180.6 70.1 250.7
Joint venture
management fee
income 2 16.5 - 16.5 9.1 - 9.1 18.6 - 18.6
Administration
expenses 2 (17.5) (0.4) (17.9) (15.5) (0.1) (15.6) (31.4) (0.8) (32.2)
EPRA operating
PBIT 102.4 26.9 129.3 82.2 32.2 114.4 167.8 69.3 237.1
Net finance
costs 2, 6 (33.3) (3.4) (36.7) (33.5) (6.2) (39.7) (68.7) (12.2) (80.9)
================ ===== ====== ====== ====== ================= ========= ============ ============== ====== ======
EPRA PBT 69.1 23.5 92.6 48.7 26.0 74.7 99.1 57.1 156.2
Tax on EPRA
profit 2, 6 (0.7) (1.4) (2.1) (0.8) (0.5) (1.3) (1.8) (1.7) (3.5)
================ ===== ====== ====== ====== ================= ========= ============ -------------- ------ ------
EPRA profit
after tax 68.4 22.1 90.5 47.9 25.5 73.4 97.3 55.4 152.7
-------------- ------ ------
Non-controlling
interest on
EPRA profit - - - - - - (0.1) - (0.1)
============== ====== ======
EPRA profit
after tax and
non-controlling
interests 68.4 22.1 90.5 47.9 25.5 73.4 97.2 55.4 152.6
Number of shares 934.0 782.4 809.9
EPRA EPS, pence
per share 9.7 9.4 18.8
================ ===== ====== ====== ====== ================= ========= ============ ============== ====== ======
For the period presented EPRA EPS is the same as Adjusted
EPS.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
Half year to June 2017 Half year to June 2016 Year to December 2016
============================= =============================== ===============================
Group JV Total Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============ ===== ========= ======= ========= ========= ========= ========= ========= ========= =========
Investment
properties 12, 6 6,097.2 1,153.9 7,251.1 4,394.5 1,483.4 5,877.9 4,714.4 1,605.0 6,319.4
Trading
properties 12, 6 25.4 0.5 25.9 33.0 0.5 33.5 25.4 0.6 26.0
========= ========= =========
Total
properties 6,122.6 1,154.4 7,277.0 4,427.5 1,483.9 5,911.4 4,739.8 1,605.6 6,345.4
Investment
in joint
ventures 6 761.3 (761.3) - 1,050.7 (1,050.7) - 1,066.2 (1,066.2) -
Other net
liabilities (88.2) (48.5) (136.7) (122.4) (28.0) (150.4) (25.5) (46.8) (72.3)
Net debt 13, 6 (1,741.6) (344.6) (2,086.2) (1,706.9) (405.2) (2,112.1) (1,598.4) (492.6) (2,091.0)
============ ===== ========= ======= ========= ========= ========= ========= ========= ========= =========
Net asset
value 5,054.1 - 5,054.1 3,648.9 - 3,648.9 4,182.1 - 4,182.1
EPRA
adjustments 11 (0.6) (55.1) (20.0)
============ ===== ========= ======= ========= ========= ========= ========= ========= ========= =========
EPRA net
asset value 5,053.5 3,593.8 4,162.1
Number of
shares 1,002.9 790.8 871.5
============ ===== ========= ======= ========= ========= ========= ========= ========= ========= =========
EPRA NAV,
pence per
share 504 454 478
============ ===== ========= ======= ========= ========= ========= ========= ========= ========= =========
TABLE 4: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Continental
Combined property portfolio - 30 Notes UK Europe Total
June 2017 GBPm GBPm GBPm
========================================== ======= ======= =========== =======
Table
Total properties per financial statements 3 4,982.8 2,294.2 7,277.0
========================================== ======= ======= =========== =======
Adjustments -- -
Combined property portfolio per
external valuers' report 4,982.8 2,294.2 7,277.0
=================================================== ======= =========== =======
Less development properties (investment,
trading and joint venture) (364.2) (516.4) (880.6)
Less other properties -- -
Net valuation of completed properties 4,618.6 1,777.8 6,396.4
Add notional purchasers' costs 311.1 89.1 400.2
=================================================== ======= =========== =======
Gross valuation of completed properties
including notional purchasers' costs A 4,929.7 1,866.9 6,796.6
Income
========================================== ======= ======= =========== =======
Gross passing rents(1) 209.6 115.0 324.6
Less irrecoverable property costs (2.9) (5.2) (8.1)
=================================================== ======= =========== =======
Net passing rents B 206.7 109.8 316.5
Adjustment for notional rent in
respect of rent frees 14.2 11.1 25.3
=================================================== ======= =========== =======
Topped up net rent C 220.9 120.9 341.8
Including fixed minimum uplifts
received in lieu of rental growth(2) 8.8 0.9 9.7
=================================================== ======= =========== =======
Total topped up net rent 229.7 121.8 351.5
=================================================== ======= =========== =======
Yields - 30 June 2017 %% %
========================================== ======= ======= ========== =======
EPRA net initial yield B/A 4.2 5.9 4.7
EPRA topped up net initial yield C/A 4.5 6.5 5.0
True net equivalent yield 5.4 6.4 5.7
=================================================== ======= =========== =======
1 Gross passing rent excludes short term lettings and
licences.
