Segro Plc · LSE:SGRO
Segro — Slough Estates — FY2006 Earnings Presentation
74 slides from Segro's earnings presentation, Mar 8, 2007
Slide 1: A Strong Performance from Europe's Leading Provider of Flexible Business Space
A Strong Performance from Europe’s Leading Provider of Flexible Business Space Preliminary Results 2006 In Good Shape
Slide 2: Consolidating Our Leading Position in Europe
CONSOLIDATING OUR LEADING POSITION IN EUROPE •Delivering strong performance •Managing for value •Developing superior returns for the future Nimbus Park (HelioSlough), Doncaster UK Ian Coull Chief Executive 2
Slide 3: US Strategic Review – Progressing Well
US STRATEGIC REVIEW – PROGRESSING WELL • High level of interest from potential investors/bidders • Several options still under consideration, including: – immediate or phased divestment – joint venturing or merging with another business • Key considerations: – current and potential future value of t
Slide 4: Delivering Strong Performance in 2006
DELIVERING STRONG PERFORMANCE IN 2006 • Excellent financial results – Adjusted profit before tax up 19% – Adjusted NAV up 16.5% excluding REIT conversion charge – Total dividend for the year up 8.6% to 19.0p • Another good operating performance – Lettings of 440,000 sq m, pre-lettings of 159,000 sq
Slide 5: Managing for Value
MANAGING FOR VALUE • Active recycling of portfolio – 68,000 sq m of planned space take-backs for redevelopment in the UK – Disposals of over £170m of sites with limited potential to add further value • Reinvesting for growth – £216m spent groupwide on acquisitions of assets with potential to add val
Slide 6: Developing Superior Returns for the Future
DEVELOPING SUPERIOR RETURNS FOR THE FUTURE • Development programme continuing to expand – 154,000 sq m construction completed in 2006, 72% let – 338,000 sq m under construction, 57% pre-let – 734,000 sq m starts being planned for 2007 • Potential for rental growth – £9m reversionary potential on occ
Slide 7: Financial Review
Financial Review David Sleath Finance Director • Well structured as an international REIT – New dividend policy established • Excellent financial results – Total return 19% pre REIT charge – Adjusted pre-tax profit +19% – Adjusted diluted NAV + 14% • Financial strength – Adjusted gearing of 61% – Si
Slide 8: REIT Conversion
REIT Conversion • UK REIT status from 1 January 2007 – Conversion charge c.£82m (17.4p per share) – Deferred tax release of £416m (88.5p per share) • SIIC status expected from 1 January 2007 – Election required before 30 April – Conversion charge c.£14m – not provided – Deferred tax to be released c
Slide 9: Excellent Financial Results Focusing on Total Returns
Excellent Financial Results Focusing on Total Returns • NAV per share 718p (579p) Up 24.0% • Adjusted diluted NAV per share 775p (680p) Up 14.0% - excluding REIT conversion charge 792p Up 16.5% • Total dividend paid 17.9p (16.35p) Up 9.5% • Total return 130.3p* (138.35p) 19.2%* * After adding back t
Slide 10: NAV per Share
NAV per Share Up 14% (16.5% excluding REIT conversion charge) 550p 10
Slide 11: Valuation Surpluses
Valuation Surpluses On completed investment properties 11% overall surplus 15.2% 11.5% 11.0% 10.2% 6.5% 5.9% UK UK UK Continental USA Group Total Industrial Offices Retail Europe 11
Slide 12: Adjusted Profit
Adjusted Profit Adjusted profit before tax up 19% 2006 2005 £m £m Net rental income 247.2 223.9 Joint ventures 7.0 5.3 Property trading disposals 6.1 7.0 Utilities, oil & gas 2.1 (0.9) Other income 8.5 5.5 Administration expenses (28.9) (20.7) Operating profit 242.0 220.1 Net finance costs (99.3) (1
Slide 13: EPRA Adjustments
