Segro confident on robust rent roll growth

Segro reported robust rent roll growth for the year to date in a trading update on Wednesday, as well as a promising outlook on the back of its active asset management.

The FTSE 100 company said it had made substantial progress in its disposals in the period ended 17 October, with transactions exceeding £250m and surpassing book values.

It said it remained focussed on identifying and prioritising profitable development opportunities, anticipating potential rent of £77m from projects either currently underway or expected to commence shortly, with a projected yield on cost of 7.3%.

Customer retention rates remained high, with occupancy levels consistently meeting the target range of 94% to 96%.

Total headline rent signed for the period amounted to £58m, while pre-lets reached £23m, with uplift on rent reviews and renewals contributing an additional £22m.

Segro said it had realised £251m in sales year-to-date, with attributable rental income amounting to £8m annually.

Development capex for 2023, including infrastructure, was now projected to exceed £500m, with the remaining capex expected in 2024.

The company said development capex for the first nine months of 2022 was £381m, while acquisitions reached £397m and disposals completed or exchanged totalled £251m.

Segro said its active and largely pre-let development programme continued to drive rent roll growth and attractive capital returns.

Development completions for the period reached 432,800 square feet, and the current development pipeline represented a potential rent of £68m, while the near-term pipeline accounted for £9m.

On the financial front, the firm said that with substantial liquidity, stable leverage, and 89% of debt fixed or capped, it faced no material near-term refinancing requirements and an average debt maturity of 7.2 years.

Net debt stood at £6.2bn, the cost of debt at 3%, and the loan-to-value (LTV) ratio at 34%.

“Segro’s prime portfolio and market-leading operating platform generated £58m of new contracted rent so far in 2023, keeping us on track for a strong year of rent roll growth,” said chief executive officer David Sleath.

“Occupier market conditions remain supportive with demand in line with longer-term trends and supply constrained in our chosen sub-markets.

“This is resulting in continued rental growth, further increasing the reversionary potential in our existing portfolio, which we are capturing through our asset management and leasing activity.”

Sleath said the firm had made good progress with disposals in recent months, although the overall volume of investment market transactions remained subdued due to an evolving macroeconomic environment.

“Reassuringly, investors continue to hold conviction over the attractiveness of the sector, with market evidence from indices and recent transactions pointing to relatively stable asset values in the third quarter.

“In the current environment, it is important to remain disciplined in our use of capital.

“We are prioritising attractive development opportunities on the land we already own, increasingly funding such investment from the proceeds of selective disposals, alongside driving performance and income growth from our existing portfolio of high-quality assets.”

Reporting by Josh White for Sharecast.com.