Segro reports continued rental growth in its first half

The FTSE 250 company highlighted attractive occupier market conditions and strategic focus on supply-constrained European urban and big box markets, driving income and earnings growth.

It said valuations had stabilised, with the UK experiencing its first increase since the market cycle turned in 2022.

Segro said it signed £48m in new headline rent commitments in the six month period, up from £44m in the same period last year, including £17m in new pre-let agreements.

The firm said it achieved a 28% average uplift in rent reviews and renewals, reflecting strong embedded reversion within its portfolio.

Net rental income increased 7% to £306m, driven by 5.3% like-for-like rental growth and development completions.

The company reported an adjusted pre-tax profit of £227m, a 14.6% increase from the prior year's £198m.

Adjusted earnings per share (EPS) rose 6.9% to 17p.

Valuations remained flat overall, with positive performance in the UK offset by a slight decline in continental Europe due to modest outward yield shift.

Adjusted net asset value (NAV) per share decreased 1.8% to 891p, primarily due to the impact of an equity placing.

Segro said it invested £401m in capital, comprising development capex and acquisitions, while completing £251m in disposals ahead of previous book values.

Development completions added £27m in potential new headline rent, delivered at a 7% yield on cost, with 78% of those spaces leased and 96% expected to achieve BREEAM ‘Excellent’ certification or higher.

The company said it had a further £49 million in potential rent from development projects under construction or in advanced negotiations, with 65% expected to be pre-let and an anticipated yield on cost of 7.7%.

Segro said its balance sheet, bolstered by a £907m equity placing, positioned it well for further growth.

Its loan-to-value ratio improved to 30%, and net debt-to-EBITDA decreased to 8.5 times, with access to £2.1bn in cash and undrawn committed bank facilities.

Segro said its cost of debt remained attractive, with an average cost of 2.7% and no major debt maturities until 2026.

The interim dividend was increased by 4.6% to 9.1p, up from 8.7p in 2023, reflecting the company's strong performance and confidence in its growth prospects.

“Segro has continued to perform well during the first half of 2024, signing £48m of new rent,” said chief executive officer David Sleath.

“The balance of supply and demand for modern warehouse space remains supportive of further rental growth and development gains in the attractive European markets in which our portfolio is concentrated.

“Valuations have stabilised with the UK seeing its first increase since the cycle turned in 2022.”

Sleath said the strength of the company’s local networks and balance sheet had enabled it to “selectively” invest in profitable new opportunities, putting to work some of the capital raised in February.

“In a sector that continues to benefit from long-term, attractive structural drivers, Segro is well-placed for further growth through a combination of active asset management of our irreplaceable, prime portfolio of existing assets and our profitable development programme, which includes a sizable data centre pipeline.

“These factors, together with the competitive advantage of our market-leading operating platform, give us confidence that we will continue to deliver attractive and compounding increases in both earnings and dividends.”

At 1010 BST, shares in Segro were down 2.54% at 884.2p.

Reporting by Josh White for Sharecast.com.