TIDMSGRO
RNS Number : 0695F
SEGRO PLC
16 February 2018
16 february 2018
RESULTS FOR THE yearED 31 december 2017
SEGRO plc ('SEGRO' / 'Company' / 'Group') today announces its
results for the year ended 31 December 2017.
-- SEGRO has delivered another strong set of financial,
operating and portfolio performance metrics, and a record level of
development completions, almost all of which have been leased.
-- Adjusted pre-tax profit up 25.7 per cent reflects our focus
on customer and portfolio management (which delivered high customer
retention rates, like-for-like rental growth and a low vacancy
rate) and investment during the year (principally acquiring full
ownership of the Airport Property Partnership portfolio and a
record level of development capital expenditure).
-- Adjusted EPS up 5.9 per cent to 19.9 pence (2016: 18.8
pence(1) ), incorporating the new shares issued in the March Rights
Issue. IFRS EPS of 98.5 pence (2016: 51.6 pence(1) ), also includes
the impact of the 13.6 per cent increase (2016: 4.8 per cent
increase) in the value of our portfolio.
-- EPRA NAV per share up 16.3 per cent to 556 pence (31 December 2016: 478 pence(1) ).
-- Balance sheet significantly strengthened by the Rights Issue
and debt refinancing activity. We completed GBP2.7 billion of
financing activity for SEGRO and SELP, reducing the average cost of
debt to 2.1 per cent and improving the efficiency and strength of
the balance sheet.
-- Future earnings prospects underpinned by 1.2 million sq m of
development projects under construction or in advanced pre-let
discussions, equivalent to almost one-fifth of our current
portfolio. The current development pipeline is capable of
generating GBP43 million of rent, equating to a yield on cost of
nearly 8 per cent, over half of which has been secured through
pre-lets and lettings prior to completion. Our land bank and land
under our control provide significant potential for future
growth.
-- Final dividend increased by 6.1 per cent to 11.35 pence (2016
final dividend: 10.7 pence(1) ).
Commenting on the results, David Sleath, Chief Executive,
said:
"SEGRO has delivered another strong set of results in 2017 with
some of our best ever operating metrics, underpinned by record
levels of development completions (almost all of which is
pre-leased) our active investment and asset management, as well as
further portfolio valuation growth.
"Occupier demand in early 2018 is strong across all our markets
and supply of modern warehouse space remains constrained. The
prospects for rental growth, particularly in the UK, remain good,
and rental values are improving in our Continental Europe urban
warehouse portfolio. Investor appetite for prime warehouses remains
unsated, attracted by the occupational market fundamentals.
"The structural drivers of demand in our sector (urbanisation,
growth of the digital economy and e-commerce) are likely to
underpin occupier demand for some time to come and these, coupled
with our modern, well-located assets, our current development
pipeline and our land bank all offer significant opportunities for
future growth."
FINANCIAL AND OPERATING HIGHLIGHTS(2)
Valuation gains across the portfolio reflect asset management
and investor demand
-- Portfolio capital value growth of 13.6 per cent (2016: 4.8
per cent) driven mainly by a 15.8 per cent increase in the
like-for-like value of our UK portfolio (2016: 4.6 per cent) and
6.2 per cent in Continental Europe (2016: 0.6 per cent). The
increase reflects the benefits of active management of our
portfolio, yield compression and improving rental values, enhanced
by gains from our development activity.
-- Rental values (ERVs) increased by 3.1 per cent. Rental values
in the UK increased by 3.9 per cent (2016: 4.7 per cent) and by 1.2
per cent in Continental Europe (2016: 0.3 per cent).
Strong development and asset management activity, supported by
positive market conditions
-- 19 per cent increase in new rent contracted in the period to
GBP53.5 million (2016: GBP44.9 million), of which GBP28.6 million
(2016: GBP23.4 million) is from new development pre-let agreements
and lettings of speculative space prior to completion.
-- 2.6 per cent like-for-like net rental income growth (5.1 per
cent increase in the UK, 2.5 per cent decrease in Continental
Europe) aided by a 9.5 per cent uplift on rent reviews and
renewals, mainly from capturing reversionary potential accumulated
in recent years in the UK portfolio.
-- Low vacancy rate of 4.0 per cent (31 December 2016: 5.7 per
cent) and customer retention increasing to 81 per cent (2016: 75
per cent) of rent at risk from expiry or customer break, reflecting
our focus on customer service.
Capital allocation focused on accretive development programme
and acquisitions to build scale in our target markets
-- Net investment of GBP592 million in 2017 including
development capital expenditure of GBP414 million and the
acquisition of 50 per cent of the GBP1.1 billion APP portfolio.
-- Total development capex for 2018 again expected to exceed GBP350 million.
-- GBP43 million of potential rent from current development
pipeline, of which over half has been secured through pre-lets and
lettings prior to completion.
-- Further 'near-term' pre-let projects associated with GBP22
million of rent are at advanced stages of negotiation.
Balance sheet strengthened with GBP2.7 billion of new financing
during the year
-- GBP573 million of (gross) proceeds from the Rights Issue in
March provided capital to acquire the APP portfolio and to pursue
further development.
-- GBP2.1 billion of new debt for SEGRO and SELP was signed
during the year, repaying more costly, less flexible debt,
significantly improving our capital structure, improving the
average cost of debt to 2.1 per cent (2016: 3.4 per cent) and the
average debt maturity to 10.8 years (2016: 6.2 years).
-- Look-through LTV ratio of 30 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 14 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)
Change
Income statement metrics 2017 2016 per cent
----------------------------------------- ----- ----- ---------
Adjusted(2) profit before tax (GBPm) 194.2 154.5 25.7
IFRS profit before tax (GBPm) 976.3 426.4 -
Adjusted(3) earnings per share (pence) 19.9 18.8 5.9
IFRS earnings per share (pence) 98.5 51.6 -
Dividend per share (pence) 16.6 15.7 5.7
----------------------------------------- ----- ----- ---------
31 December 31 December Change
Balance sheet metrics 2017 2016 per cent
------------------------------------------ ----------- ----------- ---------
Portfolio valuation (SEGRO share, GBPm) 8,039 6,345 13.6(6)
EPRA(4 5) net asset value per share
(pence, diluted) 556 478 16.3
IFRS net asset value per share (pence,
diluted) 554 480 15.4
Group net borrowings (GBPm) 1,954 1,598 -
Loan to value ratio including joint
ventures at share (per cent) 30 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.
3 A reconciliation between Adjusted earnings per share and IFRS
earnings per share is shown in Note 11(i).
4 A reconciliation between EPRA net asset value per share and
IFRS net asset value per share is shown in Note 11(ii).
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 all
properties including buildings under construction and land,
adjusting for capital expenditure, acquisitions and disposals.
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available
from 09:00 (UK time) at:
https://edge.media-server.com/m6/p/okpi88oo
The webcast will be available for replay at SEGRO's website at:
http://www.segro.com/investors by the close of business.
A conference call facility will be An audio recording of the conference
available at 09:00 (UK time) on the call will be available until 23 February
following number: 2018 on:
Dial-in: +44 (0)330 336 9411 UK & International: +44 (0) 20 7660
Access code: 6261992 0134
Access code: 6261992
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 FY 2017 Property Analysis Report and
other information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA ENQUIRIES:
SEGRO Soumen Das Mob: +44 (0) 7771 773
(Chief Financial Officer) 134
Tel: + 44 (0) 20 7451
9110
(after 11am)
Harry Stokes Mob: +44 (0) 7725 735
(Head of Investor Relations and Research) 322
Tel: +44 (0) 20 7451
9124
(after 11am)
FTI Consulting Richard Sunderland / Claire Turvey / Tel: +44 (0) 20 3727
Eve Kirmatzis 1000
-------------- ------------------------------------------ ------------------------
FINANCIAL CALAR
2017 final dividend ex-div date 22 March 2018
2017 final dividend record date 23 March 2018
2017 final dividend scrip dividend price announced 29 March
2018
2017 final dividend payment date 3 May 2018
2018 First Quarter Trading Update 18 April 2018
Half Year 2018 Results 26 July 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 6.7 million square metres
of space (72 million square feet) valued at over GBP9 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
2017 has been another year of delivery for SEGRO, culminating in
strong financial results and a significantly improved capital
structure. Our focus on Operational Excellence and Disciplined
Capital Allocation has delivered some of our best ever operating
metrics, a record volume of (almost fully leased) completed
developments, greater scale in our target markets and a 16 per cent
increase our EPRA NAV. Our modern, well-located assets, our current
development pipeline and our land bank all offer significant
opportunities for future growth. Our main achievements in 2017
include:
-- The acquisition of GBP702 million of buildings and
development land (primarily taking full ownership of the Airport
Property Partnership (APP) portfolio) in locations with strong
occupier demand, and disposal of GBP525 million of buildings and
land to release funds for further growth;
-- Continued active management of our existing properties to
ensure customers want to stay with us for longer, achieving high
customer satisfaction results;
-- Completion of the largest volume of developments in any year
of the Company's history, building 654,900 sq m of properties to
high environmental standards, almost all of which have now been
leased;
-- Contracting GBP53.5 million of new rent, 19 per cent more than last year; and
-- Raised GBP573 million of new equity and raised or refinanced
GBP2.1 billion of debt to ensure that our balance sheet is in a
strong position to take advantage of future opportunities.
Our results reflect this activity: adjusted profit before tax is
up 25.7 per cent to GBP194.2 million (IFRS: GBP976.3 million, up
129 per cent) and adjusted earnings per share are up 5.9 per cent
to 19.9 pence (IFRS: 98.5 pence, up 91 per cent). Our EPRA NAV per
share is up 16.3 per cent to 556 pence (IFRS: 554 pence, up 15 per
cent), driven substantially by a 13.6 per cent increase in our
portfolio value, which now totals GBP8.0 billion (reflecting our
share of GBP9.3 billion of assets under management).
We have also taken significant steps to improve our capital
structure, reducing our average cost of debt to 2.1 per cent (31
December 2016: 3.4 per cent) and extending the duration of our debt
to 10.8 years (31 December 2016: 6.2 years). SEGRO remains
conservatively funded with a loan-to-value ratio of 30 per
cent.
The combination of a strong set of financial results in 2017 and
our optimistic outlook for 2018 and beyond means that we are
recommending a final dividend of 11.35 pence, an increase of 6.1
per cent.
Supportive market environment
The economic environment across our markets has remained
supportive, with a particular improvement in sentiment in France
and more generally across Continental Europe. In tandem, e-commerce
continues to take a greater share of retail sales across all of our
markets.
The combination of these factors has resulted in robust levels
of occupier demand for well-located, high quality warehouse space
from retailers, third party logistics operators and parcel delivery
companies, among others. At the same time, supply of new
warehousing remains stable and is particularly constrained in our
urban markets where competition from higher value uses (such as
residential) is a significant barrier to entry for industrial
developers without land on which to build. This favourable
demand-supply balance has translated into strong demand for our
developments, both pre-lets and those built speculatively, as well
as rental value (ERV) growth in a number of our markets, most
apparent in the UK, but also in urban warehouses in France and
Germany.
The positive occupier market conditions and low interest rates
across Europe have continued to drive investor interest: according
to data from CBRE, industrial investment volumes across Europe
increased by 67 per cent, significantly influenced by two large,
pan-European warehouse portfolios which were sold during the year
to global investors. Industrial asset values have also improved
further, reflected in yields which are around 30 to 40 basis points
lower than a year ago.
High quality, sustainable portfolio
Our unique portfolio of big box and urban warehouses in key
European transport hubs and population centres has allowed us to
make the most of economic growth across Europe and, in particular,
to capitalise on the changing nature of retailing towards
e-commerce and consumer convenience. The portfolio is well let,
with a vacancy rate of 4.0 per cent and a weighted average lease
term of 7.4 years, both improving from a year ago. These operating
metrics are reflected in the findings of our annual customer
satisfaction survey in which 87 per cent of our customers rated
SEGRO as "Good" or "Excellent".
The portfolio was strengthened by the acquisition of the
outstanding 50 per cent interest in the APP portfolio which gives
us full ownership of this irreplaceable collection of properties
with enviable access to London's major airports, particularly
Heathrow. In addition, our development pipeline delivered 654,900
sq m of warehousing for a wide variety of customers across our
major markets, in all cases adhering to our exacting sustainability
standards and helping us meet our SEGRO 2020 environmental
targets.
Our talented people
SEGRO's culture and working environment are critical to ensuring
that we attract and retain the most talented people. In 2015, we
drew on the experience and opinions of all of our people to
establish our Purpose and Values, and these are at the heart of how
we work together and with all our stakeholders.
Over 300 people are employed at SEGRO in 11 offices across
Europe and we work hard to ensure that they are able to meet, mix
and share ideas with each other. We encourage short- and
longer-term secondments between offices and countries, and we have
invested in a new social media-style intranet site to enhance
internal communication and discussion. We are also passionate about
enabling our people to achieve career and personal ambitions
through investment in training courses, flexible working conditions
and time off to pursue charitable activities.
The success of SEGRO is a reflection of the hard work and the
talent of our people and I am grateful to all of them for the part
they have played in making 2017 such an outstanding year.
Entering 2018 with confidence
Occupier demand in early 2018 is strong across all our markets
and there is no evidence of any imminent over-supply of modern
warehouse space. The prospects for rental growth, particularly in
the UK, remain good, and rental values in our urban warehouse
portfolio in Continental Europe are also increasing. The structural
drivers of demand in our sector (urbanisation, growth of the
digital economy and e-commerce) are likely to underpin occupier
demand for some time to come.
Investor demand for prime warehouses also remains healthy,
attracted by the favourable occupational market fundamentals and
the relatively attractive yields in a low interest rate
environment. The outlook for capital growth is difficult to assess,
as we have little control over the multitude of drivers,
particularly macroeconomic and political. However, we are confident
that our high quality portfolio and our focus on asset management
will enable us to outperform the wider market.
The work we have undertaken in recent years to improve the
quality and focus of our portfolio and strengthen our balance sheet
means that we are well placed both to take advantage of the
opportunities and to overcome the challenges that the future may
bring.
Our portfolio is in a strong position, we are well capitalised,
and we enter 2018 with confidence. We continue to see opportunities
to grow our business through further disciplined investment, active
management of our portfolio and a prudent approach to financing.
Our warehouses are occupied by a diverse range of customers and
businesses and we will continue to respond to their needs, creating
the space that enables extraordinary things to happen.
A Strategy to generate attractive, sustainable returns
Our goal is to be the best owner-manager and developer of
warehouse properties in Europe and a leading income-focused
REIT.
Our strategy for achieving this goal is to create a portfolio of
high quality big box and urban warehouses in the strongest markets
which generate attractive, low risk, income-led returns with above
average rental and capital growth when market conditions are
positive, and are resilient in a downturn. We seek to enhance
returns through development, while ensuring that the short-term
income 'drag' associated with holding land does not outweigh the
long-term potential benefits.
Fundamental to our strategy are three key pillars of activity
which should combine to deliver an attractive, income-led total
property return:
-- Disciplined Capital Allocation: Picking the right markets and
assets to create the right portfolio shape by actively managing the
portfolio composition and 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.
The combination of these elements should translate into
sustainable, attractive returns for our shareholders in the form of
progressive dividends and net asset value growth over time.
Our portfolio comprises modern big box and urban warehouses
which are well specified and located, with good sustainability
credentials, and which should benefit from a low structural void
rate and relatively low-intensity asset management requirements.
Our assets are concentrated in the strongest European submarkets
which display attractive property market characteristics, including
good growth prospects, limited supply availability and where we
already have, or can achieve, critical mass.
DISCIPLINED capital allocation - ACQUISITION ACTIVITY
We invested a net GBP591 million in our portfolio during the
year, combining acquisitions of GBP702 million of land and assets
and development investment of GBP414 million, funded in part by
GBP525 million of disposals.
Acquisitions focused on building scale in core markets
Our largest acquisition was the transaction in which we acquired
full ownership of the GBP1.1 billion APP property portfolio through
the purchase of a 50 per cent interest from our joint venture
partner, Aviva Investors. Having full ownership of this unique
portfolio allows us to plan with greater certainty and
flexibility.
The portfolio, which was acquired at a price in line with book
value at 31 December 2016, increased in value by 11 per cent on a
like-for-like basis during 2017.
There is significant potential for near- and long-term
development within the portfolio. In particular, redevelopment of
the Heathrow Cargo Centre remains an important source of
development-led growth in future but we are unlikely to commence
this until there is greater clarity over expansion of the airport.
In the meantime, cargo volumes passing through the airport have
surged by 10 per cent in 2017, demonstrating the strength of demand
for cargo space and the urgent need for greater capacity.
We also acquired two big box assets (one in the UK Midlands, and
the other in Lyon which was acquired through our SELP joint
venture) both in exchange for assets in locations not core to our
future strategy. These acquisitions have increased our scale in two
important logistics markets and improved the focus and quality of
our portfolio.
