SEGRO reports a strong performance in H1
2021 and remains well-positioned to deliver further growth.
Regulatory News:
Commenting on the results, David Sleath, Chief Executive,
said:
“SEGRO has delivered another strong set of results, which
reflect the high quality of our portfolio and increased demand from
a diverse range of occupiers and investors. Together with our
active approach to asset management, rental growth and further
progress with our development pipeline, these factors have driven
significant valuation increases and earnings growth.
“We have also made important progress on our Responsible SEGRO
priorities, putting the necessary framework in place to enable us
to deliver on our long-term commitments, whilst continuing to work
with our local teams and partners to embed our approach into our
day-to-day business.
“SEGRO is well-placed to continue benefitting from the
structural tailwinds driving the industrial property sector with
our unique portfolio of prime warehouses, two-thirds of which are
located in the most supply constrained urban markets, and an
enviable land bank capable of supporting our profitable and
expanding development programme. The combination of our established
pan-European, customer-focused operating platform and our
relationships and reputation with other key stakeholders, give us a
significant competitive advantage which further enhances our
ability to secure opportunities for future growth.”
HIGHLIGHTSA:
- Adjusted pre-tax profit of £168 million up 19 per cent
compared with the prior year (H1 2020: £141 million). Adjusted
EPS is 13.8 pence, up 10 per cent (H1 2020: 12.5 pence).
- Adjusted NAV per share is up 12 per cent to 909 pence
(31 December 2020: 814 pence) driven by portfolio asset management
initiatives, yield compression, rental growth and our development
activity delivering a 10 per cent increase in the valuation of the
portfolio.
- Strong occupier demand, our customer focus and active
management of the portfolio generated £38 million of new headline
rent commitments during the period, including £21
million of new pre-let agreements, and a 12 per cent average uplift
on rent reviews and renewals (UK: 16 per cent, CE: 2 per
cent).
- Further growth in the development pipeline with 1.3 million
sq m of projects under construction or in advanced pre-let
discussionsequating to £96 million of potential rent, of which
75 per cent has been pre-let, substantially de-risking the
2021-2022 pipeline.
- Balance sheet positioned to support further, development-led
growth with access to over £1.2 billion of available liquidity
and a low level of gearing reflected in an LTV of 21 per cent at 30
June 2021 (31 December 2020: 24 per cent).
- Interim dividend increased by 7 per cent to 7.4 pence
(2020: 6.9 pence), in line with our usual practice of setting the
interim dividend at one-third of the previous full year
dividend.
FINANCIAL SUMMARY
6 months to 30 June
2021
6 months to 30 June
2020
Change per cent
Adjusted1 profit before tax (£m)
168
141
19.1
IFRS profit before tax (£m)
1,413
221
-
Adjusted2 earnings per share (pence)
13.8
12.5
10.4
IFRS earnings per share (pence)
110.3
19.5
-
Dividend per share (pence)
7.4
6.9
7.2
Total Accounting Return (%)3
13.5
4.6
30 June 2021
31 December 2020
Change per cent
Portfolio valuation (SEGRO share, £m)
14,446
12,995
10.24
Adjusted5 6 net asset value per share
(pence, diluted)
909
814
11.7
IFRS net asset value per share (pence,
diluted)
897
809
10.9
Net debt (SEGRO share, £m)
3,092
3,088
Loan to value ratio including joint
ventures at share (per cent)
21
24
1. A reconciliation between Adjusted
profit before tax and IFRS profit before tax is shown in Note 2 to
the condensed financial information.
2. A reconciliation between Adjusted
earnings per share and IFRS earnings per share is shown in Note 11
to the condensed financial information.
3. Total Accounting Return is calculated
based on the opening and closing adjusted NAV per share adding back
dividends paid during the period.
4. Percentage valuation movement during
the period based on the difference between opening and closing
valuations for all properties including buildings under
construction and land, adjusting for capital expenditure,
acquisitions and disposals.
5. A reconciliation between Adjusted net
asset value per share and IFRS net asset value per share is shown
in Note 11 to the condensed financial information.
6. Adjusted net asset value is in line
with EPRA Net Tangible Assets (NTA) (see Table 4 in the
Supplementary Notes for a NAV reconciliation).
A Figures quoted on pages 1 to 17 refer to SEGRO’s share, except
for land (hectares) and space (square metres) which are quoted at
100 per cent, unless otherwise stated. Please refer to the
Presentation of Financial Information statement in the Financial
Review for further details.
OUTLOOK
SEGRO continues to be positioned well for further growth,
benefiting from a unique portfolio of assets and a development
pipeline located in areas which are highly sought after and where
land is in increasingly short supply. Our ability to provide our
customers with modern, sustainable premises in prime locations,
two-thirds of which are in Europe’s major cities, combined with the
extensive experience and networks of our local teams, give us a
strong competitive advantage.
Our buildings are adaptable to many different uses and serve a
wide range of customers and sectors. A significant portion of
occupier demand continues to arise from the increased use of
digital channels by retailers and consumers which, in turn, is
driving increased e-commerce penetration and consumption of data
across Europe. Although internet sales penetration levels have
understandably fallen from their highs as physical retail has
reopened, they remain significantly higher than pre-pandemic levels
as cultural barriers have been overcome and habits have changed. We
believe that the long-term trend towards increased on-line shopping
has been amplified and accelerated by the pandemic and this has
given a new impetus to demand for space.
Coupled with that, many customers and logistics suppliers are
placing renewed emphasis on supply chain resilience, near-shoring
and local sourcing, improved customer service and cost or inventory
efficiency which are fuelling increased demand for modern,
well-located warehouses – both urban and big box. We expect these
themes to continue for some time. More recently we have also seen
demand arising from emerging new sectors including creative
industries and q-commerce (including rapid food delivery
providers).
Record levels of take-up across Europe have resulted in low
vacancy rates and in most of our markets supply currently equates
to less than a year of take-up. This is resulting in rental growth
in our core markets, most notably in urban areas where the
combination of a shortage of modern warehouse space, a shortage of
land suitable for development and the diversity of the occupier
base is most prevalent.
Given these strong market dynamics investor demand for
well-located, modern industrial assets is likely to continue to
grow, putting further upward pressure on asset values.
These factors, combined with our active approach to asset
management, are enabling us to drive strong returns from the
existing portfolio, supplemented by our profitable, de-risked
development programme which generates additional rental income and
allows us to further modernise the portfolio to help our customers
meet their own sustainability requirements.
We remain confident in the outlook for the remainder of 2021 and
beyond given the strong levels of occupier demand and the
competitive position of our business, but remain alert to macro
risks, not least the ongoing Covid-19 pandemic.
SUMMARY & KEY METRICS
H1 2021
H1 2020
FY2020
STRONG PORTFOLIO PERFORMANCE (see page
8):
Valuation increase driven by yield
compression, rental value growth and active asset management of the
standing portfolio, supplemented by development gains.
Portfolio valuation uplift (%)
10.2
0.7
10.3
Like-for-like portfolio valuation growth
(%)
UK
8.6
0.1
9.2
CE
8.3
0.8
10.2
Estimated rental value (ERV) growth
(%)
UK
3.6
1.0
3.1
CE
1.5
0.4
1.5
ACTIVE ASSET MANAGEMENT DRIVING
OPERATIONAL PERFORMANCE (see page 9):
Strong performance in capturing new rent,
including leases signed with customers from new sectors,
highlighting the versatility of our urban portfolio. Our approach
to asset management and customer focus has also resulted in
continued capture of reversionary potential.
Total new rent contracted during the
period (£m)
38
34
78
Pre-lets signed during the period (£m)
21
19
41
Like-for-like net rental income growth
(%):
Group
4.7
(0.2)
2.1
UK
4.8
0.6
0.9
CE
4.6
(0.7)
4.3
Uplift on rent reviews and renewals
(%)
12.1
10.4
19.1
Vacancy rate (%)
4.3
5.2
3.9
Customer retention (%)
83
88
86
INVESTMENT ACTIVITY CONTINUES TO FOCUS
ON DEVELOPMENT (see page 14):
Investment continues to focus on the
development and we sourced further land to secure future
opportunities. Development capex for 2021, including
infrastructure, expected to be c.£750 million.
Development capex (£m)
364
265
531
Acquisitions (£m)
92
426
889
Disposals (£m)
154
59
139
EXECUTING ON AND GROWING OUR
DEVELOPMENT PIPELINE (see page 12):
Continuing to add to our development
pipeline with a further 770,000 sq m expected to complete by year
end and £96m of potential rent from developments under construction
or in advanced discussions.
Development completions:
– Space completed (sq m)
104,000
358,500
835,900
– Potential rent (£m) (Rent secured,
%)
8 (75%)
22 (64%)
47 (84%)
Current development pipeline potential
rent (£m) (Rent secured, %)
74 (72%)
45 (85%)
54 (66%)
Near-term development pipeline potential
rent (£m)
22
33
27
FINANCING (see page 15):
Strong balance sheet and low cost of debt
provides significant capacity to invest for future growth.
Cost of debt (%)
1.5
1.7
1.6
Average debt maturity (years)
9.7
9.4
9.9
Cash and available facilities (£m)
1,230
1,541
1,189
WEBCAST / CONFERENCE CALL FOR INVESTORS AND ANALYSTS
A live webcast of the results presentation will be available
from 08:30am (UK time) at:
https://www.investis-live.com/segro/60e718e680fc931000313c84/hy21
The webcast will be available for replay at SEGRO’s website at:
http://www.segro.com/investors shortly after the live
presentation.
A conference call facility will be
available at 08:30 (UK time) on the following number:
Dial-in: +44 (0)800 640 6441
+44 (0) 203 936 2999
Access code: 933901
An audio recording of the conference call
will be available until 5 August 2021 on:
UK: +44 (0) 203 936 3001
Access code: 713190
A video of David Sleath, Chief Executive discussing the results
will be available to view on www.segro.com, together with this
announcement, the Half Year 2021 Property Analysis Report and other
information about SEGRO.
CONTACT DETAILS FOR INVESTOR / ANALYST AND MEDIA
ENQUIRIES:
SEGRO
Soumen Das
(Chief Financial Officer)
Tel: + 44 (0) 20 7451 9110 (after
11am)
Claire Mogford
(Head of Investor Relations)
Mob: +44 (0) 7710 153 974
Tel: +44 (0) 20 7451 9048 (after 11am)
FTI Consulting
Richard Sunderland / Claire Turvey /
Eve Kirmatzis
Tel: +44 (0) 20 3727 1000
FINANCIAL CALENDAR
2021 interim dividend ex-div date
12 August 2021
2021 interim dividend record date
13 August 2021
2021 interim dividend scrip dividend price
announced
19 August 2021
Last date for scrip dividend elections
3 September 2021
2021 interim dividend payment date
24 September 2021
2021 Third Quarter Trading Update
20 October 2021
Full Year 2021 Results (provisional)
18 February 2022
ABOUT SEGRO
SEGRO is a UK Real Estate Investment Trust (REIT), listed on the
London Stock Exchange and Euronext Paris, and is a leading owner,
manager and developer of modern warehouses and industrial property.
It owns or manages 8.8 million square metres of space (95 million
square feet) valued at £17.1 billion serving customers from a wide
range of industry sectors. Its properties are located in and around
major cities and at key transportation hubs in the UK and in seven
other European countries.
For over 100 years SEGRO has been creating the space that
enables extraordinary things to happen. From modern big box
warehouses, used primarily for regional, national and international
distribution hubs, to urban warehousing located close to major
population centres and business districts, it provides high-quality
assets that allow its customers to thrive.
A commitment to be a force for societal and environmental good
is integral to SEGRO’s purpose and strategy. Its Responsible SEGRO
framework focuses on three long-term priorities where the company
believes it can make the greatest impact: Championing Low-Carbon
Growth, Investing in Local Communities and Environments and
Nurturing Talent.
See www.SEGRO.com for further information.
Forward-Looking Statements: This announcement contains
certain forward-looking statements with respect to SEGRO's
expectations and plans, strategy, management objectives, future
developments and performance, costs, revenues and other trend
information. These statements are subject to assumptions, risk and
uncertainty. Many of these assumptions, risks and uncertainties
relate to factors that are beyond SEGRO's ability to control or
estimate precisely and which could cause actual results or
developments to differ materially from those expressed or implied
by these forward-looking statements. Certain statements have been
made with reference to forecast process changes, economic
conditions and the current regulatory environment. Any
forward-looking statements made by or on behalf of SEGRO are based
upon the knowledge and information available to Directors on the
date of this announcement. Accordingly, no assurance can be given
that any particular expectation will be met and you are cautioned
not to place undue reliance on the forward-looking statements.
Additionally, forward-looking statements regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. The information
contained in this announcement is provided as at the date of this
announcement and is subject to change without notice. Other than in
accordance with its legal or regulatory obligations (including
under the UK Listing Rules and the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority), SEGRO does
not undertake to update forward-looking statements, including to
reflect any new information or changes in events, conditions or
circumstances on which any such statement is based. Past share
performance cannot be relied on as a guide to future performance.
Nothing in this announcement should be construed as a profit
estimate or profit forecast. The information in this announcement
does not constitute an offer to sell or an invitation to buy
securities in SEGRO plc or an invitation or inducement to engage in
or enter into any contract or commitment or other investment
activities.
Neither the content of SEGRO's website nor any other website
accessible by hyperlinks from SEGRO's website are incorporated in,
or form part of, this announcement.
CHIEF EXECUTIVE’S REVIEW
INTRODUCTION
SEGRO has delivered another strong set of results, which reflect
the high quality of our portfolio and increased demand from a
diverse range of occupiers and investors. Together with our active
approach to asset management, rental growth and further progress
with our development pipeline, these factors have driven
significant valuation increases and earnings growth.
Our business is well-placed to continue benefitting from the
structural tailwinds driving the industrial property sector with
our unique portfolio of prime warehouses, two-thirds of which are
located in the most supply constrained urban markets, and an
enviable land bank capable of supporting our profitable and
expanding development programme. The combination of our established
pan-European, customer-focused operating platform and our
relationships and reputation with other key stakeholders, give us a
significant competitive advantage which further enhances our
ability to secure opportunities for future growth.
IMPORTANT PROGRESS WITH RESPONSIBLE SEGRO PRIORITIES
Earlier this year we launched our new Responsible SEGRO
ambitions and commitments which address the key areas where we
believe we can make the greatest environmental and social
contribution, helping to position SEGRO for another 100 years of
success.
Our three priorities are:
- Championing low-carbon growth – we recognise the world faces a
climate emergency and are committed to playing our part in tackling
climate change.
- Investing in our local communities and environments – as a
long-term investor we are committed to contributing to the vitality
of the communities in which we operate.
- Nurturing talent – our people are vital to and inseparable from
our success and we are committed to attracting, creating and
retaining talented individuals from a wide range of
backgrounds.
We have been working on these focus areas throughout the first
half of the year, alongside and as part of the management of our
property portfolio, and engaging with our stakeholders to gain
their feedback, which has been overwhelmingly positive.
We have made good progress in Championing Low-Carbon Growth,
particularly in the area of our Scope 3 carbon emissions. One of
our key challenges in reducing and eliminating operational carbon
emissions is for us to gain visibility over, and then influence,
our customers’ energy usage and sources of supply. We are gathering
more data than we have ever done before and now have visibility
over significantly more data than we did at the end of 2020. We
have also moved our Polish portfolio, which is one of the few parts
of the portfolio where we directly source energy on behalf of our
customers, onto a renewable energy tariff. This represents an
important step forward as Poland has a highly coal-based power
network and accounted for almost half of our known total carbon
emissions in 2020. All of the markets where we procure energy (for
ourselves and on behalf of our customers) are now on renewable
energy targets. Finally, we have also signed our first Green lease
on a data centre on the Slough Trading Estate which requires the
customer to procure certified renewable energy.
We are addressing embodied carbon in our development pipeline by
undertaking full lifetime carbon assessments for most developments
and we continue to test and introduce leading sustainability
features in our developments and refurbishments such as solar
panels, LED lighting, living walls, battery storage, rainwater
harvesting and sensors to measure air quality, energy usage and
other day to day operational metrics.
