2012 full year results - segro/media/files/s/segro/... · db schenker, heathrow 9.6% average...
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2012 Full Year Results 27 February 2013
Casino, Ile de France
Headlines
1
A year of considerable progress
Strategic portfolio reshaping ahead of plan Strong operational performance Net debt significantly reduced
Well positioned for 2013 and beyond
Good underlying earnings momentum Limited supply; attractive growth drivers Excellent land bank for future expansion
Creating the best owner-manager and developer of industrial properties and a leading income-focused REIT
Financial Results Justin Read
Group Finance Director
DB Schenker, Heathrow
3
Key financial highlights
P&L 2012 2011 Change %
EPRA PBT (£m) 144.9 138.5 4.6
EPRA EPS (pence) 19.3 18.4 4.9
Dividend per share (pence) 14.8 14.8
Balance sheet 2012 2011 Change %
EPRA NAV per share¹ (pence) 294 340 (13.5)
Net borrowings (£m) 2,090.3 2,303.4 (9.3)
LTV – including JVs at share (%) 51 / 502 49
1 EPRA NAV per share excludes fair value of interest rate derivatives and deferred tax provisions but includes trading property uplifts 2 Pro forma for £152m of disposals completed post year end
4
2012 £m
2011 £m
Gross rental income 305.4 326.1
Property operating expenses (50.6) (54.9)
Net rental income 254.8 271.2 Joint venture management fee income 7.4 5.9
Share of joint ventures’ EPRA profit1 20.2 16.6
Administration expenses (27.9) (32.1)
EPRA operating profit 254.5 261.6
EPRA net finance costs (109.6) (123.1)
EPRA profit before tax 144.9 138.5
Tax on EPRA profit (1.9) (1.9)
1 Net property rental income less administrative expenses, net interest expenses and taxation
Good underlying earnings momentum; 4.6% increase in EPRA PBT
Net rental income lower due to disposals; like for like net rental income up 1.9%
£271.2m £254.8m
£3.9m £8.1m
£5.7m £(23.2)m
£(4.6)m £(6.3)m
2011 Like for likenet rentalincome
Developments Acquisitions Disposals Surrenderpremiums &related rent
lost
Currencytranslation
2012
5
2011 2012
1 Net of rental income from properties taken back for re-development
1
Pro forma net rental income and vacancy
6
Net rental income £m
Vacancy rate %
Full Year 2012 255 8.2
Annualised incremental impact of:
Disposals since Jan-121 (25) 0.3
Developments completed and let in 2012 7 -
Acquisitions in 2012 7 -
Neckermann takeback in Jan-13 (12) 1.1
Pro forma FY 2012 232 9.6
1 Including disposals completed post year end
Further reduction in the total cost ratio
7 1 Total costs as a percentage of gross rental income. Total costs include property operating expenses (net of service charge income and management fees) and recurring
administration expenses
2012 £m
2011 £m
Change %
Property operating expenses 50.6 54.9 (7.8)
Administrative expenses 27.9 32.1 (13.1)
Total 78.5 87.0 (9.8)
Tota
l cos
t rat
io1 (
%) 30.4% 29.9%
28.1%
24.5% 22.9%
15
20
25
30
35
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012
EPRA NAV per share bridge
340p
294p
19.3p (14.8)p (47.7)p
(2.0)p (0.8)p
EPRA EPS Dividend Realised andunrealisedvaluation
movements
Early close-outof bond andbank debt
Other
8
Core (7.5)p
Non-core (40.2)p
EPRA NAV per share as at 31
December 2011
EPRA NAV per share as at 31
December 2012
Like for like valuation down 5.9%; Core Industrial -1.2% (IPD UK Industrial: -3.8%)
9
1 Valuation including joint ventures at share (including land and development) 2 In relation to the completed properties only 3 Net true equivalent yield 4 Including disposals completed post year end 5 Excluding Neckermann
Value1
£m Movement2
% Yield2,3
% Core portfolio (excluding offices) 3,553.5 (1.2) 7.7
Suburban offices 376.9 (15.9) 8.4
Large non-strategic assets4 304.8 (29.5) 8.65
Smaller non-core assets 420.1 (10.6) 8.9
Total4 4,655.3 (5.9) 7.9
10
Robust financing metrics
Group level1 2012
2011
Net borrowings (£m) 2,090.3 2,303.4
Available funds - cash & undrawn facilities (£m) 449 456
Gearing (%) 93 89
Loan to value - including JVs at share (%) 51 / 502 49
Weighted average cost of debt3 (%) 4.6 4.8
Average duration of debt (years) 8.3 8.8
Interest cover4 (x) 2.3 2.2
Net debt / EBITDA 8.1 8.7
1 All metrics, except LTV, at Group level excluding JVs 2 Pro forma for £152m of disposals completed post year end 3 Excluding commitment fees and amortised costs 4 Net property rental income / net interest before capitalisation
Reducing net borrowings and financial leverage
11
Net debt reduced by 9.3% to £2,090m LTV 50% (including post year end disposals); impacted by portfolio revaluation
Key financing metrics remain solid A- bond rating reaffirmed by Fitch in September 2012
Remain committed to reducing LTV over the longer term
Will continue to assess opportunities for further profitable capital deployment
Significant future rental growth potential
12
1 Adjusted for post year end disposals and Neckermann takeback
Core £m
Non-core £m
Total £m
Annualised gross passing rent1 250 46 296
Rent free on let properties 36 3 39
ERV of vacant/short let space 27 14 41
Reversion to ERV of occupied properties (12) (6) (18)
Current development projects 7 4 11
Potential gross passing rent 308 61 369
Additional development projects represent a further £84m of annual rent
Financial Summary
Progress against strategic priorities delivering positive results
Good underlying earnings momentum, benefiting from reduced costs and developments
Balance sheet in good shape - reducing leverage remains a strategic priority over the longer term
Dividend maintained reflecting our confidence in the core business
13
Our Progress in 2012 David Sleath,
Chief Executive
La Courneuve, Ile de France
Divesting non-core assets Improving utilisation of core assets (land & vacant assets)
Progress made against all four strategic priorities
15
1. Re-shape the existing portfolio
Generating attractive returns by building a high quality, modern portfolio with critical mass in target markets; achieved through both development and acquisitions
2. Seek profitable growth by reinvesting
Reducing net debt and leverage over time Partnering with third party capital where appropriate
3. Reduce net debt and introduce 3rd party capital
Greater customer focus and market knowledge Capitalise on favourable growth drivers Efficiency improvements and cost reductions
4. Drive operational performance across the business
16
Strong operational progress
21 developments completed; £16.4m annual rental income – 89% let
>25% average profit on total development cost
14 active developments; £10.8m annual rental income – 70% pre-let
9.6% average development yield on completed and active projects
262 new lettings generating £35.3m of new rental income
72 lease renewals, securing £18.8m of rental income
TRLs 2.9% above Dec 2011 ERVs; Lease incentives 8.2% (2011: 11.0%)
Retention rate of 65% (core 74%); take-backs broadly flat at £21.5m
Group vacancy rate 8.2% (core: 7.6%), lowest reported in last 10 years
Average lease lengths increased from 7.7 yrs to 8.4 yrs since 2009
Like for like net rental income up 1.9%
10% reduction in total costs
160bp improvement in total cost ratio to 22.9%
Improved CRM, sustainability, procurement & property systems
Leasing, Customer and
Asset Management
Development
Operational Efficiency
£700m of non-core asset disposals at 3.6% average discount to Dec-11 valuations
17
Thales, UK
IQ Farnborough, UK
MPM, Munich
24 further disposals in the UK and CE
£207m reinvested in acquisitions at 7.7% yield; expanding SEGRO’s UK and French logistics platform
18
UK logistics portfolio
£315m portfolio acquisition, completed Jan 2012 SEGRO equity contribution £65m 14 prime logistics warehouses, predominantly in the
Midlands and South Excellent customer base, including Tesco,
Sainsbury’s, Royal Mail, DHL, GKN, and Booker c.£18m of annual rent 6.3% net initial yield, rising to 7.7% Potential to add value through asset management
French logistics portfolio
£130m portfolio acquisition; completed Sept 2012 13 prime logistics warehouses in the Ile de France and
Lyon Excellent customer base, including UPS, Geodis,
Saint-Gobain c.€14m of annual rent 8.4% net initial yield; reverting to 7.7% Potential to add value through asset management
£218m reinvested or committed to profitable development programme
19
21 Completed development projects
190,000 sq m of new space
£151m total development cost
£16.4m of annual rent (89% let)
>25% average profit on total development cost
14 Current development projects
155,200 sq m of new space
£129m total development cost
£10.8m of annual rent (70% let)
DB Schenker, Heathrow
9.6% average development yield for completed and active projects
Karl Storz, Slough Trading Estate
SEGRO today
20
31% 69%
30 June 2011
Core Non-core
13%
87%
31 December 20121
Split of total portfolio by core and non-core assets
Stabilised (vacancy <10%)Opportunity (built; vacancy >10%)Opportunity (land & development)
6%
64%
Split of core portfolio by stabilised and opportunity assets
30%
8% 43%
49%
1 Pro forma for £152m of disposals completed post year end
100%
Target
75%
20% 5%
2013 And Beyond
Infinity, Slough Trading Estate
Focused on modern ‘industrial’ properties
22
Larger logistics warehouses
£1.1bn portfolio; 2.1m sq m
‘Big box’ sheds (>10,000 sq m) Generic buildings; wide range of users Located near key ports/airports/roads Relatively long leases Let to large retailers & 3PL providers
Smaller warehouses & light industrial buildings
£2.2bn portfolio; 2.7m sq m
Multi-occupier estates/urban logistics Generic buildings; wide range of users Located in/around key conurbations Lease terms more varied More management intensive
Data Centres
£0.3bn portfolio; 0.2m sq m
Typically built on industrial land Generic ‘shells’ Attract premium rents Long leases (>15 years) Industry specific locational needs
Attractive income-led returns from Industrial
0
3
6
9
5 years 10 years 30 years Retail Offices London Industrial Distribution
23
IPD UK Average Income Return (%)
Source: IPD
0
3
6
9
12
5 years 10 years 30 years
Retail Offices London Industrial Distribution
IPD UK Average Total Return (%)
Attractive growth drivers
Increasing global trade and supply chain improvements driving demand for modern warehouse space
On-going trend towards outsourcing, local distribution and growth in support services
Growth in niche manufacturing sub-sectors e.g. food production, high-tech manufacturing and engineering services
Trend towards on-line and convenience shopping Growth in TMT sector feeding data centre requirements
24
Favourable demand/supply dynamics
UK new warehouses available (2007 – 2012) (>100,000 sq ft)
UK internet sales (2007 – 2012)
25
Capitalising on favourable trends
26
Parcel delivery & 3PLs
Data centre providers
Retailers
‘Hi-tech’ engineering and production
Land bank well positioned to capitalise on the favourable demand/supply dynamics
27
Potential development
projects £176m (296 ha) Current
projects £58m (39 ha)
Residual land bank
£100m (239 ha)
Current land holdings by value (as at 31 December 2012)
Potential development projects £84m of potential future annual rent £685m estimated development costs 9.8% estimated yield on TDC1
Largest sites Hectares Value (£m)
Slough, UK 12.0 19.9
Park Royal, UK 8.5 35.1
Düsseldorf, Germany 20.9 20.6
Berlin, Germany 23.4 11.5
Amsterdam, Neth. 11.2 13.3
Warsaw, Poland 12.9 3.8
Poznan, Poland 25.4 7.6
Gdansk, Poland 29.6 7.5
Gliwice, Poland 13.3 4.9
Prague, Czech Rep. 38.7 7.9
1 Total Development Costs
Industrial capital values and rents at undemanding levels
50
60
70
80
90
100
Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
London Industrials All Industrials
28
IPD UK Industrial Capital Value Index (June 2007 = 100)
90
95
100
105
Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
London Industrials All Industrials
IPD UK Industrial Rental Value Index (June 2007 = 100)
Source: IPD Quarterly Index Q4 2012
Outlook
29
Macro-economic environment expected to remain challenging Investment market set to remain strong for the best industrial properties SEGRO focused on the strongest sub-markets where supply is limited, occupier
demand more robust and investment appetite healthy
Existing core assets and land bank well positioned to benefit from attractive underlying trends
30
A year of considerable progress
Strategic portfolio reshaping ahead of plan Strong operational performance Net debt significantly reduced
Well positioned for 2013 and beyond
Good underlying earnings momentum Limited supply; attractive growth drivers Excellent land bank for future expansion
Creating the best owner-manager and developer of industrial properties and a leading income-focused REIT
2012 Full Year Results 27 February 2013
Appendix I Core and non-core analysis
Split of core portfolio by geography
32
-1.7%
-0.2% -1.5%
0.0%
-1.7% -1.8% -0.5%
2.6%
(7.5)%
(5.0)%
(2.5)%
0.0%
2.5%
5.0%
7.5%
Heathrow ParkRoyal
SloughTradingEstate
LogisticsProperty
Partnership
Rest ofGreaterLondon
Germany France Poland
IPD UK Industrial Index (-3.8%)
Valuation movement (including joint ventures at share)1
(%)
1 In relation to the completed properties only
£583m of non-core assets remaining; including three large non-strategic assets
33 1 Including our share of joint venture assets and excluding assets disposed of in Jan/Feb 2013 2 Income based on headline rental income (after the expiry of rent free periods) and excluding any income from assets disposed of in Jan/Feb 2013 3 Excluding any income in respect of Neckermann
At 31 December 20121 Valuation Income2
UK £m
Europe £m
Total £m
Total £m
‘Big 3’ assets - 177 177 143
Other industrial assets 163 190 353 35
Other land holdings 6 47 53 -
Total 169 414 583 49
Targeting £300m to £500m of disposals in 2013 (including £152m already completed in Jan/Feb)
34
Month Portfolio/Asset Acquirer Sale proceeds (£m)
Net initial yield (%)
2012:
February Four regional UK estates Ignis 71.2 6.3 / 7.01
April IQ Farnborough Harbert 92.1 6.4 / 6.81
May Four regional UK estates Harbert 204.5 6.7 / 7.41
July 10 regional UK estates UK institution 111.0 8.4 / 8.91
Various Other UK non-core assets Various 43.6 10.9 / 11.51
Various Other CE non-core assets Various 25.7 7.7 / 7.7
548.1
2013:
January Thales in Crawley L&G Property 80.0 5.9 / 5.9
February MPM in Munich Private investor 56.0 7.9 / 7.9
Various Other non-core assets Various 16.3 7.7 / 7.7
Total 700.4 7.2 / 7.71
Disposals completed since 1 January 2012
1 Including the benefit of top-ups
35
At 31 December 20121 Core Industrial2
Offices (core)
Large non-strategic3
Other non-core3
Group
Portfolio value (£m) (completed properties)
3,297.3 376.8 154.3 352.6 4,181.0
Land & developments (£m) 256.3 - 22.6 53.4 332.3
Net initial yield (%) 6.2 7.3 10.84 7.5 6.8
Net true equivalent yield (%) 7.7 8.4 9.64 8.9 7.9
Valuation movement (%) (completed properties)
(1.2) (15.9) (40.8) (10.7) (5.9)
Overall performance of core portfolio supports selections of assets and markets