The consideration for the asset acquisitions (GBP610 million)
reflected a blended topped-up initial yield of 4.2 per cent.
Acquisitions completed in 2017
Asset type Purchase price(1) Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
------------------------------------- -------------------- ----------------- -----------------------
Big box logistics 59.2 5.3 5.3
Urban warehousing 550.9 3.6 4.1
Land(3) 92.3 n/a n/a
Total acquisitions completed in 2017 702.4 3.7(2) 4.2(2)
------------------------------------- -------------------- ----------------- -----------------------
1 Excluding acquisition costs.
2 Yield excludes land transactions.
3 Land acquisitions are discussed in Future Development
Pipeline.
Acquisitions: what to expect in 2018
We will continue to look for acquisitions of income-producing
assets in line with our strategy and which offer attractive
risk-adjusted returns. However, the majority of our investment is
likely to remain focused on development.
disciplined capital allocation - asset recycling
During 2017, we sold GBP525 million of assets and land,
including GBP150 million as part consideration for the acquisition
of the APP portfolio, and a portfolio of Continental European big
box warehouses and land sold to SELP for which we received GBP30
million net proceeds from an effective sale of a 50 per cent
interest. Additionally, we disposed of GBP92 million of land,
primarily comprising a site in West London sold to a residential
developer, taking advantage of the demand for residential space in
an area well serviced by public transport but on a site which was
unsuitable for modern industrial development.
The balance of the disposals mainly comprised seven estates in
disparate locations in Germany, a retail-focused asset in Paris and
a large multi-let industrial estate in Basingstoke, approximately
45 miles southwest of London. We also took the opportunity to
dispose of a big box warehouse in the Midlands which was located
outside our target market.
We also undertook the first disposals from the SELP joint
venture, selling four big box warehouse estates for EUR59 million,
releasing funds for future investment.
These disposals, in partnership with the acquisitions, further
improve the management intensity and risk profile of our portfolio,
while crystallising a cumulative gain on sale of 3 per cent
compared to book values at 31 December 2016.
Disposals completed in 2017
Asset type Disposal proceeds Net initial yield Topped-up
(GBPm, SEGRO share) (%) net initial yield (%)
---------------------------------- -------------------- ----------------- ----------------------
Big box logistics 87.3 7.0 7.1
Light industrial 296.5 5.5 6.0
Higher value use buildings 49.3 5.3 5.3
Land 91.8 n/a n/a
Total disposals completed in 2017 524.9 5.8(1) 6.1(1)
---------------------------------- -------------------- ----------------- ----------------------
1 Yield excludes land transactions.
Disposals: what to expect in 2018
While investor demand for industrial properties remains strong,
we will continue to recycle assets where we believe we can generate
better returns from deploying our capital in other
opportunities.
Valuation gains from asset management, development, and
market-driven yield Improvement
Warehouse property values across Europe increased throughout the
year, accelerating in the second half, in part reflecting the sale
of two large, pan-European portfolios. As a result, investment
volumes across Europe, but particularly in the UK, increased
sharply from the record high achieved in 2016. Investor appetite
for assets in Continental Europe has been helped by the improvement
in economic sentiment, the emergence of rental growth and
attractive yields compared to low interest rates.
The Group's property portfolio was valued at GBP8.0 billion at
31 December 2017 (GBP9.3 billion of assets under management). The
portfolio valuation, including completed assets, land and buildings
under construction, increased by 13.6 per cent on a like-for-like
basis (adjusting for capital expenditure and asset recycling during
the year) compared to 4.8 per cent in 2016.
This primarily comprises a 13.2 per cent increase in the assets
held throughout the year (2016: 3.4 per cent), driven by around 40
basis points of yield compression (after adjusting for the APP
portfolio acquisition) and a 3.1 per cent increase in our valuer's
estimate of the market rental value of our portfolio (ERV). In
total, our portfolio generated a total property return of 18.9 per
cent (2016: 9.3 per cent).
Assets held throughout the year in the UK increased in value by
15.8 per cent (2016: 4.6 per cent), outperforming the MSCI-IPD UK
Industrial quarterly index which increased by 13.9 per cent. The
performance reflects a combination of yield compression across the
portfolio and the capture of reversionary potential in lease
reviews and renewals, particularly in London. The true equivalent
yield applied to our UK portfolio was 5.0 per cent (31 December
2016: 5.6 per cent), while rental values improved by 3.9 per cent
(2016: 4.7 per cent).
Assets held throughout the year in Continental Europe increased
in value by 6.2 per cent (2016: 0.6 per cent) on a constant
currency basis, reflecting a combination of yield compression to
6.0 per cent (31 December 2016: 6.6 per cent) and rental value
growth of 1.2 per cent (2016: 0.3 per cent). We continue to
experience little market rental value growth in our big box
portfolio in Continental Europe (0.6 per cent) but rents are
responding to improving demand and a lack of quality supply for our
wholly-owned, urban warehouse assets where ERVs increased by 2.1
per cent.
More details of our property portfolio can be found in the 2017
Property Analysis Report available at www.segro.com/investors.
Valuations: what to expect in 2018
Capital growth forecasts are notoriously difficult given the
multitude of drivers (particularly interest rates and credit
spreads) most of which are outside our direct control.
Nevertheless, the prospects for our portfolio of big box and
urban warehouses remain good, supported by structural drivers of
demand and disciplined supply, and prime yields continue to appear
attractive compared to government (risk-free) bond yields, enhanced
by ongoing rental growth. We believe that our high quality
portfolio and our focus on asset management will enable us to
outperform the wider market.
Property portfolio metrics at 31 December 2017(1)
Portfolio value, GBPm Yield(3)
----------------------------------------------------------------------------------------------- ----------------------------------
Topped-up 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 1,061,790 3,022.5 205.1 3,227.6 3,227.6 17.6 3.9 4.8 4.2
Thames Valley and
National Logistics 1,032,194 2,036.2 246.5 2,282.7 2,288.2 13.2 4.7 5.2 5.2
UK Total 2,093,984 5,058.7 451.6 5,510.3 5,515.8 15.8 4.2 5.0 4.6
Continental Europe
Germany/Austria 1,215,201 651.4 145.8 797.2 1,220.0 7.4 5.5 5.4 1.5
Belgium/Netherlands 282,571 109.2 21.6 130.8 226.6 2.5 6.1 6.4 8.7
France 1,040,401 558.0 108.4 666.4 947.0 10.3 6.1 6.1 2.0
Italy/Spain 668,762 332.4 110.8 443.2 542.5 3.4 6.0 5.9 0.9
Poland 1,226,878 401.0 26.4 427.4 751.4 1.4 7.0 6.9 4.7
Czech
Republic/Hungary 139,668 49.7 13.7 63.4 119.9 8.2 6.2 6.4 5.5
Continental Europe
Total 4,573,481 2,101.7 426.7 2,528.4 3,807.4 6.2 6.1 6.0 2.8
GROUP TOTAL 6,667,465 7,160.4 878.3 8,038.7 9,323.2 13.2 4.8 5.3 4.0
-------------------- ----------- --------- ------------------ --------------------------- --------------------------- ----------------------- ------------- ------------------- ----------
1 Figures reflect SEGRO wholly owned assets and its share of
assets held in joint ventures unless stated "AUM" which refers to
all assets under management.
2 Valuation movement is based on the difference between the
opening and closing valuations for properties held throughout the
period, allowing for capital expenditure, acquisitions and
disposals.
3 In relation to completed properties only.
4 Vacancy rate excluding short term lettings for the Group at 31
December 2017 is 4.5 per cent.
OPERATIONAL EXCELLENCE - active asset management
Our portfolio comprises two main assets types: urban warehouses
and big box warehouses. The demand-supply dynamics are positive,
and vary by both type and geography.
Urban warehouses account for 55 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 41 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 Lille,
Paris, Lyon and Marseille), Germany (Düsseldorf, Berlin, Leipzig
and Hamburg) and Poland (Warsaw, ódz and Poznań, and the industrial
region of Silesia).
We have continued to see strong occupier demand for warehouses
across our markets, reflected in the 19 per cent increase in
contracted rent compared to 2016. Our vacancy rate remains low, and
significant lettings in our London portfolio mean that overall
lettings of existing space have increased compared to last year. In
addition, we have captured reversionary potential from our UK
portfolio and from indexation provisions in our Continental
European leases.
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 increased rent from
pre-let agreements signed during the year as occupiers seek to
secure new space in supply-constrained markets. Take-up levels
across our markets were broadly in line with, or ahead of, the
long-term average.
Speculative development of big box warehouses remains
disciplined and, indeed, lower in the UK than in 2016 reflecting
perhaps heightened levels of economic and political uncertainty. We
continue to see no evidence of over-supply of space in any of our
markets.
Growing rental income from letting existing space and new
developments
At 31 December 2017, our portfolio generated passing rent of
GBP324 million, rising to GBP358 million once rent free periods
expire ("headline rent"). During the year, we contracted GBP53.5
million of new headline rent, 19 per cent higher than in 2016
(GBP44.9 million) and a record level for SEGRO, with particularly
significant contributions from rent reviews and renewals in the UK
and new pre-let agreements.
Our customer base remains well diversified, reflecting the
multitude of uses of warehouse space. Our top 20 customers account
for 32 per cent of total headline rent, and our largest customer,
Deutsche Post DHL, accounts for 4.7 per cent.
Approximately half of our customers are involved in businesses
affected by e-commerce, including third party logistics and parcel
delivery businesses, and retailers. These businesses accounted for
around 60 per cent of our take-up during the year, including Amazon
which occupied almost 250,000 sq m of the Company's space in the
UK, Germany, Spain and Italy in both big box and urban
warehouses.
Manufacturing companies are also increasingly important
occupiers of our warehouse space, accounting for 18 per cent of our
headline rent. They comprised 10 per cent of take-up during the
year and included a number of companies associated with the
automotive sector such as Jaguar Land Rover, Dräxlmaier and Plastic
Omnium, which manufactures auto exteriors.
Summary of key leasing data for 2017(1)
Summary of key leasing data for the year to 31 December(1) 2017 2016
---------------------------------------------------------------- ------ ------- ---------
Take-up of existing space(2) (A) GBPm 13.9 14.2
Space returned(3) (B) GBPm (8.7) (14.1)
NET ABSORPTION OF EXISTING SPACE (A-B) GBPm 5.2 0.1
Other rental movements (rent reviews, renewals, indexation)(2)
(C) GBPm 4.9 1.9
RENT ROLL GROWTH FROM EXISTING SPACE GBPm 10.1 2.0
Take-up of developments completed in the period - pre-let
space(2) (D) GBPm 22.7 19.0
Take-up of speculative developments completed in the
past two years(2) (D) GBPm 7.9 8.1
TOTAL TAKE UP(2) (A+C+D) GBPm 49.4 43.2
Less take-up of pre-lets and speculative lettings signed
in prior periods(2) GBPm (24.5) (21.7)
Pre-lets and lettings on speculative developments signed
in the period for future delivery(2) GBPm 28.6 23.4
RENTAL INCOME CONTRACTED IN THE PERIOD(2) GBPm 53.5 44.9
Take-back of space for redevelopment GBPm (3.3) (1.1)
Retention rate(4) % 81 75
---------------------------------------------------------------- ------ ------- ---------
1 All figures reflect exchange rates at 31 December and include
joint ventures at share.
2 Annualised rental income, after the expiry of any rent-free
periods.
3 Annualised rental income, excluding space taken back for
redevelopment.
4 Headline rent retained as a percentage of total headline rent
at risk from break or expiry during the period.
We monitor a number of asset management performance indicators
to assess our performance:
-- Rental growth from lease reviews and renewals. These
generated an uplift of 9.5 per cent (2016: 5.4 per cent) for the
portfolio as a whole compared to previous headline rent. During the
year, new rents agreed at review and renewal were 12.9 per cent
higher in the UK (2016: 6.4 per cent) as reversion accumulated over
the past five years was reflected in new rents agreed, adding
GBP3.5 million of headline rent. In Continental Europe, rents
agreed on renewal were 0.9 per cent lower than previous headline
rents (2016: 0.1 per cent lower), equating to a less than GBP0.1
million reduction in the rent roll, reflecting indexation
provisions which have increased rents paid over recent years to
above market rental levels.
-- High levels of customer satisfaction. Although the quality
and location of our portfolio is important to our customers, we
believe that the service we provide is crucial to maintaining high
customer retention and low vacancy. We carry out a rolling survey
of our customer base throughout the year to identify and rectify
issues promptly. In 2017, 87 per cent of the 293 customers
participating in the surveys rated their experience as a SEGRO
customer as "good" or "excellent", up from 79 per cent in 2016.
-- Vacancy remains low at 4.0 per cent. The vacancy at 31
December 2017 was 4.0 per cent, an improvement from 5.7 per cent at
the end of 2016. Approximately 0.6 percentage points relates to
recently completed speculative developments. The vacancy rate is at
the lower end of our expected range of between 4 and 6 per cent.
Treating short term lettings as vacancy would only increase the
vacancy rate to 4.5 per cent (31 December 2016: 6.3 per cent). The
average vacancy rate during the period was 5.0 per cent, broadly in
line with 2016 (5.2 per cent).
-- High retention rate of 81 per cent. During the period, space
equating to GBP8.7 million (2016: GBP14.1 million) of rent was
returned to us, including GBP1.3 million of rent lost due to
insolvency (2016: GBP1.4 million). We took back space equating to
an additional GBP3.3 million for redevelopment, and this is almost
exclusively related to a well-located site near Heathrow Airport
following DHL's relocation to its new SEGRO facility at Poyle.
Approximately GBP26 million of headline rent was at risk from a
break or lease expiry during the period of which we retained 75 per
cent in existing space, with a further 6 per cent retained but in
new premises.
-- Lease terms continue to offer attractive income security. The
level of incentives agreed for new leases (excluding those on
developments completed in the period) represented 6.8 per cent of
the headline rent (2016: 7.3 per cent). The portfolio's weighted
average lease length increased to 7.4 years to first break and 8.9
years to expiry (31 December 2016: 7.1 years to first break, 8.7
years to expiry). Lease terms are longer in the UK (8.4 years to
break) than in Continental Europe (5.7 years to break).
-- GBP10 million of net new rent from existing assets. The
combination of these strong metrics enabled us to generate GBP13.9
million of headline rent from new leases on existing assets (2016:
GBP14.2 million) and GBP4.9 million from rent reviews, lease
renewals and indexation (2016: GBP1.9 million). This is a function
of the strong demand we are experiencing for our assets and is
reflected in take back of space from lease expiries and breaks
which totalled GBP8.7 million of headline rent, GBP5.4 million
lower than in 2016 (GBP14.1 million).
-- GBP29 million of rent contracted from pre-let agreements
(2016: GBP23 million). In addition to increased rents from existing
assets, we contracted GBP28.6 million of headline rent from pre-let
agreements and lettings of speculative developments prior to
completion (2016: GBP23.4 million), of which GBP6 million was from
supermarkets including Carrefour in France and GBP9 million from
retailers, including Italian fashion retailer Yoox Net-a-Porter and
Amazon.
-- Rent roll growth increased to GBP41.5 million. An important
element of achieving our goal of being a leading income-focused
REIT is to grow our rent roll, primarily through increasing rent
from our existing assets and then from generating new rent through
development. Rent roll growth, which reflects net new headline rent
from existing space (adjusted for take-backs of space for
development), take-up of developments and pre-lets agreed during
the period, increased to GBP41.5 million in 2017, from GBP29.7
million in 2016.
Asset Management: what to expect in 2018
Occupier demand remains strong so we expect to retain a low
vacancy rate and that rent roll growth will remain positive. GBP38
million of headline rent is at risk of break or expiry in 2018 and
we expect customer retention to remain high, albeit possibly not at
the unusually high level of 2017.
OPERATIONAL EXCELLENCE - development activity
The new equity provided through the 2016 Equity Placing and the
2017 Rights Issue has enabled us to accelerate the investment in
our development pipeline. During 2017, we invested GBP414 million
(2016: GBP302 million) in new developments, of which GBP45 million
was for infrastructure, and a further GBP92 million in our land
bank to expand our development capacity in a record year for
development completions.
Many of the projects completed and in our current development
pipeline are those identified at the time of the equity raises.
-- 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, 95 per cent
of which 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, 70 per cent of which have either
completed or are in the current development pipeline.
-- A further GBP175 million of proceeds of the Rights Issue were
allocated to future development on our land bank. In particular, we
have committed to a phased development of SEGRO Logistics Park East
Midlands Gateway, a 600,000 sq m logistics park adjacent to East
Midlands Airport where, early in 2018, we secured our first pre-let
for a 120,000 sq m warehouse. Please refer to the Finance Review
for further details of the Rights Issue.