In terms of Investing in our Local Communities and Environments,
we have been working hard to put the necessary framework in place
to launch our first Community Investment Plans (CIPs) in the second
half of 2021. We have identified eight key markets and started to
accept proposals for an initial set of projects.
The SEGRO Centenary Fund, which supports our Responsible SEGRO
goal of improving employment prospects of the individuals within
the communities in our major markets, has now committed its third
and fourth rounds of funding. These two rounds contributed to 23
programmes supporting over 3,000 beneficiaries, with a focus on
employability and skills training. Finally, we have continued our
work with LandAid and Pathways to Property on projects aligned with
our areas of focus.
We also continue to work to improve the physical environments
within and around our estates, including the introduction of
biodiversity features such as beehives and green spaces. For
example, we recently funded the creation of Tree Trails in Slough
and in Germany are working with Plant-My-Tree to support forest
conservation and plant 1,430 trees near Hamburg.
A crucial element of Nurturing Talent is to ensure that we are a
fully inclusive business which appeals to a wide, diverse and
talented range of people. Our work in the first half has included
working with the National Equality Standards to audit our business,
participating in the Social Mobility Index and building on our
strengths and identifying opportunities for improvement from the
results of our ‘Your Say’ employee survey. These programmes and
other initiatives will help us prioritise actions and improvements
to ensure that we provide an inclusive culture and a healthy,
supportive working environment.
Alongside the ongoing work on these three focus areas, an
important next step within our Responsible SEGRO framework in the
second half of the year is to identify challenging but achievable
non-financial KPIs to help us measure and report on our progress
and to link these to remuneration as part of our updated
Remuneration Policy which will be presented to shareholders for
approval at the 2022 Annual General Meeting.
PORTFOLIO VALUATION: STRONG GROWTH IN ALL MARKETS
Valuation gains from asset management, market-driven yield
improvement and development
There has been significant growth in property values across all
of our markets in the first six months of 2021 as a result of the
continued strong occupier and investor appetite for industrial
assets.
The Group’s property portfolio was valued at £14.4 billion at 30
June 2021 (£17.1 billion of assets under management). The portfolio
valuation, including completed assets, land and buildings under
construction, increased by 10.2 per cent (adjusting for capital
expenditure and asset recycling during the period) compared to 0.7
per cent in H1 2020.
This primarily comprises an 8.5 per cent increase in the assets
held throughout the period (H1 2020: 0.3 per cent), driven by
strong yield compression in most markets (the true equivalent yield
fell 30 basis points across the whole portfolio to 4.2 per cent)
and a 2.8 per cent increase in our valuers’ estimate of the market
rental value of our portfolio (ERV).
Assets held throughout the period in the UK increased in value
by 8.6 per cent (H1 2020: 0.1 per cent). The true equivalent yield
applied to our UK portfolio was 4.1 per cent (31 December 2020: 4.3
per cent), reflecting yield compression, rental growth and the
impact of newly completed developments. Rental values improved by
3.6 per cent (H1 2020: 1.0 per cent).
Assets held throughout the period in Continental Europe
increased in value by 8.3 per cent (H1 2020: 0.8 per cent) on a
constant currency basis, reflecting a combination of yield
compression to 4.4 per cent (31 December 2020: 4.8 per cent) and
rental value growth of 1.5 per cent (H1 2020: 0.4 per cent).
More details of our property portfolio can be found in the H1
2021 Property Analysis Report available at
www.segro.com/investors.
Property portfolio metrics at 30 June
2021
Portfolio value, £m
Yield3
Lettable area sq m
Completed
Land & development
Combined property
portfolio
Combined property
portfolio
Valuation movement2 3
%
Topped-up net initial
%
Net true equivalent %
Vacancy (ERV)4 %
(AUM)
(AUM)
UK
GREATER LONDON
1,225,704
5,165
184
5,349
5,349
8.4
3.2
3.9
6.6
THAMES VALLEY
568,337
2,033
216
2,249
2,249
8.5
4.0
4.4
2.4
NATIONAL LOGISTICS
546,252
911
527
1,438
1,438
9.6
4.3
4.3
-
UK TOTAL
2,340,293
8,109
927
9,036
9,036
8.6
3.5
4.1
4.7
Continental Europe
Germany
1,478,357
1,323
163
1,486
2,224
6.6
3.7
3.8
2.4
Netherlands
233,193
159
16
175
334
14.2
4.0
4.1
2.5
France
1,420,452
1,419
184
1,603
2,074
6.0
4.1
4.6
6.1
Italy
1,357,237
764
327
1,091
1,612
16.4
4.3
4.2
-
Spain
311,056
219
115
334
507
14.1
4.2
4.3
-
Poland
1,475,328
586
41
627
1,104
6.5
5.6
5.6
6.3
Czech Republic
169,515
83
11
94
180
10.7
4.8
5.2
2.9
CONTINENTAL EUROPE TOTAL
6,445,138
4,553
857
5,410
8,035
8.3
4.2
4.4
3.7
GROUP TOTAL
8,785,431
12,662
1,784
14,446
17,071
8.5
3.8
4.2
4.3
1 Figures reflect SEGRO wholly-owned
assets and its share of assets held in joint ventures unless stated
“AUM” which refers to all assets under management.
2 Valuation movement is based on the
difference between the opening and closing valuations for
properties held throughout the period, allowing for capital
expenditure, acquisitions and disposals.
3 In relation to completed properties
only.
4 Vacancy rate excluding short term
lettings for the Group at 30 June 2021 is 4.3 per cent.
ASSET MANAGEMENT: CREATING VALUE THROUGH OPERATIONAL
EXCELLENCE
Our portfolio comprises two main asset types: urban warehouses
and big box warehouses. The demand-supply dynamics in both asset
classes continue to be positive.
Urban Warehouses
Urban warehouses account for 67 per cent of our portfolio value.
They tend to be smaller warehouses and are located mainly in and on
the edges of major cities where land supply is restricted and there
is strong demand for warehouse space, particularly catering for the
needs of urban logistics and, around London, from data centre
users.
Our urban portfolio is concentrated in London and South-East
England (80 per cent) and major cities in Continental Europe (20
per cent), including Paris, Düsseldorf, Frankfurt, Berlin,
Amsterdam and Warsaw. These locations share similar characteristics
in terms of limited (and shrinking) supply of industrial land and
growing populations, while occupiers are attracted to modern
warehouses with plenty of yard space to allow easy and safe vehicle
circulation. We believe that this enduring occupier demand and
limited supply bodes well for future rental growth.
Big Box Warehouses
Big box warehouses account for 31 per cent of our portfolio
value. They tend to be used for storage, processing and
distribution of goods on a regional, national or international
basis and are, therefore, much larger than urban warehouses.
They are focused on the major logistics hubs and corridors in
the UK (South-East and Midlands regions), France (the logistics
‘spine’ linking Lille, Paris, Lyon and Marseille), Germany
(Düsseldorf, Berlin, Frankfurt and Hamburg), Italy (Milan, Bologna
and Rome), Poland (Warsaw, Łódz, Poznán, and the industrial region
of Silesia) and Spain (Barcelona and Madrid). 27 per cent of our
big box warehouses are in the UK and 73 per cent are in Continental
Europe.
Occupier demand is strong across all of our markets but the
nature (and typical location) of big box warehouses tends to mean
that, over time, supply is able to increase more easily to satisfy
demand, as there is generally more land available in out-of-town
locations. However, record take-up levels over the past 12 months
have meant that most of the markets that we operate in have less
than a year of available space and vacancy levels remain low.
Overall, we believe the prospects for significant rental growth
in big box warehouses are, and have always been, limited but this
asset class brings other benefits including lower asset management
intensity and long leases which help to ensure a sustainable level
of income. In addition, by holding the majority of our Continental
European big box warehouses in the SELP joint venture, we receive
additional income from managing the venture which enhances total
returns.
Customer relationships key to our continued success
Our long-term ownership and internalised management of our
portfolio allows us to focus on developing strong customer
relationships. These relationships proved to be particularly
important last year in helping us to respond quickly to the impacts
of the pandemic on our customer base. This meant that we were able
to alleviate the cash flow pressures that some of our customers
were experiencing and, as a result, help their businesses to
survive an unprecedented period. A small proportion of customers
continue to pay their rents monthly but are paying on time and in
full and, as a result, rental collections have largely reverted to
pre-pandemic levels and patterns.
Our experience last year demonstrates why we believe that an
important part of the role of our asset managers is to build a
knowledge of the businesses that occupy our space. By understanding
their evolving needs and requirements, we can help them through
difficult situations such as the pandemic but also help them to
change and grow in more positive times, whilst also becoming better
able to identify emerging trends and innovate accordingly.
Almost 60 per cent of our headline rent comes from customers
with whom we have multiple leases and over a quarter of our rent
comes from customers with whom we are active in more than one
geography. Additionally, over 20 per cent of our rent comes from
customers with whom we have both a big box and urban warehouse
lease which shows the importance of being able to offer both types
of assets to our customers.
Our customer relationships also help to drive the growth of our
development pipeline and over 80 per cent of the potential rent
from the projects in our near-term pipeline has been secured by a
pre-let with an existing customer.
Partnering with our customers is vital to achieving our
Responsible SEGRO ambitions. Our commitment to be net-zero carbon
by 2030 covers Scope 3 carbon emissions from our portfolio
(including customer energy use). We therefore need to engage with
our customers to get visibility on the amount of energy that they
use and work with them to reduce the operating carbon emissions
from our portfolio (for further detail on the progress made with
this so far in 2021 see page 7).
Growing Rental Income from Letting Existing Space and New
Developments
At 30 June 2021, our portfolio generated passing rent of £461
million, rising to £503 million once rent free periods expire
(‘headline rent’). During the period, we contracted £38 million of
new headline rent and pre-let agreements contributed £21 million to
this number.
Our customer base remains well diversified, reflecting the
multitude of uses of warehouse space. Our top 20 customers account
for 30 per cent of total headline rent, and Amazon continues to be
the largest customer, accounting for 4.7 per cent of the total.
Approximately half of our customers are involved in businesses
affected by e-commerce, including third party logistics and parcel
delivery businesses, and retailers. These businesses also accounted
for almost half of our take-up during the period.
Summary of key leasing data for H1 2021
and H1 2020
Summary of key leasing data1 for the
six months to 30 June
H1 2021
H1 2020
Take-up of existing space2 (A)
£m
9.5
6.6
Space returned3 (B)
£m
(9.5)
(8.2)
NET ABSORPTION OF EXISTING SPACE2
(A-B)
£m
-
(1.6)
Other rental movements (rent reviews,
renewals, indexation)2 (C)
£m
4.4
3.9
RENT ROLL GROWTH FROM EXISTING
SPACE
£m
4.4
2.3
Take-up of pre-let developments completed
in the year (signed in prior years)2 (D)
£m
4.8
10.1
Take-up of speculative developments
completed in the past two years2 (D)
£m
4.0
6.1
TOTAL TAKE-UP2 (A+C+D)
£m
22.7
26.7
Less take-up of pre-lets and speculative
lettings signed in prior years2
£m
(5.5)
(11.8)
Pre-lets signed in the year for future
delivery2
£m
21.2
18.8
RENTAL INCOME CONTRACTED IN THE
PERIOD2
£m
38.4
33.7
Takeback of space for redevelopment
£m
(1.9)
(0.5)
Retention rate4
%
83
88
1 All figures reflect exchange rates at 30
June 2021 and include joint ventures at share.
2 Headline rent.
3 Headline rent, excluding space taken
back for redevelopment.
4 Headline rent retained as a percentage
of total headline rent at risk from break or expiry during the
period.
We monitor a number of asset management performance indicators
to assess our performance:
- Rental growth from lease reviews and renewals. These
generated an uplift of 12.1 per cent (H1 2020: 10.4 per cent)
compared to previous headline rent. During the period, new rents
agreed at review and renewal were 16.4 per cent higher in the UK
(H1 2020: 16.2 per cent higher) as reversion accumulated over the
past five years was reflected in new rents agreed, adding £3
million of headline rent. In Continental Europe, rents agreed on
renewal were 1.8 per cent higher (H1 2020: 0.9 per cent higher),
with market rental growth slightly ahead of the indexation
provisions that have accumulated over recent years.
- Vacancy has remained low. The vacancy at 30 June 2021
increased slightly to 4.3 per cent (31 December 2020: 3.9 per cent)
mainly due to some takebacks of older assets for refurbishment and
redevelopment, which we expect to relet at higher rental levels.
The vacancy rate on our standing stock remains low at 3.0 per cent
(31 December 2020: 2.6 per cent). The vacancy rate remains at the
lower end of our target range of between 4 and 6 per cent. The
average vacancy rate during the period was 4.3 per cent (H1 2020:
4.8 per cent).
- High retention rate of 83 per cent. During the period,
space equating to £9.5 million (H1 2020: £8.2 million) of rent was
returned to us, including £1.4 million of rent lost due to
insolvency (H1 2020: £1.5 million). We also took back space
equating to £1.9 million of rent for redevelopment. Approximately
£35 million of headline rent was at risk from a break or lease
expiry during the period of which we retained 82 per cent in
existing space, with a further 1 per cent retained but in new
premises.
- Lease terms continue to offer attractive income
security. The level of incentives agreed for new leases
(excluding those on developments completed in the period)
represented 6.0 per cent of the headline rent (H1 2020: 8.0 per
cent). The portfolio’s weighted average lease length reduced
slightly during the first six months of the year with 7.3 years to
first break and 8.6 years to expiry (31 December 2020: 7.5 years to
first break, 8.8 years to expiry). Lease terms are longer in the UK
(8.7 years to break) than in Continental Europe (5.4 years to
break), reflecting the market convention of shorter leases in
countries such as France and Poland.
- £4.4 million of net new rent from existing assets. We
generated £9.5 million of headline rent from new leases on existing
assets (H1 2020: £6.6 million) and £4.4 million from rent reviews,
lease renewals and indexation (H1 2020: £3.9 million). This was
offset by rent from space returned of £9.5 million (H1 2020: £8.2
million).
- Continued strong demand from customers for pre-let
agreements. In addition to increased rents from existing
assets, we contracted £21.2 million of headline rent from pre-let
agreements and lettings of speculative developments prior to
completion (H1 2020: £18.8 million). Included in this within the UK
is a sizeable new data centre on the Slough Trading Estate and a
further letting at SEGRO Logistics Park East Midlands Gateway. On
the Continent, we agreed pre-lets in most of our major markets with
the majority being to online retailers or third-party logistics
operators.
- Net rent roll growth of £27.0 million. An important
element of achieving our goal of being a leading income-focused
REIT is to grow our rent roll from both our existing assets and our
development pipeline. Rent roll growth, which reflects net new
headline rent from existing space (adjusted for takebacks of space
for development), take-up of developments and pre-lets agreed
during the period, increased to £27.0 million in the period, from
£25.0 million in H1 2020.
DEVELOPMENT: FURTHER GROWTH IN OUR DEVELOPMENT
PIPELINE
Development Activity
During the period, we invested £456 million in our development
pipeline which comprised £364 million (H1 2020: £265 million) in
development spend, of which £42 million (H1 2020: £34 million) was
for infrastructure, and a further £92 million (H1 2020: £202
million) to replenish our land bank to enable future
development.
Development Projects Completed
We completed 104,000 sq m of new space during the first half, a
lower amount than usual as our completion schedule is significantly
weighted towards the second half of the year in 2021. These
projects were 58 per cent pre-let prior to the start of
construction and were 75 per cent let as at 30 June 2021,
generating £6 million of headline rent, with a potential further £2
million to come when the remainder of the space is let. This
translates into a yield on total development cost (including land,
construction and finance costs) of 6.7 per cent when fully let.
We completed 54,500 sq m of big box warehouse space, including
pre-lets in Germany, the Netherlands, Poland and Italy to customers
in the e-commerce and logistics space. We also completed 49,500 sq
m of urban warehouses, 66 per cent of which has already been
leased, including a further data centre on the Slough Trading
Estate, phase two of SEGRO Park Rainham and urban warehouse parks
in Paris and Warsaw.
All of the eligible space that we completed in the period has
been, or is in the process of being, accredited as BREEAM
‘Excellent’ or ‘Very Good’ (or a local equivalent).
