Segro Plc · LSE:SGRO
Segro — FY2011 Earnings Presentation
41 slides from Segro's earnings presentation, Feb 21, 2012
Slide 1: 2011 Full Year Results
2011 Full Year Results 21 February 2012 0
Slide 2: Headlines
Headlines Strong operating results due to portfolio quality and operational focus Further momentum to come from mainly pre-let development programme Reduction in NAV impacted by write-down of non-core assets A clear strategy to become a leading income-focused REIT Early progress with portfolio resha
Slide 3: Financial Review
Financial Review Justin Read, Finance Director 2
Slide 4: Key financial highlights
Key financial highlights 2011 2010 Change % EPRA PBT (£m) 138.5 127.3 8.8 EPRA EPS (pence) 18.4 17.1 7.6 Dividend per share (pence) 14.8 14.3 3.5 2011 2010 Change % EPRA NAV per share¹ (pence) 340 376 (9.6) Net borrowings (£m) 2,303.4 2,203.2 4.5 LTV (%) 50 46 1. EPRA NAV per share and excluding fai
Slide 5: Strong operating performance driving 8.8% EPRA PBT growth
Strong operating performance driving 8.8% EPRA PBT growth 2011 2010 £m £m Gross rental income 326.1 344.6 Property operating expenses (54.9) (62.5) Net rental income 271.2 282.1 Joint venture management fee 5.9 1.9 Share of joint ventures’ EPRA profit after tax1 16.6 10.8 Administration expenses (32
Slide 6: Net rental income bridge (£m)
Net rental income bridge (£m) 0.3 (5.1) 0.7 1.6 2.1 5.3 (9.3) 282.1 (6.5) 271.2 Net rental Development Like-for-like rent Currency Acquisitions Other income Disposals to Disposals Lease Net rental income 2010 (lettings net of translation APP (excluding to surrenders income 2011 takebacks) APP) (prem
Slide 7: Good progress with cost reduction
Good progress with cost reduction 35 30.4% 29.9% Total cost ratio* (%) 30 28.1% 24.3% 25 20 2008 2009 2010 2011 2011 2010 Movement (£m) (£m) (%) Property operating costs 54.9 62.5 (12.2) Administration expenses 32.1 39.2 (18.1) *Total costs as a percentage of gross rental income. Total costs include
Slide 8: EPRA PBT bridge (£m)
EPRA PBT bridge (£m) 5.2 138.5 7.1 127.3 (10.9) 5.8 4.0 EPRA PBT 2010 Net rental income JV management fee Share of JV EPRA PBT Administrative expenses Net finance cost EPRA PBT 2011 7
Slide 9: Cash flow summary
Cash flow summary 2011 2010 £m £m Cash flow from operations 239.0 244.9 Net finance costs (120.3) (141.1) Dividends received (net) 10.4 8.8 Tax paid (4.9) (6.0) Free cash flow 124.2 106.6 Capital expenditure (excluding trading properties) (187.1) (61.1) Investment property sales (including joint ven
Slide 10: EPRA NAV per share bridge (pence)
EPRA NAV per share bridge (pence) 19 (1) (1) (3) (15) 376 (35) 340 EPRA NAV per share EPRA PBT Exchange rate Other Unrecognised Dividends Realised and EPRA NAV per share as 31 Dec 2010 movement valuation movement unrealised valuation as 31 Dec 2011 on trading properties movement (including JVs) 9
Slide 11: Solid balance sheet
Solid balance sheet No significant debt maturities before 2014 £456m of funds available from cash balances and undrawn facilities Weighted average cost of debt now 4.8% 74% of net borrowings at fixed rates Net borrowings of £2.3bn; adjusted gearing of 89% and LTV of 50% SEGRO bonds rated A minus; re
Slide 12: £954m of new Group and JV debt facilities arranged
£954m of new Group and JV debt facilities arranged SEGRO and Aviva Investors APP JV refinancing September £400m five-year debt refinancing package 2011 Refinanced maturing facility, due March 2012 c4.0% p.a. all-in funding cost on drawn debt SEGRO Group refinancing November €440m of revolving, multi
Slide 13: Currency management and hedging
Currency management and hedging Balance sheet as at 31 December 2011 •€1.20:£1 as at 31 December 2011 Euro gross assets 1,701 Euro debt •€ assets 85% hedged by € liabilities 105 Euro currency swaps •€303m (£252m) of residual exposure – 10% of Group NAV € million Other Euro liabilities 2,004 1,030 An
Slide 14: Financial summary
Financial summary Strong operational performance driving earnings growth EPRA EPS + 7.6% to 18.4p 3.5% dividend growth to 14.8p EPRA NAV 340p Non-core portfolio valuation decline in H2 Capital values more resilient for core portfolio Solid balance sheet No significant debt maturities before 2014 13
Slide 15: Business Review
Business Review David Sleath, Chief Executive 14