Development projects completed
We completed 654,900 sq m of new space during the period, a
record level for SEGRO. These projects were 83 per cent pre-let
prior to the start of construction and were 93 per cent let as at
31 December 2017, generating GBP24.9 million of headline rent, with
a potential further GBP1.9 million to come when the remainder of
the space is let. This translates into a yield on total development
cost (including land, construction and finance costs) of 8.3 per
cent when fully let.
Amongst the projects completed in the year were 576,300 sq m of
big box warehouse space, which has been entirely let and 74,600 sq
m of speculative urban warehouses, primarily in Continental Europe,
two-thirds of which have been let.
Current development pipeline
At 31 December 2017, we had development projects approved,
contracted or under construction totalling 693,850 sq m,
representing GBP266 million of future capital expenditure and
GBP43.3 million of annualised gross rental income when fully let.
These projects are 50 per cent pre-let (rising to 58 per cent,
adjusted for lettings secured in early 2018) and should yield 7.6
per cent on total development cost when fully occupied.
-- In the UK, we have 79,200 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 26,100 sq m of new space, including two
new data centres and a Premier Inn hotel.
-- In Continental Europe, we have 614,600 sq m of space approved
or under construction. This includes a 62,700 sq m two-storey urban
warehouse in Paris: we secured a pre-let for 20 per cent of the
space prior to construction and, early in 2018, we secured a
letting for the whole of the remaining building.
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 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.
Within our Continental European development programme,
approximately GBP9.5 million of potential gross rental income is
associated with big box warehouses developed outside our SELP joint
venture. Under the terms of the joint venture, SELP has the option,
but not the obligation, to acquire these assets shortly after
completion. Assuming SELP exercises its option, we would retain a
50 per cent share of the rent after disposal. In 2017, SEGRO sold
GBP39 million of completed assets to SELP, representing a net
disposal of GBP19.5 million.
Further details of our completed projects and current
development pipeline are available in the 2017 Property Analysis
Report, which is available to download at
www.segro.com/investors.
Future development pipeline
Near-term development pipeline
Within the future development pipeline are a number of pre-let
projects which are close to being approved, awaiting either final
conditions to be met or planning approval to be granted. We expect
to commence these projects within the next six to twelve
months.
These projects total just over 500,000 sq m of space, equating
to approximately GBP236 million of additional capital expenditure
and GBP22 million of additional rent.
Land bank
Our land bank identified for future development totalled 587
hectares at 31 December 2017, equating to GBP401 million, or around
5 per cent of our total portfolio. We invested GBP92 million in
acquiring new land during 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 2.7 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 GBP125 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 based on our current expectations and
are dependent on our ability to secure pre-let agreements, planning
permissions, construction contracts and on our outlook for occupier
conditions in local markets.
Land with a total value of GBP95 million has been identified as
suited to alternative use or surplus to our short term
requirements, a reduction from GBP125 million at 31 December 2016,
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. We have received conditional planning consent for
the site and, on receipt of final permission, we will sell the land
zoned for residential use to our partner, Barratt London, 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 are held on the balance sheet at a value of GBP21
million (including joint ventures at share). Those we expect to
exercise over the next two to three years are for land capable of
supporting just over 1.1 million sq m of space and generating GBP60
million of headline rent for a blended yield of between 7 and 8 per
cent.
Development: What to expect in 2018
Occupier demand remains strong so we expect to continue the pace
of development, investing in excess of GBP350 million during the
year, with a further GBP50 million associated with infrastructure
expenditure.
finance review: EFFICIENT CAPITAL STRUCTURE, strong operating
result
Financial highlights
31 December 2017 31 December 2016
---------------------------------------------- ---------------- ----------------
IFRS(1 3) net asset value (NAV) per share (p) 554 480
EPRA(1 3) NAV per share (diluted) (p) 556 478
IFRS profit before tax (GBPm) 976.3 426.4
Adjusted(2) profit before tax (GBPm) 194.2 154.5
IFRS earnings per share (EPS) (p)(3) 98.5 51.6
Adjusted(2 3) EPS (p) 19.9 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 Note 11.
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 are prepared under IFRS
where the Group's interests in joint ventures are shown as a single
line item on the income statement and balance sheet and
subsidiaries are consolidated at 100 per cent.
The Adjusted profit measure reflects the underlying financial
performance of the Group's property rental business, which is our
core operating activity. It is based on the Best Practices
Recommendations Guidelines of the European Public Real Estate
Association (EPRA) which are widely used alternate metrics to their
IFRS equivalents within the European real estate sector (further
details can be found at www.epra.com). In calculating Adjusted
profit, the Directors may also exclude additional items considered
to be non-recurring, unusual, or significant by virtue of size and
nature. No such adjustments have been made in the current or prior
period.
A detailed reconciliation between Adjusted profit after tax and
IFRS profit after tax is provided in Note 2 to the condensed
financial information. This is not on a proportionally-consolidated
basis.
Adjusted profit
Adjusted profit
2017 2016
GBPm GBPm
=================================================== ====== ======
Gross rental income 272.9 225.5
Property operating expenses (52.2) (44.9)
=================================================== ====== ======
Net rental income 220.7 180.6
Joint venture management fee income 24.3 18.6
Administration expenses (39.7) (31.4)
Share of joint ventures' Adjusted profit after tax 47.6 55.4
=================================================== ====== ======
Adjusted operating profit before interest and tax 252.9 223.2
Net finance costs (58.7) (68.7)
=================================================== ====== ======
Adjusted profit before tax 194.2 154.5
Tax on Adjusted profit (1.2) (1.8)
Non-controlling interests share of Adjusted profit (0.2) (0.1)
=================================================== ====== ======
Adjusted profit after tax 192.8 152.6
=================================================== ====== ======
Adjusted profit before tax increased by 25.7 per cent to
GBP194.2 million (2016: GBP154.5 million) during 2017 as a result
of the above movements (see Note 2).
Reconciliations between SEGRO Adjusted metrics and EPRA metrics
are provided in the Supplementary Notes to the condensed financial
information, which also include EPRA metrics as well as SEGRO's
Adjusted income statement and balance sheet presented on a
proportionally consolidated basis.
SEGRO monitors these alternative metrics, as well as the EPRA
metrics for vacancy rate, net asset value and total cost ratio, as
they provide a transparent and consistent basis to enable
comparison between European property companies.
Net rental income
Net rental income increased by GBP40.1 million to GBP220.7
million, reflecting the positive net impact of investment activity
in particular the acquisition of the APP portfolio in March 2017
and development completions during the period, offset by the impact
of disposals.
2017 2016 Change
Like-for-like net rental income GBPm GBPm %
====== ===== ========
UK 154.9 147.4 5.1
Continental Europe 68.9 70.7 (2.5)
==================================================== ====== ===== ========
Like-for-like net rental income 223.8 218.1 2.6
Other(1) (4.8) (3.6)
---------------------------------------------------- ------ ----- --------
Like-for-like net rental income (after
other) 219.0 214.5 2.1
Development lettings 27.1 6.7
Properties taken back for development 0.2 1.7
==================================================== ====== ===== ========
Like-for-like net rental income plus developments 246.3 222.9
Properties acquired 22.6 2.7
Properties sold 13.9 32.7
==================================================== ====== ===== ========
Net rental income before surrenders, dilapidations
and exchange 282.8 258.3
Lease surrender premiums and dilapidations
income 1.8 1.8
Other items and rent lost from lease surrenders 5.9 5.5
Impact of exchange rate difference between
periods - (6.2)
Net rental income including joint venture
fees 290.5 259.4
Share of joint venture fees (11.3) (8.7)
==================================================== ====== ===== ========
Net rental after share of joint venture
fees 279.2 250.7
==================================================== ====== ===== ========
1 Other includes the corporate centre and other costs relating
to the operational business which are not specifically allocated to
a geographical business unit.
On a like-for-like basis, before other items (primarily
corporate centre and other costs not specifically allocated to a
geographic business unit), net rental income increased by GBP5.7
million, or 2.6 per cent, compared to 2016. This is mainly due to
strong rental performance in our UK portfolio particularly in
Greater London more than offsetting a modest fall in Continental
Europe.
Income from joint ventures
Joint venture management fee income increased by GBP5.7 million
to GBP24.3 million. The increase was mainly due to the higher
performance fees from the APP joint venture which crystallised on
acquisition.
SEGRO's share of joint ventures' Adjusted profit after tax
decreased by GBP7.8 million from GBP55.4 million in 2016 to GBP47.6
million in 2017, reflecting the acquisition of the remaining 50 per
cent of the APP property portfolio in March 2017. After this date
all the rental income from APP was recognised within gross rental
income, rather than within Share of Joint Ventures' Adjusted
profit.
The Group's largest remaining joint venture, SELP, contributed
GBP49.5 million (at share), an increase of GBP8.4 million compared
to last year following growth through acquisitions and development
completions.
Administrative and operating costs
The Group is focused on managing its cost base and uses a Total
Cost Ratio (TCR) as a key measure of cost management. The TCR for
2017 has increased to 24.6 per cent from 23 per cent for 2016,
above our 20 per cent target. The calculation is set out in Table 6
of the Supplementary Notes to the condensed financial
information.
While gross rental income (the denominator) has increased by
GBP37.3 million, total costs have increased by GBP14.1 million.
This is due mainly to increased staff costs, particularly share
based payments which have increased due to the outperformance of
our property portfolio compared to the market.
Excluding share based payments, the cost ratio would be 21.7 per
cent, a moderate increase from 21.0 per cent in 2016.
Net finance costs
Net finance costs (including adjustments) decreased by GBP10.0
million in 2017 to GBP58.7 million primarily as a result of the
debt refinancing undertaken in the year and reduction in drawn debt
as a result of proceeds from the Rights Issue, as detailed further
on page 21.
Taxation
The tax charge on Adjusted profit of GBP1.2 million (2016:
GBP1.8 million) reflects an effective tax rate of 0.6 per cent
(2016: 1.2 per cent), consistent with a Group target tax rate of
less than 3 per cent.
The Group's target tax rate reflects the fact that over
three-quarters of its assets are located in the UK and France and
qualify for REIT and SIIC status respectively in those countries.
This status means that income from rental profits and gains on
disposals of assets in the UK and France are exempt from
corporation tax, provided SEGRO meets a number of conditions
including, but not limited to, distributing 90 per cent of UK
taxable profits.
Adjusted earnings per share
Adjusted earnings per share are 19.9 pence compared to 18.8
pence in 2016 which has been restated from 19.7 pence following
adjustment due to the Rights Issue during the year as detailed
further in Note 11. This reflects a GBP40.2 million improvement in
Adjusted profit after tax and non-controlling interests, and an
increased average number of shares as a result of the Rights Issue
in March 2017, the equity placing in September 2016 and the take-up
of the scrip dividend option offered with the 2016 final and 2017
interim dividends.
IFRS PROFIT
IFRS profit before tax in 2017 was GBP976.3 million (2016:
GBP426.4 million), equating to basic post-tax IFRS earnings per
share of 98.5 pence compared with 51.6 pence for 2016 (restated
from 53.9 pence following the Rights Issue - see Note 11),
principally reflecting higher realised and unrealised gains in both
the wholly-owned and joint venture portfolios.
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 GBP889.0 million in 2017 (2016: GBP246.0
million) have been recognised in the Income Statement as the value
of our portfolio increased during the year. These comprised an
unrealised valuation surplus on invested properties of GBP872.4
million (2016: GBP231.3 million) and a profit of GBP16.6 million on
asset disposals (2016: GBP16.7 million). There was no provision
against trading properties in the year (2016: GBP2.0 million
loss).
SEGRO's share of realised and unrealised gains on properties
held in joint ventures was GBP77.7 million (2016: GBP42.8 million)
almost entirely in respect of the SELP portfolio and is further
analysed in Note 6.
The cost of closing out debt in the year was GBP145.3 million.
IFRS earnings were also impacted by a net fair value loss on
interest rate swaps and other derivatives of GBP21.5 million (2016:
GBP2.6 million) and a tax charge of GBP20.0 million (2016: GBP7.7
million) of which GBP18.8 million (2016: GBP5.9 million) arises in
respect of adjustments, primarily in relation to property.
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 966.7
Adjusted profit after tax 192.8
Dividend net of scrip shares issued (2016 final) (118.1)
Net proceeds from the rights issue 556.5
Exchange rate movement (net of hedging) 21.0
Debt refinancing (145.3)
Other (28.0)
-------------------------------------------------------------------------- ------- -------------- ---------------
EPRA net assets attributable to ordinary shareholders at 31 December 2017 5,607.7 1,007.7 556
-------------------------------------------------------------------------- ------- -------------- ---------------
1 Re-presented for a bonus adjustment factor of 1.046.
At 31 December 2017, IFRS net assets attributable to ordinary
shareholders were GBP5,585.4 million (31 December 2016: GBP4,182.1
million), reflecting 554 pence per share (31 December 2016: 480
pence restated from 502 pence following the Rights Issue see Note
11) on a diluted basis.
EPRA NAV per share at 31 December 2017 was 556 pence (31
December 2016: 478 pence, restated from 500 pence following the
Rights Issue), the 16 per cent increase primarily reflects property
gains in the period. The table above highlights the other principal
factors behind the increase. A reconciliation between IFRS and EPRA
NAV is available in Note 11 to the condensed financial
information.
Cash flow and net debt reconciliation
Cash flow generated from operations, before financing activity
(in respect of closing out debt and interest rate swaps), was
GBP132.2 million in 2017, an increase of GBP31.0 million from 2016.
This was mainly due to the impact from increased Adjusted profit in
the year. In addition financing activity, being the cost of early
close out of debt (GBP140.4 million outflow), as detailed further
in the debt refinancing section above, and associated derivative
transactions (GBP50.9 million outflow and GBP34.8 million inflow)
totalling GBP156.5 million, gives a total operating outflow for the
year of GBP24.3 million.
The Group made net divestments of GBP333.3 million of investment
and development properties (including options and loans to joint
ventures) during the year on a cash flow basis (2016: GBP84.2
million investment). This includes cash from disposals of GBP317.2
million (2016: GBP614.0 million), the decrease primarily due to the
disposal of the Bath Road office portfolio in 2016. The Group spent
GBP457.9 million (2016: GBP429.7 million) to purchase and develop
investment properties, and it divested GBP28.4 million in joint
ventures (2016: GBP63.4 million investment).
Other significant cash flows include an inflow of GBP557.2
million net proceeds from the issue of ordinary shares, of which
GBP556.5 million relates to net proceeds from the Rights Issue. The
2016 comparative of GBP318.4 million includes the inflow from the
equity placing in September 2016. Furthermore the Group paid
dividends of GBP118.1 million (2016: GBP89.0 million) where cash
flows are lower than the total dividend due to the level of scrip
uptake. The settlement of foreign exchange derivatives has led to a
net outflow of GBP63.4 million (2016: GBP168.4 million) as the euro
has strengthened in the year, but to a lesser extent than in the
prior year.
Overall, net debt has increased in the year from GBP1,598.4
million to GBP1,954.2 million.
Cash flow and net debt reconciliation
2017 2016
GBPm GBPm
======================================================= ========== ==========
Opening net debt (1,598.4) (1,806.5)
Cash flow from operations 189.9 156.7
Finance costs (net) (79.4) (71.1)
Dividends received (net) 26.6 26.5
Tax paid (4.9) (10.9)
======================================================= ========== ==========
Free cash flow 132.2 101.2
Dividends paid (118.1) (89.0)
Acquisitions and development of investment properties (457.9) (429.7)
Investment property sales 317.2 614.0
Acquisition of interests in property (3.8) (36.7)
Net divestment/(investment) in joint ventures 28.4 (63.4)
Acquisition of APP (217.2) -
Debt and IRS close out costs (156.5) -
Net settlement of foreign exchange derivatives (63.4) (168.4)
Proceeds from issue of ordinary shares 557.2 318.4
Other items 4.9 (5.8)
======================================================= ========== ==========
Net funds flow 23.0 240.6
Non-cash movements (7.5) (3.9)
Exchange rate movements 19.1 (28.6)
Acquisition of APP (390.4) -
======================================================= ========== ==========
Closing net debt (1,954.2) (1,598.4)
======================================================= ========== ==========
Capital expenditure
The table below sets out analysis of the capital expenditure
during the year. This includes acquisition and development spend,
on an accruals basis, in respect of the Group's wholly-owned
investment and trading property portfolios, as well as the
equivalent amounts for joint ventures at share.
Total spend for the year was GBP1,754.2 million, an increase of
GBP1,044.7 million compared to 2016, which includes higher
development expenditure and the acquisition of the APP portfolio as
detailed in Note 6. More detail on acquisitions can be found in the
Disciplined Capital Allocation section on page 7.
Development capital expenditure increased by GBP112.5 million to
GBP414.1 million, reflecting our stated intention to increase the
level of investment in developments, both speculative and pre-let,
to take advantage of strong occupier demand for modern space in our
markets. Development spend incorporates interest capitalised of
GBP7.4 million (2016: GBP5.8 million) including joint ventures at
share.