Current Development Pipeline
At 30 June 2021, we had development projects approved,
contracted or under construction totalling 1.1 million sq m,
representing £337 million of future capital expenditure to complete
and £74 million of annualised gross rental income when fully let.
72 per cent of this rent has already been secured and these
projects should yield 6.5 per cent on total development cost when
fully occupied.
- In the UK, we have 216,200 sq m of space approved or under
construction. Within this are three more data centres on the Slough
Trading Estate, developments in East, South and West London as well
as four pre-lets at our big box logistics park SEGRO Logistics Park
East Midlands Gateway.
- In Continental Europe, we have 843,000 sq m of space approved
or under construction. This includes pre-let big box warehouses for
a variety of different occupiers, from retailers to manufacturers,
across all of our European markets. We are also developing further
phases of our successful urban warehouse parks in Berlin, Cologne,
Düsseldorf and Ingolstadt in Germany as well as two projects in
Paris.
- In addition to the above projects that we are developing
ourselves, we also have 72,200 sq m of space under construction as
part of forward-funded agreements with local developers. This is
proving to be an additional and effective method of accessing
opportunities in competitive markets where sourcing land is more
difficult.
We continue to focus our speculative developments primarily on
urban warehouse projects, particularly in the UK, France and
Germany, where modern space is in short supply and occupier demand
is strong. In the UK, our speculative projects are concentrated in
London and on the Slough Trading Estate. In Continental Europe, we
continue to build scale in Germany, where projects are underway in
a number of major cities.
Within our Continental European development programme,
approximately £22 million of potential gross rental income is
associated with big box warehouses developed outside our SELP joint
venture. Under the terms of the joint venture, SELP has the option,
but not the obligation, to acquire these assets shortly after
completion. Assuming SELP exercises its option, we would retain a
50 per cent share of the rent after disposal. In the period, SEGRO
sold £233 million of completed assets to SELP, representing a net
disposal of £117 million.
In recent months, there has been media commentary around the
availability and costs of certain materials as economies reopen
post various local Covid lockdowns. We have not experienced any
delays to the completion date of any of our actual or pipeline
development projects, working closely with our construction
partners to ensure that any supply chain interruptions can be
managed within the overall project timetable. In terms of costs,
the majority of our development pipeline is on fixed price
contracts so there has been little impact so far. We anticipate
that rental growth would more than offset any additional costs that
arise on the future pipeline described below, given the compelling
demand from occupiers for new, high-quality, space and the low
level of vacancy across our markets.
We continue to pay attention close to our use of energy,
resources and materials throughout the construction of our
warehouses and are increasingly looking at how we can minimise the
carbon footprint throughout their entire life cycle. It is now a
SEGRO wide policy to undertake BIM (Building Information
Management) modelling on all new developments of 5,000 sq m or
larger, which enables us to do a full lifecycle assessment.
Focusing on the environmental sustainability of our buildings is
important not just for the long-term performance and resilience of
the portfolio, but also because increasingly our customers want to
occupy buildings that align with and help them achieve their own
environmental targets.
Future Development Pipeline
Near-Term Development Pipeline
Within the future development pipeline are a number of pre-let
projects which are close to being approved, awaiting either final
conditions to be met or planning approval to be granted. We expect
to commence these projects within the next six to 12 months.
These projects total 183,100 sq m of space, equating to
approximately £186 million (H1 2020: £311 million) of additional
capital expenditure and £22 million (H1 2020: £33 million) of
additional rent.
Land Bank
Our land bank identified for future development (including the
near-term projects detailed above) totalled 597 hectares at 30 June
2021, valued at £651 million, less than 5 per cent of our total
portfolio value. We invested £92 million in acquiring new land
during the period, the majority of which was land associated with
developments already underway or expected to start in the short
term.
We estimate that our land bank (excluding projects currently
under construction) can support over 2.5 million sq m of
development over the next five years. The prospective capital
expenditure associated with the future pipeline is approximately
£1.4 billion. It could generate £144 million of gross rental
income, representing a yield on total development cost (including
land and notional finance costs) of around 6.9 per cent. These
figures are indicative based on our current expectations and are
dependent on our ability to secure pre-let agreements, planning
permissions, construction contracts and on our outlook for occupier
conditions in local markets.
Conditional Land Acquisitions and Land Held Under Option
Agreements
Land acquisitions (contracted but subject to further conditions)
and land held under option agreements are not included in the
figures above but together represent significant further
development opportunities. These include sites for big box
warehouses in the UK Midlands as well as in Germany and Italy. They
also include urban warehouse sites in East London and close to
Heathrow.
The options are held on the balance sheet at a value of £16
million (including joint ventures at share). Those we expect to
exercise over the next two to three years are for land capable of
supporting just over 1.1 million sq m of space and generating
approximately £66 million of headline rent (SEGRO share) for a
blended yield of approximately 6 per cent.
INVESTMENT: CONTINUING TO FOCUS ON OUR DEVELOPMENT
PIPELINE
We invested £456 million in our portfolio during the period:
development capital expenditure of £364 million, and £92 million on
acquisitions. This was partly offset by £154 million of
disposals.
Acquisitions: Focused on sourcing land to add to the future
development pipeline
Acquisitions during the period totalled £92 million, mainly land
or redevelopment opportunities to further grow our development
pipeline. They included a site in South London on which we have
agreed a forward-funding agreement to build an urban warehouse
park. We also bought land in France, Italy and Spain for a mix of
urban warehouse and big box development projects.
Disposals: Asset Recycling to Improve Portfolio Focus
During the period, we recognised proceeds of £154 million from
the disposal of land and assets.
The asset disposals included a recently developed stand-alone
car showroom in the Thames Valley portfolio and, as in previous
years, we sold a portfolio of Continental European big box
warehouses developed by SEGRO to SELP for which we received £117
million net proceeds from an effective sale of a 50 per cent
interest. The consideration for these asset disposals was £136
million, reflecting a blended topped-up initial yield of 4.3 per
cent.
In addition to the above asset disposals, we also completed the
disposal of a building that we developed on a turnkey basis in our
East London portfolio. The remainder of the disposals were residual
plots of land in Budapest and Warsaw that were not suitable for our
development pipeline.
Since the end of June, we have also agreed the sale of a
portfolio of urban warehouses in Italy that were developed on
behalf of our largest customer to help them expand their
distribution network in the country. As these assets are situated
in locations that are not core to our strategy we took advantage of
the strong investment markets and disposed of this portfolio for
£109 million, a price materially ahead of December 2020 book
value.
Disposals completed in H1 2021
Asset type
Disposal proceeds (£m, SEGRO
share)
Net initial yield
(%)
Topped-up net initial yield
(%)
Big boxes
117
2.7
4.2
Urban warehousing
19
4.6
4.6
Other (including sale of turnkey
development site)
16
n/a
n/a
Land
2
n/a
n/a
Disposals completed in H1 20212
154
3.0
4.3
1 Yield excludes land transactions.
2. A reconciliation of disposals completed
to the Financial Statements is provided in Note 12 to the condensed
financial information.
BALANCE SHEET POSITIONED TO SUPPORT FURTHER GROWTH
Net borrowings, including our share of joint venture net debt,
increased slightly by £4 million from 31 December 2020 to £3,092
million. The look-through loan to value ratio reduced to 21 per
cent (31 December 2020: 24 per cent). Our intention for the
foreseeable future is to maintain our LTV at around 30 per cent.
This provides the flexibility to take advantage of investment
opportunities arising and ensures significant headroom compared to
our tightest gearing covenants should property values decline. We
were pleased to note the decision by Fitch Ratings to upgrade our
senior unsecured credit rating to ‘A’ (from ‘A-‘).
During the period we launched our Green Finance Framework,
issued the first SELP Green Bond (8-year tenure, 0.875% coupon) and
extended the bank facilities for both SEGRO and SELP. This activity
helped reduce our weighted average cost of debt to 1.5 per cent and
extended the average duration of debt to 9.7 years.
INTERIM DIVIDEND OF 7.4 PENCE PER SHARE
Consistent with its previous guidance that the interim dividend
would normally be set at one-third of the previous year’s total
dividend, the Board has declared an increase in the interim
dividend of 0.5 pence per share to 7.4 pence (H1 2020: 6.9 pence),
a rise of 7.2 per cent. This will be paid as an ordinary dividend
on 24 September 2021 to shareholders on the register at the close
of business on 13 August 2021. The Board will offer a scrip
dividend option for the 2021 interim dividend, allowing
shareholders to choose whether to receive the dividend in cash or
new shares. 39 per cent of the 2020 final dividend was paid in new
shares, equating to £66 million of cash retained on the balance
sheet and 7.2 million new shares being issued.
FINANCIAL REVIEW
Like-for-like net rental income growth, income from acquisitions
and new developments were the primary drivers of the 19 per cent
increase in Adjusted profit before tax compared to H1 2020.
Adjusted NAV per share increased by 12 per cent to 909 pence
compared to December 2020, primarily driven by the valuation uplift
on the property portfolio.
Financial highlights
30 June 2021
30 June 2020
31 December 2020
IFRS1 net asset value (NAV) per share
(diluted) (p)
897
716
809
Adjusted NAV per share1 (diluted) (p)
909
718
814
IFRS profit before tax (£m)
1,413
221
1,464
Adjusted2 profit before tax (£m)
168
141
296
IFRS earnings per share (EPS) (p)
110.3
19.5
124.1
Adjusted2 EPS (p)
13.8
12.5
25.4
1. A reconciliation between IFRS NAV and
Adjusted NAV is shown in Note 11.
2. A reconciliation between IFRS profit
before tax and Adjusted profit before tax is shown in Note 2 and
between IFRS EPS and Adjusted EPS is shown in Note 11.
Presentation of financial information
The condensed financial information is prepared under IFRS where
the Group’s interests in joint ventures are shown as a single line
item on the income statement and balance sheet and subsidiaries are
consolidated at 100 per cent.
The Adjusted profit measure better reflects the underlying
recurring performance of the Group’s property rental business,
which is SEGRO’s core operating activity. It is based on the Best
Practices Recommendations of the European Public Real Estate
Association (EPRA) which are widely used alternate metrics to their
IFRS equivalents (further details on EPRA Best Practices
Recommendations can be found at www.epra.com). In calculating
Adjusted profit, the Directors may also exclude additional items
considered to be non-recurring, not in the ordinary course of
business, and significant by virtue of size and nature. There are
no such items reported in the current period or prior periods.
A detailed reconciliation between Adjusted profit after tax and
IFRS profit after tax is provided in Note 2 of the condensed
financial information. The Adjusted NAV per share measure reflects
the EPRA Net Tangible Asset metric and based on the EPRA best
practice reporting guidelines. A detailed reconciliation between
Adjusted NAV and IFRS NAV is provided in Note 11(ii) of the
condensed financial information.
The Supplementary Notes to the condensed financial information
include other EPRA metrics as well as SEGRO’s Adjusted income
statement and balance sheet presented on a proportionately
consolidated basis.
SEGRO monitors the above alternative metrics, as well as the
EPRA metrics for vacancy rate, net asset value and total cost
ratio, as they provide a transparent and consistent basis to enable
comparison between European property companies.
Look-through metrics for like-for-like net rental income and
loan to value ratio are also provided, with joint ventures included
at share, in order that our full operations are captured, therefore
providing more meaningful analysis.
Adjusted profit
Adjusted profit
Six months to 30 June 2021
£m
Six months to 30 June 2020 £m
Gross rental income
220
187
Property operating expenses
(49)
(42)
Net rental income
171
145
Joint venture fee income
12
11
Administration expenses
(27)
(25)
Share of joint ventures’ Adjusted profit
after tax1
32
29
Adjusted operating profit before
interest and tax
188
160
Net finance costs
(20)
(19)
Adjusted profit before tax
168
141
Tax on Adjusted profit
(3)
(2)
Adjusted profit after tax2
165
139
1. Comprises net property rental income
less administration expenses, net interest expenses and
taxation.
2. A detailed reconciliation between
Adjusted profit after tax and IFRS profit after tax is provided in
Note 2 to the condensed financial information.
Adjusted profit before tax increased by 19 per cent to £168
million (H1 2020: £141 million). The primary driver was a £26
million increase in net rental income to £171 million, as discussed
further below.
Net rental income (including joint ventures at share)
Net rental income
Six months to
30 June 2021 £m
Six months to 30 June 2020 £m
Change3 %
UK
118
112
4.8
Continental Europe
65
63
4.6
Like-for-like net rental income before
other items1
183
175
4.7
Other2
(3)
(3)
Like-for-like net rental income (after
other)
180
172
4.9
Development lettings
15
2
Properties taken back for development
-
2
Like-for-like net rental income plus
developments
195
176
Properties acquired
11
1
Properties sold
2
2
Net rental income before surrenders,
dilapidations and exchange
208
179
Lease surrender premiums and dilapidations
income
3
1
Other items and rent lost from lease
surrenders
8
7
Impact of exchange rate difference between
periods
-
1
Net rental income (including joint
ventures at share)
219
188
SEGRO share of joint venture management
fees
(5)
(5)
Net rental income after SEGRO share of
joining venture fees
214
183
1. Includes expected credit losses UK £1.3
million (H1 2020: £2.4 million); CE £0.2 million (H1 2020: £0.8
million). Excluding these losses the like for like change would be:
Group 3.7%; UK 3.7%; CE 3.6%.
2. Other includes the corporate centre and
other costs relating to the operational business which are not
specifically allocated to a geographical business unit.
3. Percentage change has been calculated
using the figures presented in the table above in millions accurate
to one decimal place.
The like-for-like rental growth metric is based on properties
held throughout both H1 2021 and H1 2020 and comprises wholly owned
assets (net rental income of £171 million) and SEGRO’s share of net
rental income held in joint ventures (£43 million).
Net rental income on this basis increased by £31 million to £214
million which mainly reflects £13 million of additional income from
development lettings, £10 million from properties acquired (almost
entirely during 2020) and £8 million of like-for-like net rental
income growth before other items (a growth rate of 4.7 per cent
compared to H1 2020). The growth rate is calculated based on
figures in millions to one decimal place rather than those rounded
to £ million as presented in the table.
The growth in like-for-like net rental income before other items
was mainly due to rental increases on review and renewal in both
our UK portfolio and Continental Europe portfolios. This includes
the impact of expected credit losses. Excluding such items would
reduce the Group like for like increase to 3.7 per cent, as the
levels of losses have decreased compared to the prior period.
Where a completed property has been sold into SELP, the 50 per
cent share owned throughout the period is included in the
like-for-like calculation, with the balance shown in properties
sold.
Income from joint ventures
Joint venture management fee income increased by £1 million to
£12 million in line with the growth in activity in the SELP joint
venture.
SEGRO provides certain services, including venture advisory and
asset management, to the SELP joint venture and receives fees for
doing so, including potential performance fees based on the
performance of the portfolio. The next performance fee measurement
date is on the tenth anniversary, in October 2023. No performance
fee was recognised in the current or prior period.
SEGRO’s share of joint ventures’ Adjusted profit after tax
increased by £3 million, mainly reflecting the growth in income
from the SELP joint venture.
Administrative and operating costs
The Total Cost Ratio for H1 2021 improved to 19.8 per cent from
21.2 per cent in H1 2020. Excluding the impact of share based
payments (£6 million), the cost of which are directly linked to the
outperformance of the property portfolio, the Cost Ratio improved
to 17.4 per cent in H1 2021 from 18.6 per cent in H1 2020. The
calculations are set out in Table 8 of the Supplementary Notes to
the condensed financial information.
Net finance costs
Net finance costs have increased by £1 million during the period
from £19 million at H1 2020 to £20 million at H1 2021. Whilst
absolute levels of debt are higher than the comparative period this
is mitigated through a reduction in the cost of debt (as discussed
further in the Financial Position and Funding section below).
Taxation
The tax charge on Adjusted profit of £3 million (H1 2020: £2
million) reflects an effective tax rate of 1.8 per cent (H1 2020:
1.1 per cent), calculated on figures in millions to one decimal
place. The effective tax rate is consistent with a Group target tax
rate of less than 3 per cent.
The Group’s target tax rate reflects the fact that over
three-quarters of its assets are located in the UK and France and
qualify for REIT and SIIC status respectively in those countries.