2 Certain leases contain clauses which guarantee future rental
increases, whereas most leases contain five yearly, upwards-only
rent review clauses (UK) or indexation clauses (Continental
Europe).
TABLE 5: EPRA VACANCY RATE
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
====================================== ========= ========= ============
Annualised potential rental value
of vacant premises 21.2 16.0 20.3
Annualised potential rental value
for the completed property portfolio 383.5 334.4 354.0
EPRA vacancy rate 5.5% 4.8% 5.7%
====================================== ========= ========= ============
TABLE: 6 EPRA COST RATIO
Half year Half year
to to Year to
30 June 30 June 31 December
2017 2016 2016
Notes GBPm GBPm GBPm
================================================================ ===== ========= ========= ============
Costs
Property operating expenses(1) 5 23.9 22.1 44.9
Administration expenses 17.5 15.5 31.4
Share of joint venture property
operating and administration
expenses(2) 6 6.1 5.7 13.1
Less:
Joint venture property management
income fee and management
fees(3) (10.0) (8.8) (18.9)
================================================================ ===== ========= ========= ============
Total costs (A) 37.5 34.5 70.5
Group vacant property costs 5 (3.0) (3.7) (5.6)
Share of joint venture vacant
property costs 6 (0.6) (0.5) (1.1)
================================================================ ===== ========= ========= ============
Total costs excluding vacant
property costs (B) 33.9 30.3 63.8
Gross rental income (excluding
management fees)
Gross rental income 126.7 110.1 224.3
Share of joint venture property
gross rental income 36.9 38.3 82.7
================================================================ ===== ========= ========= ============
Total gross rental income
(C) 163.6 148.4 307.0
%% %
================================================================ ========= ======== ============
Total EPRA cost ratio (including
vacant property costs) (A)/(C) 22.9 23.2 23.0
================================================================ ========= ========= ============
Total EPRA cost ratio (excluding vacant property costs) (B)/(C) 20.7 20.4 20.8
========= ============
Total costs (A) 37.5 34.5 70.5
Share based payments (4.2) (2.6) (6.1)
========= ============
Total costs after share based
payments (D) 33.3 31.9 64.4
Total gross rental income (C) 163.6 148.4 307.0
========= ============
Total cost ratio after share based payments 20.4% 21.5% 21.0%
========= ============
1 Property operating expenses are net of costs capitalised in
accordance with IFRS of GBP1.8 million (H1 2016: GBP1.5 million, FY
2016: GBP3.6 million) (see Note 5 for further detail on the nature
of costs capitalised).
2 Share of joint venture property operating and administration
expenses after deducting costs related to performance and other
fees.
3 Includes joint venture property management fee income of
GBP9.0 million and management fees (including joint ventures) of
GBP1.0 million (H1 2016: GBP8.2 million and GBP0.6 million
respectively, FY 2016: GBP17.7 million and GBP1.2 million
respectively).
GLOSSARY OF TERMS
APP: Airport Property Partnership, a 50-50 joint venture between
SEGRO and Aviva Investors, now fully owned by SEGRO.