Spend on existing completed properties totalled GBP24.3 million
(2016: GBP22.0 million), of which GBP15.0 million (2016: GBP13.0
million) was for major refurbishment, infrastructure and fit-out
costs prior to re-letting. The balance mainly comprises more minor
refurbishment and fit-out costs, which equates to less than 5 per
cent of Adjusted profit before tax and 1 per cent of total
spend.
EPRA capital expenditure analysis
2017 2016
Wholly owned Joint ventures Total Wholly owned Joint ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ -------------- ------- ------------ -------------- -----
Acquisitions 1,212.2(1) 82.2 1,294.4 254.2(1) 105.1 359.3
Development(4) 368.3(2) 45.8 414.1 265.4(2) 36.2 301.6
Completed properties(4) 19.7(3) 4.6 24.3 17.4(3) 4.6 22.0
Other(5) 16.7 4.7 21.4 19.8 6.8 26.6
------------------------ ------------ -------------- ------- ------------ -------------- -----
Total 1,616.9 137.3 1,754.2 556.8 152.7 709.5
------------------------ ------------ -------------- ------- ------------ -------------- -----
1 Being GBP1,202.2 million investment property (including
GBP1,112.6 million in respect of the APP property portfolio) and
GBPnil trading property (2016: GBP254.2 million and GBPnil million
respectively) see Note 12.
2 Being GBP367.8 million investment property and GBP0.5 million
trading property (2016: GBP261.6 million and GBP3.8 million
respectively) see Note 12.
3 Being GBP19.7 million investment property and GBPnil trading
property (2016: GBP17.2 million and GBP0.4 million respectively)
see Note 12.
4 Includes wholly owned capitalised interest of GBP6.6 million
(2016: GBP5.0 million) as further analysed in Note 8 and share of
joint venture capitalised interest of GBP0.8 million (2016: GBP0.8
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 reports on compliance
with these policies on a quarterly basis and policies are reviewed
regularly by the Board.
FINANCIAL POSITION AND FUNDING
During the year, we have significantly restructured SEGRO's
capital position. The cost and efficiency of our borrowings have
both been improved through refinancing secured and expensive legacy
debt, and our capital structure has been strengthened through
raising GBP573 million of new equity in the March Rights Issue.
Both have also given us extensive capacity to invest in development
and acquisition opportunities without over-leveraging the balance
sheet.
Financial Key Performance Indicators
2017 2016
------------------------ ------------------------
SEGRO Group SEGRO Group
and JVs at and JVs at
SEGRO Group share SEGRO Group share
--------------------------- ----------- ----------- ----------- -----------
Net borrowings (GBPm) 1,954.2 2,397.7 1,598.4 2,091.0
Available cash and undrawn
facilities (GBPm) 1,192.2 1,303.6 566.9 683.1
Balance sheet gearing (%) 35 n/a 38 n/a
Loan to value ratio (%) 29 30 34 33
Weighted average cost of
debt(1) (%) 2.3 2.1 3.9 3.4
Interest cover(2) (times) 3.4 3.9 2.4 2.9
Average duration of debt
(years) 11.7 10.8 6.5 6.2
--------------------------- ----------- ----------- ----------- -----------
1 Based on gross debt, excluding commitment fees and amortised
costs.
2 Net rental income/Adjusted net finance costs (before
capitalisation).
At 31 December 2017, the Group's net borrowings (including the
Group's share of borrowings in joint ventures) were GBP2,397.7
million (31 December 2016: GBP2,091.0 million), at a weighted
average cost of 2.1 per cent and an average duration of 10.8 years.
The Company's loan to value ratio (including joint ventures at
share) was 30 per cent (31 December 2016: 33 per cent) and it had
GBP1,192.2 million of cash and undrawn facilities available for
investment.
Rights Issue and APP acquisition
In March 2017, after assessing the impact on our balance sheet
of funding the acquisition of the APP portfolio and our future
development plans, the Board resolved to issue new equity through a
fully underwritten Rights Issue. The Rights Issue raised gross
proceeds of GBP573 million (net proceeds of GBP557 million) through
the issue of 166.0 million new shares, reflecting one new share for
every five shares in issue at a price of 345 pence per share. The
net proceeds of the Rights Issue were allocated to funding the APP
portfolio acquisition (GBP216 million), with the balance to be used
to fund future development capital expenditure (see Operational
Excellence: Development Activity for details of development
expenditure).
Rights Issues are structured as the issue of shares at a
discount to the prevailing market price, with all shareholders
having a right to participate. As a result of these two key
elements, per share metrics in prior periods are required by IFRS
accounting standards to be divided by a "bonus adjustment factor"
(in our case 1.046) to ensure that the history is comparable. For
example, the reported 2016 adjusted earnings per share were 19.7
pence, the dividend per share was 16.4 pence and the EPRA NAV per
share was 500 pence. By applying the bonus adjustment factor, these
become 18.8 pence, 15.7 pence and 478 pence respectively.
The consideration paid to Aviva for its 50 per cent share of the
APP portfolio was calculated with reference to its valuation of
GBP1.1 billion at 31 December 2016. This was adjusted for debt
secured against the assets of GBP390 million and other small
movements post year-end, valuing its 50 per cent interest at GBP365
million, which was satisfied by the disposal to Aviva of GBP149
million of property assets and GBP216 million of cash funded by the
Rights Issue.
The impact of the acquisition of the APP portfolio on our LTV
ratio, if we had financed it with debt, would have been to increase
it from 33 per cent as at 31 December 2016 to 37 per cent. Based on
our expected development capital expenditure of in excess of GBP300
million at the time, the LTV would have increased further to a
level we judged to be too high. By applying the proceeds of the
Rights Issue, the LTV fell to a pro forma 28.5 per cent, providing
us with sufficient capacity to fund our foreseeable development
plans.
Debt refinancing
During 2017, we have taken advantage of favourable financing
conditions to improve the efficiency and duration of the borrowings
in both the Group and SELP. In three transactions, we issued a
total of GBP1.77 billion of new debt with an average maturity of
12.6 years and average coupon of 2.1 per cent, and also increased
our bank facilities by GBP388 million. This, combined with
associated derivative transactions, has increased SEGRO's debt
maturity to 10.8 years (31 December 2016: 6.2 years) and reduced
the average cost of debt to 2.1 per cent (31 December 2016: 3.4 per
cent). The refinancing activity has enabled the Group to repay
approximately GBP1.3 billion more expensive, less flexible, shorter
term debt for a cost of approximately GBP145 million above book
value.
-- In May 2017, SEGRO undertook a debut euro denominated
transaction, issuing EUR650 million of US Private Placement notes
across three tranches with an average maturity of 11.2 years and an
average coupon of 1.9 per cent. The proceeds were used to repay a
GBP200 million 5.5 per cent June 2018 maturity sterling bond and
GBP390 million of secured debt that was acquired as part of the APP
transaction.
-- In October 2017, the Group entered the sterling bond markets
for the first time since 2009. We undertook a sterling liability
management exercise to repurchase GBP550 million of high coupon
(6.7 per cent average) sterling bonds for a total cost of GBP677
million, and issued two new long sterling dated bonds: GBP350
million 12 year at a coupon of 2.375 per cent and GBP400 million 20
year at a coupon of 2.875 per cent.
-- In November 2017, SELP issued a second EUR500 million, eight
year unsecured bond at a coupon of 1.5 per cent. The proceeds were
used to repay the majority of SELP's remaining secured financing
and provide additional liquidity to the venture.
-- In December 2017, the Group increased its revolving credit
facility commitments by EUR438 million to EUR1,218 million.
Following these transactions, gross borrowings of SEGRO Group
were GBP2,063.5 million at 31 December, all but GBP3.6 million of
which were unsecured, and cash and cash equivalent balances were
GBP109.3 million. SEGRO's share of gross borrowings in its joint
venture was GBP463.5 million (all of which were advanced on a
non-recourse basis to SEGRO) and cash and cash equivalent balances
of GBP20.0 million.
Funds available to SEGRO (excluding cash and undrawn facilities
held in joint ventures) at 31 December 2017 totalled GBP1,192.2
million, comprising GBP109.3 million of cash and short-term
investments and GBP1,082.9 million of undrawn bank facilities
provided by the Group's relationship banks, of which only GBP5
million was uncommitted. Cash and cash equivalent balances,
together with the Group's interest rate and foreign exchange
derivatives portfolio, are spread amongst a strong group of banks,
all of which have a credit rating of A- or better.
GEARING AND FINANCIAL COVENANTS
The key leverage metric for SEGRO is its loan to value ratio
(LTV) which incorporates assets and net debt on SEGRO's balance
sheet and SEGRO's share of assets and net debt on the balance
sheets of its joint ventures. The LTV at 31 December 2017 on this
"look-through" basis was 30 per cent.
Our borrowings contain gearing covenants based on Group net debt
and net asset value, excluding debt in joint ventures. The gearing
ratio of the Group at 31 December 2017, as defined within the
principal debt funding arrangements of the Group, was 35 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 31 December 2017 values to reach the gearing covenant
threshold of 160 per cent. A 55 per cent fall in property values
would equate to an LTV ratio of approximately 66 per cent.
The Group's other key financial covenant within its principal
debt funding arrangements is interest cover, requiring that net
interest before capitalisation be covered at least 1.25 times by
net property rental income. At 31 December 2017, the Group
comfortably met this ratio at 3.4 times. On a look-through basis,
including joint ventures, this ratio was 3.9 times.
We mitigate the risk of over-gearing the Company and breaching
debt covenants by carefully monitoring the impact of investment
decisions on our LTV and by stress-testing our balance sheet to
potential changes in property values. As explained above, we took
the decision to raise equity in March after assessing the impact on
our leverage of the acquisition of the remainder of the APP
portfolio and our future development plans. We also expect to
continue to recycle assets to part fund future investment.
Our intention for the foreseeable future is to maintain our LTV
at between 30 and 35 per cent, lower than our mid-cycle target of
40 per cent. This provides the flexibility to take advantage of
investment opportunities arising and ensures significant headroom
compared to our tightest gearing covenants should property values
decline.
At 31 December 2017, there were no debt maturities falling due
within 12 months and the weighted average maturity of the gross
borrowings of the Group (including joint ventures at share) was
10.8 years. With a majority of the Group's bank debt facilities not
due to mature until 2022, and no debt maturities in 2018, this long
average debt maturity translates into a favourable, well spread
debt funding maturity profile which reduces future refinancing
risk.
INTEREST RATE RISK
The Group's interest rate risk policy is designed to ensure that
we limit our exposure to volatility in interest rates. The policy
states that between 50 and 100 per cent of net borrowings
(including the Group's share of borrowings in joint ventures)
should be at fixed or capped rates both at a Group level and by
major borrowing currency (currently euro and sterling), including
the impact of derivative financial instruments.
At 31 December 2017, including the impact of derivative
instruments, 79 per cent (2016: 80 per cent) of the net borrowings
of the Group (including the Group's share of borrowings within
joint ventures) were at fixed or capped rates.
As a result of the fixed rate cover in place, if short-term
interest rates had been 1 per cent higher throughout the year to 31
December 2017, the adjusted net finance cost of the Group would
have increased by approximately GBP5.8 million representing around
3 per cent of Adjusted profit after tax.
The Group elects not to hedge account its interest rate
derivatives portfolio. Therefore, movements in its fair value are
taken to the income statement but, in accordance with EPRA Best
Practices Recommendations Guidelines, these gains and losses are
eliminated from Adjusted profit after tax.
FOREIGN CURRENCY TRANSLATION 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.
The Group seeks to limit its exposure to volatility in foreign
exchange rates by hedging between 50 and 100 per cent of its
foreign currency gross assets through either borrowings or
derivative instruments. At 31 December 2017, the Group had gross
foreign currency assets which were 69 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, if the value of the other currencies in which the Group
operates at 31 December 2017 weakened by 10 per cent against
sterling (EUR1.24, in the case of euros), net assets would have
decreased by approximately GBP65 million and there would have been
a reduction in gearing of approximately 1.7 per cent and in the LTV
of 1.3 per cent.
The average exchange rate used to translate euro denominated
earnings generated during 2017 into sterling within the
consolidated income statement of the Group was EUR1.14:GBP1. Based
on the hedging position at 31 December 2017, and assuming that this
position had applied throughout 2017, if the euro had been 10 per
cent weaker than the average exchange rate (EUR1.25:GBP1), Adjusted
profit after tax for the year would have been approximately GBP6.7
million (3.4 per cent) lower than reported. If it had been 10 per
cent stronger, Adjusted profit after tax for the year would have
been approximately GBP8.2 million (4.2 per cent) higher than
reported.
GOING CONCERN
As noted in the Financial Position and Funding section, the
Group has a strong liquidity position, a favourable debt maturity
profile 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, including liquidity and solvency risks, and
material uncertainties, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future (a period of at
least 12 months from the date of approval of the Financial
Statements). Accordingly, they continue to adopt the going concern
basis in preparing the Annual Report.
DIVID INCREASE REFLECTS A STRONG YEAR AND CONFIDENCE FOR THE
FUTURE
Under the UK REIT rules, we are required to pay out 90 per cent
of UK-sourced, tax-exempt rental profits as a 'Property Income
Distribution' (PID). Since we also receive income from our
properties in Continental Europe, our total dividend should
normally exceed this minimum level and we target a pay-out ratio of
85 to 95 per cent of Adjusted profit after tax. We aim to deliver a
progressive and sustainable dividend which grows in line with our
profitability in order to achieve our goal of being a leading
income-focused REIT.
The Board has concluded that it is appropriate to recommend an
increase in the final dividend per share of 0.65 pence to 11.35
pence (2016: 10.7 pence, adjusted for the Rights Issue bonus
adjustment factor) which will be paid as a PID. The Board's
recommendation is subject to approval by shareholders at the Annual
General Meeting, in which event the final dividend will be paid on
3 May 2018 to shareholders on the register at the close of business
on 23 March 2018.
In considering the final dividend, the Board took into
account:
-- the policy of targeting a pay-out ratio of between 85 and 95
per cent of Adjusted profit after tax;
-- the desire to ensure that the dividend is sustainable and
progressive throughout the cycle; and
-- the results for 2017 and the outlook for earnings.
The total dividend for the year will, therefore, be 16.6 pence,
a rise of 5.7 per cent on 2016 (15.7 pence, adjusted) and
represents payment of 86 per cent of Adjusted profit after tax and
83 per cent of Adjusted EPS.
As at 31 December 2017 the Company had distributable reserves
that provide cover for the total of the interim dividend paid and
the final dividend proposed in respect of the year ended 31
December 2017 of over 4 times (2016: 3 times). When required the
Company can receive dividends from its subsidiaries to further
increase the distributable reserves.
The Board has decided to retain a scrip dividend option for the
2017 final dividend, allowing shareholders to choose whether to
receive the dividend in cash or new shares. In 2017, 13 per cent of
the 2016 final dividend and 34 per cent of the 2017 interim
dividend was paid in new shares, equating to GBP27.6 million of
cash retained on the balance sheet.
STATEMENT OF PRINCIPAL RISKS
The Group recognises that its ability to manage risk effectively
throughout the organisation continues to be central to its success.
Our approach to risk management aims to bring controllable risks
within our appetite, and to enable our decision making to balance
uncertainty against the objective of creating value for our
shareholders.
OUR INTEGRATED AND ROBUST APPROACH TO RISK MANAGEMENT
The Board has overall responsibility for ensuring that risk is
effectively managed across the Group. The Audit Committee monitors
the effectiveness of the Group's risk management process on behalf
of the Board.
The risk management process is designed to identify, evaluate
and mitigate the significant risks that the Group faces. The
process aims to understand and mitigate, rather than eliminate, the
risk of failure to achieve business objectives, and therefore can
only provide reasonable and not absolute assurance.
The Board recognises that it has limited control over many of
the external risks it faces, such as the macro-economic
environment, but it reviews the potential impact of such risks on
the business and actively considers them in its decision-making.
The Board also monitors internal risks and ensures that appropriate
controls are in place to manage them.
In order to robustly assess the principal risks facing the
Group, the Board has taken a number of measures. The Board has
formally reviewed the principal risks twice during the year. The
Board has also completed its annual review and approval of the
Group's risk appetite, and has approved the Group's risk management
policy. The Audit Committee receives a report twice a year on how
the Group Risk Register has been compiled.
The Group adopts the 'three lines of defence' model of risk
management: operational management, the individual risk manager and
risk owner provide the first line; the Executive Committee, other
monitoring committees, and the risk management function overseen by
the Group Risk Committee provide the second; and Internal Audit
provide the third line of defence.
Risks are considered within each area of the business to ensure
that risk management is embedded within the Group's decision-making
processes and culture.