This status means that income from rental profits and gains on
disposals of assets in the UK and France are exempt from
corporation tax, provided SEGRO meets a number of conditions
including, but not limited to, distributing 90 per cent of UK
taxable profits.
Adjusted earnings per share
Adjusted earnings per share were 13.8 pence (H1 2020: 12.5
pence) reflecting the £26 million increase in Adjusted profit after
tax and non-controlling interests, offset by the 8 per cent
increase in the weighted number of shares in issue as a result of
the equity issue in June 2020.
IFRS PROFIT
IFRS profit before tax in H1 2021 was £1,413 million (H1 2020:
£221 million), equating to post-tax IFRS earnings per share of
110.3 pence compared with 19.5 pence for H1 2020. The increase in
IFRS profits is driven primarily by unrealised and realised gains
on our property portfolio, including joint ventures at share, which
were £1,273 million higher in H1 2021 than in the same period a
year ago.
A reconciliation between Adjusted profit before tax and IFRS
profit before tax is provided in Note 2 to the condensed financial
information.
Realised and unrealised gains on wholly owned investment and
trading properties of £1,123 million in H1 2021 (H1 2020: £57
million) have been recognised in the income statement, mainly
comprising an unrealised valuation surplus on investment properties
of £1,118 million (H1 2020: £57 million).
SEGRO’s share of realised and unrealised gains on properties
held in joint ventures was £217 million (H1 2020: £10 million)
arising on revaluation gains in the SELP joint venture.
BALANCE SHEET
Adjusted net asset value
£m
Shares million
Pence per share
Adjusted net assets attributable to
ordinary shareholders at 31 December 2020
9,725
1,194.7
814
Realised and unrealised property gain
(including joint ventures)
1,340
Adjusted profit after tax
165
Dividend net of scrip shares issued (2020
final)
(115)
Exchange rate movement (net of
hedging)
(76)
Tax charge in respect of realised and
unrealised property gain1
(54)
SIIC entry tax charge
(39)
Other
(17)
Adjusted net assets attributable to
ordinary shareholders at 30 June 2021
10,929
1,202.5
909
1. Includes 50 per cent of deferred tax
charge in respect of depreciation and valuation surpluses.
At 30 June 2021, IFRS net assets attributable to ordinary
shareholders (on a diluted basis) were £10,783 million (31 December
2020: £9,659 million), equating to 897 pence per share (31 December
2020: 809 pence).
Adjusted net asset value per share at 30 June 2021 was 909 pence
measured on a diluted basis (31 December 2020: 814 pence), an
increase of 12 per cent in the period. The table above highlights
the other principal factors behind the increase. The tax charge of
£54 million includes both the impact of deferred tax in respect of
valuation surpluses recognised (of which 50 per cent are recognised
in Adjusted net assets) and the tax liability due from the disposal
of a property portfolio in the period. In addition, a portfolio of
properties acquired in France in the prior period has been entered
in to the SIIC regime at a cost of £39 million as discussed further
in Note 9.
A reconciliation between IFRS and Adjusted net assets is
available in Note 11 to the condensed financial information.
Cash flow and net debt reconciliation
Cash flow from operations for the period was £168 million, an
increase of £61 million from H1 2020 (£107 million), primarily due
to increased operating profits and improved working capital
cashflows including improved debtor collections and reduced trading
property spend.
The largest cash outflow in the period relates to acquisitions
and developments of investment properties at £371 million, which
primarily reflects the Group’s investment activity during the
period and ongoing development activity (see Capital Expenditure
section for more details). Cash flows from investment property
sales are £350 million, giving a net outflow of £21 million from
property investment activity. In addition investment outflows of
£56 million to joint ventures was made primarily to fund the SELP
investing activity.
Other significant financing cash flows include dividends paid of
£90 million (H1 2020: £80 million) reflecting the increased
dividend per share and level of scrip dividend take-up and an
inflow of £34 million from the derivatives which are used to manage
the Group’s exposure to foreign exchange during the period as the
euro has weakened against sterling.
As a result of these factors there was a net funds outflow of £8
million during the period compared to an inflow of £74 million in
H1 2020.
Cash flow and net debt
reconciliation
Six months to 30 June 2021
£m
Six months to 30 June 2020 £m
Opening net debt
(2,325)
(1,811)
Cash flow from operations
168
107
Finance costs (net)
(25)
(27)
Dividends received
4
2
Tax (paid)/received
(2)
2
Free cash flow
145
84
Dividends paid
(90)
(80)
Acquisitions and development of investment
properties
(371)
(614)
Investment property sales
350
53
Acquisitions of other interests in
property and other investments
(3)
(4)
Purchase of non-controlling interest
(12)
-
Net settlement of foreign exchange
derivatives
34
(35)
Proceeds from issue of ordinary shares
1
672
Net investment in joint ventures
(56)
-
Other items
(6)
(2)
Net funds flow
(8)
74
Non-cash movements
(1)
(1)
Exchange rate movements
59
(61)
Closing net debt
(2,275)
(1,799)
Capital expenditure
The table below sets out analysis of the capital expenditure on
property assets during the period on a basis consistent with the
EPRA Best Practices Recommendations. This includes acquisition and
development spend, on an accruals basis, in respect of the Group’s
wholly‑owned investment and trading property portfolios, as well as
the equivalent amounts for joint ventures at share.
Total spend for the period was £490 million, a decrease of £233
million compared to H1 2020. This is primarily driven by a
decreased volume of acquisitions, with significant UK acquisitions
in the prior period. Development capital expenditure increased by
£99 million to £364 million with particular spend on our schemes in
Italy and the UK National Logistics business unit.
Spend on existing completed properties totalled £21 million (H1
2020: £13 million), over half of which was for value-enhancing
major refurbishment and fit-out costs prior to re-letting.
EPRA capital expenditure
analysis
Six months to 30 June
2021
Six months to 30 June
2020
Wholly owned
£m
Joint
ventures
£m
Total
£m
Wholly
owned
£m
Joint
ventures
£m
Total
£m
Acquisitions
901
2
927
420
10
430
Development4
3272
37
364
236
29
265
Completed properties5
163
5
21
12
1
13
Other6
8
5
13
11
4
15
Total
441
49
490
679
44
723
1. Being £90 million investment property
and £nil trading property (2020: £418 million and £2 million
respectively) see Note 12.
2. Being £318 million investment property
and £9 million trading property (2020: £229 million and £7 million
respectively) see Note 12.
3. Being £16 million investment property
and £nil trading property (2020: £12 million and £nil respectively)
see Note 12.
4. Includes wholly owned capitalised
interest of £4 million (2020: £4 million) as further analysed in
Note 8 and share of joint venture capitalised interest of £nil
(2020: £nil).
5. Being £19 million expenditure used for
enhancing existing space (2020: £13 million) and £2 million used
for creation of additional lettable space (2020: £nil).
6. Tenant incentives, letting fees and
rental guarantees.
7. Excludes acquisitions of property sold
from the Group’s wholly owned portfolio to the SELP joint venture
of £117 million (2020: £nil) and associated property tax of £2
million, which is effectively a net 50 percent disposal by the
Group.
FINANCIAL POSITION AND FUNDING
Financial Key Performance
Indicators
GROUP ONLY
30 June 2021
30 June 2020
31 December 2020
Net borrowings (£m)
2,275
1,799
2,325
Available Group cash and undrawn
facilities (£m)
983
1,319
1,061
Gearing (%)
21
21
24
LTV ratio (%)
19
20
22
Weighted average cost of debt1 (%)
1.6
1.8
1.7
Interest cover2 (times)
7.0
6.5
6.6
Average duration of debt (years)
11.3
11.1
11.7
INCLUDING JOINT VENTURES AT
SHARE
Net borrowings (£m)
3,092
2,511
3,088
Available cash and undrawn facilities
(£m)
1,230
1,541
1,189
LTV ratio (%)
21
22
24
Weighted average cost of debt1 (%)
1.5
1.7
1.6
Interest cover2 (times)
6.9
6.4
6.5
Average duration of debt (years)
9.7
9.4
9.9
1. Based on gross debt, excluding
commitment fees and non-cash interest.
2. Net rental income/adjusted net finance
costs (before capitalisation).
At 30 June 2021, the Group’s net borrowings (including the
Group’s share of borrowings in joint ventures) were £3,092 million
(31 December 2020: £3,088 million) at a weighted average cost of
1.5 per cent and an average duration of 9.7 years. The loan to
value ratio (including joint ventures at share) was 21 per cent (31
December 2020: 24 per cent) with £1,230 million of cash and undrawn
facilities available for investment.
Gross borrowings of SEGRO Group were £2,353 million at 30 June
2021, all but £13 million of which were unsecured, and cash and
cash equivalent balances were £78 million. SEGRO’s share of gross
borrowings in its joint ventures was £850 million (all of which
were advanced on a non-recourse basis to SEGRO) and cash and cash
equivalent balances of £33 million.
Cash and cash equivalent balances, together with the Group’s
interest rate and foreign exchange derivative portfolio, are spread
amongst a strong group of banks, all of which have a credit rating
of A- or better.
In May 2021, SELP consolidated its €0.5 billion of revolving
credit facilities and simultaneously extended maturity to 2025.
This was followed, also in May 2021, with SEGRO extending the
maturity of its €1.2 billion of revolving credit facilities for a
further year to 2026.
In May 2021, SEGRO published its Green Finance Framework,
building on the Responsible SEGRO strategy launched in February
2021. The framework, which applies to SEGRO, its subsidiaries and
joint ventures including SELP, integrates financial strategy with
the Responsible SEGRO commitments.
In May 2021, SELP issued a €500 million, 8.0 year unsecured
green bond at a coupon of 0.875 per cent. The proceeds were used to
refinance existing bank borrowings as well as provide additional
liquidity to the venture.
MONITORING AND MITIGATING FINANCIAL RISK
The Group monitors a number of financial metrics to assess the
level of financial risk being taken and to mitigate that risk.
Treasury policies and governance
The Group Treasury function operates within a formal policy
covering all aspects of treasury activity, including funding,
counterparty exposure and management of interest rate, currency and
liquidity risks. Group Treasury reports on compliance with these
policies on a quarterly basis and policies are reviewed regularly
by the Board.
Gearing and financial covenants
The key leverage metric for SEGRO is its loan to value ratio
(LTV), which incorporates assets and net debt on SEGRO’s balance
sheet and SEGRO’s share of assets and net debt on the balance
sheets of its joint ventures. The LTV at 30 June 2021 on this
‘look-through’ basis was 21 per cent (31 December 2020: 24 per
cent).
Our borrowings contain gearing covenants based on Group net debt
and net asset value, excluding debt in joint ventures. The gearing
ratio of the Group at 30 June 2021, as defined within the principal
debt funding arrangements of the Group, was 21 per cent (31
December 2020: 24 per cent). This is significantly lower than the
Group’s tightest financial gearing covenant within these debt
facilities of 160 per cent. Property valuations would need to fall
by around 66 per cent from their 30 June 2021 levels to reach the
gearing covenant threshold of 160 per cent.
The Group’s other key financial covenant within its principal
debt funding arrangements is interest cover, requiring that net
interest before capitalisation be covered at least 1.25 times by
net property rental income. At 30 June 2021, the Group comfortably
met this ratio at 7.0 times. On a look-through basis, including
joint ventures, this ratio was 6.9 times.
We mitigate the risk of over-gearing the Company and breaching
debt covenants by carefully monitoring the impact of investment
decisions on our LTV and by stress-testing our balance sheet to
potential changes in property values. We also expect to continue to
recycle assets which would also provide funding for future
investment.
Our intention for the foreseeable future is to maintain our LTV
at around 30 per cent. This provides the flexibility to take
advantage of investment opportunities arising and ensures
significant headroom compared to our tightest gearing covenants
should property values decline.
At 30 June 2021, the only debt maturities within 12 months are
€1 million of principal repayments on an amortising loan, acquired
with Sofibus Patrimoine SA. The weighted average maturity of the
gross borrowings of the Group was 11.3 years (9.7 years on a
look-through basis). With the majority of the Group’s revolving
credit facilities not due to mature until 2026, and no material
Group debt maturities until 2024, this long average debt maturity
translates into a favourable, well spread debt funding maturity
profile which reduces future refinancing risk.
Interest rate risk
The Group’s interest rate risk policy is designed to ensure that
we limit our exposure to volatility in interest rates. The policy
states that between 50 and 100 per cent of net borrowings
(including the Group’s share of borrowings in joint ventures)
should be at fixed or capped rates, including the impact of
derivative financial instruments.
As at 30 June 2021, including the impact of derivative
instruments, 74 per cent (31 December 2020: 70 per cent) of the net
borrowings of the Group (including the Group’s share of borrowings
within joint ventures) were at fixed or capped rates. The
fixed-only level of debt is 49 per cent at 30 June 2021 (31
December 2020: 44 per cent).
As a result of the fixed rate cover in place, if short term
interest rates had been 1 per cent higher throughout the six month
period to 30 June 2021, the adjusted net finance cost of the Group
would have increased by approximately £8 million representing
around 5 per cent of Adjusted profit after tax.
The Group elects not to hedge account its interest rate
derivatives portfolio. Therefore, movements in derivative fair
values are taken to the income statement but, in accordance with
EPRA Best Practices Recommendations Guidelines, these gains and
losses are excluded from Adjusted profit after tax.
Foreign currency translation risk
The Group has negligible transactional foreign currency exposure
but does have a potentially significant currency translation
exposure arising on the conversion of its substantial foreign
currency denominated assets (mainly euro) and euro denominated
earnings into sterling in the Group consolidated accounts.
The Group seeks to limit its exposure to volatility in foreign
exchange rates by hedging at a level between the year-end Group LTV
percentage and 100 per cent of its foreign currency gross assets
through either borrowings or derivative instruments. At 30 June
2021, the Group had gross foreign currency assets which were 64 per
cent hedged by gross foreign currency denominated liabilities
(including the impact of derivative financial instruments).
The exchange rate used to translate euro denominated assets and
liabilities as at 30 June 2021 into sterling within the balance
sheet of the Group was €1.17:£1 (31 December 2020: €1.12:£1).
Including the impact of forward foreign exchange and currency swap
contracts used to hedge foreign currency denominated net assets, if
the value of the other currencies in which the Group operates at 30
June 2021 weakened by 10 per cent against sterling (€1.29, in the
case of euros), net assets would have decreased by approximately
£155 million and there would have been a reduction in gearing of
approximately 1.7 per cent and in the LTV of approximately 1.5 per
cent. The impact if the other currencies in which the Group
operates should strengthen by 10 per cent against Sterling would be
broadly equal and opposite.
The average exchange rate used to translate euro denominated
earnings generated during the six months ending 30 June 2021 into
sterling within the consolidated income statement of the Group was
€1.15:£1 (H1 2020: €1.14:£1).
Based on the hedging position at 30 June 2021, and assuming that
this position had applied throughout the 6 month period, if the
euro had been 10 per cent weaker than the average exchange rate
(€1.27:£1), Adjusted profit after tax for the six month period
would have been approximately £5 million (3.2 per cent) lower than
reported. If it had been 10 per cent stronger, adjusted profit
after tax for the period would have been approximately £6 million
(3.9 per cent) higher than reported.
GOING CONCERN
As noted in the Financial Position and Funding section above,
the Group has significant available liquidity to meet its capital
commitments, a long-dated debt maturity profile and substantial
headroom against financial covenants.
- In 2021, the Group has extended the term of its €1.2 billion of
bank facilities to 2026.
- Cash and available facilities at 30 June 2021 were £1.0
billion.
- The Group continuously monitors its liquidity position compared
to committed and expected capital and operating expenses on a
rolling forward 18 month basis. The quantum of committed capital
expenditure at any point in time is typically low due to the short
timeframe to construct warehouse buildings.
- The Group also regularly stress-tests its financial covenants.
As noted above, at 30 June 2021, property values would need to fall
by around 66 per cent before breaching the gearing covenant. In
terms of interest cover, net rental income would need to fall by 82
per cent before breaching the interest cover covenant. Both would
be significantly in excess of the Group’s experience during the
financial crisis and its experience in 2021 to date.