Bonus adjustment factor: Under IFRS accounting standards,
historic per share metrics (primarily earnings, net asset value and
dividend) are required to be adjusted for the bonus element of a
rights issue so that the history is comparable. The adjustment
factor for the bonus element is calculated as the closing share
price before the ex-rights date divided by the theoretical
ex-rights price of the share. For SEGRO's March 2017 rights issue,
the bonus adjustment factor applied is 1.046.
Completed portfolio: The completed investment properties and the
Group's share of joint ventures' completed investment properties.
Includes properties held throughout the period, completed
developments and properties acquired during the period.
Development pipeline: The Group's current programme of
developments authorised or in the course of construction at the
balance sheet date (current development pipeline), together with
potential schemes not yet commenced on land owned or controlled by
the Group (future development pipeline). Within the future
development pipeline are pre-let and speculative development
projects which management expects to approve over the next twelve
months or which have been approved but are subject to final
planning approval or other conditions being met ("near-term"
development pipeline).
EPRA: The European Public Real Estate Association, a real estate
industry body, which has issued Best Practices Recommendations
Guidelines in order to provide consistency and transparency in real
estate reporting across Europe.
Estimated cost to completion: Costs still to be expended on a
development or redevelopment to practical completion, including
attributable interest.
Estimated rental value (ERV): The estimated annual market rental
value of lettable space as determined biannually by the Group's
valuers. This will normally be different from the rent being
paid.
Gearing: Net borrowings divided by total shareholders' equity
excluding intangible assets and deferred tax provisions.
Gross rental income: Contracted rental income recognised in the
period in the Income Statement, including surrender premiums. 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.
Investment property: Completed land and buildings held for
rental income return and/or capital appreciation.
Joint venture: An entity in which the Group holds an interest
and which is jointly controlled by the Group and one or more
partners under a contractual arrangement whereby decisions on
financial and operating policies essential to the operation,
performance and financial position of the venture require each
partner's consent.
Loan to value (LTV): Net borrowings divided by the carrying
value of total property assets (investment, owner occupied and
trading properties). This is reported on a 'look--through' basis
(including joint ventures at share).
MSCI-IPD: MSCI Real Estate calculates the IPD indices of real
estate performance around the world.
Net initial yield: Passing rent less non-recoverable property
expenses such as empty rates, divided by the property valuation
plus notional purchasers' costs. This is in accordance with EPRA's
Best Practices Recommendations.
Net rental income: Gross rental income less ground rents paid,
net service charge expenses and property operating expenses.
Net true equivalent yield: The internal rate of return from an
investment property, based on the value of the property assuming
the current passing rent reverts to ERV and assuming the property
becomes fully occupied over time. Rent is assumed to be paid
quarterly in advance, in line with standard UK lease terms.
Passing rent: The annual rental income currently receivable on a
property as at the Balance Sheet date (which may be more or less
than the ERV). Excludes rental income where a rent free period is
in operation. Excludes service charge income (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 Public Sector Pension Investment Board
(PSP Investments).
SIIC: Sociétés d'investissements Immobiliers Cotées are the
French equivalent of UK Real Estate Investment Trusts (see
REIT).
Speculative development: Where a development has commenced prior
to a lease agreement being signed in relation to that
development.
Square metres (sq m): The area of buildings measurements used in
this analysis. The conversion factor used, where appropriate, is
one square metre = 10.7639 square feet.
Take-back: Rental income lost due to lease expiry, exercise of
break option, surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted to
include notional rent in respect of let properties which are
subject to a rent free period at the valuation date. This is in
accordance with EPRA's Best Practices Recommendations.
Total property return (TPR): A measure of the ungeared return
for the portfolio and is calculated as the change in capital value,
less any capital expenditure incurred, plus net income, expressed
as a percentage of capital employed over the period concerned, as
calculated by MSCI Real Estate and excluding land.
Total shareholder return (TSR): A measure of return based upon
share price movement over the period and assuming reinvestment of
dividends.
Trading property: Property being developed for sale or one which
is being held for sale after development is complete.
Yield on cost: The expected gross yield based on the estimated
current market rental value (ERV) of the developments when fully
let, divided by the book value of the developments at the earlier
of commencement of the development or the balance sheet date plus
future development costs and estimated finance costs to
completion.
Yield on new money: The yield on cost excluding the book value
of land if the land is owned by the Group in the reporting period
prior to commencement of the development.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFITDSISFID
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