EPRA Adjustments 2006 2005 £m £m Property gains 537.0 423.5 Property gains in joint ventures 6.3 8.2 Disposal of joint ventures - 7.8 Gains/(losses) on derivatives 4.1 (2.9) 547.4 436.6 Tax on EPRA adjustments 342.1 (161.1) Total EPRA adjustments 889.5 272.0 13
Slide 14: Exceptional Items
Exceptional Items 2006 2005 £m £m Exceptional surrender premium - 36.4 Bond exchange - (126.0) Sale of Tipperary - 99.7 Sale of Quail West - 16.1 Total exceptional items - 26.2 REIT conversion charge (81.9) - Tax on exceptional items (3.4) (13.6) Exceptional items after tax (85.3) 12.6 14
Slide 15: Net Rental Income
Net Rental Income Underlying Up 10% 2006 2005 Change £m £m % Investment properties1 - UK 160.6 154.7 + 4 - USA 58.4 46.4 + 26 - Continental Europe 23.0 20.1 + 14 Investment properties 242.0 221.2 Trading properties 5.2 2.7 Investment & trading properties1 247.2 223.9 + 10 Exceptional lease surrender
Slide 16: 10% Increase in Underlying Net Rental Income
10% Increase in Underlying Net Rental Income £37 m Income from Lettings, Rent Reviews and Developments £150m 16
Slide 17: Taxation
Taxation 2006 Charge 2005 Charge £m % £m % Tax on adjusted PBT - current 18.2 13 15.6 13.0 - deferred 9.6 6 0.4 - Total 27.8 19 16.0 13 REIT conversion charge 81.9 - Deferred tax reversal (416.1) - Other tax on exceptional items & EPRA adjustments 77.4 14 178.2 39 Total tax (credit)/charge (229.0) (
Slide 18: Financial Strength
Financial Strength Sufficient Capacity to Support Growth Programme • Total property assets - £6.0 billion – £800m land & construction in progress • Net Debt: £2,223m (£2,288m including JV’s) – Adjusted gearing: 61% – Loan to value ratio: 38% – Gross borrowings: £2,385m • Cash balances: £161m, un-dra
Slide 19: Financial Review
Financial Review David Sleath Finance Director • Well structured as an international REIT • Excellent financial results • Financial strength Final dividend – 12.1p (+10%) Total for year – 19.0p (+8.6%) Tulipan Park, Strykow Poland 19
Slide 20: Strategy & Operations
Strategy & Operations Ian Coull Chief Executive Riverside Way, Uxbridge UK 20
Slide 21: Major Events in 2006
Major Events in 2006 STARTED IN GOOD SHAPE, LEFT IN EVEN BETTER SHAPE • Entry into Central Europe • More acquisitions near Schiphol • Active Recycling – Building again on relationship with DHL – Over £170m sold in UK • €103m acquisition from Antalis • Outsourced UK construction arm – Another sale &
Slide 22: Growth Platform in Place
GROWTH PLATFORM IN PLACE Further strong portfolio performance and total returns Another good operating performance in 2006 Well placed to deliver superior shareholder returns Velilla, Madrid Spain 22
Slide 23: Further Strong Portfolio Growth
FURTHER STRONG PORTFOLIO GROWTH • Valuation surplus of 11% – UK industrial assets up 11.5% (ahead of IPD of 11.3%) • Adjusted NAV up 16.5% (excluding REIT conversion charge) • Total portfolio £6.0bn (up 17%) • Capital recycling - £173 m of disposals 23
Slide 24: Another Strong Operating Performance in 2006
ANOTHER STRONG OPERATING PERFORMANCE IN 2006 • Underlying profit up over 19 per cent • Group lettings of 440,000 sq m. Pre-lettings of 159,000 sq m • Continental European expansion going from strength to strength – 169,000 sq m of lettings • UK core skills driving robust £10m growth in property inco
Slide 25: Lettings and Space Returned
Lettings and Space Returned Year to 31 December Positive Momentum Continued Space Space2 Lettings1 Returned Lettings2 Returned 2006 2005 2006 2005 2006 2006 UK: 000’s sq m 000’s sq m 000’s sq m 000’s sq m £m £m Lettings of new developments 38 42 4.0 Existing vacant 129 147 9.9 Licenses 17 35 0.3 Tot
Slide 26: Major Pre-Lettings in 2006