Slide 16: A clear strategy to create a successful income-focused REIT
A clear strategy to create a successful income-focused REIT GOAL: High quality, progressive, sustainable dividends and NAV growth STRATEGY TO CREATE VALUE FOR SHAREHOLDERS: Disciplined Operational Capital Excellence Allocation • Right Portfolio Shape • Leasing, Customer & Asset • Active Portfolio Ma
Slide 17: Four key strategic priorities to deliver our vision
Four key strategic priorities to deliver our vision 1. Re-shape the existing portfolio Divest assets which do not fit our strategic priorities Reduce land holdings and other non-income producing assets as a proportion of the total portfolio 2. Grow AUM in target areas through development and acquisi
Slide 18: Early progress with strategic priorities
Early progress with strategic priorities New organisation structure announced and implemented COO and CIO roles created Non-core disposals £111m smaller, secondary estates sold in 2011 £80m divestment of five estates to Ignis in February 2012 Acquisition of UK Logistics Fund in partnership with Moor
Slide 19: UKLF acquisition significantly increases our presence in logistics
UKLF acquisition significantly increases our presence in logistics 50/50 JV partnership with Moorfield Real Estate Fund Royal Mail, Birmingham 14 prime logistics warehouses, located predominantly in the Midlands and South Excellent customer base, including Tesco, Sainsbury’s, Royal Mail, DHL, GKN, B
Slide 20: Operational excellence has created strong earnings momentum
Operational excellence has created strong earnings momentum £38.4m of new annualised rental income from existing space and pre-lets Leasing, Transactional rental values 1.7% above December 2010 ERVs Customer and Lease incentives of 11% Asset Management Retention rate up to 74%, takebacks down 28% to
Slide 21: Operational excellence has created strong earnings momentum
Operational excellence has created strong earnings momentum £38.4m of new annualised rental income from existing space and pre-lets Leasing, Transactional rental values 1.7% above December 2010 ERVs Customer and Lease incentives of 11% Asset Management Retention rate up to 74%, takebacks down 28% to
Slide 22: Significant improvement in retention reflects benefits of working closely with customers
Significant improvement in retention reflects benefits of working closely with customers 100% 87% % of customers retained year on year* 90% 80% 75% 74% 69% 70% 63% 60% 55% 50% 40% 30% 20% 10% 0% UK Continental Europe Group 2010 2011 • Focus on customer satisfaction • Proactive and commercial approac
Slide 23: Increased retention levels have contributed to the significant reduction in takebacks
Increased retention levels have contributed to the significant reduction in takebacks 35 30 £29.3m Down 28% £m annualised rental income lost 25 £9.1m in 2011 £21.0m 20 £4.8m 15 10 £20.2m £16.2m 5 0 2010 2011 UK Continental Europe • Low level of insolvencies (£4.0m versus £7.2m in 2010) • £41m of inc
Slide 24: Significant further improvement in Group vacancy
Significant further improvement in Group vacancy from 12% to 9.1% – the lowest level since 2007 16% 13.5% 14.0% 14% 12.0% 12% 11.4% % vacant by rental value 10% 9.1% 8% 6% 4% 2% 0% FY 2009 H1 2010 FY 2010 H1 2011 FY 2011 • UK 10.2%, Continental Europe 6.4% (2011) 23 • Target for Brixton portfolio of
Slide 25: Operational excellence has created strong earnings momentum
Operational excellence has created strong earnings momentum £38.4m of new annualised rental income from existing space and pre-lets Leasing, Transactional rental values 1.7% above December 2010 ERVs Customer and Asset Lease incentives of 11% Management Retention rate up to 74%, takebacks down 28% to
Slide 26: 14 developments completed in 2011 – £9.0m of rent p.a
14 developments completed in 2011 – £9.0m of rent p.a Gliwice, Poland Tychy, Poland • 2 projects for logistics customers across 35,600 sq m • 15,900 sq m for logistics customer completed completed January & December 2011 September 2011 Geopost, Enfield Selig UK, Slough 25 • 3,500 sq m completed Sept
Slide 27: Significant earnings momentum from current development programme