We have put risk appetite at the heart of our risk management
processes. Risk appetite is integral both to our consideration of
strategy and to our medium-term planning process. Risk appetite
also defines specific tolerances and targets for key metrics and
the criteria for assessing the potential impact of risks and our
mitigation of them. The most significant risks and mitigating
controls are detailed in the Group Risk Register. Risks are
assessed in both unmitigated (assuming that no controls are in
place) and residual (with mitigating controls operating normally)
states. This assessment directly relates potential impact to risk
appetite so that it is clear whether each risk is comfortably
within appetite, tolerable, intolerable or below appetite. We also
formally assess the velocity of the most significant risks to
determine how quickly they might cause an intolerable impact on
us.
A Key Risk Indicator (KRI) dashboard is produced on a monthly
basis to show actual and forecast performance against risk appetite
metrics. KRIs are considered in the Group's Medium Term Plan.
Mitigations for each risk are documented and monitored in the
Group Risk Register. The Register is used as a key input to
determine priorities for the Group's internal audit assurance
programme. Management's annual assessment of control effectiveness
is driven by the Group's Risk Register
OUR RISK APPETITE
While our appetite for risk will vary over time and during the
course of the property cycle, in general the Group maintains a
fairly low appetite for risk, appropriate to our strategic
objectives of delivering a sustainable progressive dividend stream,
supported by long-term growth in net asset value per share.
PROPERTY RISK
We recognise that, in seeking outperformance from our portfolio,
the Group must accept a balanced level of property risk - with
diversity in geographic locations and asset types and an
appropriate mixture of stabilised income producing and opportunity
assets - in order to provide opportunities for superior
returns.
Our target portfolio should deliver attractive, low risk income
returns with strong rental and capital growth when market
conditions are positive and show relative resilience in a downturn.
We aim to enhance these returns through development, but we seek
both to ensure that the 'drag' associated with holding development
land does not outweigh the potential benefits and also to mitigate
the risks - including letting and construction risks - inherent in
development.
In line with our income focus, we have a low appetite for risks
to income from customers, and accordingly seek a diverse occupier
base with strong covenants and avoid over-exposure to individual
occupiers in specialist properties.
FINANCIAL RISK
The Group maintains a low to moderate appetite for financial
risk in general, with a very low appetite for risks to solvency and
gearing covenant breaches.
As an income-focused REIT we have a low appetite for risks to
maintaining stable progression in earnings and dividends over the
long term. We are, however, prepared to tolerate fluctuations in
dividend cover as a consequence of capital recycling activity.
We also seek long-term growth in net asset value per share. Our
appetite for risks to net asset value from the factors within our
control is low, albeit acknowledging that our appetite for moderate
leverage across the cycle amplifies the impact of asset valuation
movements on net asset value.
CORPORATE RISK
We have a very low appetite for risks to our good reputation and
risks to being well-regarded by our investors, regulators,
employees, customers, business partners, suppliers, lenders and by
the wider communities and environments in which we operate.
Our responsibilities to these stakeholders include compliance
with all relevant laws; accurate and timely reporting of financial
and other regulatory information; safeguarding the health and
safety of employees, suppliers, customers and other users of our
assets; safeguarding the environment; compliance with codes of
conduct and ethics; ensuring business continuity; and making a
positive contribution to the communities in which we operate.
PRINCIPAL RISKS
The principal risks have the potential to affect SEGRO's
business materially. Risks are classified as 'principal' based on
their potential to intolerably exceed our appetite (considering
both inherent and residual impact) and cause material harm to the
Group.
Some risks that may be unknown at present, as well as other
risks that are currently regarded as immaterial and therefore not
detailed here, could turn out to be material in the future.
The current principal risks facing the Group are described
across the following pages.
The descriptions indicate the potential areas of impact on the
Group's strategy; the time-horizon and probability of the risk; the
principal activities that are in place to mitigate and manage such
risks; the committees that provide second line of defence
oversight; changes in the level of risk during the course of 2017;
and whether the risk is within our appetite (after the application
of our mitigations).
Since 2016, four principal risks have been combined into the
Financing Strategy risk described below. Development Execution has
been added in the light of the scale and nature of the Group's
development programme. The European economic environment risk
previously reported has been de-classified.
PRINCIPAL IMPACT AND
RISK MITIGATIONS CHANGE IN 2017
1. Market The property market is cyclical The Board, Executive Impact on
Cycle and there is a continuous Committee strategy:
risk that the Group could and Investment Disciplined
either misinterpret the Committee Capital
market or fail to react monitor the property Allocation
appropriately to changing market Change in
market conditions, which cycle on a continual 2017:
could result in capital basis Similar risk
being invested or disposals and adapt the Group's Risk is within
taking place at the wrong investment/divestment appetite.
price or time in the cycle. strategy in
This is a continuous risk anticipation
with a moderate likelihood. of changing market
conditions.
Multiple, diverse
investment
and occupier market
intelligence
is regularly received
and
considered - both
from
internal 'on the
ground'
sources and from
independent
external sources.
Upside and downside
scenarios
are incorporated into
Investment
Committee papers to
assess
the impact of
differing
market conditions.
-------------- --------------------------------------------------------------- --------------------- --------------
2. Portfolio The Group's Total Property The Group's portfolio Impact on
Strategy and/or Shareholder Returns strategy strategy:
could underperform in absolute is subject to regular Disciplined
or relative terms as a result review Capital
of an inappropriate portfolio by the Board to Allocation
strategy. This could consider Change in
result from: the desired shape of 2017:
Holding the wrong balance the Similar risk
of prime or secondary assets; portfolio in order to Risk is within
Holding the wrong amounts meet appetite.
or types of land, leading the Group's overall
to diluted returns and/or objectives
constraints on development and to determine our
opportunities; response
Holding the wrong level to changing
of higher risk 'opportunity' opportunities
assets or too many old or and market
obsolete assets which dilute conditions.
returns; and The Group's
Holding assets in the wrong Disciplined
geographical markets; missing Capital Allocation is
opportunities in new markets informed
or lacking critical mass by comprehensive
in existing markets. asset
This is a continuous risk plans and independent
with a moderate likelihood. external
assessments of market
conditions
and forecasts.
Regular portfolio
analysis
ensures the portfolio
is
correctly positioned
in
terms of location and
asset
type, and retains the
right
balance of core and
opportunity
assets. The annual
asset
planning exercise
provides
a bottom-up
assessment
of the performance
and
potential for all
assets
to identify
underperforming
assets that are
considered
for sale.
-------------- --------------------------------------------------------------- --------------------- --------------
3. Investment Decisions to buy, hold, Asset plans are Impact on
Plan Execution sell or develop assets could prepared strategy:
be flawed due to uncertainty annually for all Disciplined
in analysis, quality of estates Capital
assumptions, poor due diligence to determine where to Allocation
or unexpected changes in invest Change in
the economic or operating capital in existing 2017:
environment. assets Similar risk
Our investment decisions and to identify Risk is within
could be insufficiently assets appetite.
responsive to implement for disposal.
our strategy effectively. Locally-based
This is a continuous risk property
with a moderate likelihood investment and
as changing investment and operational
occupier market conditions teams provide market
require constant adaptation. intelligence
and networking to
source
attractive
opportunities.
Policies are in place
to
govern evaluation,
due
diligence, approval,
execution
and subsequent review
of
investment activity.
The Investment
Committee
meets frequently to
review
investment and
disposal
proposals and to
consider
appropriate capital
allocation.
Investment hurdle
rates
are regularly
reappraised
taking into account
estimates
of our weighted
average
cost of capital.
Major capital
investment
and disposal
decisions
are subject to Board
approval.
-------------- --------------------------------------------------------------- --------------------- --------------
4. Development The Group has an extensive Our appetite for Impact on
Plan Execution current programme and future exposure strategy:
pipeline of developments. to non-income Disciplined
The Group could suffer significant producing Capital
financial losses from: assets (including Allocation
* Cost over-runs on larger, more complex projects. land, and
infrastructure and Operational
speculative Excellence
* Increased competition and/or construction costs (from developments) is Change in
labour market changes or weakened supply competition) monitored 2017:
leading to reduced or uneconomic development yields. closely. Increased risk
We retain a high This risk has
level increased as
* Above-appetite exposure to non-income producing land, of 'optionality' in a result of
infrastructure and speculatively developed buildings our our increased
arising from a sharp deterioration in occupier future development development
demand. programme pipeline.
including at the Risk is within
point appetite.
This is a medium-term risk of land acquisition,
with a moderate likelihood. commitment
to infrastructure and
commitment
to building.
The development
programme
remains weighted
towards
pre-let
opportunities.
The risk of
cost-overruns
is mitigated by our
experienced
development teams and
the
use of trusted
advisors
and contractors.
Our short development
lead-times
enable a quick
response
to changing market
conditions
-------------- --------------------------------------------------------------- --------------------- --------------
5. Financing The Group could suffer an The Group's financing Impact on
Strategy acute liquidity or solvency strategy strategy:
crisis, financial loss or is aligned with our Efficient
financial distress as a long Capital
result of a failure in the term business and Corporate
design or execution of its strategy, Structure
financing strategy. the Medium Term Plan Change in
Such an event may be caused and 2017:
by: a failure to obtain our risk appetite. Decreased risk
debt funding (e.g. due to The This risk has
market disruption or rating Treasury policy reduced as
downgrade); having an inappropriate defines a result of
debt structure (including key policy parameters the equity
leverage level, debt maturity, and and debt
interest rate or currency controls to support funding
exposure); poor forecasting; execution secured in
default on loan agreements of the strategy. the year.
as a result of a breach The Group regularly Risk is within
of financial or other covenants; reviews appetite.
or counterparty default. its changing
This is short and long-term financing
risk with a very low likelihood. requirements in the
light
of opportunities and
market
conditions.
As well as the Rights
Issue,
2017 saw extensive
financing
and re-financing
activity
with a US private
placement,
a bond buyback and
issue,
a SELP bond issue,
and
increased revolving
debt
facilities. These
actions
have strengthened the
balance
sheet, lowered the
average
cost of debt,
increased
debt maturity, and
demonstrated
the ability to access
debt
capital markets.
-------------- --------------------------------------------------------------- --------------------- --------------
6. Disruptive The uncertainty associated A Brexit-specific Impact on
Brexit with the UK's decision to risk strategy:
exit the EU may impact investment, register is Disciplined
capital, financial (including maintained Capital
foreign exchange) and occupier and we continue to Allocation
markets in the UK during monitor and Efficient
the transition period as a range of indicators Capital and
the terms of exit and future across Corporate
relationships are negotiated, occupational, Structure
and in the long term. In investment Change in
the long term, exit from and capital markets. 2017:
the EU could reduce levels We Increased risk
of investor and occupier have not observed The increased
demand as a result of reduced significant rating is a
trade and/or the relocation adverse factors to reflection
of corporations and financial date. of continuing
institutions away from the Structural drivers of uncertainty
UK. demand as March 2019
The likelihood of severe appear to have approaches.
adverse impact on the Group continued Risk is within
is judged to be low. to outweigh any appetite.
Brexit-related
uncertainties.
Nevertheless, in the
light
of increased
uncertainty,
the Group has
continued
to adopt a cautious
approach
to land acquisition
and
speculative
development.
The Group's high
quality
portfolio of prime
industrial
assets is diverse in
terms
of geography and 32
per
cent of gross asset
value
at share is in
Continental
Europe and sector
exposure.
The Group's existing
strategy
for resilience
through
the market cycle also
provides
mitigations. As well
as
the underlying
quality
and diversity of the
portfolio,
these include
substantial
covenant headroom,
access
to diverse sources of
funding,
and FX and interest
rate
hedging. In addition,
our
short development
lead-times
enable a quick
response
to changing market
conditions.
-------------- --------------------------------------------------------------- --------------------- --------------
7. Operational The Group's ability to protect The Group maintains a Impact on
delivery and its reputation, revenues strong strategy:
compliance and shareholder value could focus on Operational Operational
be damaged by operational Excellence. Excellence
failures such as: environmental The Executive, Change in
damage; failing to attract, Operations, 2017:
retain and motivate key and Business Similar risk
staff; a breach of anti-bribery Information Risk is within
and corruption or other Systems Committees appetite.
legislation; major customer regularly
default; supply chain failure; monitor the range of
the structural failure of risks
one of our assets; a major to property
high-profile incident involving management,
one of our assets; a cyber-security construction,
breach; or failure to respond compliance,
to the consequences of climate business continuity,
change. organisational
Compliance failures, such effectiveness,
as breaches of joint venture customer
shareholders' agreements, management and cyber
loan agreements or tax legislation security.
could also damage reputation, The Group's tax
revenue and shareholder compliance
value. is managed by an
This is a continuous risk experienced
with a low likelihood of internal tax team.
causing significant harm REIT
to the Group. and SIIC tax regime
compliance
is demonstrated at
least
biannually.
Compliance
with joint venture
shareholder
agreements is managed
by
experienced property
operations,
finance and legal
staff.
The SELP JV
additionally
has comprehensive
governance
and compliance
arrangements
in place, including
dedicated
management, operating
manuals,
and specialist
third-party
compliance support.
8. Health Health and safety management The Group manages an Impact on
and Safety processes could fail, leading active strategy:
to a loss of life, litigation, health and safety Operational
fines and serious reputational management Excellence
damage to the Group. system, with a Change in
This is a continuous risk particular 2017:
with a low likelihood of focus on managing the Similar risk
causing significant harm quality Risk is within
to the Group. Nevertheless, and compliance to appetite.
we note that this risk is good
somewhat increased by the health and safety
scale of the Group's development practice
activity. of construction and
maintenance
contractors.
A published Health
and
Safety policy is
backed
up by independent
site
inspections of both
existing
assets as well as
development
projects against
SEGRO's
Health and Safety
Construction
Standard.
A new online Health
and
Safety system, named
Safety
Matters, has been
launched
to enhance tracking,
trend
analysis, and
compliance
monitoring against
agreed
safety standards.
-------------- --------------------------------------------------------------- --------------------- --------------
9. Political The Group could fail to Emerging risks in Impact on
and Regulatory anticipate significant political, this strategy:
legal, tax or regulatory category are reviewed Disciplined
changes, leading to a significant regularly Capital
un-forecasted financial by the Executive Allocation
or reputational impact. Committee. and Efficient
In general, regulatory matters Corporate heads of Capital and
present medium- to long-term function Corporate
risks with a low likelihood consult with external Structure
of causing significant harm advisers, Change in
to the Group. attend industry and 2017:
Political risks could impact specialist Increased risk
business confidence and briefings, and sit on This risk has
conditions in the short key increased as
and longer terms. industry bodies such a result of
as the political
EPRA and BPF. events noted
A number of potential above.
risks Risk is within
were identified, appetite.
assessed
and managed during
the
course of the year.
None
were individually
considered
to be material enough
to
be classified as
principal
risks.