Major Pre-Lettings in 2006 New European Locations Capturing Eastward Migration Customer Location Sq M Rent pa £000’s IX Europe Slough, UK 7,222 850 Direct Heywood, UK 2,897 190 Agilent Technologies Winnersh, UK 1,860 460 Safestore Slough, UK 1,466 190 Ernst & Young Pegasus, Brussels 17,081 1,550 Azy
Slide 27: Vacancy Rates
Vacancy Rates In line with expectations 19.5% 18.9% 11.6% 10.9% 10.2% 2.5% 2.3% 8.7% 1.1% 0.5% Underlying Underlying 8.1% 8.0% 2005 2006 2005 2006 2005 2006 UK Continental Europe USA Completed Developments Recent Acquisitions NB Excludes Trading Properties. Where properties have been reclassified as
Slide 28: Strategy for Growth
Strategy for Growth Well placed to deliver superior returns • Attractive returns available in Continental Europe – Underpinned by efficient tax structure • Excellent development pipeline – Gathering pace • Active approach to asset management – Customer focus – Recycling capital 28
Slide 29: Illustrative Yield Gap
Illustrative Yield Gap* Attractive returns available in Continental Europe 3.5% 3.5% 2.25% 2.0% 2.0% (0.5%) Acquisitions Development Acquisitions Acquisitions Development UK Rest of Europe Development Rest of Europe France France UK * Typical gross yields on investment less interest costs and tax (w
Slide 30: European Industrial Yields - Outlook
30 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5 12.5 Bucharest % 2001 Liege Helsinki Budapest 2005 Rome Amsterdam Rotterdam 2006 Brussels Vienna Milan Prague 2010 - European Real Estate Markets – February 2007 Marseille Warsaw Paris (IDF) Lyon Berlin European Industrial Yields - Outlook Hamburg Copenhagen Muni
Slide 31: Active Approach to Asset Management
Active Approach to Asset Management - net sellers in UK - 30 ha at Dusseldorf Airport - over £170m recycled - De Hoek at Schiphol - replaced older buildings - Corporate partnering, Antalis - retained key holdings - logistics at Heathrow RECYCLE ACQUISITION Sell or Redevelop ADDING VALUE ASSET DEVELO
Slide 32: Development Pipeline Continuing to Gain Momentum
Development pipeline continuing to gain momentum • 2,413,000 sq m total pipeline – 154,000 sq m construction completed in 2006 – 338,000 sq m under construction at 31 December 2006 – 734,000 sq m potential starts in 2007 • Future development expenditure of £2bn – £1.1bn book value as of 31 December
Slide 33: Development Pipeline Analysis by Geography
Development Pipeline Analysis by Geography Work in Progress Anticipated Starts – next 12 months Future Developments Space – 2.4 M Sq M Future Expenditure - £2.0bn 1,311 981 Sq M’s £m’s 802 617 635 656 503 404 300 386 207 515 203 191 265 60 28 176 108 161 69 60 55 137 Continental Continental 33 UK Eu
Slide 34: 2007 Priorities
2007 Priorities • Complete the US strategic review • Further acquisitions and corporate partnering deals in Continental Europe • Execute the development programme – and acquire new sites • Capital recycling & building critical mass in our clusters through acquisition & development • Continued custom
Slide 35: Market Conditions & Outlook
Market Conditions & Outlook Market conditions are encouraging • UK – Ending of yield compression in UK – Enquiry levels in line with last year, a positive start to the new year – Some areas seeing strength in rental levels – Well placed to generate and convert opportunities to drive returns • Contin
Slide 36: The Business Is in Good Shape
GROWTH PLATFORM IN PLACE •Delivering strong performance •Managing for value •Developing superior returns for the future The business is in good shape Treforest Industrial Estate, Cardiff, Wales UK 36
Slide 37: Appendices
Appendices KarstadtQuelle, Neu-Markt Germany 37