1 Including JVs at share 2 Warehouses, Light Industrial and Data Centres 3 Adjusted for disposals completed post year end 4 Excluding Neckermann
36
Neckermann, Frankfurt
Key information: 309,000 sq m campus including offices
and bespoke distribution facilities for the German retailer, Neckermann
Acquired in 2007 as a sale & leaseback to Neckermann
Neckermann filed for administration in July 2012, fully vacated the site in January 2013
15% of space re-let, including 45,000 sq m leased to BLG Logistics
Potential to re-lease remaining existing space to new occupiers
Potential change of use, re-development and/or outright disposal under review
37
Pegasus Park, Brussels
Key information: High quality 82,000 sq m modern
suburban office park located 8km east of Brussels within close proximity to the international airport
First building acquired in 1984
Site developed over a number of years
Last development completed in 2009
Vacancy 13.7% at 31 December 2012
WAULT to expiry 6.2 years at 31 December 2012
Customers include: Johnson Controls, Bombardier, Stanley Black & Decker, Cisco, Sunguard
38
Energy Park, Vimercate (Milan)
Key information: 70,000 sq m office and R&D campus
located approximately 20km north-east of Milan, close to the A4 highway
Acquired in 2007 as a long term
re-development opportunity
First new building of 10,900 sq m completed in 2009; 100% occupied (SAP principal tenant)
11,000 sq m multi-let office building completed in 2012 (80% let)
34,000 sq m offices (let to Alcatel) under construction for delivery in early 2014
Further development projects likely to span multiple years
Vacancy 6.4% at 31 December 2012
WAULT to expiry 5.8 years at 31 December 2012, will increase significantly with new developments
Appendix II Operational performance
40
2012 2011 Group
£m JVs £m
Total £m
Group £m
JVs £m
Total £m
Gross rental income 305.4 40.0 345.4 326.1 33.0 359.1
Property operating expenses (50.6) (1.9) (52.5) (54.9) (2.8) (57.7)
Net rental income 254.8 38.1 292.9 271.2 30.2 301.4
Joint venture management fee income 7.4 (4.6) 2.8 5.9 (3.3) 2.6
Administration expenses (27.9) - (27.9) (32.1) - (32.1)
EPRA operating profit 234.3 33.5 267.8 245.0 26.9 271.9
EPRA net finance costs (109.6) (13.3) (122.9) (123.1) (10.5) (133.6)
EPRA profit before tax 124.7 20.2 144.9 121.9 16.4 138.3
Tax on EPRA profit (1.9) - (1.9) (2.1) 0.2 (1.9)
EPRA profit after tax 122.8 20.2 143.0 119.8 16.6 136.4
EPRA pro forma profit before tax: JVs proportionally consolidated
41
Movement in Group net borrowings
2012 £m
2011 £m
Opening net debt (2,303.4) (2,203.2) Cash flow from operations 205.1 239.0
Finance costs (net) (103.9) (120.3)
Dividends received (net) 18.7 10.4
Tax paid (net) (12.8) (4.9)
Free cash flow 107.1 124.2 Dividends paid (109.7) (107.4)
Acquisitions and development of investment properties (277.9) (187.1)
Investment property sales (including joint ventures) 494.2 79.9
Net settlement of foreign exchange derivatives 56.0 (8.1)
Net investment in joint ventures (51.8) (15.9)
Other items (15.2) 7.9
Net funds flow 202.7 (106.5) Non-cash movements (5.3) (5.3)
Exchange rate movements 15.7 (11.6)
Closing net debt (2,090.3) (2,303.4)
EPRA PBT bridge
£138.5m £144.9m
£13.5m £4.2m £1.5m £3.6m £(16.4)m
2011 Net interest Adminexpenses
JV managementfees
EPRAJV PAT
Net rentalincome
2012
42
Euro currency management and hedging
2,031
470
1,112
125
Other Euro liabilities
Euro currency swaps
Euro debt
Euro gross assets
124
80
Euro income
Euro costs (inc. €66m interest)
43
Balance Sheet (as at 31 December 2012)
Income Statement (year ended 31 December 2012)
€m
€m
€1.23: £1 as at 31 December 2012
€ assets 84% hedged by € liabilities
€324m (£263m) of residual exposure – 12% of Group NAV
NAV sensitivity versus €1.23:
+ 5% (€1.29) = -c.£14m (c.1.9p per share)
- 5% (€1.17) = +c.£15m (c.2.0p per share)
LTV (on a look through basis1) at €1.23: £1 is 51%
Sensitivity versus €1.23:£1 :
+ 5% (€1.29) = LTV -0.4%
- 5% (€1.17) = LTV +0.6%
Average rate for 12 months to 31 December 2012 €1.23: £1
€ income 65% hedged by € expenditure (including interest)
Net € income for the period €44m (£36m) – 25% of Group
Annualised net income sensitivity versus €1.23:
+ 5% (€1.29) = -c.£1.7m (c.0.2p per share)
- 5% (€1.17) = +c.£1.9m (c.0.3p per share)
1 Including JVs at share
1,707
A diversified income stream
Food 5%
Engineering 15%
Finance & media
4%
Comms & technology
13%
Retail 14%
Transport & distribution
25%
Utilities 8%
Other 16%
44
SEGRO has over 1,300 customers across eight countries and multiple sectors
Headline rent by customer type
UK 61%
Germany 11%
France 13%
Poland & Czech
Republic 8%
Other 7%
Headline rent by customer geography
45
Customer Type
1 Deutsche Post (DHL) Transport & distribution
2 Telefonica (O2) Communications & technology
3 IAG (BA/BMI) Transport & distribution
4 Infinity Communications & technology
5 Royal Mail Transport & distribution
6 Mars Chocolate Food
7 Sainsbury’s Retail
8 Alcatel-Lucent Communications & technology
9 UCB SA Chemicals & Commodities
10 Tesco Retail
Customer Type
11 Jacobs Engineering Engineering & electrical
12 Equinix Communications & technology
13 DAHER International Transport & distribution
14 FedEx Transport & distribution
15 Antalis Timber, paper & printing
16 Savvis UK Limited Communications & technology
17 Ducros Express Transport & distribution
18 Lonza Biologics Chemicals & commodities
19 Barclays Bank Financial
20 Booker Belmont Wholesale Retail
1 Excluding Neckermann (lease surrender in January 2013) and post year end disposals
Top 20 Customers represent 22% of the Group’s headline rent1
Improved rental income profile
46
2009 2010 2011 2012
Portfolio vacancy rate 13.5% 12.0% 9.1% 8.2%
Weighted average lease length 7.7 years 8.3 years 8.2 years 8.4 years
2012 vacancy rate lowest reported in the last 10 years
Pro forma vacancy (inc. Neckermann and post year end disposals) would be 9.6%
Retention rate of 65% (core 74%)
Average lease length increased from 7.7 years to 8.4 years since 2009
Appendix III Financing
Group debt maturity profile
£0m
£100m
£200m
£300m
£400m
£500m
£600m
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+
Bonds and Notes Bank debt drawn Cash Undrawn Facilities
48
Average maturity of gross borrowings 8.3 years (2011: 8.8 years)
Appendix IV Development
50
Current development pipeline
Project Customer Space to be built (sq m)
UK
Pre-let projects under construction
Montrose & Perth Avenue, STE Karl Storz (63%)/spec
4,100
Contracted projects
Tudor Estate, Park Royal Warmup (28%)/spec
3,200
Southern Approach, Feltham (joint venture)
Freight Forwarder (62%)/spec
8,000
Speculative developments
Cambridge Avenue, STE Spec 3,300
Advent Way, Edmonton Spec 7,800
Total 22,400*
Project Customer Space to be built (sq m)
CONTINENTAL EUROPE
Pre-let projects under construction
Vimercate, Italy Alcatel-Lucent 34,000
Wroclaw, Poland DPD 6,900
Lodz – Strykow, Poland Valeo, Cat 10,600
Gdansk, Poland DB Schenker 5,200
Lodz – Strykow, Poland Azymut 4,800
Nardarzyn – Warsaw, Poland Zabka 23,800
Tychy, Poland Car parts manufacturer
18,400
Speculative developments
Krefeld, Germany Spec 11,900
Frankfurt, Germany Spec 17,300
Total 132,900
£10.8m of annualised rental income £71.4m of future capital expenditure 70% pre-let
* Includes Southern Approach project at Group share
London industrial land
51
Source: Deloitte/ONS
52
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 because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.