Segro will still pay dividend as it faces Covid-19 crisis

The FTSE 100 property investment and development company reported cash and undrawn facilities of £1.2bn at the end of March, with £280m of capital commitments.

Average debt maturity was just under 10 years, the board said, with no major maturities due to fall before 2023.

It said rental income would need to fall by 80%, or asset values by 64% before any debt covenants were breached, and confirmed it would go ahead with payment of the final dividend of 14.4p per share on 1 May.

Looking at its trading, Segro said the early part of 2020, prior to onset of the pandemic, was “encouraging”, with rent roll growth tracking ahead of its expectations due to new lettings and pre-lets.

It described its customer base as “highly diverse”, with many of them involved in the supply of critical goods and services to businesses and consumers, and some said to be looking for additional space both for immediate occupation, and to prepare for longer term growth once the crisis is over.

Segro said there were, however, some businesses which were fundamentally sound, but which were suffering short term cash flow issues.

The company said it was working, on a case-by-case basis, with customers across the group, representing about a quarter of its total headline rent regarding appropriate relief, primarily through reprofiling the timing of rental payments.

Approximately half of the firm’s headline rental income was payable on the UK quarterly payment days, with rents in continental Europe payable on a different timetable.

For the most recent quarterly payment date, being 25 March, 71% of the rent due had been paid, with around 25% subject to reprofiling discussions.

At the equivalent stage last year, 96% of the rent had been paid.

The board said the delivery of most development projects scheduled for completion during 2020 would be delayed due to government measures taken to combat the virus, as well as constraints in securing materials and labour for the construction sites.

Segro said it was “inevitable” that there would be some negative effects on earnings in the short term, adding that it was currently not possible to quantify that as it remained dependent on the evolution of the pandemic, the duration and extent of the measures put in place to combat it, and the nature, extent and effectiveness of government support to the sectors of the economy most affected.

The company said it remained committed to supporting its local communities, health services and other stakeholders across the UK and Europe, noting that it had already provided rent-free space to a number of food bank charities.

It said it was working with local authorities to help establish community hubs on some of its estates, to help ensure that food and supplies were able to reach vulnerable members of the areas in which it operated.

Segro said it was also working closely with its local community partners across the business, to determine appropriate further support in the coming months.

“Our primary focus is the health, safety and well-being of our employees, whilst working hard to support our customers and other business partners during this challenging period,” said chief executive officer David Sleath.

“The Segro team is operational, working at home, with full access to our central systems and communications network.

“Whilst current global events are unprecedented, we anticipate that the structural trends that have been driving occupier demand for high-quality, well located warehouse space will remain intact and may even be strengthened by the crisis, as the importance of logistics supply chains has been thrown into sharp focus in recent weeks.”

Sleath said the company had a “very diversified” customer base across a variety of sectors, many of which were involved in the supply of critical goods and services, but the board appreciated that current circumstances were placing pressure on the cash flows of some of its customers.

“Most of these businesses are fundamentally sound and we are working with them to provide appropriate assistance.

“While it is too early to fully assess the impact of this crisis, the high quality of our portfolio and the strength of our balance sheet means we are well placed to weather the storm caused by the Covid-19 pandemic.”