Slide 38: Flexible Business Space
FLEXIBLE BUSINESS SPACE Industrial sites and business parks, developed and optimised according to use: • Manufacturing & light industrial • Warehousing / distribution • Data centres • R&D/lab space • Suburban offices 38
Slide 39: Excellent Portfolio with Strong Growth Prospects
EXCELLENT PORTFOLIO WITH STRONG GROWTH PROSPECTS • Quality assets – prime sites – diversified tenants: over 1,760 tenants, top 20 = 27 % of rent roll – secure income: 10.6 year average lease length • 2.4m sq m development potential (470 ha) – >1m sq m under construction or expected to start in 2007
Slide 40: The UK Portfolio
The UK Portfolio 40
Slide 41: The Portfolio in Continental Europe (1/2)
The Portfolio in Continental Europe (1/2) Key on next page 41
Slide 42: The Portfolio in Continental Europe (2/2)
The Portfolio in Continental Europe (2/2) 42
Slide 43: The Portfolio in the USA
The Portfolio in the USA slough % North California South California 43
Slide 44: Investment Portfolio by Value, by Sector
Investment Portfolio As at 31 December 2006 By Value, by Sector UK Overseas 7% 20% 57% 13% 80% 23% Flexible Business Space 93% Flexible Business Space 100% 5% Worldwide 16% Industrial Office 16% R&D Retail 63% Flexible Business Space 95% Includes net share of joint ventures 44 Excludes land and cons
Slide 45: Investment Portfolio by Value, by Location
Investment Portfolio As at 31 December 2006 By Value, by Location UK Continental Europe South London & Slough Trading Netherlands Central Europe The South 4% Estates 2% France North London & 10% 38% 36% The East 12% Midlands & Belgium The North West London Thames Valley 40% 11% 15% Germany & The Wes
Slide 46: Investment Portfolio by Space and Location
Investment Portfolio By Space and Location As at 31 December 2006 UK Continental Europe North London & Retail Slough Trading Estate Germany The East 2% 26% France 17% 26% 47% West London 14% Midlands & Thames Valley South London & & The West Belgium The North Central The South 16% 19% Netherlands 16
Slide 47: Quality of Income & Covenant
Quality of Income & Covenant As at 31 December 2006 Occupiers Include Many Major Corporations Annual Annual Rent Rent £m £m 1 Amgen USA 9.5 11 Millenium Pharma’ USA 3.0 2 Tesco UK 7.2 12 Celltech UK 2.7 3 Mars UK 7.0 13 Heathrow Airport UK 2.5 4 Karstadt Germany 6.5 14 Raven USA 2.5 5 Rigel Pharma’
Slide 48: Major Lettings in 2006
Major Lettings in 2006 Healthy Tenant Demand in all Three Geographies Customer Location Sq M Rent pa £000’s Jacobs UK* Winnersh, UK 1,268 560 Bibby Distribution Heywood, UK 13,313 500 Existing customer (confidential) Slough, UK 7,121 900 Conseil General Nanterre, France 5,803 1,030 Logista Marly, Fr
Slide 49: Like-For-Like Rents
Like-For-Like Rents Gross Rental Income UK UK Continental Europe USA USA Total Total £M 2006 2005 2006 2005 2006 2005 2006 2005 Completed properties owned throughout 2005 & 2006 162.1 162.7 21.6 21.8 31.6 29.5 215.3 214.0 Properties acquired during 2005 & 2006 19.8 7.2 3.7 0.0 12.9 8.4 36.4 15.6 Pro
Slide 50: Development Pipeline – Sector Analysis
Development Pipeline – Sector Analysis As at 31.12.06 Major Potential to Create Value Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 55 151 264 470 Space: Industrial sq m 197,510 619,511 735,404 1,552,425 Offices sq m 7
Slide 51: Valuation Surpluses
Valuation Surpluses On completed investment properties 11% overall surplus As at 31 December 2006 Portfolio % of Valuation Valuation1 Total Surplus £m £m % UK: - Industrial 2,941.5 59% 302.4 11.5 - Offices 494.7 10% 27.4 5.9 - Retail 262.4 5% 24.2 10.2 Total UK 3,698.6 74% 354.0 10.6 Continental Eur
Slide 52: Development Pipeline – UK
Development Pipeline – UK As at 31.12.06 Major Potential to Create Value Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 20 36 102 158 Space: Industrial sq m 69,514 124,894 277,773 472,181 Offices sq m 38,408 60,340 223,
Slide 53: Development Pipeline – Continental Europe
Development Pipeline – Continental Europe As at 31.12.06 Major Potential to Create Value Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 27 112 114 253 Space: Industrial sq m 127,996 494,618 457,630 1,080,244 Offices sq
Slide 54: Development Pipeline – USA
Development Pipeline – USA As at 31.12.06 Major Potential to Create Value Construction Potential Potential Total In Progress Development Developments Programme Starts in 2007 2008 & Beyond Land area ha 8 3 48 59 Space: Offices sq m 115,103 115,103 Biotech sq m 68,951 27,870 87,812 184,633 Total sq m
Slide 55: 2006 Acquisitions & Disposals
2006 Acquisitions & Disposals Active Capital Recycling Acquisitions Announced Disposals Announced • Karstadt portfolio completions £12m • Elstree, Centennial Park, £20m • Treforest Business Park, Cardiff, £62m • HelioSlough, Traxpark, £9m • HelioSlough Lymedale BP £18m • Cambridge Research Park, £26
Slide 56: Investment Targets for Developments
Investment Targets for Developments Country / Region Sub-region Typical Target Development Yield IRR % % UK UK 7–8 9 – 10.5 Continental Europe Western Europe 8 – 10 9.5 – 12 Continental Europe Central Europe 9 – 11 12 – 14 USA California 9 – 10.5 11 – 13.0 Development yield represents the net rental
Slide 57: Balance Sheet
Balance Sheet Strong Financial Position 31.12.06 31.12.05 £m £m Property assets - Group* 5,849 5,000 - Joint ventures* 164 138 Total property assets 6,013 5,138 Net debt - Group (2,223) (1,984) - Preference shares - (108) - Joint ventures (65) (30) Total debt (2,288) (2,122) Deferred tax (299) (636)
Slide 58: Summary of Portfolio
Summary of Portfolio As at 31 December 2006 Continental Group UK Europe USA Total £m £m £m £m Investment properties - Completed properties 3,561.8 406.2 877.0 4,845.0 - Under development 196.4 - 48.6 245.0 - Reclassified as assets held for sale 56.6 - - 56.6 Development properties 233.7 74.6 161.4 4
Slide 59: Reconciliation of Total Properties
Reconciliation of Total Properties UK Continental USA Group Europe £m £m £m £m Valuation per Investment Portfolio Table – inc share of JV’s 3,698.6 410.9 902.6 5,012.1 Add trading properties 23.7 208.6 - 232.3 Add joint ventures – trading properties 13.6 13.6 - 27.2 Company occupied buildings 16.8 -
Slide 60: Reconciliation of Gross Rents
Reconciliation of gross rents UK Continental USA Group Europe £m £m £m £m Gross rents per Investment Portfolio Table 198.3 27.3 78.6 304.2 Less rents included within share of joint ventures’ results (5.1) (0.3) (2.4) (7.8) Add trading property rental income 0.0 8.4 0.0 8.4 Total rents per Income Sta
Slide 61: Net Assets per Share
Net Assets per Share 31.12.06 31.12.05 £m £m Equity attributable to ordinary shareholders 3,383.3 2,447.3 Less shares held by ESOP (10.6) (6.9) 3,372.7 2,440.4 Add back: Deferred tax on revaluations 182.4 412.1 Deferred tax on capital allowances 93.7 237.1 Dilution adjustment for the preference shar
Slide 62: Triple Net NAV (NNNAV)
Triple Net NAV (NNNAV) As at 31 December 2006 £m p Diluted adjusted NAV 3,648.8 775 Fair value of debt, net of tax (78.2) (16) Deferred tax on investment properties - In respect of capital allowance (93.7) (20) - In respect of revaluation surpluses (182.4) (39) Diluted NNNAV 3,294.5 700 62
Slide 63: Deferred Tax Analysis