Significant earnings momentum from current development programme DB Schenker Data centre operator 5,600 sq m at 9,900 sq m at APP Slough, expected Portal, expected completion completion February 2012 September 2012 Alcatel Lonza 33,400 sq m at 5,500 sq m at Vimercate, Slough, expected expected compl
Slide 28: Land bank provides an attractive source of future developments
Land bank provides an attractive source of future developments Current land holdings by value (£m) Estimated development costs £600m Estimated rental value £78m Indicative yield on TDC* 9-10% £82m Under construction Largest development sites 49 hectares Hectares Current BV (£m) £171m UK Park Royal 8
Slide 29: Operational excellence has created strong earnings momentum
Operational excellence has created strong earnings momentum £38.4m of new annualised rental income from existing space and pre-lets Leasing, Transactional rental values 1.7% above December 2010 ERVs Customer and Asset Lease incentives of 11% Management Retention rate up to 74%, takebacks down 28% to
Slide 30: Performance of core versus non-core
Performance of core versus non-core UK Continental Europe Group Core Non-core Core Non-core Core Non-core Portfolio value (£m) 2,586.3 767.6 814.4 515.4 3,400.7 1,283.0 (completed properties) Net initial yield (%) 5.7 6.4 7.5 7.9 6.1 7.0 True equivalent yield (%) 7.5 8.6 8.1 8.2 7.6 8.4 Valuation mo
Slide 31: Outlook
Outlook Expect unsettled macro conditions to continue across UK and Continental Europe Good earnings momentum Strong pipeline of existing pre-let developments Good activity at start of 2012 Solid balance sheet Well-positioned to make further progress with portfolio reshaping 30
Slide 32: Summary
Summary Strong operating results due to portfolio quality and operational focus Further momentum to come from mainly pre-let development programme Reduction in NAV impacted by write-down of non-core assets A clear strategy to become a leading income-focused REIT Early progress with portfolio reshapi
Slide 33: 2011 Full Year Results
2011 Full Year Results 21 February 2012 32
Slide 34: APPENDICES
APPENDICES 33
Slide 35: EPRA pro forma profit before tax: JVs proportionally consolidated
EPRA pro forma profit before tax: JVs proportionally consolidated 2011 2010 £m £m Gross rental income 359.1 368.4 Property operating expenses (57.7) (65.2) Net rental income 301.4 303.2 Joint venture management fee 2.6 1.0 Administration expenses (32.1) (39.2) EPRA operating profit 271.9 265.0 Net f
Slide 36: Group vacancy bridge
Group vacancy bridge 1.9% (0.1)% (0.4)% (0.5)% (2.6)% 11.5% (12.7)% 12.0% 9.1% Vacancy rate as at Space returned Development Disposals Space made Other (ERV Development Space let Vacancy rate as at 31 December 2010 completions redundant changes) lettings 31 December 2011 35
Slide 37: Our current development pipeline is 78% pre-let
Our current development pipeline is 78% pre-let Project Customer Space to be Project Customer Space to be built (sq m) built (sq m) UK CONTINENTAL EUROPE Pre-let projects under construction Pre-let projects under construction STE Infinity 11,400 Vimercate, Italy Alcatel-Lucent 34,000 Ajax Avenue, ST
Slide 38: Industrial – an attractive asset class
Industrial – an attractive asset class IPD Total Returns % by Economic Cycle IPD Income Returns % by Economic Cycle (annualised to 2010) (annualised to 2010) 16 10 9 14 8 12 7 10 6 8 5 4 6 3 4 2 2 1 0 0 1986-1995 1996-2004 2005-2010 1986-1995 1996-2004 2005-2010 Industrial Office Retail All Property
Slide 39: Core and non-core valuation movements
Core and non-core valuation movements* Property assets H1 2011 (£m) H2 2011 (£m) Core 19.9 (54.6) Non-Core (33.6) (187.0) Total (13.7) (241.6) 50 Valuation movement (£m) 0 -50 -100 -150 -200 Core Non-Core 38 *Valuation movement relates to the total portfolio (completed properties, land and developme
Slide 40: Large non-strategic assets
Large non-strategic assets Thales site Neckermann site (Crawley) (Frankfurt) IQ Farnborough (Farnborough) MPM site (Munich) Pegasus Park (Brussels) Total value: £515m Total headline rent: £45m Vimercate (Milan) 39 Data as at 31 December 2011
Slide 41: Forward-looking statements
Forward-looking statements This presentation may contain certain forward-looking statements with respect to SEGRO’s expectations and plans, strategy, management’s objectives, future performance, costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty