Segro raises dividend after solid first half

Property investor and developer Segro described a solid first-half performance in its interim results on Thursday, with adjusted pre-tax profit reaching £198m, up 2.6% year-on-year.

The FTSE 100 company said adjusted earnings per share also showed growth, rising 1.9% to 15.9p.

It achieved a positive financial performance despite recording a 3% decline in its adjusted net asset value per share, to 937p.

That decrease was put down to a 1.4% dip in the valuation of the portfolio, with the UK portfolio experiencing a 0.6% decline and the central Europe (CE) portfolio seeing a 2.7% decrease.

However, that was partly offset by 3.7% growth in estimated rental values during the first half of the year.

Segro reported 5.1% like-for-like rental growth and new headline rent commitments amounting to £44m during the six months ended 30 June.

While that was lower than the prior year's £55m, the firm said it remained optimistic about its rental growth prospects.

Over the course of the first half, Segro completed 340,900 square metres of development, representing £28m in potential rent, with 83% of that space already leased.

Looking ahead, Segro said it had 740,800 square metres of projects either under construction or in advanced pre-let negotiations, equating to £76m of potential rent.

That did represent a slight reduction from the figures reported at the end of 2022, but the board said 70% of the upcoming projects were already associated with pre-let agreements or in advanced discussions, significantly reducing risks in the 2023-2024 pipeline.

The yield on cost for the projects stood at 7.2%.

Segro added that its balance sheet remained strong, boasting a modest level of gearing and substantial liquidity.

At period-end on 30 June, its loan-to-value ratio was 34% - a slight increase from 32% at the end of 2022 - and the company had access to £1.7bn of cash and committed bank facilities.

The board said the company’s diverse, long-term debt structure had resulted in an attractive cost of debt, with no major debt maturities until 2026.

Moreover, 91% of its debt was either fixed or capped, with half of the caps active until 2029.

The firm’s average cost of debt at the end of the first half stood at 2.9%, compared to 2.5% at the end of 2022.

Segro announced a 7.4% increase in its interim dividend to 8.7p per share, up from 8.1p at the same point in 2022.

“Segro has performed well during the first six months of 2023, delivering rental growth from our standing portfolio and from our largely pre-let development programme,” said chief executive officer David Sleath.

“We have made great progress in capturing reversion, delivering an average rental uplift of 20% at lease events during the period in addition to contracted indexation, whilst customer retention has increased significantly to 85%.

“The structural drivers of occupier demand remain evident across the UK and Europe, whilst supply remains constrained in our chosen markets, helping to drive rental growth in line with our expectations.”

Sleath said valuations had been relatively stable in the first half, following the deep valuation correction in the latter part of 2022.

“The increased volume of transactions in the last quarter indicates that investors see value at the current levels of pricing for prime industrial and logistics assets, given the positive long-term outlook for our sector.

“We have significant opportunities to drive rent and create value both within our standing portfolio and through the execution of our profitable development programme.

“These factors give us confidence in our ability to deliver attractive growth and returns into the years ahead.”

Reporting by Josh White for Sharecast.com.