Deferred Tax Analysis 31 December 2006 UK Continental USA Total Europe Group £m £m £m £m Deferred tax in respect of - Capital allowances - 25.5 68.2 93.7 - Revaluation surpluses 2.7 43.7 136.0 182.4 - Other timing differences 4.4 1.6 16.4 22.4 Total 7.1 70.8 220.6 298.5 63
Slide 64: Analysis of Currency Exposure
Analysis of Currency Exposure Assets Liabilities 1,621 1398 960 835 £m’s 661 563 Total * US Dollars Euros Net Exposure: £223m £125m £98m * As at 31 December 2006 6% of the group’s net assets remain exposed to exchange rate movements 64
Slide 65: Analysis of Net Debt
Analysis of Net Debt 31.12.06 31.12.05 £m £m Bank loans and overdrafts 692.1 488.5 Bonds & long term unsecured loans 1,615.6 1,582.1 Mortgages & secured loans 77.1 86.6 Gross debt excluding preference shares 2,384.8 2,157.2 Cash balances (161.4) (172.6) Net debt excluding preference shares 2,223.4 1
Slide 66: Debt Analysis
Debt Analysis As at 31 December 2006 GROSS DEBT £2,384.8m Secured Bank Funding Unsecured Bank £77.1m 3% Funding Private Placements £784.5m £238.3m 10% 33% Unsecured Bonds £1,284.9m 54% 66
Slide 67: Cash Flow Summary
Cash Flow Summary Year to 31st December 2006 2005 £m £m Cash flow from operations 137.6 237.3 Finance costs, net (122.8) (116.4) Dividends received from joint ventures 35.7 0.1 Tax paid (net) (11.6) (91.8) Additional pension scheme contributions - (16.2) Free cash flow 38.9 13.0 Ordinary dividends (
Slide 68: Recurring Interest Cover
Recurring Interest Cover Year to 31 December 2006 Interest £m Income £m Net borrowing cost 112.0 Net Rental Income 247.2 Add back capitalised interest 23.5 Property Trading 6.1 Preference shares charge (4.1) Utilities & Gas 2.1 Interest received (10.1) Admin Charge (28.9) JV Income 8.7 Recurring net
Slide 69: UK Customer Retention
UK Customer Retention Leases renewed and breaks not exercised Expiries Lease Breaks 79% 78% 78% 73% 73% 56% 54% 55% 2003 2004 2005 2006 Latest IPD data related to 2004 events and indicated 76% breaks not operated with 41% leases renewed (Figures exclude cases where tenants relocated to Slough Estate
Slide 70: Investment Outlook in the Industrial Market
Investment Outlook in the Industrial Market Financing Gap (%) 4.0 3.5 Helsinki Liege Amsterdam Rotterdam Vienna Rome Brussels 3.0 Marseille Milan Berlin Prague Lyon Paris (IDF) 2.5 Hamburg Frankfurt Munich Madrid Barcelona 2.0 Stockholm Copenhagen 1.5 Warsaw 1.0 0.5 Manchester London (Heathrow) Birm
Slide 71: Industrial Total Returns – Top Ten Performers
Total Returns – Top Ten Performers 20% Total Returns % p.a. 2002-2006 2007-2010 18% 16% 14% 12% 10% Industrial 8% 6% 4% 2% 0% Helsinki Rome Rotterdam Paris (IDF) Liege Amsterdam Hamburg Brussels Barcelona Manchester 71 Source: DTZ
Slide 72: Basis of Reporting Adjustments
Basis of Reporting Adjustments Key Definitions & Glossary Adjusted earnings per share EPRA adjustments EPS based on adjusted profit before tax and excluding deferred Adjustments to income statement and balance sheet amounts tax on investment properties. reported under IAS arising from adopting the r
Slide 73: Key Definitions & Glossary
Key Definitions & Glossary Hectares (ha) Reversionary or under-rented The area of land measurement used in this report. The conversion Space where the passing rent is below the ERV. factor used, where appropriate, is 1 hectare = 2.471 acres. Reversionary yield Initial yield The ERV of a property, ex
Slide 74: Forward Looking Statements
Forward Looking Statements This presentation may contain certain forward-looking statements with respect to Slough Estates’ expectations and plans, strategy, management’s objectives, future performance, costs, revenues and other trend information. These statements and forecasts involve risk and unce