Having made enquiries and having considered the principal risks
facing the Group, including liquidity and solvency risks, and
material uncertainties, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future (a period of at
least 12 months from the date of approval of the financial
statements). Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
STATEMENT OF PRINCIPAL RISKS
The Group recognises that its
ability to manage risk effectively throughout the organisation
continues to be central to its success. Our approach to risk
management aims to bring controllable risks within our appetite,
and to enable our decision-making to balance uncertainty against
the objective of creating and protecting, now and in the long term,
value for our shareholders and other stakeholders.
The Group’s risk appetite, its integrated approach to managing
risk, and the governance arrangements in place are described in the
Principal Risks section of the 2020 Annual Report on pages 72 to
81.
Covid-19
The uncertainties and challenges caused by the Covid-19 pandemic
continue to impact our entire risk landscape including the global
economy, our markets and our operations.
The Group’s Board, and key committees have overseen the Group’s
response to the pandemic throughout the period and taken actions to
mitigate its impacts including on our operations, the health and
wellbeing of our employees and to support our stakeholders.
We have reviewed and updated the Group’s risk register during
the period, in particular in light of the continued impact of
Covid-19 which has acted to increase the impact, or probability, or
both in respect of risks already on the risk register, as detailed
further in our Principal Risks section below. No new risks have
been identified in this period as a result of the pandemic.
Looking forward, it is clear there is still much uncertainty
around the future trajectory of the pandemic. Whilst the progress
of the vaccine programme offers a pathway to re-opening of
economies and some degree of normality, the emergence of new
variants puts this at risk both in the near- and longer-term.
Accordingly, we remain vigilant to the rapidly changing environment
and possible prolonged impact of Covid-19 on the locations in which
we operate.
Emerging risks
We continue to identify and monitor emerging risks in our risk
processes. Emerging risks are those which may be evolving rapidly
and whose impact or probability may not yet be fully understood and
whose mitigations are consequently evolving. This process is
supplemented by formal horizon scans with the Executive Committee.
Clearly the impact of Covid-19, discussed above, continues to be a
major focus, as does the long term impact of climate change on our
business.
Risks Appetite
Our risk appetite depends on the nature of the risk and falls
into 3 broad categories:
- Property risk - we recognise that, in seeking
outperformance from our portfolio, the Group must accept a balanced
level of property risk – with diversity in geographic locations and
asset types and an appropriate mixture of stabilised income
producing and opportunity assets – in order to enhance
opportunities for superior returns. This is balanced against the
backdrop of the macro economic climate and its impact on the
property cycle.
- Financial risk - we maintain a low to moderate appetite
for financial risk in general, with a very low appetite for risks
to solvency and gearing covenant breaches.
- Corporate risk - we have a very low appetite for risks
to our good reputation and risks to being well-regarded by our
investors, regulators, employees, customers, business partners,
suppliers, lenders and by the wider communities and environments in
which we operate.
Principal Risks
A summary of the Group’s principal risks including an update for
changes during the period and expected impacts during the second
half of 2021, is provided below. Following the trade agreement with
the EU in December 2020, the risk of a ‘Disruptive Brexit’ was, at
least in part, mitigated and, as no subsequent material impacts on
the Group have arisen, it has been removed as a Principal Risk. The
relevant consequences of Brexit are now being managed as part of
their applicable risks such as Political and Regulatory. Disruptive
Brexit aside, the other principal risks remain the same as reported
in the Annual Report for 2020 and the residual risk for each
remains within appetite however each continues to have an elevated
probability of volatility in the period.
- Macroeconomic Impact on Market Cycle. The property
market is cyclical and there is a continuous risk that the Group
could either misinterpret the market or fail to react appropriately
to changing market and wider geopolitical conditions, which could
result in capital being invested or disposals taking place at the
wrong price or time in the cycle.
Update: The pandemic continues to cause greater market
volatility and less predictability and in response we have
increased the regularity of our economic outlook assessments.
Whilst we are not entirely immune to these fluctuations, the most
material adverse impacts appear to be focused in sectors where we
do not have significant exposure.
- Portfolio Strategy and Execution. The Group’s Total
Property and/or Shareholder Returns could underperform in absolute
or relative terms as a result of an inappropriate portfolio
strategy.
Update: The Group’s approach to portfolio management and capital
allocation remains responsive to opportunities that arise, as
detailed further in the Investment and Development sections above.
The attractiveness of the industrial property asset class has led
to increased market competition and the consequent impact on
pricing has led to us being more selective in our investing.
- Major Event / Business Disruption. Unexpected global,
regional or national events result in severe adverse disruption to
SEGRO, such as sustained asset value or revenue impairment,
solvency or covenant stress, liquidity or business continuity
challenges. A global event or business disruption may include, but
is not limited to a global financial crises, health pandemic, civil
unrest, act of terrorism, cyber-attack or other IT disruption.
Events may be singular or cumulative, and lead to acute/systemic
issues in the business and/or operating environment.
Update: As detailed in the Covid-19 section above, the pandemic
continues to cause increased uncertainty to the Group’s operations
and stakeholders. The Board and other committees remain vigilant
and responsive in managing the mitigation of risks as they
evolve.
- Health & Safety. Health and safety management
processes could fail, leading to a loss of life, litigation, fines
and serious reputational damage to the Group.
Update: The health and safety of the workforce remains a key
priority whilst working away from the office as well as the
potential gradual return to the office. We continue to closely
monitor our development sites in order to ensuring a safe and
compliant working environment.
- Environmental Sustainability. Failure to anticipate and
respond to the impact of both physical and transitional risks from
climate change on the sustainability of our environment as both a
principal and emerging risk. Changes in social attitudes, laws,
regulations, policies, taxation, obligations, and customer
preferences associated with environmental sustainability could
cause significant reputational damage and impact on our business,
through non-compliance with laws and regulations, increased costs
of tax and energy and loss of value through not meeting stakeholder
expectations in addressing these challenges when reporting.
Update: We refreshed our ‘Responsible SEGRO’ framework earlier
this year that sets out our key priorities: championing low carbon
growth, investing in local communities and environments and
nurturing talent. This is detailed further in the Responsible SEGRO
Update above.
- Development Plan Execution. The Group could suffer
significant financial losses from its extensive current programme
and future pipeline of developments.
Update: We continue to work with our contractors to ensure
Covid-19 compliant work practices are in place at all work sites on
our major development sites operate effective and efficiently.
During the period we have become aware of possible bottlenecks in
the construction supply chain for certain materials and whilst
these have not currently caused undue delay we look to proactively
work alongside our contractors to manage such issues as they
arise.
- Financing Strategy. The Group could suffer an acute
liquidity or solvency crisis, financial loss or financial distress
as a result of a failure in the design or execution of its
financing strategy.
Update: Currently the Group has strong access to financial
markets as seen by our funding activity as detailed in the
Financial Position and Funding section above leaving us well
positioned, financially, in order to fund activity in the remainder
of the year and beyond.
- Political and Regulatory. The Group could fail to
anticipate significant political, legal, tax or regulatory changes,
leading to a significant unforecasted financial or reputational
impact.
Update: Following the UK’s exit from the EU the Group has
closely monitored and managed its consequential legal and
regulatory risks through a dedicated internal team and external
advisors ensuring timely remedial actions were taken where
necessary. Whilst the full extent of such risks continue to be
monitored, no significant unexpected issues have currently arisen.
In addition we continue to closely monitor changes in other
legislation, such as tax, to ensure they are understood and
addressed in an appropriate and effective manner.
- Operational Delivery & Compliance. The Group’s
ability to protect its reputation, revenues and shareholder value
could be damaged by operational failures such as: failing to
attract, retain and motivate key employees; major customer default;
supply chain failure or the structural failure of one of our
assets. Compliance failures, such as breaches of joint venture
shareholders’ agreements, loan agreements or tax legislation could
also damage reputation, revenue and shareholder value.
Update: The pandemic continues to impact working practices with
significant time spent away from the office, although we have seen
an increase in the number of employees in our offices more
recently. In due course, we remain committed to returning to our
agile working approach to promote our strong, positive corporate
culture, ensuring our key employees continue to be motivated and
challenged. We continue to ensure the resilience and security of
our technology, and to engage closely with our customers.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the interim condensed set of financial statements has been
prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as
adopted by the United Kingdom and European Union;
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties’
transactions and changes therein).
By order of the Board,
David Sleath
Soumen Das
Chief Executive
Chief Financial Officer
Independent review report to SEGRO plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed SEGRO plc’s condensed consolidated interim
financial statements (the “interim financial statements”) in the
half-yearly report of SEGRO plc for the 6 month period ended 30
June 2021 (the “period”).
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial
Reporting', the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct Authority, and
EU adopted International Accounting Standard 34, ‘Interim Financial
Reporting’.
What we have reviewed
The interim financial statements comprise:
- the Condensed Group Balance Sheet as at 30 June 2021;
- the Condensed Group Income Statement and Condensed Group
Statement of Comprehensive Income for the period then ended;
- the Condensed Group Cash Flow Statement for the period then
ended;
- the Condensed Group Statement of Changes in Equity for the
period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
report of SEGRO plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting', the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct Authority, and
EU adopted International Accounting Standard 34, ‘Interim Financial
Reporting’.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-yearly report, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the
half-yearly report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom’s Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements
involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, ‘Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity’ issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 July
2021
CONDENSED GROUP INCOME STATEMENT
For the six months ended 30 June 2021
Notes
Half year to 30 June 2021
(unaudited) £m
Half year to 30 June
2020 (unaudited) £m
Year to 31 December 2020 (audited) £m
Revenue
4
246
198
432
Costs
5
(62)
(42)
(104)
184
156
328
Administration expenses
(27)
(25)
(52)
Share of profit from joint ventures after
tax
6
210
35
236
Realised and unrealised property gain
7
1,122
57
989
Operating profit
1,489
223
1,501
Finance income
8
23
38
50
Finance costs
8
(99)
(40)
(87)
Profit before tax
1,413
221
1,464
Tax
9
(92)
(4)
(35)
Profit after tax
1,321
217
1,429
Attributable to equity shareholders
1,317
216
1,427
Attributable to non-controlling
interests
4
1
2
Earnings per share (pence)
Basic
11
110.3
19.5
124.1
Diluted
11
110.0
19.4
123.6
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2021
Half year to 30 June 2021
(unaudited) £m
Half year to 30 June 2020 (unaudited) £m
Year to 31 December 2020 (audited) £m
Profit for the period
1,321
217
1,429
Items that may be reclassified
subsequently to profit or loss
Foreign exchange movement arising on
translation of international operations
(124)
149
112
Fair value movements on derivatives and
borrowings in effective hedge relationships
48
(71)
(52)
(76)
78
60
Tax on components of other comprehensive
income
-
-
-
Other comprehensive
(loss)/income
(76)
78
60
Total comprehensive income for the
period
1,245
295
1,489
Attributable to – equity shareholders
1,241
295
1,487
– non-controlling interests
4
-
2
CONDENSED GROUP BALANCE SHEET
As at 30 June 2021
Notes
30 June 2021 (unaudited)
£m
30 June 2020 (unaudited) £m
31 December 2020 (audited) £m
Assets
Non-current assets
Intangible assets
8
2
2
Investment properties
12
11,850
9,208
10,671
Other interests in property
16
19
16
Property, plant and equipment
23
25
27
Investments in joint ventures
6
1,620
1,235
1,423
Other investments
4
29
2
Other receivables
36
114
37
Derivative financial instruments
58
66
63
13,615
10,698
12,241
Current assets
Trading properties
12
47
29
52
Trade and other receivables
175
197
270
Derivative financial instruments
4
3
15
Cash and cash equivalents
13
78
203
89
304
432
426
Total assets
13,919
11,130
12,667
Liabilities
Non-current liabilities
Borrowings
13
2,352
2,002
2,413
Deferred tax liabilities
9
112
61
87
Trade and other payables
107
109
110
Derivative financial instruments
41
13
5
2,612
2,185
2,615
Current liabilities
Trade and other payables
460
389
372
Borrowings
13
1
-
1
Derivative financial instruments
1
11
5
Tax liabilities
62
5
3
524
405
381
Total liabilities
3,136
2,590
2,996
Net assets
10,783
8,540
9,671
Equity
Share capital
120
119
119
Share premium
3,343
3,271
3,277
Capital redemption reserve
114
114
114
Own shares held
(1)
(1)
(1)
Other reserves
170
268
253
Retained earnings
7,037
4,769
5,897
Total shareholders' equity
10,783
8,540
9,659
Non-controlling interests
-
-
12
Total equity
10,783
8,540
9,671
Net assets per ordinary share
(pence)
Basic
11
899
717
811
Diluted
11
897
716
809
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2021
Attributable to owners of the
parent
Other reserves
(unaudited)
Ordinary share capital
£m
Share premium £m
Capital redemption reserve
£m
Own shares held £m
Share- based payment reserve
£m
Translation, hedging and other
reserve £m
Merger reserve £m
Retained earnings £m
Total equity attributable to
owners of the parent £m
Non- controlling interest1
£m
Total equity £m
Balance at 1 January 2021
119
3,277
114
(1)
22
62
169
5,897
9,659
12
9,671
Profit for the period
-
-
-
-
-
-
-
1,317
1,317
4
1,321
Other comprehensive income
-
-
-
-
-
(76)
-
-
(76)
-
(76)
Total comprehensive income for the
period
-
-
-
-
-
(76)
-
1,317
1,241
4
1,245
Transactions with owners of the
Company
Issues of shares
-
1
-
-
-
-
-
-
1
-
1
Own shares acquired
-
-
-
(3)
-
-
-
-
(3)
-
(3)
Equity-settled share-based payment
transactions
-
-
-
3
(7)
-
-
5
1
-
1
Dividends
1
65
-
-
-
-
-
(181)
(115)
-
(115)
Movement in non-controlling interest1
-
-
-
-
-
-
-
(1)
(1)
(16)
(17)
Total transactions with owners of the
Company
1
66
-
-
(7)
-
-
(177)
(117)
(16)
(133)
Balance at 30 June 2021
120
3,343
114
(1)
15
(14)
169
7,037
10,783
-
10,783
1. Non-controlling interests relate to
Vailog Sàrl and Sofibus Patrimoine SA. During the period the
remaining share capital of Sofibus Patrimoine SA was acquired and
is a 100% subsidiary of the Group at 30 June 2021.
For the six months ended 30 June 2020
Attributable to owners of the
parent
Other reserves
(unaudited)
Ordinary share capital
£m
Share premium £m
Capital redemption reserve
£m
Own shares held £m
Share- based payment reserve
£m
Translation, hedging and other
reserve £m
Merger reserve £m
Retained earnings £m
Total equity attributable to
owners of the parent £m
Non- controlling interest1
£m
Total equity £m
Balance at 1 January 2020
109
2,554
114
(3)
29
2
169
4,703
7,677
-
7,677
Profit for the period
-
-
-
-
-
-
-
216
216
1
217
Other comprehensive income
-
-
-
-
-
79
-
-
79
(1)
78
Total comprehensive income for the
period
-
-
-
-
-
79
-
216
295
-
295
Transactions with owners of the
Company
Issues of shares
9
663
-
-
-
-
-
-
672
-
672
Own shares acquired
-
-
-
(1)
-
-
-
-
(1)
-
(1)
Equity-settled share-based payment
transactions
-
-
-
3
(11)
-
-
9
1
-
1
Dividends
1
54
-
-
-
-
-
(158)
(103)
-
(103)
Movement in non-controlling interest1
-
-
-
-
-
-
-
(1)
(1)
-
(1)
Total transactions with owners of the
Company
10
717
-
2
(11)
-
-
(150)
568
-
568
Balance at 30 June 2020
119
3,271
114
(1)
18
81
169
4,769
8,540
-
8,540
1. Non-controlling interests relate to
Vailog Sàrl.
For the year ended 31 December 2020
Attributable to owners of the
parent
Other reserves
(audited)
Ordinary share capital
£m
Share premium £m
Capital redemption reserve
£m
Own shares held £m
Share- based payment reserve
£m
Translation, hedging and other
reserve £m
Merger reserve £m
Retained earnings £m
Total equity attributable to
owners of the parent £m
Non- controlling interest1
£m
Total equity £m
Balance at 1 January 2020
109
2,554
114
(3)
29
2
169
4,703
7,677
-
7,677
Profit for the year
-
-
-
-
-
-
-
1,427
1,427
2
1,429
Other comprehensive income
-
-
-
-
-
60
-
-
60
-
60
Total comprehensive income for the
year
-
-
-
-
-
60
-
1,427
1,487
2
1,489
Transactions with owners of the
Company
Issues of shares
9
663
-
-
-
-
-
-
672
-
672
Own shares acquired
-
-
-
(2)
-
-
-
-
(2)
-
(2)
Equity-settled share-based payment
transactions
-
-
-
4
(7)
-
-
9
6
-
6
Dividends
1
60
-
-
-
-
-
(240)
(179)
-
(179)
Movement in non-controlling interest1
-
-
-
-
-
-
-
(2)
(2)
10
8
Total transactions with owners of the
Company
10
723
-
2
(7)
-
-
(233)
495
10
505
Balance at 31 December 2020
119
3,277
114
(1)
22
62
169
5,897
9,659
12
9,671
1. Non-controlling interests relate to
Vailog Sàrl and Sofibus Patrimoine SA.
CONDENSED GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2021
Notes
Half year to 30 June 2021
(unaudited) £m
Half year to 30 June 2020 (unaudited) £m
Year to 31 December 2020 (audited) £m
Cash flows from operating
activities
14
168
107
233
Interest received
21
18
42
Dividends received
4
2
34
Interest paid
(46)
(45)
(94)
Cost of new interest rate derivatives
transacted
-
-
(12)
Proceeds from early close out of interest
rate derivatives
-
-
12
Cost of early close out of debt
-
-
(11)
Tax (paid)/received
(2)
2
(5)
Net cash received from operating
activities
145
84
199
Cash flows from investing
activities
Purchase and development of investment
properties
(371)
(614)
(1,216)
Sale of investment properties
350
53
159
Acquisition of other interests in
property
-
(3)
(4)
Purchase of plant and equipment and
intangibles
(5)
(2)
(5)
Acquisition of other investments
(3)
(1)
-
Investment and loans to joint ventures
(67)
-
(40)
Divestment and repayment of loans from
joint ventures
11
-
-
Net cash used in investing
activities
(85)
(567)
(1,106)
Cash flows from financing
activities
Dividends paid to ordinary
shareholders
(90)
(80)
(179)
Proceeds from borrowings
14
35
-
551
Repayment of borrowings
14
(34)
(2)
(122)
Principal element of lease payments
(1)
(1)
(2)
Settlement of foreign exchange
derivatives
34
(35)
(55)
Purchase of non-controlling interest
(12)
-
-
Proceeds from issue of ordinary shares
1
672
672
Purchase of ordinary shares
(3)
(1)
(2)
Net cash (used in)/generated from
financing activities
(70)
553
863
Net (decrease)/increase in cash and
cash equivalents
(10)
70
(44)
Cash and cash equivalents at the beginning
of the period
89
133
133
Effect of foreign exchange rate
changes
(1)
-
-
Cash and cash equivalents at the end of
the period
13
78
203
89
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The condensed set of financial statements for the six months
ended 30 June 2021 were approved by the Board of Directors on 28
July 2021.
The condensed set of financial statements for the six months
ended 30 June 2021 is unaudited and does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. The financial information contained in this report for the
year ended 31 December 2020 does not constitute statutory accounts
within the meaning of Section 434 of the Companies Act 2006 and has
been extracted from the statutory accounts, which were prepared in
accordance with International Accounting Standards (IAS) in
conformity with the requirements of the Companies Act 2006 and
EU-adopted International Financial Reporting Standards (IFRS) and
were delivered to the Registrar of Companies. The auditor’s opinion
on these accounts was unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement made
under S498(2) or S498(3) of the Companies Act 2006. The condensed
set of financial statements included in this half-yearly report has
been prepared in accordance with both UK-adopted International
Accounting Standard 34 ‘Interim Financial Reporting’, and the
Disclosure Rules and Transparency Rules of the United Kingdom’s
Financial Conduct Authority as well as EU-adopted International
Accounting Standard 34 ‘Interim Financial Reporting’.
On 31 December 2020 EU-adopted IFRS was brought into UK law and
became UK-adopted International Accounting Standards, with future
changes to IFRS being subject to endorsement by the UK Endorsement
Board. The consolidated financial statements transitioned to
UK-adopted international accounting standards for the financial
period beginning 1 January 2021. There were no impact or changes in
accounting policies from the transition. UK adopted International
Accounting Standards differs in certain respects from International
Financial Reporting Standards as adopted by the EU. The differences
have no material impact on the Group’s condensed financial
statements for the periods presented, which therefore also comply
with International Reporting Standards as adopted by the EU.
The condensed set of financial statements have been prepared on
a going concern basis for a period of at least 12 months from the
date of approval of the financial statements. This is discussed
further in the Financial Review.
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group’s latest financial statements.
The following new accounting amendment became effective for the
financial year beginning on 1 January 2021:
- Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The Group did not have to change its accounting policies or make
retrospective adjustments as a result of this amendment.
The condensed set of financial statements are presented in
pounds sterling to the nearest million. In prior periods the
financial statements were presented in millions to one decimal
place, as a result the comparative figures for the six months ended
30 June 2020 and year ended 31 December 2020 have been represented
to the nearest million.
The principal exchange rates used to translate foreign currency
denominated amounts are:
Balance sheet: £1 = €1.17 (30 June 2020: £1 = €1.10; 31 December
2020: £1 = €1.12)
Income statement: £1 = €1.15 (30 June 2020: £1 = €1.14; 31
December 2020: £1 = €1.13)
The Group’s business is not seasonal and the results relate to
continuing operations unless otherwise stated.
2. ADJUSTED PROFIT
Adjusted profit is a non-GAAP measure and is the Group’s measure
of underlying profit, which is used by the Board and senior
management to measure and monitor the Group’s income
performance.
It is based on the Best Practices Recommendations of European
Public Real Estate Association (EPRA), which calculate profit
excluding investment and development property revaluations and
gains or losses on disposals, changes in the fair value of
financial instruments and associated close-out costs and their
related taxation, as well as other permitted one-off items. Refer
to the Supplementary Notes for all EPRA adjustments.
The Directors may also exclude from the EPRA profit measure
additional items (gains and losses) which are considered by them to
be non-recurring, not in the ordinary course of business and
significant by virtue of size and nature. No non-EPRA adjustments
to underlying profit were made in the current or prior periods.
The following table provides a reconciliation of Adjusted profit
to IFRS profit:
Notes
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Gross rental income
4
220
187
393
Property operating expenses
5
(49)
(42)
(88)
Net rental income
171
145
305
Joint venture fee income
4
12
11
22
Administration expenses
(27)
(25)
(52)
Share of joint ventures’ adjusted profit
after tax
6
32
29
61
Adjusted operating profit before
interest and tax
188
160
336
Net finance costs (including
adjustments)
8
(20)
(19)
(40)
Adjusted profit before tax
168
141
296
Adjustments to reconcile to
IFRS:
Adjustments to the share of profit from
joint ventures after tax1
6
178
6
175
Realised and unrealised property gain
7
1,122
57
989
Gain on sale of trading properties
1
-
1
Cost of early close out of debt
-
-
(11)
Net fair value (loss)/gain on interest
rate swaps and other derivatives
8
(56)
17
14
Total adjustments
1,245
80
1,168
Profit before tax
1,413
221
1,464
Tax
On Adjusted profit
9
(3)
(2)
(4)
In respect of adjustments
9
(50)
(2)
(31)
In respect of SIIC entry charge2
9
(39)
-
-
Total tax adjustments
(92)
(4)
(35)
Profit after tax before non-controlling
interests
1,321
217
1,429
Non-controlling interests:
Less: share of adjusted profit
attributable to non-controlling
interest
-
-
-
: share of adjustments attributable to
non-controlling
interests
(4)
(1)
(2)
Profit after tax and non-controlling
interests
1,317
216
1,427
Of which:
Adjusted profit after tax and
non-controlling interests
165
139
292
Total adjustments after tax and
non-controlling interests
1,152
77
1,135
Profit attributable to equity
shareholders
1,317
216
1,427
1. A detailed breakdown of the adjustments
to the share of profit from joint ventures is included in Note
6.
2. In line with EPRA Best Practices
Recommendations guidelines the tax charge in respect of SIIC entry
(detailed further in Note 9) has been excluded from Tax on adjusted
profit in the table above.
3. SEGMENTAL REPORTING
The Group’s reportable segments are the geographical business
units: Greater London (UK), Thames Valley (UK), National Logistics
(UK), Northern Europe (principally Germany), Southern Europe
(principally France) and Central Europe (principally Poland), which
are managed and reported to the Board as separate and distinct
Business Units.
Gross rental income £m
Net rental income £m
Share of joint ventures’
Adjusted profit £m
Adjusted operating PBIT2
£m
Total directly owned property
assets £m
Investments in joint ventures
£m
Capital expenditure3
£m
30 June 2021
Thames Valley
43
40
-
39
2,249
-
15
National Logistics
18
17
-
17
1,438
1
94
Greater London
90
79
-
77
5,349
-
79
Northern Europe
15
9
12
24
765
834
27
Southern Europe
49
29
16
49
1,939
1,116
217
Central Europe
5
2
11
15
157
517
1
Other1
-
(5)
(7)
(33)
-
(848)
5
Total
220
171
32
188
11,897
1,620
438
30 June 2020
Thames Valley
41
38
-
37
1,784
-
10
National Logistics
17
18
-
18
1,098
1
217
Greater London
75
65
-
63
4,235
-
257
Northern Europe
15
9
12
23
597
680
15
Southern Europe
34
20
13
36
1,374
796
166
Central Europe
5
2
10
14
149
484
3
Other1
-
(7)
(6)
(31)
-
(726)
2
Total
187
145
29
160
9,237
1,235
670
31 December 2020
Thames Valley
84
78
-
76
1,997
-
57
National Logistics
34
34
-
33
1,223
1
267
Greater London
160
140
-
138
4,867
-
454
Northern Europe
29
18
25
48
682
803
29
Southern Europe
75
44
30
79
1,803
914
566
Central Europe
11
4
22
30
151
496
4
Other1
-
(13)
(16)
(68)
-
(791)
5
Total
393
305
61
336
10,723
1,423
1,382
1. Other includes the corporate centre,
SELP holding companies and costs relating to the operational
business which are not specifically allocated to a geographical
business unit. This includes the bonds issued by SELP Finance S.à
r.l, a Luxembourg entity.
2. A reconciliation of total Adjusted PBIT
to the IFRS profit before tax is provided in Note 2.
3. Capital expenditure includes additions
and acquisitions of investment and trading properties but does not
include tenant incentives, letting fees and rental guarantees. Part
of the capital expenditure incurred is in response to climate
change including the reduction of the carbon footprint of the
Group’s existing investment properties and developments. The
“Other” category includes non-property related spend, primarily
IT.
4. REVENUE
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Rental income from investment and trading
properties
190
161
336
Rent averaging
5
7
18
Service charge income*
21
17
35
Management fees*
2
1
3
Surrender premiums and dividend income
from property related investments
2
1
1
Gross rental income1
220
187
393
Joint venture fees - management fees*
12
11
22
Proceeds from sale of trading
properties*
14
-
17
Total revenue
246
198
432
* The above income streams reflect revenue recognition under
IFRS 15 Revenue from Contracts with Customers and total £49 million
(31 December 2020: £77 million; 30 June 2020: £29 million).
1. Net rental income of £171 million (31
December 2020: £305 million; 30 June 2020: £145 million) is
calculated as gross rental income of £220 million (31 December
2020: £393 million; 30 June 2020: £187 million) less total property
operating expenses of £49 million (31 December 2020: £88 million;
30 June 2020: £42 million) shown in Note 5.
5. PROPERTY OPERATING EXPENSES
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020
£m
Vacant property costs
3
2
3
Letting, marketing, legal and professional
fees
5
4
10
Loss allowance and impairment of
receivables
1
3
4
Service charge expense
21
17
35
Other expenses
5
3
9
Property management expenses
35
29
61
Property administration expenses1
19
17
36
Costs capitalised2
(5)
(4)
(9)
Total property operating
expenses
49
42
88
Trading
properties cost of sales
13
-
16
Total costs
62
42
104
1. Property administration expenses
predominantly relate to the employee staff costs of personnel
directly involved in managing the property portfolio.
2. Costs capitalised relate to staff costs
of those internal employees directly involved in developing the
property portfolio.
6. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
6(i) Share of profit from joint ventures after tax
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Revenue1
131
125
249
Gross rental income
131
118
242
Property operating expenses:
-underlying property operating
expenses
(6)
(6)
(12)
-vacant property costs
(1)
(1)
(3)
-property management fees2
(10)
(10)
(19)
-service charge expense
(27)
(24)
(48)
Net rental income
87
77
160
Administration expenses
(2)
(1)
(3)
Net finance costs (including
adjustments)
(13)
(13)
(25)
Adjusted profit before tax
72
63
132
Tax
(8)
(5)
(10)
Adjusted profit after tax
64
58
122
At share
32
29
61
Adjustments:
Profit on sale of investment
properties
-
-
2
Valuation surplus on investment
properties
435
21
424
Gain on sale of trading properties
-
-
-
Other investment income
-
-
5
Tax in respect of adjustments
(79)
(10)
(81)
Total adjustments
356
11
350
At share
178
6
175
Profit after tax
420
69
472
At share
210
35
236
Total comprehensive income for the
period
420
69
472
At share
210
35
236
1. Total revenue at 100% of £131 million
(31 December 2020: £249 million; 30 June 2020: £125 million)
includes: Gross rental income £131 million (31 December 2020: £242
million; 30 June 2020: £118 million) and proceeds from sale of
trading properties £nil (31 December 2020: £7 million; 30 June
2020: £7 million). Proceeds from sale of trading properties is
presented net of cost of sale and shown in the line ‘Gain on sale
of trading properties’ in the table above.
2. Property management fees paid to
SEGRO.
6(ii) Summarised balance sheet information of the Group’s
share of joint ventures
As at 30 June 2021 £m
As at 30 June 2020 £m
As at 31 December 2020 £m
Investment properties
5,249
4,172
4,695
Other interests in property
-
2
-
Total non-current assets
5,249
4,174
4,695
Other receivables
173
108
115
Cash and cash equivalents
66
112
48
Total current assets
239
220
163
Total assets
5,488
4,394
4,858
Borrowings
(1,701)
(1,535)
(1,574)
Deferred tax liabilities
(412)
(272)
(346)
Total non-current liabilities
(2,113)
(1,807)
(1,920)
Other liabilities
(136)
(118)
(92)
Total current liabilities
(136)
(118)
(92)
Total liabilities
(2,249)
(1,925)
(2,012)
Net assets
3,239
2,469
2,846
At share
1,620
1,235
1,423
In May 2021, SELP issued an 8 year, €500 million unsecured bond
at an annual coupon of 0.875 per cent as discussed further in the
Finance Review.
SEGRO provides certain services, including venture advisory and
asset management to the SELP joint venture and receives fees for
doing so. Performance fees may also be payable from SELP to SEGRO
based on its IRR subject to certain hurdle rates. The first fee of
£52 million was paid on the fifth anniversary of the inception of
SELP, October 2018, but 50 per cent of this is subject to clawback
based on performance over the period to the tenth anniversary,
October 2023. If performance has improved at this point, additional
fees might be triggered.
The IRR calculation to determine whether the hurdle rates will
be met when the performance period ends in October 2023 is an
estimation and sensitive to movements and assumptions in property
valuations over the remaining performance period. Due to the
estimation uncertainties that exist in calculating the IRR
management do not consider it highly probable there will not be a
significant reversal of the fee subject to clawback over the
remaining performance period. For these reasons, no performance fee
has been recognised by SEGRO (and no performance fee expense
recognised by SELP) in the Income Statement for the period ended 30
June 2021 (31 December 2020: £nil; 30 June 2020: £nil).
7. REALISED AND UNREALISED PROPERTY GAIN
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Profit on sale of investment
properties
4
2
5
Valuation surplus on investment
properties
1,118
57
971
Increase in provision for impairment in
other interests in property
-
-
(1)
Valuation (deficit)/ surplus on other
investments
-
(2)
14
Total realised and unrealised property
gain
1,122
57
989
The above table does not include realised gains on sale of
trading properties of £1 million (31 December 2020: £1 million; 30
June 2020: £nil) as detailed further in Note 2.
Valuation surpluses are discussed further in the Chief
Executive’s Review.
8. NET FINANCE COSTS
Finance income
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Interest received on bank deposits and
related derivatives
16
18
27
Fair value gain on interest rate swaps and
other derivatives
7
20
23
Total finance income
23
38
50
Finance costs
Interest on overdrafts, loans and related
derivatives
(37)
(39)
(68)
Cost of early close out of debt
-
-
(11)
Amortisation of issue costs
(1)
(1)
(3)
Interest on lease liabilities
(2)
(1)
(3)
Total borrowing costs
(40)
(41)
(85)
Less amount capitalised on the development
of properties
4
4
7
Net borrowing costs
(36)
(37)
(78)
Fair value loss on interest rate swaps and
other derivatives
(63)
(3)
(9)
Total finance costs
(99)
(40)
(87)
Net finance costs
(76)
(2)
(37)
Net finance costs (including adjustments) in Adjusted profit
(see Note 2) are £20 million (31 December 2020: £40 million; 30
June 2020: £19 million). This excludes net fair value loss on
interest rate swaps and other derivatives of £56 million (31
December 2020: gain of £14 million; 30 June 2020: gain of £17
million) and cost of early close out of debt of £nil (31 December
2020: £11 million; 30 June 2020: £nil) in the table above.
9. TAX
9(i) Tax on profit
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Tax:
On Adjusted profit
(3)
(2)
(4)
In respect of adjustments
(50)
(2)
(31)
In respect of SIIC entry charge
(39)
-
-
Total tax charge
(92)
(4)
(35)
Current tax
Current tax charge
(23)
(2)
(7)
Adjustments in respect of earlier
years
-
4
4
SIIC entry charge
(39)
-
-
Total current tax
(charge)/credit
(62)
2
(3)
Deferred tax
Origination and reversal of temporary
differences
(2)
(1)
(3)
Released in respect of property disposals
in the period
21
-
5
On valuation movements
(48)
(5)
(39)
Total deferred tax in respect of
investment properties
(29)
(6)
(37)
Other deferred tax
(1)
-
5
Total deferred tax charge
(30)
(6)
(32)
Total tax charge on profit on ordinary
activities
(92)
(4)
(35)
During April 2021, the Group elected Sofibus Patrimoine S.A.
into the SIIC regime in France. The entry cost to the regime was
€45 million (£39 million) and is payable over a period of four
years, of which the first payment is due to be made during H2 2021.
The entire entry cost has been recognised in the H1 2021 Income
Statement.
The Group believes that its accruals for tax liabilities are
adequate for all open tax years based on its assessment of many
factors, including interpretations of tax laws and prior
experience.
9(ii) Deferred tax liabilities
Movement in deferred tax was as follows:
Balance 1 January 2021
£m
Exchange movement £m
Acquisitions/ (disposals)
£m
Recognised in income
£m
Balance 30 June 2021
£m
Balance 30 June 2020 £m
Valuation surplus and deficits on
properties/accelerated tax allowances
84
(5)
-
30
109
60
Deferred tax asset on revenue losses
-
-
-
-
-
(1)
Others
3
-
-
-
3
2
Total deferred tax liabilities
87
(5)
-
30
112
61
10. DIVIDENDS
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Ordinary dividends paid
Final dividend for 2020 @ 15.2 pence per
share
181
-
-
Interim dividend for 2020 @ 6.9 pence per
share
-
-
82
Final dividend for 2019 @ 14.4 pence per
share
-
158
158
181
158
240
The Board has declared an interim dividend of 7.4 pence per
ordinary share (2020: 6.9 pence). This dividend has not been
recognised in the condensed financial statements.
11. EARNINGS AND NET ASSETS PER ORDINARY SHARE
The earnings per share calculations use the weighted average
number of shares in issue during the period and the net assets per
share calculations use the number of shares in issue at the period
end. Earnings per share calculations exclude 0.2 million shares
(0.4 million for the full year 2020 and 0.5 million for half year
2020) being the average number of shares held on trust during the
period for employee share schemes and net assets per share exclude
0.2 million shares (0.3 million for the full year 2020 and 0.3
million for the half year 2020) being the actual number of shares
held on trust for employee share schemes at period end.
11(i) Earnings per ordinary share (EPS)
Half year to 30 June
2021
Half year to 30 June 2020
Year to 31 December 2020
Earnings £m
Shares million
Pence per share
Earnings £m
Shares million
Pence per share
Earnings £m
Shares million
Pence per share
Basic EPS
1,317
1,194.1
110.3
216
1,108.1
19.5
1,427
1,149.8
124.1
Dilution adjustments:
Employee share schemes
-
2.9
(0.3)
-
4.4
(0.1)
-
4.7
(0.5)
Diluted EPS
1,317
1,197.0
110.0
216
1,112.5
19.4
1,427
1,154.5
123.6
Basic EPS
1,317
1,194.1
110.3
216
1,108.1
19.5
1,427
1,149.8
124.1
Adjustments to profit before tax1
(1,245)
(104.3)
(80)
(7.3)
(1,168)
(101.6)
Tax in respect of Adjustments
50
4.2
2
0.2
31
2.7
Tax in respect to SIIC entry charge
39
3.3
-
-
-
-
Non-controlling interest on
adjustments
4
0.3
1
0.1
2
0.2
Adjusted Basic EPS
165
1,194.1
13.8
139
1,108.1
12.5
292
1,149.8
25.4
Adjusted Diluted EPS
165
1,197.0
13.8
139
1,112.5
12.5
292
1,154.5
25.3
1. Details of adjustments are included in
Note 2.
11(II) NET ASSET VALUE PER SHARE (NAV)
The EPRA Net Tangible Assets (NTA) metric is considered to be
most consistent with the nature of SEGRO’s business as a UK REIT
providing long-term progressive and sustainable returns. EPRA NTA
acts as the primary measure of net asset value and is also referred
to as Adjusted Net Asset Value (or Adjusted NAV).
A reconciliation from IFRS NAV to Adjusted NAV is set out in the
table below along with the net asset per share metrics.
Table 4 of the supplementary notes provides a reconciliation for
each of the three EPRA net asset value metrics.
As at 30 June 2021
As at 30 June 2020
As at 31 December 2020
Equity attributable to
ordinary shareholders
Shares million
Pence per share
Equity attributable to ordinary
shareholders
Shares million
Pence per share
Equity attributable to ordinary
shareholders
Shares million
Pence per share
£m
£m
£m
Basic NAV
10,783
1,200.0
899
8,540
1,190.6
717
9,659
1,191.3
811
Dilution adjustments:
Employee share schemes
-
2.5
(2)
-
2.7
(1)
-
3.4
(2)
Diluted NAV
10,783
1,202.5
897
8,540
1,193.3
716
9,659
1,194.7
809
Fair value adjustment in respect of
interest rate derivatives – Group
(1)
-
(68)
(6)
(61)
(5)
Fair value adjustment in respect of
trading properties – Group
-
-
2
-
1
-
Deferred tax in respect of depreciation
and valuation surpluses – Group1
55
5
30
2
42
3
Deferred tax in respect of depreciation
and valuation surpluses – Joint ventures1
100
8
67
6
86
7
Intangible assets
(8)
(1)
(2)
-
(2)
-
Adjusted NAV (EPRA NTA)
10,929
1,202.5
909
8,569
1,193.3
718
9,725
1,194.7
814
1. 50 per cent of deferred tax in respect
of depreciation and valuation surpluses has been excluded in
calculating Adjusted NAV in line with option 3 of EPRA Best
Practices Recommendations guidelines.
12. PROPERTIES
12(i) Investment properties
Completed £m
Development £m
Total £m
At 1 January 2021
9,397
1,062
10,459
Exchange movement
(91)
(22)
(113)
Property acquisitions
6
84
90
Additions to existing investment
properties
16
318
334
Disposals2
(248)
(2)
(250)
Transfers on completion of development
126
(126)
-
Revaluation surplus during the period
825
293
1,118
At 30 June 2021
10,031
1,607
11,638
Add tenant lease incentives, letting fees
and rental guarantees
137
-
137
Investment properties excluding head
lease liabilities at 30 June 2021
10,168
1,607
11,775
Add head lease liabilities (ROU
assets)1
75
-
75
Total investment properties at 30 June
2021
10,243
1,607
11,850
Total
investment properties at 30 June 2020
8,169
1,039
9,208
1. At 30 June 2021 investment properties
included £75 million (31 December 2020: £77 million; 30 June 2020:
£75 million) for the head lease liabilities recognised under IFRS
16.
2. Total disposals completed in H1 2021 of
£154 million shown in the Investment section of the Chief
Executive’s Review includes: Carrying value of investment
properties disposed by SEGRO Group of £250 million and profit
generated on disposal of £4 million (see Note 7); proceeds from the
sale of trading properties by SEGRO Group of £14 million (see Note
4); share of joint venture investment properties disposal proceeds
of £nil; carrying value of lease incentives, letting fees and
rental guarantees disposed by SEGRO Group and joint venture (at
share) of £3 million; and excludes 50 per cent of the disposal
proceeds for assets sold by SEGRO to SELP JV of £117m (further
discussed below).
Investment properties are stated at fair value based on external
valuations performed by professionally qualified, independent
valuers. The Group’s wholly owned property portfolio and joint
venture properties were performed by CBRE Ltd (apart from two
assets valued by Knight Frank). The valuations conform to
International Valuation Standards and were arrived at by reference
to market evidence of the transaction prices paid for similar
properties. In estimating the fair value of the properties, the
valuers consider the highest and best use of the properties. All
investment property would be classified as level 3 fair value
measurements, there has been no change in the valuation technique
and no significant changes in the assumptions used during the
period. The valuation surplus recognised during the period is
discussed further in the Chief Executive’s Review.
CBRE Ltd also undertake some professional and agency work on
behalf of the Group, although this is limited relative to the
activities provided by other advisors to the Group as a whole.
Sensitivity analysis
An increase/decrease to ERV will increase/decrease valuations,
while an increase/decrease to yield will decrease/increase
valuations. Management continue to consider a +/- 25bp change in
yield and a +/- 5% change in ERV to be reasonably possible changes
to the assumptions. A sensitivity analysis showing the impact on
valuations of changes in yields and ERV on the property portfolio
(including joint ventures at share) is shown below.
Impact on valuation of 25bp
change in nominal equivalent yield
Impact on valuation of 5 %
change in estimated rental value (ERV)
Group total completed property
portfolio1
£m
Increase £m
Decrease £m
Increase £m
Decrease £m
30 June 2021
12,662
(685)
692
472
467
30 June 2020
10,112
(514)
460
373
(367)
31 December 2020
11,807
(616)
608
436
(431)
1. For further details see Table 6 of the
supplementary notes.
There are interrelationships between all these inputs as they
are determined by market conditions. The existence of an increase
in more than one input would be to magnify the impact on the
valuation. The impact on the valuation will be mitigated by the
interrelationship of two inputs in opposite directions, e.g. an
increase in rent may be offset by an increase in yield.
Completed properties include buildings that are occupied or are
available for occupation. Development properties include land
available for development (land bank), land under development and
construction in progress.
At 30 June 2021 investment properties included £137 million
tenant lease incentives, letting fees and rent guarantees (31
December 2020: £136 million; 30 June 2020: £125 million).
The carrying value of investment properties situated on land
held under leaseholds amount to £183 million (excluding head lease
ROU assets) (31 December 2020: £179 million; 30 June 2020: £168
million).
The disposals of completed properties during the period includes
properties with a carrying value of £233 million (31 December 2020:
£92 million; 30 June 2020: £nil) sold to the SELP joint
venture.
12(ii) Trading properties
The carrying value of trading properties at 30 June 2021 was £47
million (31 December 2020: £52 million; 30 June 2020: £29 million).
Based on the fair value at 30 June 2021, the portfolio has
unrecognised surplus of £nil (31 December 2020: £1 million; 30 June
2020: £2 million).
13. NET BORROWINGS AND FINANCIAL INSTRUMENTS
As at 30 June 2021 £m
As at 30 June 2020 £m
As at 31 December 2020 £m
In one year or less
1
-
1
In more than one year but less than
two
1
121
1
In more than two years but less than
five
210
82
218
In more than five years but less than
ten
909
933
934
In more than ten years
1,232
866
1,260
In more than one year
2,352
2,002
2,413
Total borrowings
2,353
2,002
2,414
Cash and cash equivalents
(78)
(203)
(89)
Net borrowings
2,275
1,799
2,325
Total borrowings is split
between secured and unsecured as follows:
Secured (on land and buildings)
13
3
14
Unsecured
2,340
1,999
2,400
Total borrowings
2,353
2,002
2,414
Currency profile of total borrowings
after derivative instruments
Sterling
(113)
(16)
180
Euros
2,466
2,018
2,234
Total borrowings
2,353
2,002
2,414
Maturity profile of undrawn borrowing
facilities
In one year or less
9
9
19
In more than one year but less than
two
-
-
-
In more than two years
896
1,107
953
Total available undrawn
facilities
905
1,116
972
Fair value of financial
instruments
Book value of debt
2,353
2,002
2,414
Interest rate derivatives
(1)
(68)
(61)
Foreign exchange derivatives
(19)
23
(7)
Book value of debt including
derivatives
2,333
1,957
2,346
Net fair market value
2,655
2,210
2,813
Mark to market adjustment
(pre-tax)
322
253
467
Fair value measurements recognised in the Balance
Sheet
The financial instruments that are measured subsequent to
initial recognition at fair value are listed equity investments,
forward exchange and currency swap contracts, interest rate swaps
and interest rate caps. Investments in equity securities traded in
active markets are classified as level 1. All other financial
instruments would be classified as level 2 fair value measurements,
as defined by IFRS 13, being those derived from inputs other than
quoted prices (included within level 1) that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices). There were no transfers between
categories in the current or prior periods.
The fair values of financial assets and financial liabilities
are determined as follows:
– Forward foreign exchange contracts are measured using quoted
forward exchange rates and yield curves derived from quoted
interest rates with maturities matching the contracts.
– Interest rate swaps, currency swap contracts and interest rate
caps are measured at the present value of future cash flows
estimated and discounted based on the applicable yield curves
derived from quoted interest rates and the appropriate exchange
rate at the Balance Sheet date.
– The fair value of non-derivative financial assets and
financial liabilities traded on active liquid markets is determined
with reference to the quoted market prices.
14. NOTES TO THE CONDENSED GROUP CASH FLOW STATEMENT
14(i) Reconciliation of cash generated from
operations
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Operating profit
1,489
223
1,501
Adjustments for:
Depreciation of property, plant and
equipment
2
2
4
Share of profit from joint ventures after
tax
(210)
(35)
(236)
Profit on sale of investment
properties
(4)
(2)
(5)
Revaluation surplus on investment
properties
(1,118)
(57)
(971)
Valuation deficit/(surplus) on other
investments
-
2
(14)
Other provisions
5
(2)
4
164
131
283
Changes in working capital:
Decrease/(increase) trading properties
4
(9)
(20)
Increase in debtors and tenant
incentives
(1)
(26)
(52)
Increase in creditors
1
11
22
Net cash inflow generated from
operations
168
107
233
14(ii) Analysis of net debt
Non-cash movements
At 1 January 2021 £m
Cash
inflow1
£m
Cash Outflow2 £m
Exchange movement £m
Other non-cash adjustments3
£m
At 30 June 2021 £m
Bank loans and loan capital
2,431
35
(34)
(60)
-
2,372
Capitalised finance costs
(17)
-
(3)
-
1
(19)
Total borrowings
2,414
35
(37)
(60)
1
2,353
Cash in hand and at bank
(89)
-
10
1
-
(78)
Net debt
2,325
35
(27)
(59)
1
2,275
1. Proceeds from borrowings of £35
million.
2. Cash outflow of £37 million, comprises
the repayment of borrowings of £34 million and capitalised costs of
£3 million.
