Segro Plc · LSE:SGRO
Segro — H1 2008 Earnings Presentation
52 slides from Segro's earnings presentation, Aug 27, 2008
Slide 1: SEGRO Plc 2008 Half-Year Results
SEGRO PLC 2008 HALF-YEAR RESULTS 27 AUGUST 2008
Slide 2: Pro-actively managing our business in a market downturn
Pro-actively managing our business in a market downturn Achieving a good operating performance Strong lettings of 283,000 sq m Overall vacancy rate 9.3% EPRA adjusted profit before tax £67.4m Managing our financial position Adjusted NAV down 11.5% to 623p £262m generated from disposals*
Slide 3: Agenda
Agenda FINANCIAL REVIEW David Sleath, Finance Director BUSINESS REVIEW & PRIORITIES Ian Coull, Chief Executive QUESTIONS & ANSWERS 3
Slide 4: Financial Review
FINANCIAL REVIEW DAVID SLEATH Finance Director
Slide 5: 2008 Half-year results
2008 Half-year results Good operating performance 23.1% growth in net rental income Trading profits of £19.5m Adjusted profit before tax £67.4m Adjusted NAV down 11.5% UK valuation down 10.4% Continental Europe valuation up 0.7% UK land values down 21.4% Financial position tightly manage
Slide 6: Adjusted profit before tax
Adjusted profit before tax* H1 2008 H1 2007 Continuing operations £m £m** Net rental income 119.3 96.9 Administration expenses (17.0) (13.4) Joint ventures & associates – investment property 1.7 1.2 Net finance costs (56.6) (39.8) Recurring property income 47.4 44.9 Trading property disposals 19.5 1
Slide 7: Net rental income
Net rental income Up 23.1% £15.7m £3.0m £0.5m (£4.0)m (£3.7)m (£6.9)m £17.8m £119.3m £96.9m Net rental Acquisitions New devts, Lease Other Increase in Disposals Space Net rental income H1 re-lettings & surrender net property returned income H1 2007 rent reviews premiums exps 2008 7
Slide 8: Adjusted diluted NAV per share
Adjusted diluted NAV per share Down 11.5% 5.0p 2.5p (1.2)p (14.7)p 15.2p (88.6)p 704.3p 622.5p Adjusted NAV Adjusted profit Currency Fair value gain Other Ordinary Property losses Adjusted NAV per share Dec after tax translation on derivatives dividends paid per share June 2007 differences 2008 £3,0
Slide 9: Triple Net NAV (NNNAV)
Triple Net NAV (NNNAV) As at 30 June 2008 £m p Diluted adjusted NAV 2,705.3 623 Fair value of debt, net of tax 111.6 26 Deferred tax on investment properties - capital allowances (39.3) (9) - revaluation surpluses (36.9) (9) Fair value of trading properties 52.3 12 Diluted NNNAV 2,793.0 643 9
Slide 10: Property gains and losses
Property gains and losses H1 2008 H1 2007 Property (losses)/gains £m £m Unrealised valuation gains & losses taken through the income statement (379.2) 115.2 Gains & losses realised on the sale of investment properties (10.1) 3.1 (389.3) 118.3 Gains & losses on the revaluation of JV investment proper
Slide 11: Valuation – UK
Valuation – UK Valuation Initial Surplus/ Surplus/ 30.06.08 yield (deficit) (deficit) Including Group’s share of JVs £m % % £m Completed Investment properties Logistics warehouses 102.0 7.2 (13.3) Other industrial 2,263.4 6.3 (11.1) Offices 503.6 6.7 (7.2) Retail 135.2 5.0 (6.6) Total 3,004.2 6.3 (1
Slide 12: Valuation - Continental Europe
Valuation - Continental Europe Valuation Initial Surplus/ Surplus/ 30.06.08 yield (deficit) (deficit) Including Group’s share of JVs £m % % £m Completed Investment properties France 339.5 6.7 (0.1) Germany 326.5 7.7 0.6 Belgium 225.9 6.3 (0.4) Italy 74.4 7.1 1.6 Netherlands 57.3 7.7 4.4 Central Euro
Slide 13: Cash flow
Cash flow H1 2008 H1 2007 £m £m Cash flow from operations 73.6 110.9 Net finance costs (excl. capitalised interest) (52.1) (63.8) Dividends received 1.8 1.7 Tax on operations (net) (3.5) (1.7) Free cash flow 19.8 47.1 Capital expenditure (net of property sales ) (146.0) (62.8) REIT conversion charge