-------------- --------------------------------------------------------------- --------------------- --------------
responsibility statement
The Statement of Directors' Responsibilities below has been
prepared in connection with the Company's full Annual Report and
Accounts for the year ended 31 December 2017. Certain parts of the
Annual Report and Accounts have not been included in this
announcement as set out in Note 1 to the condensed financial
information.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess a Company's
position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Governance section of the Annual Report confirm that, to the
best of their knowledge:
(a) the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Group; and
(b) the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
The responsibility statement was approved by the Board of
Directors on 15 February 2018 and signed on its behalf by:
David Sleath Soumen Das
Chief Executive Chief Financial Officer
15 February 2018 15 February 2018
CONDENSED GROUP INCOME STATEMENT
For the year ended 31 December 2017
2017 2016
Notes GBPm GBPm
---------------------------------------------- ----- ------- -------
Revenue 4 334.7 283.5
----------------------------------------------- ----- ------- -------
Gross rental income 4 272.9 225.5
Property operating expenses 5 (52.2) (44.9)
----------------------------------------------- ----- ------- -------
Net rental income 220.7 180.6
Joint venture management fee income 4 24.3 18.6
Administration expenses (39.7) (31.4)
Share of profit from joint ventures after
tax 108.1 85.1
Realised and unrealised property gain 6 889.0 246.0
Goodwill and other amounts written off on
acquisitions and amortisation of intangibles (0.6) (0.2)
----------------------------------------------- ----- ------- -------
Operating profit 1,201.8 498.7
Finance income 8 40.6 46.7
Finance costs 8 (266.1) (119.0)
----------------------------------------------- ----- ------- -------
Profit before tax 976.3 426.4
Tax 9 (20.0) (7.7)
----------------------------------------------- ----- ------- -------
Profit after tax 956.3 418.7
----------------------------------------------- ----- ------- -------
Attributable to equity shareholders 952.7 417.7
Attributable to non-controlling interests 3.6 1.0
----------------------------------------------- ----- ------- -------
Earnings per share (pence)(1)
Basic 11 98.5 51.6
Diluted 11 97.9 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 year ended 31 December 2017
2017 2016
GBPm GBPm
------------------------------------------------------ ------ --------------
Profit for the year 956.3 418.7
Items that will not be reclassified subsequently
to profit or loss
Actuarial (loss)/gain on defined benefit pension
schemes (16.2) 15.0
-------------------------------------------------------- ------ --------------
(16.2) 15.0
Items that may be reclassified subsequently to profit
or loss
Foreign exchange movement arising on translation
of international operations 27.3 114.1
Decrease in value of available-for-sale investments - (0.3)
Fair value movements on derivatives in effective
hedge relationships (6.4) (86.4)
-------------------------------------------------------- ------ --------------
20.9 27.4
Tax on components of other comprehensive income - -
------------------------------------------------------ ------ --------------
Other comprehensive profit before transfers 4.7 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 year 964.1 459.1
-------------------------------------------------------- ------ --------------
Attributable to equity shareholders 960.6 458.5
Attributable to non-controlling interests 3.5 0.6
-------------------------------------------------------- ------ --------------
CONDENSED GROUP BALANCE SHEET
As at 31 December 2017
2017 2016
Notes GBPm GBPm
--------------------------------------------- ----- ------- ------------
Assets
Non-current assets
Goodwill and other intangibles 4.0 3.1
Investment properties 6,745.4 4,714.4
Other interests in property 13.4 9.6
Plant and equipment 14.7 16.1
Investments in joint ventures 792.0 1,066.2
Available-for-sale investments - 0.7
Derivative financial instruments 60.7 80.1
Pension assets 38.7 45.7
---------------------------------------------- ----- ------- ------------
7,668.9 5,935.9
Current assets
Trading properties 12.5 25.4
Trade and other receivables 141.8 102.8
Derivative financial instruments 2.6 12.6
Cash and cash equivalents 109.3 32.0
---------------------------------------------- ----- ------- ------------
266.2 172.8
Total assets 7,935.1 6,108.7
============================================== ===== ======= ============
Liabilities
Non-current liabilities
Borrowings 2,063.5 1,630.4
Deferred tax provision 34.6 16.3
Trade and other payables - 4.7
Derivative financial instruments - 14.7
---------------------------------------------- ----- ------- ------------
2,098.1 1,666.1
Current liabilities
Trade and other payables 247.5 246.5
Derivative financial instruments 4.0 11.1
Tax liabilities 1.3 4.1
============================================== ===== ======= ============
252.8 261.7
Total liabilities 2,350.9 1,927.8
============================================== ===== ======= ============
Net assets 5,584.2 4,180.9
============================================== ===== ======= ============
Equity
Share capital 100.3 83.0
Share premium 1,998.6 1,431.1
Capital redemption reserve 113.9 113.9
Own shares held (3.3) (5.5)
Other reserves 225.7 196.2
---------------------------------------------- ----- ------- ------------
Retained earnings brought forward 2,363.4 2,050.3
Profit for the year attributable to owners
of the parent 952.7 417.7
Other movements (165.9) (104.6)
---------------------------------------------- ----- ------- ------------
Retained earnings 3,150.2 2,363.4
---------------------------------------------- ----- ------- ------------
Total equity attributable to owners of the
parent 5,585.4 4,182.1
Non-controlling interests (1.2) (1.2)
---------------------------------------------- ----- ------- ------------
Total equity 5,584.2 4,180.9
---------------------------------------------- ----- ------- ------------
Net assets per ordinary share (pence)(1)
Basic 11 557 482
Diluted 11 554 480
---------------------------------------------- ----- ------- ------------
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 year ended 31 December 2017
Items taken
Balance to other Balance
1 January Exchange Retained comprehensive Shares 31 December
2017 movement Earnings income issued Other Dividends Transfers 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
Ordinary share
capital 83.0 - - - 16.7 - 0.6 - 100.3
Share premium 1,431.1 - - - 540.5 - 27.0 - 1,998.6
Capital
redemption
reserve 113.9 - - - - - - - 113.9
Own shares held (5.5) - - - - (6.7) - 8.9 (3.3)
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
Other reserves:
Share based
payments
reserve 13.5 - - - - 10.3 - (5.1) 18.7
Fair value
reserve
for AFS(1) (0.2) - - - - - - 0.2 -
Translation,
hedging
and other
reserves 13.8 27.4 - (6.4) - 3.1 - - 37.9
Merger reserve 169.1 - - - - - - - 169.1
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
Total other
reserves 196.2 27.4 - (6.4) - 13.4 - (4.9) 225.7
Retained
earnings 2,363.4 - 952.7 (16.2) - - (145.7) (4.0) 3,150.2
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
Total equity
attributable
to equity
shareholders 4,182.1 27.4 952.7 (22.6) 557.2 6.7 (118.1) - 5,585.4
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
Non-controlling
interests(2) (1.2) (0.1) 3.6 - - (3.5) - - (1.2)
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
Total equity 4,180.9 27.3 956.3 (22.6) 557.2 3.2 (118.1) - 5,584.2
================ ========== ========= ========= ============== ======= ===== ========= ========= ============
For the year ended 31 December 2016
Items taken
Balance to other Balance
1 January Exchange Retained comprehensive Shares 31 December
2016 movement Earnings income issued Other Dividends Transfers 2016
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
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 31 December 2017
2017 2016
GBPm GBPm
===================================================== ========= =======
Cash flows from operating activities 189.9 156.7
Interest received 61.2 69.8
Dividends received 26.6 26.5
Interest paid (140.6) (140.9)
Cost of early close out of interest rate derivatives
and new derivatives transacted (50.9) -
Proceeds from early close out of interest
rate derivatives 34.8 -
Cost of early close out of debt (140.4) -
Tax paid (4.9) (10.9)
======================================================= ========= =======
Net cash (used in)/received from operating
activities (24.3) 101.2
======================================================= ========= =======
Cash flows from investing activities
Purchase and development of investment
properties (457.9) (429.7)
Acquisition of APP assets(1) (217.2) -
Sale of investment properties 317.2 614.0
Acquisition of other interests in property (3.8) (36.7)
Purchase of plant and equipment and intangibles (2.0) (3.5)
Sale of available-for-sale investments 0.6 -
Investment in joint ventures (137.8) (184.3)
Divestment in joint ventures 166.2 120.9
======================================================= ========= =======
Net cash (used in)/received from investing
activities (334.7) 80.7
======================================================= ========= =======
Cash flows from financing activities
Dividends paid to ordinary shareholders (118.1) (89.0)
Proceeds from borrowings 1,342.1 42.5
Repayment of borrowings (1,274.5) (267.7)
Settlement of foreign exchange derivatives (63.4) (168.4)
Proceeds from issue of ordinary shares 557.2 318.4
Purchase of ordinary shares (6.7) (2.3)
======================================================= ========= =======
Net cash received from/(used in) financing
activities 436.6 (166.5)
======================================================= ========= =======
Net increase in cash and cash equivalents 77.6 15.4
Cash and cash equivalents at the beginning
of the year 32.0 16.4
Effect of foreign exchange rate changes (0.3) 0.2
======================================================= ========= =======
Cash and cash equivalents at the end of
the year 109.3 32.0
======================================================= ========= =======
1 Acquisition of APP includes GBP1.2 million
of transaction costs.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The financial information set out in this announcement does not
constitute the consolidated statutory accounts for the years ended
31 December 2017 and 2016, but is derived from those accounts.
Statutory accounts for 2016 have been delivered to the Registrar of
Companies and those for 2017 (approved by the Board on 15 February
2018) will be delivered following the Company's annual general
meeting. The external auditor has reported on the accounts and
their reports did not contain any modifications or emphasis of
matter paragraphs.
Given due consideration to the nature of the Group's business
and financial position, including the financial resources available
to the Group, the Directors consider that the Group is a going
concern and this financial information is prepared on that
basis.
The financial information set out in this announcement is based
on the consolidated financial statements which are prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and complies with the disclosure
requirements of the Listing Rules of the UK Financial Conduct
Authority. The financial information is in accordance with the
accounting policies set out in the 2016 financial statements.
While the financial information included in these condensed
financial statements has been prepared in accordance with the
recognition and measurement criteria of IFRSs as adopted by the
European Union, this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to
publish full financial statements that comply with IFRSs by March
2018.
There have been no changes to the basis of accounting on
adoption of new standards and amendments to standards and
interpretations which have become effective for the first time for
this financial year.
The principal exchange rates used to translate foreign currency
denominated amounts are: Balance sheet: GBP1 = EUR1.13 (31 December
2016: GBP1 = EUR1.17) and Income statement: GBP1 = EUR1.14 (31
December 2016: GBP1 = EUR1.22).
2. Adjusted profit
Adjusted profit is a non-GAAP measure and is the Group's measure
of underlying profit, which is used by the Board and senior
management to measure and monitor the Group's income
performance.
It is based on the Best Practices Recommendations Guidelines of
European Public Real Estate Association (EPRA), which calculate
profit excluding investment and development property revaluations
and gains or losses on disposals. Changes in the fair value of
financial instruments and associated close-out costs and their
related taxation, as well as other permitted one-off items, are
also excluded. Refer to the Supplementary Notes for all EPRA
adjustments.
The Directors may also exclude from the EPRA profit measure
additional items (gains and losses) which are considered by them to
be non-recurring, unusual or significant by virtue of size and
nature. No non-EPRA adjustments to underlying profit were made in
the current or prior periods.
2017 2016
GBPm GBPm
======================================================================== ======= ======
Gross rental income 272.9 225.5
Property operating expenses (52.2) (44.9)
========================================================================= ======= ======
Net rental income 220.7 180.6
Joint venture management fee income 24.3 18.6
Administration expenses (39.7) (31.4)
Share of joint ventures' Adjusted profit after
tax(1) 47.6 55.4
========================================================================= ======= ======
Adjusted operating profit before interest and
tax 252.9 223.2
Net finance costs (including adjustments) (58.7) (68.7)
========================================================================= ======= ======
Adjusted profit before tax 194.2 154.5
========================================================================= ======= ======
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from joint
ventures after tax(1) 60.5 29.7
Profit on sale of investment properties 17.0 16.4
Valuation surplus on investment properties 872.4 231.3
(Loss)/gain on sale of trading properties (0.4) 0.3
Increase in provision for impairment of trading
properties - (2.0)
Goodwill and other amounts written off on acquisitions and amortisation
of intangibles (0.6) (0.2)
Cost of early close out of bank debt (145.3) (1.0)
Net fair value loss on interest rate swaps and
other derivatives (21.5) (2.6)
========================================================================= ======= ======
Total adjustments 782.1 271.9
========================================================================= ======= ======
Profit before tax 976.3 426.4
========================================================================= ======= ======
Tax
On Adjusted profit (1.2) (1.8)
In respect of adjustments (18.8) (5.9)
========================================================================= ======= ======
(20.0) (7.7)
Profit after tax before non-controlling interests 956.3 418.7
========================================================================= ======= ======
Non-controlling interests:
Less: share of adjusted profit attributable
to non-controlling interests (0.2) (0.1)
: share of adjustments attributable to non-controlling
interests (3.4) (0.9)
========================================================================= ======= ======
Profit after tax and non-controlling interests 952.7 417.7
Of which:
Adjusted profit after tax 192.8 152.6
Total adjustments after tax and non-controlling
interests 759.9 265.1
========================================================================= ======= ======
Profit attributable to equity shareholders 952.7 417.7
========================================================================= ======= ======
1 A detailed breakdown of the adjustments to the share of profit
from joint ventures is included in Note 6.
3. SEGMENTAL ANALYSIS
The Group's reportable segments are the geographical Business
Units: Greater London, Thames Valley and National Logistics,
Northern Europe (principally Germany), Southern Europe (principally
France) and Central Europe (principally Poland), which are managed
and reported to the Board as separate and distinct Business
Units.
Share
of joint
Gross ventures' Total directly Investments
rental Net rental Adjusted Adjusted owned property in joint Capital
income income profit PBIT assets ventures expenditure(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======= ========== ========== ======== =============== =========== ===============
31 December 2017
=========================== ======= ========== ========== ========================= =========== ===============
Greater London 112.4 101.8 (1.8) 108.3 3,227.6 - 1,174.9
Thames Valley and National
Logistics 99.2 91.9 (0.1) 91.7 2,280.9 7.5 141.5
Northern Europe 24.8 15.4 21.5 40.6 409.2 474.0 55.6
Southern Europe 30.6 22.0 16.2 40.4 729.9 386.8 212.9
Central Europe 5.9 3.1 17.9 24.3 110.3 356.5 15.3
Other(1) - (13.5) (6.1) (52.4) - (432.8) 2.0
=========================== ======= ========== ========== ======== =============== =========== ===============
Total 272.9 220.7 47.6 252.9 6,757.9 792.0 1,602.2
=========================== ======= ========== ========== ======== =============== =========== ===============
31 December 2016
=========================== ======= ========== ========== ========================= =========== ===============
Share
of joint
Gross ventures' Total directly Investments
rental Net rental Adjusted Adjusted owned property in joint Capital
income income profit PBIT assets ventures expenditure(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======= ========== ========== ======== =============== =========== ===============
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 bonds held by SELP Finance SARL, a Luxembourg
entity.
2 Capital expenditure includes additions and acquisitions of
investment and trading properties but does not include tenant
incentives, letting fees and rental guarantees. This includes the
APP asset acquisition disclosed in Note 6. The "Other" category
includes non-property related spend, primarily IT.
Revenues from the most significant countries within the Group
were UK GBP229.6 million (2016: GBP185.8 million), France GBP29.8
million (2016: GBP30.4 million), Germany GBP27.0 million (2016:
GBP26.8 million) and Poland GBP12.0 million (2016: GBP10.9
million).
4. REVENUE
2017 2016
GBPm GBPm
========================================================= ===== =====
Rental income from investment properties 257.8 210.6
Rental income from trading properties 1.8 1.8
Rent averaging 11.8 11.8
Management fees 1.1 1.2
Surrender premiums 0.4 0.1
========================================================== ===== =====
Gross rental income 272.9 225.5
Joint venture fees - management fee 16.8 17.7
- performance and other fees 7.5 0.9
Service charge income 23.8 19.4
Proceeds from sale of trading properties 13.7 20.0
========================================================== ===== =====
Total revenue 334.7 283.5
========================================================== ===== =====
5. PROPERTY OPERATING EXPENSES
2017 2016
GBPm GBPm
=========================================== ===== =====
Vacant property costs 7.6 5.6
Letting, marketing, legal and professional
fees 8.4 7.9
Bad debt expense 0.9 0.2
Other expenses, net of service charge
income(1) 10.2 9.8
============================================ ===== =====
Property management expenses 27.1 23.5
Property administration expenses(2) 29.3 25.0
Costs capitalised(3) (4.2) (3.6)
============================================ ===== =====
Total property operating expenses 52.2 44.9
============================================ ===== =====
1 Total Other expenses were GBP34.0 million (2016: GBP29.2
million) and are presented net of service charge income of GBP23.8
million (2016: GBP19.4 million) in the table above.
2 Administration expenses predominantly relate to the employee
staff costs of personnel directly involved in managing the property
portfolio.
3 Costs capitalised relate to internal employee staff costs
directly involved in developing the property portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Profit from joint ventures after tax
The table below presents a summary Income Statement of the
Group's largest joint ventures, all of which are accounted for
using the equity method. Roxhill operates in the UK and develops
big box logistics assets and SELP is incorporated in Luxembourg and
owns logistics property assets in Continental Europe. The Group
holds 50 per cent of the share capital and voting rights in the
joint ventures.
On 9 March 2017 SEGRO acquired the remaining 50 per cent
interest in the Airport Property Partnership (APP) joint venture
property portfolio it did not already own for GBP365.0 million
(funded with a combination of GBP216 million of cash and the
disposal of GBP149 million of assets to the joint venture partner).
Consequently, the APP share of profit is only included in the table
below to 9 March 2017 (the date of acquisition) and no balance
sheet in respect of APP is included at 31 December 2017. This asset
acquisition transaction has primarily resulted in property
acquisitions of GBP1,112.6 million (see Note 12) and associated net
debt of GBP379.2 million being recognised.