Slide 14: Capital expenditure
Capital expenditure Six months to 30 June 2008 Total investment £307.6m* Land Development UK Purchases £44.9m £12.8m Acquisitions UK £3.7m Acquisitions Continental Europe Development £145.8m Continental Europe £100.4m MPM, Germany £86.9m Neckermann, Germany £24.3.m DHL, France £31.8m * Including inv
Slide 15: Disposals
Disposals Six months to 30 June 2008 Total divestments £151.7m * Continental Europe Traders £50m UK Investment properties £93.5m UK Traders £8.2m 15 * Plus a further £110.2m disposals agreed since 30 June
Slide 16: Future capital expenditure plans
Future capital expenditure plans Balancing future expenditure with cash generation Indicative H2 2008 capex plans* £m Development expenditure - construction in progress 100 - authorised but not started 25 Land purchases in Continental Europe 80 Total potential expenditure 205 Disposals already agree
Slide 17: Balance sheet summary
Balance sheet summary 30 June 2008 Total property assets £4,921.3m Gross debt £2,395.1m - weighted average interest rate 5.5% - at fixed rates 85% Cash £265.3m Net debt £2,129.8m Gearing ratio 79% Loan to value ratio 43% Interest cover 2.2 times Cash & undrawn facilities £802m 17
Slide 18: Debt facilities
Debt facilities Weighted average period to maturity – 9.6 years Bonds & Private Placements Bank debt & mortgages Maturity Amount Coupon Maturity Amount Interest £m* % £m* margin** (bps) 2010 124.7 7.125 Uncommitted 2011 39.6 6.42 /short term 109.4 40-100 2015 148.3 6.25 2009 19.8 35 2018 198.1 5.50
Slide 19: 2008 Half-year results
2008 Half-year results Good operating performance 23.1% growth in net rental income Trading profits of £19.5m Adjusted profit before tax £67.4m Adjusted NAV down 11.5% UK valuation down 10.4% Continental Europe valuation up 0.7% UK land values down 21.4% Balance sheet tightly managed L
Slide 20: Business Review & Priorities
BUSINESS REVIEW & PRIORITIES IAN COULL Chief Executive
Slide 21: Industrial property market conditions
Industrial property market conditions August 2008 Market Occupier demand Investment demand UK Mostly stable Weak Western Europe Mostly stable Weakening Central Europe Strong Stable 21
Slide 22: The priorities we set out in March 2008
The priorities we set out in March 2008 22
Slide 23: Maintain strong financial position: occupier insolvencies
Maintain strong financial position Strength of customer base Level of occupier insolvencies Rent lost (£000s) No of occupiers H1 H1 H1 H1 H1 H1 2006 2007 2008 2006 2007 2008 UK 889 1,666 847 15 20 17 Europe 66 0 1,087 2 0 2 Total 955 1,666 1,934 17 20 19 As % of Group rent roll 0.4% 0.7% 0.7% 23
Slide 24: Diversified income stream, 1,700 customers
Maintain strong financial position Diversified income stream, 1,700 customers, top 20 = 32% of rent Occupier rental income - analysed by industry Public Administration Construction 4% 2% Services 12% Manufacturing 22% Finance, Insurance & Property 13% Transport, Communications & Retail Utilities 15%
Slide 25: Security of occupier income
Maintain strong financial position Security of occupier income 8.6 years average lease length (6.1 years including break options) £m 280 272 272 272 271 261 251 225 30.06.08 2008 2009 2010 25 Total contracted cash rent - before breaks Total contracted cash rent assuming breaks exercised
Slide 26: Leasing aggressively: lettings
Leasing aggressively Lettings* Europe UK Total 000’s sq m 311 283 185 174 168 143 98 109 78 87 67 11 H1 2005 H1 2006 H1 2007 H1 2008 *Excludes pre-lettings 26
Slide 27: Leasing aggressively: 283,000 sq m
Leasing aggressively 283,000 sq m Net £4.5m new income By Area (000’s sq m) By Rent (£m) Lettings1 Space Returned Lettings2 Space2 Returned H1 2008 H1 2007 H1 2008 H1 2007 H1 2008 H1 2008 United Kingdom Lettings of completed 15 62 developments Existing properties 61 56 Licenses 33 25 Total UK 109 14
Slide 28: Leasing aggressively: vacancy rate by space
Leasing aggressively Vacancy rate by space 11.2% 9.3% 10.8% 8.9% 6.7% Underlying 5.9% Underlying 9.9% 8.5% End 2007 H1 2008 End 2007 H1 2008 End 2007 H1 2008 UK Continental Europe Group 28
Slide 29: UK rental growth & customer retention
Leasing aggressively UK rental growth & customer retention Region New Reviews* Renewals Lettings All % % % % Slough Trading Estate 4.5 6.2 3.0 4.2 London Markets 3.3 2.6 (0.1) 1.4 National Markets 4.5 2.4 (1.2) (0.4) Total (%) 4.3 2.7 (0.6) 0.8 Excellent customer retention rates: 86% of leases exp
Slide 30: Incentives (UK) - average rent free periods
Leasing aggressively Incentives (UK) - summary of average rent free periods* Average rent free periods H1 2008 H1 2007 On existing buildings re-let - in months 1.7 2.6 - as a % of lease length 2.5% 3.0% On new developments only - in months 5.4 4.4 - as a % of lease length 4.7% 3.9% All lettings - in
Slide 31: UK occupier enquiry levels
Leasing aggressively UK occupier enquiry levels Number of UK Enquiries 530 480 430 380 330 280 230 180 130 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2004 2005 2006 2007 2008 31
Slide 32: Developing selectively
Developing selectively March 2008: 465,529 sq m planned development starts in 2008 August 2008: 370,276 sq m planned development starts in 2008 – 20% reduction for the Group, comprised of 53% reduction in the UK 10% reduction in Continental Europe 32
Slide 33: Developing selectively: development pipeline
Developing selectively UK Development pipeline Continental Europe By rental value Total pipeline – 2,680,000 sq m £79m Potential – Potential total of £186m rental value when complete – 12% yield on future expenditure – 8% including current book value £32m £22m £18m £12m £13m £6m £5m CIP Potentia
Slide 34: Major land holdings & values: UK
Major land holdings & values UK Current book Land Space to be built Value area Sq m £m Ha Farnborough - IQ Farnborough 44.3 19 22,235 Feltham - North Feltham Trading Estate 8.0 3 12,880 Crawley - London Road 15.1 3 14,000 Enfield - Ponders End 9.8 5 24,498 Slough Trading Estate (major land holdings)
Slide 35: Major land holdings & values: Continental Europe
Major land holdings & values Continental Europe Current book Land Space to be built Value area Sq m £m Ha Paris – Gonesse 22.2 13 56,441 Paris – La Courneuve 14.3 4 22,901 Germany – BBI, Berlin 1.5 38 183,000 Germany - Krefeld 18.2 32 138,601 Netherlands - Schiphol, De Hoek Noord (51%) 15.3 11 71,54
Slide 36: Selling opportunistically
Selling opportunistically Warsaw office development sold for £46.0m, with £17.4m profit on sale Bath Road Retail Park, Slough, sold for £91.3m, initial yield of 5.5% Winnersh land sold for £2.2m Post 30 June – 2 multi-estate UK industrial portfolios sold for £110.2m - c.3% down on combined J
Slide 37: Acquiring land in Central Europe
Acquiring land in Central Europe Price Country Site Hectares £m Czech Republic Tulipan 4 27.0 12.1 Czech Republic Ostrava 4.1 1.8 37
Slide 38: What we told you we would do in March 2008
What we told you we would do in March 2008 38
Slide 39: Priorities for H2 2008
Priorities for H2 2008 Adapting strategy to the market conditions Maintain strong financial position Lease aggressively Develop selectively & cautiously – focus on pre-lets & Central Europe Sell opportunistically – Continental Europe & UK Acquire land in Central Europe 39
Slide 40: Pro-actively managing our business in a market downturn
Pro-actively managing our business in a market downturn Achieving a good operating performance Strong lettings of 283,000 sq m Overall vacancy rate 9.3% EPRA adjusted profit before tax £67.4m Managing our financial position Adjusted NAV down 11.5% to 623p £262m generated from disposals*
Slide 41: Appendices
SLOUGH ESTATES GROUP
Slide 42: Flexible Business Space
Flexible Business Space Industrial locations Industrial developed to optimise value… Parks Warehousing & Logistics Suburban Offices 42
Slide 43: A diversified portfolio
Active management A diversified portfolio Investment portfolio only – JV share basis £4.4bn investment portfolio c.4.4m sq m total portfolio - by value end June 2008 - built space end June 2008 Slough Continental Slough Trading Trading Estate Europe Estate Western Europe 25% 28% 14% 36% London Marke
Slide 44: Portfolio by space
Portfolio by space As at 30 June 2008, includes trading properties and 100% of JV properties UK Group Industrial 56% 2.6m sq m 5.0m sq m Logistics 36% Offices 6% Industrial 84% Retail 2% Logistics 7% Offices 7% Retail 2% Continental Europe 2..4m sq m Industrial 27% Logistics 68% Offices 4% Retail 1%
Slide 45: The UK portfolio
The UK portfolio SEGRO SLOUGH ESTATES GROUP York @ Dmanchesier © ia Warrington (47) loncaster Sheffield Run Newcastle-D under-Lyme Derby Oldbu no @ Peterborough Birmingham oer to} Cambridge Dunstable High Gg Wycombe Oxford) London’ Bracknell (7) @ Readins vant cardiff © bristol Swindon © Lan Newbury
Slide 46: Current and prospective markets in Continental Europe
Current and prospective markets in Continental Europe Poland Germany Warsaw Düsseldorf Poznan Hamburg Lodz (Strykow) Frankfurt Gdansk Berlin Wroclaw Munich Katowice / Krakow Benelux Czech Republic Brussels / Antwerp / Prague Ghent Amsterdam / Slovakia Rotterdam / Venlo
Slide 47: Quality of income & covenant
Quality of income & covenant Corporate occupiers Annual Annual Rent Rent £m £m 1. Deutsche Post 13.5 11. O2 3.7 2. Neckermann.de 13.2 12. UCB 3.6 3. Tesco 6.7 13. UPS 2.6 4. MPM 6.4 14. Heathrow Airport 2.5 5. Antalis 6.1 15. Regus 2.2 6. Thales 5.9 16. Geodis Logistics 2.1 7. KarstadtQuelle 5.2 17.
Slide 48: UK customer retention
UK customer retention Leases renewed and breaks not exercised (based on number of occupiers) 86% 79% 78% 72% 72% 67% 49% 46% H1 2005 H1 2006 H1 2007 H1 2008 Leases renewed Breaks not exercised Latest IPD data related to 2007 events and indicated 64% breaks not operated with 21% leases renewed 48 (Fi
Slide 49: Development returns
Development returns Illustrative returns UK France Germany Central (pre-tax) Europe % % % % Yield on development - on TDC 7.0 - 7.5 8.0 - 9.0 8.0 - 9.5 8.5 – 9.5 - on future spend 12 12 12 12 ‘Take-out’ yields 6.50 – 7.0 6.75 – 7.0 7.0 – 8.0 6.75 – 7.25 Development profits 10 – 15 15 15 20 – 25 Targ
Slide 50: Translation exposure
Translation exposure £m as at 30 June 2008 £1,928 £1,671 £257 Euros Assets Liabilities Net exposure Net exposure of £257m represents 10% of Group Net Assets 50
Slide 51: Yield analysis
Yield analysis Equivalent* yields End June End June 2006 2007 2007 2008 Slough Trading Estate 5.3 5.3 6.0 6.7 West London industrial 5.2 5.1 5.5 5.8 Rest of UK industrial 5.6 5.4 6.1 6.7 France 7.3 7.2 7.1 7.0 Germany n.a. 7.3 7.5 7.1 Netherlands n.a. 7.4 6.9 6.6 Central Europe n.a. 6.5 6.9 6.7 51 *
Slide 52: 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