SEGRO European Airport Property Roxhill
Logistics Partnership
Partnership
GBPm GBPm GBPm
At 100%
At 100% At 50% At 50%
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
====================================== ============== ================= ======== ======= ======= ======= ======
Gross rental income 138.5 8.9 - 147.4 165.5 73.7 82.7
Property operating expenses
-underlying property operating
expenses (5.9) (0.2) - (6.1) (5.7) (3.0) (2.8)
-vacant property costs (1.3) (0.6) - (1.9) (2.1) (0.9) (1.1)
-property management fees (12.5) (1.5) - (14.0) (16.8) (7.0) (8.4)
-performance and other fees - (8.5) - (8.5) (0.7) (4.3) (0.3)
====================================== ============== ================= ======== ======= ======= ======= ======
Net rental income 118.8 (1.9) - 116.9 140.2 58.5 70.1
Administration expenses (1.6) - (0.1) (1.7) (1.6) (0.9) (0.8)
Net finance costs (including
adjustments) (10.8) (1.6) - (12.4) (24.5) (6.2) (12.2)
====================================== ============== ================= ======== ======= ======= ======= ======
EPRA profit/(loss) before tax 106.4 (3.5) (0.1) 102.8 114.1 51.4 57.1
Tax (7.5) - - (7.5) (3.3) (3.8) (1.7)
-------------------------------------- -------------- ----------------- -------- ------- ------- ------- ------
Adjusted profit/(loss) after tax 98.9 (3.5) (0.1) 95.3 110.8 47.6 55.4
Adjustments:
Profit on sale of investment
properties 0.7 0.9 - 1.6 6.9 0.8 3.5
Valuation surplus on investment
properties 153.6 0.1 - 153.7 78.6 76.9 39.3
Cost of early close out of bank (3.7) - - (3.7) (13.6) (1.9) (6.8)
Net fair value loss interest rate
swaps and other derivatives - (6.2) - (6.2) (2.8) (3.1) (1.4)
Tax in respect of adjustments (24.4) - - (24.4) (9.8) (12.2) (4.9)
-------------------------------------- -------------- ----------------- -------- ------- ------- ------- ------
Total adjustments 126.2 (5.2) - 121.0 59.3 60.5 29.7
-------------------------------------- -------------- ----------------- -------- ------- ------- ------- ------
Profit/(loss) after tax 225.1 (8.7) (0.1) 216.3 170.1 108.1 85.1
Other comprehensive income/(loss) - 6.2 - 6.2 (4.2) 3.1 (2.1)
-------------------------------------- -------------- ----------------- -------- ------- ------- ------- ------
Total comprehensive income/(loss)
for the year 225.1 (2.5) (0.1) 222.5 165.9 111.2 83.0
-------------------------------------- -------------- ----------------- -------- ------- ------- ------- ------
6(ii) Summarised Balance Sheet information in respect of the
Group's joint ventures
SEGRO European Roxhill Other
Logistics
Partnership
GBPm GBPm GBPm
At 100%
At 100% At 50% At 50%
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
================================= ============== ======== ====== ========= ========= ======= =======
Investment properties(1) 2,556.8 3.6 - 2,560.4 3,210.0 1,280.2 1,605.0
Other interests in property - 16.1 - 16.1 13.3 8.1 6.6
Other assets - - - - 0.2 - 0.1
================================= ============== ======== ====== ========= ========= ======= =======
Total non-current assets 2,556.8 19.7 - 2,576.5 3,223.5 1,288.3 1,611.7
================================= ============== ======== ====== ========= ========= ======= =======
Trading properties - - 1.1 1.1 1.1 0.6 0.6
Other receivables 77.3 3.8 1.0 82.1 80.9 41.1 40.4
================================= ============== ======== ====== ========= ========= ======= =======
Cash and cash equivalents 39.9 - - 39.9 123.9 20.0 62.0
================================= ============== ======== ====== ========= ========= ======= =======
Total current assets 117.2 3.8 2.1 123.1 205.9 61.7 103.0
================================= ============== ======== ====== ========= ========= ======= =======
Total assets 2,674.0 23.5 2.1 2,699.6 3,429.4 1,350.0 1,714.7
================================= ============== ======== ====== ========= ========= ======= =======
Borrowings (926.9) - - (926.9) (1,109.1) (463.5) (554.6)
Deferred tax (104.2) - - (104.2) (76.0) (52.1) (38.0)
Other liabilities - (8.5) - (8.5) (5.3) (4.3) (2.6)
--------------------------------- -------------- -------- ------ --------- --------- ------- -------
Total non-current liabilities (1,031.1) (8.5) - (1,039.6) (1,190.4) (519.9) (595.2)
--------------------------------- -------------- -------- ------ --------- --------- ------- -------
Other liabilities (75.6) (0.5) - (76.1) (99.8) (38.1) (49.9)
Derivative financial instruments - - - - (6.9) - (3.4)
--------------------------------- -------------- -------- ------ --------- --------- ------- -------
Total current liabilities (75.6) (0.5) - (76.1) (106.7) (38.1) (53.3)
--------------------------------- -------------- -------- ------ --------- --------- ------- -------
Total liabilities (1,106.7) (9.0) - (1,115.7) (1,297.1) (558.0) (648.5)
--------------------------------- -------------- -------- ------ --------- --------- ------- -------
Net assets 1,567.3 14.5 2.1 1,583.9 2,132.3 792.0 1,066.2
--------------------------------- -------------- -------- ------ --------- --------- ------- -------
1 Investment properties held by SELP include assets held for
sale of GBP48.0 million (at 100%) at 31 December 2017 (2016:
GBPnil).
The external borrowings of the joint ventures are non-recourse
to the Group. At 31 December 2017, the fair value of GBP926.9
million (2016: GBP1,109.1 million) of borrowings was GBP938.6
million (2016: GBP1,108.6 million). This results in a fair value
adjustment decrease in net assets of GBP11.7 million (2016: GBP0.5
million increase), at share GBP5.9 million (2016: GBP0.2 million).
On 20 November 2017 SELP issued an eight year, EUR500.0 million
unsecured bond at an annual coupon of 1.50 per cent as discussed
further in the Finance Review.
In February 2016, SEGRO entered into an agreement with Roxhill
Development Group to develop a portfolio of big box logistics
assets in the UK through a series of joint ventures which are at
various stages of planning and development.
SEGRO provides certain services, including venture advisory and
asset management to the SELP joint venture and receives fees for
doing so. Performance fees may also be payable from SELP to SEGRO
based on its IRR subject to certain hurdle rates. The first
calculation and potential payment is on the fifth anniversary of
the inception of SELP, October 2018, but 50 per cent of this is
subject to clawback based on performance over the period to the
tenth anniversary, October 2023. If performance has improved at
this point, additional fees might be triggered.
Based on property values at 31 December 2017, the net profit
impact on the Group of the first calculation, taking account of the
gross fee due, the cost of the fee payable by SELP (at share) and
the clawback terms, is estimated to be around GBP7 million but
subject to change for transactions and market related performance
through the remainder of the measurement period.
6(iii) Investments by Group
2017 2016
GBPm GBPm
========================================== ======= =======
Cost or valuation at 1 January 1,066.2 867.3
Exchange movement 24.9 87.8
Acquisitions - 13.2
Additions 51.7 47.1
Disposals and net divestments(1) (435.4) (5.7)
Dividends received (26.6) (26.5)
Share of profit after tax 108.1 85.1
Items taken to other comprehensive income 3.1 (2.1)
=========================================== ======= =======
Cost or valuation at 31 December 792.0 1,066.2
=========================================== ======= =======
1 Net divestments represents the net movement of loans held with
joint ventures.
Dividends received were GBP26.6 million (2016: GBP26.5 million),
of which GBP19.6 million (2016: GBP9.6 million) was from SELP and
GBP7.0 million (2016: GBP16.9 million) was from APP.
7. REALISED AND UNREALISED PROPERTY GAIN
2017 2016
GBPm GBPm
================================================ ===== =====
Profit on sale of investment properties 17.0 16.4
Valuation surplus on investment properties 872.4 231.3
(Loss)/gain on sale of trading properties (0.4) 0.3
Increase in provision for impairment of trading
properties - (2.0)
================================================= ===== =====
Total realised and unrealised property gain 889.0 246.0
================================================= ===== =====
8. NET FINANCE COSTS
2017 2016
Finance income GBPm GBPm
====================================================== ======= =======
Interest received on bank deposits and related
derivatives 34.7 32.0
Fair value gain on interest rate swaps and other
derivatives 4.5 13.8
Net interest income on defined benefit obligations 1.3 0.9
Exchange differences 0.1 -
======================================================= ======= =======
Total finance income 40.6 46.7
======================================================= ======= =======
Finance costs
====================================================== ======= =======
Interest on overdrafts, loans and related derivatives (98.8) (103.4)
Cost of early close out of debt (145.3) (1.0)
Amortisation of issue costs (2.6) (2.9)
======================================================= ======= =======
Total borrowing costs (246.7) (107.3)
Less amount capitalised on the development of
properties 6.6 5.0
======================================================= ======= =======
Net borrowing costs (240.1) (102.3)
Fair value loss on interest rate swaps and other
derivatives (26.0) (16.4)
Exchange differences - (0.3)
======================================================= ======= =======
Total finance costs (266.1) (119.0)
======================================================= ======= =======
Net finance costs (225.5) (72.3)
======================================================= ======= =======
Net finance costs (including adjustments) in Adjusted profit
(Note 2) are GBP58.7 million (2016: GBP68.7 million). This excludes
net fair value gains and losses on interest rate swaps and other
derivatives of GBP21.5 million loss (2016: GBP2.6 million loss) and
the cost of early close out of debt of GBP145.3 million (2016:
GBP1.0 million).
The early close out of debt arose as part of the debt
refinancing exercise which took place during the year and is
discussed in more detail in the Finance Review. This primarily
arises in respect of premium paid, and to a lesser extent reduced
fees and the acceleration of unamortised costs, in September 2017
to close out of GBP550 million sterling bonds, which totalled
GBP133.1 million. The balance relates to similar costs incurred in
repaying the GBP200 million 2018 bond in May 2017 and the cost to
early repay a term loan in July 2017.
The interest capitalisation rates for 2017 ranged from 3.0 per
cent to 4.0 per cent (2016: 4.0 per cent to 5.3 per cent). Interest
is capitalised gross of tax relief.
9. TAX
9(i) Tax on profit
2017 2016
GBPm GBPm
======================================================= ====== =====
Tax on:
On Adjusted profit (1.2) (1.8)
In respect of adjustments (18.8) (5.9)
======================================================== ====== =====
Total tax charge (20.0) (7.7)
======================================================== ====== =====
Current tax
United Kingdom
Current tax charge - (1.7)
======================================================== ====== =====
Total UK tax charge - (1.7)
======================================================== ====== =====
Overseas
======================================================= ====== =====
Current tax charge (1.9) (3.9)
======================================================== ====== =====
Adjustments in respect of earlier years - 0.1
======================================================== ====== =====
(1.9) (3.8)
======================================================= ====== =====
Total current tax charge (1.9) (5.5)
======================================================== ====== =====
Deferred tax
Origination and reversal of temporary differences (1.3) (1.1)
Released in respect of property disposals in the
year 1.0 4.8
On valuation movements (18.1) (5.1)
======================================================== ====== =====
Total deferred tax in respect of investment properties (18.4) (1.4)
Other deferred tax 0.3 (0.8)
======================================================== ====== =====
Total deferred tax charge (18.1) (2.2)
======================================================== ====== =====
Total tax charge on profit on ordinary activities (20.0) (7.7)
======================================================== ====== =====
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance Balance
1 January Exchange Acquisitions/ Recognised 31 December
2017 movement (disposals) in income 2017
GBPm GBPm GBPm GBPm GBPm
================================= ========== ========= ============= ========== ============
Valuation surpluses and deficits
on properties 8.2 0.7 (0.7) 17.4 25.6
Accelerated tax allowances 6.1 0.3 (0.3) 1.3 7.4
Deferred tax asset on revenue
losses (0.3) - - (0.9) (1.2)
Others 2.3 0.2 - 0.3 2.8
================================== ========== ========= ============= ========== ============
Total deferred tax liabilities 16.3 1.2 (1.0) 18.1 34.6
================================== ========== ========= ============= ========== ============
10. DIVIDS
2017 2016
GBPm GBPm
========================================== ===== =====
Ordinary dividends paid
Interim dividend for 2017 @ 5.25 pence
per share 52.7 -
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
=========================================== ===== =====
Total dividends 145.7 118.5
=========================================== ===== =====
1 As adjusted by a bonus adjustment factor, see Note 11.
The Board recommends a final dividend for 2017 of 11.35 pence
which is estimated to result in a distribution of up to GBP113.8
million. The total dividend paid and proposed per share in respect
of the year ended 31 December 2017 is 16.6 pence (2016: 15.7
pence).
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average
number of shares in issue during the year and the net assets per
share calculations use the number of shares in issue at year end.
Earnings per share calculations exclude 1.2 million shares (2016:
1.5 million) being the average number of shares held on trust for
employee share schemes and net assets per share calculations
exclude 0.9 million shares (2016: 1.4 million) being the actual
number of shares held on trust for employee share schemes at year
end.
11(i) Earnings per ordinary share (EPS)
2017 2016
=============================== ====================================
Earnings Shares Pence Earnings Shares Pence
GBPm million per share GBPm million(3) per share(3)
=========================== === === === ======== ======== ========== ======== =========== =============
Basic EPS 952.7 967.3 98.5 417.7 809.9 51.6
Dilution adjustments:
Shard and save as you
earn schemes - 5.5 (0.6) - 4.6 (0.3)
========================================== ======== ======== ========== ======== =========== =============
Diluted EPS 952.7 972.8 97.9 417.7 814.5 51.3
========================================== ======== ======== ========== ======== =========== =============
Basic EPS 952.7 967.3 98.5 417.7 809.9 51.6
Adjustments to profit
before tax(1) (782.1) (80.9) (271.9) (33.6)
Deferred tax on investment
property which does not
crystallise unless sold 18.5 1.9 1.4 0.2
Other tax 0.3 - 4.5 0.5
Non-controlling interest
on adjustments 3.4 0.4 0.9 0.1
========================================== ======== ======== ========== ======== =========== =============
Adjusted EPS(2) 192.8 967.3 19.9 152.6 809.9 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. 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 year ended 31
December 2016 was 53.9 pence (basic), 53.6 pence (diluted) and 19.7
pence (adjusted).
11(ii) Net asset value per share (NAV)
2017 2016
==================================== ============================================
Equity
attributable Equity attributable
to ordinary to ordinary
shareholders Shares Pence shareholders Shares Pence
GBPm million per share GBPm million per share(1)
============================ ============= ======== =========== =================== ======== =============
Basic NAV 5,585.4 1,002.0 557 4,182.1 866.8 482
Dilution adjustments:
Share and save as you earn
schemes - 5.7 (3) - 4.7 (2)
============================ ============= ======== =========== =================== ======== =============
Diluted NAV 5,585.4 1,007.7 554 4,182.1 871.5 480
Fair value adjustment in
respect
of interest rate
derivatives -
Group (60.7) (6) (76.5) (9)
Fair value adjustment in
respect
of interest rate
derivatives -
Joint ventures - - 3.4 -
Deferred tax in respect of
depreciation
and valuation surpluses -
Group 30.7 3 14.3 2
Deferred tax in respect of
depreciation
and valuation surpluses -
Joint
ventures 52.3 5 38.8 5
============================ ============= ======== =========== =================== ======== =============
EPRA NAV 5,607.7 1,007.7 556 4,162.1 871.5 478
============================ ============= ======== =========== =================== ======== =============
Fair value adjustment in
respect
of debt - Group (163.5) (16) (359.7) (41)
Fair value adjustment in
respect
of debt - Joint ventures (5.9) (1) 0.2 -
Fair value adjustment in
respect
of interest rate swap
derivatives
- Group 60.7 6 76.5 9
Fair value adjustment in
respect
of interest rate swap
derivatives
- Joint ventures - - (3.4) -
Deferred tax in respect of
depreciation
and valuation surpluses -
Group (30.7) (3) (14.3) (2)
Deferred tax in respect of
depreciation
and valuation surpluses -
Joint
ventures (52.3) (5) (38.8) (5)
============================ ============= ======== =========== =================== ======== =============
EPRA triple net NAV (NNNAV) 5,416.0 1,007.7 537 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.
There were no fair value adjustment in respect of trading
properties for the Group or joint ventures in 2017 and 2016.
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
for the year ended 31 December 2016 have been amended in the table
above by a bonus adjustment factor of 1.046. Prior to this
re-presentation, the NAV for the year ended 31 December 2016 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 25.3 10.1 35.4
Property acquisitions 1,130.0 82.2 1,212.2
Additions to existing investment properties 19.7 367.8 387.5
Disposals (393.5) (86.3) (479.8)
Transfers on completion of development 306.2 (306.2) -
Revaluation surplus during the period 759.2 113.2 872.4
===================================================== ========= =========== =======
At 31 December 2017 5,892.1 778.5 6,670.6
Add tenant lease incentives, letting fees and rental
guarantees 74.8 - 74.8
Total investment properties 5,966.9 778.5 6,745.4
===================================================== ========= =========== =======
Investment properties are stated at fair value as at 31 December
2017 based on external valuations performed by professionally
qualified valuers. The Group's wholly-owned and joint venture
property portfolio is valued by CBRE Ltd on a half yearly basis.
The valuations conform to International Valuation Standards and
were arrived at by reference to market evidence of the transaction
prices paid for similar properties. In estimating the fair value of
the properties, the valuers consider the highest and best use of
the properties. There has been no change to the valuation technique
during the year.
Fees payable to CBRE Ltd for the valuation of the Group's wholly
owned properties are based on a fixed percentage of the property
portfolio's valuation. CBRE Ltd also undertakes 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. The firm
advises us that the total fees paid by the Group represent less
than 5 per cent of its total revenue in any year.
Completed properties include buildings that are occupied or are
available for occupation. Development properties include land
available for development (land bank), land under development and
construction in progress. Property acquisitions include GBP1,112.6
million in respect of the APP property portfolio acquisition,
discussed further in Note 6. The purchase of the APP property
portfolio and associated net assets has been accounted for as an
asset acquisition, on the basis that the acquisition only resulted
in the transfer of ownership of property and related net assets, no
employees were being acquired or inherited as part of the
transaction and the acquired assets cannot operate independently
from the rest of the SEGRO Group.
No trading properties were transferred to investment properties
during 2017 (2016: GBPnil).
Long-term leasehold values within investment properties amount
to GBP60.8 million (2016: GBP34.1 million). All other properties
are freehold.
12(ii) Trading properties
Completed Development Total
GBPm GBPm GBPm
===================================================== ========= =========== ======
At 1 January 2017 15.1 9.9 25.0
Exchange movement 0.3 0.4 0.7
Additions - 0.5 0.5
Disposals (11.7) (2.0) (13.7)
Increase in provision for impairment in the year - - -
===================================================== ========= =========== ======
At 31 December 2017 3.7 8.8 12.5
===================================================== ========= =========== ======
Add tenant lease incentives, letting fees and rental
guarantees - - -
Total trading properties 3.7 8.8 12.5
===================================================== ========= =========== ======
Trading properties were externally valued, as detailed in Note
12(i), resulting in an increase in the provision for impairment of
GBPnil million (2016: GBP2.0 million). Based on the fair value at
31 December 2017, the portfolio has no unrecognised surplus (2016:
GBPnil).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
2017 2016
GBPm GBPm
======================================================== ======= =======
In one year or less - -
======================================================== ======= =======
In more than one year but less than two 104.6 199.6
In more than two years but less than five 364.5 860.6
In more than five years but less than ten 434.8 371.9
In more than ten years 1,159.6 198.3
======================================================== ======= =======
In more than one year 2,063.5 1,630.4
======================================================== ======= =======
Total borrowings 2,063.5 1,630.4
======================================================== ======= =======
Cash and cash equivalents (109.3) (32.0)
======================================================== ======= =======
Net borrowings 1,954.2 1,598.4
======================================================== ======= =======
Total borrowings is split between secured and unsecured
as follows:
Secured (on land and buildings) 3.6 3.9
Unsecured 2,059.9 1,626.5
======================================================== ======= =======
Total borrowings 2,063.5 1,630.4
======================================================== ======= =======
Currency profile of total borrowings after derivative
instruments
Sterling 755.3 562.4
Euros 1,312.9 1,083.3
US dollars (4.7) (15.3)
======================================================== ======= =======
Total borrowings 638.4 1,630.4
======================================================== ======= =======
Maturity profile of undrawn borrowing facilities
In one year or less 5.0 5.0
In more than one year but less than two - -
In more than two years 1,077.9 529.9
======================================================== ======= =======
Total available undrawn facilities 1,082.9 534.9
======================================================== ======= =======
Fair value of financial instruments
Book value of debt 2,063.5 1,630.4
Interest rate derivatives (60.7) (76.5)
Foreign exchange derivatives 1.4 9.6
======================================================== ======= =======
Book value of debt including derivatives 2,004.2 1,563.5
Net fair market value 2,167.7 1,923.2
======================================================== ======= =======
Mark to market adjustment (pre-tax) 163.5 359.7
======================================================== ======= =======
During the year the Group undertook a debt refinancing exercise
including issuing EUR650 million of US Private Placement notes and
GBP750 million of long dated sterling bonds and repurchasing GBP550
million of shorter dated sterling bonds all stated at face value.
The debt refinancing is discussed in more detail in the Finance
Review.
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 - 2017 Rights Issue 166.0 16.6
Issue of shares - scrip dividend 5.5 0.6
Issue of shares - other 1.3 0.1
=================================================== ========== ==========
Ordinary shares of 10p each at 31 December 2017 1,002.9 100.3
=================================================== ========== ==========
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.
15. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
15(i) Reconciliation of cash generated from operations
2017 2016
GBPm GBPm
========================================================= ======= ============================
Operating profit 1,201.8 498.7
Adjustments for:
Depreciation of property, plant and equipment 1.9 3.1
Share of profit from joint ventures after tax (108.1) (85.1)
Profit on sale of investment properties (17.0) (16.4)
Goodwill and other amounts written off on acquisitions
and amortisation of intangibles 0.6 0.2
Revaluation surplus on investment properties (872.4) (231.3)
Pension past service credit and settlement costs - (2.3)
Pensions and other provisions 2.1 (1.2)
========================================================= ======= ============================
208.9 165.7
Changes in working capital:
Decrease in trading properties 13.6 17.6
Increase in debtors and tenant incentives (16.5) (31.2)
(Decrease)/Increase in creditors (16.1) 4.6
========================================================= ======= ============================
Net cash inflow generated from operations 189.9 156.7
========================================================= ======= ============================
15(ii) Analysis of net debt
Cash movements Non-cash adjustments
----------------------- ---------------------------------------------------
Cost
of
Cash Cash Interest early
inflow(3) outflow(4) accretion close
At 1 GBPm GBPm GBPm Fair out Other At 31
January Exchange value of non-cash December
2017 Acquired(2) movement changes debt Adjustment(1) 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============ ======= =========== ========== =========== ======== ========== ======= ===== ============= ========
Bank loans
and loan
capital 1,642.8 390.4 1,342.1 (1,414.9) (19.4) - - 140.4 - 2,081.4
Capitalised
finance
costs (12.4) - - (13.0) - - - 4.9 2.6 (17.9)
============ ======= =========== ========== =========== ======== ========== ======= ===== ============= ========
Total
borrowings 1,630.4 390.4 1,342.1 (1,427.9) (19.4) - - 145.3 2.6 2,063.5
Cash in hand
and at
bank(5) (32.0) (11.2) (66.4) - 0.3 - - - - (109.3)
============ ======= =========== ========== =========== ======== ========== ======= ===== ============= ========
Net debt 1,598.4 379.2 1,275.7 (1,427.9) (19.1) - - 145.3 2.6 1,954.2
============ ======= =========== ========== =========== ======== ========== ======= ===== ============= ========
1 The other non-cash adjustment relates to the amortisation of
issue costs. See Note 8.
2 Acquired represents cash and debt assumed from the APP
property transaction as detailed further in Note 6.
3 Proceeds from borrowings of GBP1,342.1 million.
4 Group cash outflow of GBP1,414.9 million, comprises the
repayment of borrowings of 1,274.5 million and cash settlement for
early repayment of debt of GBP140.4 million.
5 Total increase in cash and cash equivalents for the Group of
GBP77.3 million as detailed in the cash flow statement comprises an
increase in cash of 66.1 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
information.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
2017 2016
------------------------ ------------------------
GBPm Pence per share GBPm Pence per share
-------------------------------------------------------- ------- --------------- ------- ---------------
EPRA Earnings 192.8 19.9 152.6 18.8
EPRA NAV 5,607.7 556 4,162.1 478
EPRA NNNAV 5,416.0 537 3,822.6 439
EPRA net initial yield 4.3% 4.8%
EPRA 'topped up' net initial yield 4.8% 5.3%
EPRA vacancy rate 4.0% 5.7%
Total EPRA cost ratio (including vacant property costs) 24.6% 23.0%
Total EPRA cost ratio (excluding vacant property costs) 22.1% 20.8%
--------------------------------------------------------- ------- --------------- ------- ---------------
TABLE 2: INCOME STATEMENT, PROPORTIONAL CONSOLIDATION
2017 2016
====================== ================================
Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm(1)
============================================== ===== ====== ====== ====== ============== ====== ========
Gross rental income 2, 6 272.9 73.7 346.6 225.5 82.7 308.2
Property operating expenses 2, 6 (52.2) (3.9) (56.1) (44.9) (3.9) (48.8)
============================================== ===== ====== ====== ====== ============== ====== ========
Net rental income 220.7 69.8 290.5 180.6 78.8 259.4
Joint venture management fee income(2) 2 24.3 (11.3) 13.0 18.6 (8.7) 9.9
Administration expenses (39.7) (0.9) (40.6) (31.4) (0.8) (32.2)
============================================== ===== ====== ====== ====== ============== ====== ========
Operating profit before interest and tax 205.3 57.6 262.9 167.8 69.3 237.1
Net finance costs (including adjustments) 2, 6 (58.7) (6.2) (64.9) (68.7) (12.2) (80.9)
============================================== ===== ====== ====== ====== ============== ====== ========
Profit before tax 146.6 51.4 198.0 99.1 57.1 156.2
Tax on EPRA earnings 2, 6 (1.2) (3.8) (5.0) (1.8) (1.7) (3.5)
============================================== ===== ====== ====== ====== -------------- ------ --------
EPRA earnings 145.4 47.6 193.0 97.3 55.4 152.7
============================================== ===== ====== ====== ====== -------------- ------ --------
Less: non-controlling interest on EPRA profit (0.2) - (0.2) (0.1) - (0.1)
============================================== ===== ====== ====== ====== -------------- ------ --------
EPRA earnings after non-controlling interests 145.2 47.6 192.8 97.2 55.4 152.6
Number of shares, million 967.3 809.9
EPRA EPS, pence per share - basic 19.9 18.8
Number of shares 972.8 814.5
EPRA EPS, pence per share - diluted 19.8 18.7
---------------------------------------------- ----- ------ ------ ------ -------------- ------ --------
1 Prior to the re-presentation in Note 11(i) the number of
shares million for 31 December 2016 was 774.3 and 778.7 (diluted).
The EPS was 19.7 (basic) and 19.6 (diluted).
2 Joint venture management fee income includes the cost of such
fees borne by the joint ventures which are shown in Note 6 within
net rental income.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
2017 2016
Group JV Total Group JV Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm(2)
------------------------------ ----- --------- ------- --------- --------- --------- ---------
Investment properties 12, 6 6,745.4 1,280.2 8,025.6 4,714.4 1,605.0 6,319.4
Trading properties 12, 6 12.5 0.6 13.1 25.4 0.6 26.0
------------------------------ ----- --------- ------- --------- --------- --------- ---------
Total properties 6,757.9 1,280.8 8,038.7 4,739.8 1,605.6 6,345.4
Investment in joint ventures 6 792.0 (792.0) - 1,066.2 (1,066.2) -
Other net liabilities (10.3) (45.3) (55.6) (25.5) (46.8) (72.3)
Net borrowings 13, 6 (1,954.2) (443.5) (2,397.7) (1,598.4) (492.6) (2,091.0)
------------------------------ ----- --------- ------- --------- --------- --------- ---------
Total shareholders' equity(1) 5,585.4 - 5,585.4 4,182.1 - 4,182.1
EPRA adjustments 11 22.3 (20.0)
------------------------------ ----- --------- ------- --------- --------- --------- ---------
EPRA NAV 5,607.7 4,162.1
Number of shares, million 1,007.7 871.5
------------------------------ ----- --------- ------- --------- --------- --------- ---------
EPRA NAV, pence per share 556 478
------------------------------ ----- --------- ------- --------- --------- --------- ---------
1 After non-controlling interests.
2. Prior to the re-presentation in Note 11(i) the shares million
for 31 December 2016 was 833.2 and the EPRA NAV was 500.
Note: Loan to value of 29.8 per cent is calculated as net
borrowings of 2,397.7 million divided by total properties 8,038.7
million (2016: 33 per cent; 2,091.0 million net borrowings; 6,345.4
million total properties).
TABLE 4: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Combined property portfolio including joint UK Continental Total
ventures at share - 2017 Notes GBPm Europe GBPm GBPm
================================================== ======= ======= ============ =======
Table
Total properties 3 5,510.3 2,528.4 8,038.7
Add valuation surplus not recognised on trading
properties(1) -- -
================================================== ======= ======= =========== =======
Combined property portfolio per external valuers'
report 5,510.3 2,528.4 8,038.7
Less development properties (investment, trading
and joint venture) (451.6) (426.7) (878.3)
=========================================================== ======= ============ =======
Net valuation of completed properties 5,058.7 2,101.7 7,160.4
Add notional purchasers' costs 340.9 99.8 440.7
=========================================================== ======= ============ =======
Gross valuation of completed properties including
notional purchasers' costs A 5,399.6 2,201.5 7,601.1
================================================== ======= ======= ============ =======
Income
================================================== ======= ======= ============ =======
Gross passing rents(2) 213.1 122.5 335.6
Less irrecoverable property costs (3.0) (5.4) (8.4)
=========================================================== ======= ============ =======
Net passing rents B 210.1 117.1 327.2
Adjustment for notional rent in respect of
rent frees 18.3 16.3 34.6
=========================================================== ======= ============ =======
Topped up net rent C 228.4 133.4 361.8
Including fixed/minimum uplifts(4) 9.0 1.1 10.1
=========================================================== ======= ============ =======
Total topped up net rent 237.4 134.5 371.9
=========================================================== ======= ============ =======
Yields - 2017 %% %
-------------------------------------------------- ------- ------- ----------- -------
EPRA net initial yield(3) B/A 3.9 5.3 4.3
EPRA topped up net initial yield(3) C/A 4.2 6.1 4.8
Net true equivalent yield 5.0 6.0 5.3
=========================================================== ======= ============ =======
1 Trading properties are recorded in the condensed financial
information at the lower of cost and net realisable value,
therefore valuations above cost have not been recognised.
2 Gross passing rent excludes short-term lettings and
licences.
3 In accordance with the Best Practices Recommendations of
EPRA.
4 Certain leases contain clauses which guarantee future rental
increases, whereas most leases contain five yearly, upwards only
rent review clauses (UK) or indexation clauses (CE).
TABLE 5: EPRA VACANCY RATE
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
Annualised potential rental value of vacant
premises 16.0 20.3
Annualised potential rental value for the
completed property portfolio 401.2 354.0
--------------------------------------------- ----- -----
EPRA vacancy rate 4.0% 5.7%
--------------------------------------------- ----- -----
TABLE: 6 EPRA COST RATIO/TOTAL COST RATIO
2017 2016
Notes GBPm GBPm
------------------------------------------------------------- ----- ------ ------
Costs
Property operating expenses(1) 5 52.2 44.9
Administration expenses 39.7 31.4
Share of joint venture property operating and administration
expenses(2) 6 11.8 13.1
Less:
Joint venture property management income fee and management
fees(3) (19.1) (18.9)
------------------------------------------------------------- ----- ------ ------
Total costs (A) 84.6 70.5
Group vacant property costs 5 (7.6) (5.6)
Share of joint venture vacant property costs 6 (0.9) (1.1)
------------------------------------------------------------- ----- ------ ------
Total costs excluding vacant property costs (B) 76.1 63.8
Gross rental income
Gross rental income 272.9 225.5
Share of joint venture property gross rental income 73.7 82.7
Less:
Management fees(3) (2.3) (1.2)
------------------------------------------------------------- ----- ------ ------
Total gross rental income (C) 344.3 307.0
------------------------------------------------------------- ----- ------ ------
%%
============================================================= ===== ====== =====
Total EPRA cost ratio (including vacant property costs)
(A)/(C) 24.6 23.0
============================================================= ===== ====== ======
Total EPRA cost ratio (excluding vacant property costs)
(B)/(C) 22.1 20.8
============================================================= ===== ====== ======
Total costs (A) 84.6 70.5
Share based payments (10.0) (6.1)
------------------------------------------------------------- ----- ------ ------
Total costs after share based payments (D) 74.6 64.4
Total gross rental income (C) 344.3 307.0
------------------------------------------------------------- ----- ------ ------
Total cost ratio after share based payments (D)/(C) 21.7% 21.0%
------------------------------------------------------------- ----- ------ ------
1 Property operating expenses are net of costs capitalised in
accordance with IFRS of 4.2 million (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 management fees income of GBP16.8
million (2016: GBP17.7 million) and management fees, including
joint ventures, of GBP2.3 million (2016: GBP1.2 million) which have
been represented as an offset against costs rather than a component
of income in accordance with EPRA BPR Guidelines as they are
reimbursing the Group for costs incurred.
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 development projects 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
FR FKPDNFBKDFBD
(END) Dow Jones Newswires
February 16, 2018 02:00 ET (07:00 GMT)
Segro (LSE:SGRO)
Historical Stock Chart
From Mar 2024 to Apr 2024
Segro (LSE:SGRO)
Historical Stock Chart
From Apr 2023 to Apr 2024