3. The other non-cash adjustments relate
to the amortisation of issue costs offset against borrowings.
15. RELATED PARTY TRANSACTIONS
There have been no undisclosed material changes in the related
party transactions as described in the last annual report, other
than those disclosed in Note 12 in this condensed set of financial
statements.
16. SUBSEQUENT EVENTS
On 5 July 2021 SEGRO entered into a binding agreement to sell a
portfolio of six Italian urban warehouses for €127 million. Five of
the properties were sold on 15 July 2021 and the sale of the sixth
property is expected to complete later this year following
practical completion of additional works.
SUPPLEMENTARY NOTES NOT PART OF CONDENSED FINANCIAL
INFORMATION
TABLE 1: EPRA PERFORMANCE MEASURES SUMMARY
Half year to 30 June
2021
Half year to 30 June 2020
Year to 31 December 2020
Notes
£m
Pence per share
£m
Pence per share
£m
Pence per share
EPRA Earnings
Table 2
165
13.8
139
12.5
292
25.4
EPRA NTA (Adjusted NAV)
Table 4
10,929
909
8,569
718
9,725
814
EPRA NRV
Table 4
11,868
987
9,282
778
10,571
885
EPRA NDV
Table 4
10,432
868
8,290
695
9,155
766
EPRA net initial yield
Table 6
3.5%
3.7%
3.8%
EPRA ‘topped up’ net initial yield
Table 6
3.8%
4.0%
4.1%
EPRA vacancy rate
Table 7
4.3%
5.2%
3.9%
EPRA cost ratio (including vacant property
costs)
Table 8
19.8%
21.2%
21.1%
EPRA cost ratio (excluding vacant property
costs)
Table 8
18.4%
20.0%
20.1%
TABLE 2: INCOME STATEMENT, PROPORTIONALLY
CONSOLIDATED
Half year to 30 June
2021
Half year to 30 June 2020
Year to 31 December 2020
Notes
Group
£m
JV
£m
Total
£m
Group
£m
JV
£m
Total
£m
Group
£m
JV
£m
Total
£m
Gross rental income
2, 6
220
66
286
187
59
246
393
121
514
Property operating expenses
2, 6
(49)
(18)
(67)
(42)
(16)
(58)
(88)
(31)
(119)
Net rental income
171
48
219
145
43
188
305
90
395
Joint venture fee income1
2
12
(5)
7
11
(5)
6
22
(10)
12
Administration expenses
2
(27)
(1)
(28)
(25)
(1)
(26)
(52)
(2)
(54)
Adjusted operating profit before
interest and tax
156
42
198
131
37
168
275
78
353
Net finance costs (including
adjustments)
2, 6
(20)
(6)
(26)
(19)
(6)
(25)
(40)
(12)
(52)
Adjusted profit before tax
136
36
172
112
31
143
235
66
301
Tax on adjusted profit
2, 6
(3)
(4)
(7)
(2)
(2)
(4)
(4)
(5)
(9)
Adjusted earnings before
non-controlling interests
133
32
165
110
29
139
231
61
292
Non-controlling interest on adjusted
profit
-
-
-
-
-
-
-
-
-
Adjusted/EPRA earnings after
tax and non-controlling interests
133
32
165
110
29
139
231
61
292
Number of shares, million
1,194.1
1,108.1
1,149.8
Adjusted/EPRA EPS, pence per
share
13.8
12.5
25.4
Number of shares, million
1,197.0
1,112.5
1,154.5
Adjusted/EPRA EPS, pence per
share – diluted
13.8
12.5
25.3
1. Joint venture fee income includes the
cost of such fees borne by the joint ventures which are shown in
Note 6 within net rental income.
As discussed in Note 2 there were no non-EPRA adjustments to
underlying profit made in the current period or prior periods,
therefore Adjusted earnings is equal to EPRA earnings in the table
above.
TABLE 3: BALANCE SHEET, PROPORTIONAL CONSOLIDATION
As at 30 June 2021
As at 30 June 2020
As at 31 December 2020
Notes
Group
£m
JV
£m
Total
£m
Group
£m
JV
£m
Total
£m
Group
£m
JV
£m
Total
£m
Investment properties
12, 6
11,850
2,624
14,474
9,208
2,086
11,294
10,671
2,348
13,019
Trading properties
12, 6
47
-
47
29
-
29
52
-
52
Total properties
11,897
2,624
14,521
9,237
2,086
11,323
10,723
2,348
13,071
Investment in joint ventures
6
1,620
(1,620)
-
1,235
(1,235)
-
1,423
(1,423)
-
Other net liabilities
(459)
(187)
(646)
(133)
(139)
(272)
(162)
(162)
(324)
Net borrowings
13,6
(2,275)
(817)
(3,092)
(1,799)
(712)
(2,511)
(2,325)
(763)
(3,088)
Total shareholders’ equity1
10,783
-
10,783
8,540
-
8,540
9,659
-
9,659
EPRA adjustments
11
146
29
66
Adjusted NAV
11
10,929
8,569
9,725
Number of shares, million
11
1,202.5
1,193.3
1,194.7
Adjusted NAV pence per share
11
909
718
814
1. After non-controlling interests.
Loan to value of 21 per cent at 30 June 2021 is calculated as
net borrowings of £3,092 million divided by total properties
(excluding head lease ROU asset of £75 million) of £14,446 million
(30 June 2020: 22 per cent, £2,511 million net borrowings and
£11,248 million total properties; 31 December 2020: 24 per cent,
£3,088 million net borrowings and £12,994 million total
properties).
TABLE 4: EPRA NET ASSET MEASURES
The European Public Real Estate Association (‘EPRA’) best
practice recommendations (BPR) for financial disclosures by public
real estate companies sets out three net asset value measures: EPRA
net tangible assets (NTA), EPRA net reinstatement value (NRV) and
EPRA net disposal value (NDV).
The EPRA Net Tangible Assets (NTA) metric is considered to be
most consistent with the nature of SEGRO’s business as a UK REIT
providing long-term progressive and sustainable returns. EPRA NTA
acts as the primary measure of net asset value and is also referred
to as Adjusted Net Asset Value (or Adjusted NAV).
A reconciliation of the three EPRA NAV metrics from IFRS NAV is
shown in the table below.
EPRA measures
As at 30 June 2021
EPRA NTA
(Adjusted NAV)
EPRA NRV
EPRA NDV
£m
£m
£m
Equity attributable to ordinary
shareholders
10,783
10,783
10,783
Fair value adjustment in respect of
interest rate derivatives – Group
(1)
(1)
-
Deferred tax in respect of depreciation
and valuation surpluses – Group1
55
110
-
Deferred tax in respect of depreciation
and valuation surpluses – Joint ventures1
100
200
-
Intangible assets
(8)
-
-
Fair value adjustment in respect of debt –
Group
-
-
(322)
Fair value adjustment in respect of debt –
Joint ventures
-
-
(29)
Real estate transfer tax2
-
776
-
Net assets
10,929
11,868
10,432
Diluted shares (million)
1,202.5
1,202.5
1,202.5
Diluted net assets per share
909
987
868
1. 50 per cent of deferred tax in respect
of depreciation and valuation surpluses has been excluded in
calculating EPRA NTA in line with option 3 of EPRA BPR
guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS
values which are net of purchasers’ costs. Purchasers’ costs are
added back when calculating EPRA NRV.
EPRA measures
As at 30 June 2020
EPRA NTA
(Adjusted NAV)
EPRA NRV
EPRA NDV
£m
£m
£m
Equity attributable to ordinary
shareholders
8,540
8,540
8,540
Fair value adjustment in respect of
interest rate derivatives – Group
(68)
(68)
-
Fair value adjustment in respect of
trading properties – Group
2
2
2
Deferred tax in respect of depreciation
and valuation surpluses – Group1
30
60
-
Deferred tax in respect of depreciation
and valuation surpluses – Joint ventures1
67
134
-
Intangible assets
(2)
-
-
Fair value adjustment in respect of debt –
Group
-
-
(253)
Fair value adjustment in respect of debt –
Joint ventures
-
-
1
Real estate transfer tax2
-
614
-
Net assets
8,569
9,282
8,290
Diluted shares (million)
1,193.3
1,193.3
1,193.3
Diluted net assets per share
718
778
695
1. 50 per cent of deferred tax in respect
of depreciation and valuation surpluses has been excluded in
calculating EPRA NTA in line with option 3 of EPRA BPR
guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS
values which are net of purchasers’ costs. Purchasers’ costs are
added back when calculating EPRA NRV.
EPRA measures
As at 31 December 2020
EPRA NTA
(Adjusted NAV)
EPRA NRV
EPRA NDV
£m
£m
£m
Equity attributable to ordinary
shareholders
9,659
9,659
9,659
Fair value adjustment in respect of
interest rate derivatives – Group
(61)
(61)
-
Fair value adjustment in respect of
trading properties – Group
1
1
1
Deferred tax in respect of depreciation
and valuation surpluses – Group1
42
84
-
Deferred tax in respect of depreciation
and valuation surpluses – Joint ventures1
86
171
-
Intangible assets
(2)
-
-
Fair value adjustment in respect of debt –
Group
-
-
(467)
Fair value adjustment in respect of debt –
Joint ventures
-
-
(38)
Real estate transfer tax2
-
717
-
Net assets
9,725
10,571
9,155
Diluted shares (million)
1,194.7
1,194.7
1,194.7
Diluted net assets per share
814
885
766
1. 50 per cent of deferred tax in respect
of depreciation and valuation surpluses has been excluded in
calculating EPRA NTA in line with option 3 of EPRA BPR
guidelines.
2. EPRA NTA and EPRA NDV reflect IFRS
values which are net of purchasers’ costs. Purchasers’ costs are
added back when calculating EPRA NRV.
TABLE 5: EPRA EARNINGS
Notes
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Earnings per IFRS income
statement
1,317
216
1,427
Adjustments to calculate EPRA Earnings,
exclude:
Valuation surplus on investment
properties
7
(1,118)
(57)
(971)
Profit on sale of investment
properties
7
(4)
(2)
(5)
Gain on sale of trading properties
7
(1)
-
(1)
Increase in provision for impairment of
other interests in property
7
-
-
1
Valuation deficit/(surplus) on other
investments
7
-
2
(14)
Tax on profits on disposals1
29
(4)
-
Costs of early close out of debt
8
-
-
11
Net fair value loss/(gain) on interest
rate swaps and other derivatives
8
56
(17)
(14)
Deferred tax in respect of EPRA
adjustments1
21
6
31
Tax charge in respect of SIIC entry
9
39
-
-
Adjustments to the share of profit from
joint ventures after tax
6
(178)
(6)
(175)
Non-controlling interests in respect of
the above
2
4
1
2
EPRA earnings
165
139
292
Basic number of shares, million
11
1,194.1
1,108.1
1,149.8
EPRA Earnings per Share (EPS)
13.8
12.5
25.4
Company specific adjustments:
Non-EPRA adjustments
2
-
-
-
Adjusted earnings
165
139
292
Adjusted EPS
13.8
12.5
25.4
1. Total tax charge in respect of
adjustments per Note 2 of £50 million (H1 2020: £2 million, FY
2020: £31 million) comprises tax charge on profits on disposals of
£29 million (H1 2020: credit £4 million, FY 2020: £nil) and
deferred tax charge of £21 million (H1 2020: £6 million, FY 2020:
£31 million).
TABLE 6: EPRA NET INITIAL YIELD AND TOPPED-UP NET INITIAL
YIELD
Combined property portfolio including
joint ventures at share – 30 June 2021
Notes
UK £m
Continental Europe £m
Total £m
Total properties per financial
statements
Table 3
9,036
5,485
14,521
Less head lease ROU assets
12
-
(75)
(75)
Combined property portfolio per
external valuers’ report4
9,036
5,410
14,446
Less development properties (investment,
trading and joint venture)
(928)
(856)
(1,784)
Net valuation of completed
properties
8,108
4,554
12,662
Add notional purchasers’ costs
549
227
776
Gross valuation of completed properties
including notional purchasers’ costs
A
8,657
4,781
13,438
Income
Gross passing rents1
288
189
477
Less irrecoverable property costs
(5)
(7)
(12)
Net passing rents
B
283
182
465
Adjustment for notional rent in respect of
rent frees
22
21
43
Topped up net rent
C
305
203
508
Including fixed/minimum uplifts2
10
-
10
Total topped up net rent
315
203
518
Yields – 30 June 2021
EPRA net initial yield3
B/A
3.3%
3.8%
3.5%
EPRA topped up net initial yield3
C/A
3.5%
4.2%
3.8%
True net equivalent yield
4.1%
4.4%
4.2%
1. Gross passing rent excludes short term
lettings and licences.
2. Certain leases contain clauses which
guarantee future rental increases, whereas most leases contain five
yearly, upwards-only rent review clauses (UK) or indexation clauses
(Continental Europe).
3. In accordance with the Best Practices
Recommendations of EPRA.
4. Total assets under management of
£17,071 million includes Combined property portfolio (including JV
at 50% share) of £14,446 million plus 50% of JV properties not
owned but under management of £2,625 million.
TABLE 7: EPRA VACANCY RATE
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Annualised potential rental value of
vacant premises
24
27
22
Annualised potential rental value for the
completed property portfolio
567
518
561
EPRA vacancy rate1
4.3%
5.2%
3.9%
1. EPRA vacancy rate has been calculated
using the figures presented in the table above in millions accurate
to one decimal place.
TABLE 8: TOTAL COST RATIO / EPRA COST RATIO
Total cost ratio
Notes
Half year to 30 June 2021
£m
Half year to 30 June 2020 £m
Year to 31 December 2020 £m
Costs
Property operating expenses1
5
49
42
88
Administration expenses
27
25
52
Share of joint venture property operating
and administration expenses2
6
24
21
43
Less:
Joint venture property management fee
income, service charge income, management fees and other costs
recovered through rents but not separately invoiced3
(51)
(43)
(88)
Total costs (A)
49
45
95
Gross rental income
Gross rental income
4
220
187
393
Share of joint venture property gross
rental income
6
66
59
121
Less:
Service charge income, management fees and
other costs recovered through rents but not separately
invoiced3
(39)
(32)
(66)
Total gross rental income (B)
247
214
448
Total cost ratio (A)/(B)4
19.8%
21.2%
21.1%
Total costs (A)
49
45
95
Share-based payments
(6)
(5)
(10)
Total costs after share based payments
(C)
43
40
85
Total cost ratio after share based
payments (C)/(B)4
17.4%
18.6%
18.8%
EPRA cost ratio
Total costs (A)
49
45
95
Non-EPRA
adjustments
-
-
-
EPRA total costs including vacant
property costs (D)
49
45
95
Group
vacant property costs
(3)
(2)
(3)
Share of joint venture vacant property
costs
(1)
(1)
(2)
EPRA total costs excluding vacant
property costs (E)
45
42
90
Total gross rental income (B)
247
214
448
Total EPRA costs ratio (including
vacant property costs) (D)/(B)4
19.8%
21.2%
21.1%
Total EPRA costs ratio (excluding
vacant property costs) (E)/(B)4
18.4%
20.0%
20.1%
1. Property operating expenses are net of
costs capitalised in accordance with IFRS of £5 million (H1 2020:
£4 million, FY 2020: £9 million) (see Note 5 for further detail on
the nature of costs capitalised).
2. Share of joint venture property
operating and administration expenses after deducting costs related
to performance and other fees.
3. Total deduction of £51 million (H1
2020: £43 million, FY 2020: £88 million) from costs includes: joint
venture management fees income of £12 million (H1 2020: £11
million, FY 2020: £22 million), service charge income including
joint ventures of £35 million (H1 2020: £29 million, FY 2020: £59
million) and management fees and other costs recovered through
rents but not separately invoiced, including joint ventures, of £4
million (H1 2020: £3 million, FY 2020: £7 million). These items
have been represented as an offset against costs rather than a
component of income in accordance with EPRA BPR Guidelines as they
are reimbursing the Group for costs incurred. Gross rental income
of £220 million (H1 2020: £187 million, FY 2020: £393 million) does
not include joint venture management fees income of £12 million (H1
2020: £11 million, FY 2020: £22 million) and these fees are not
required to be included in the total deduction to income of £39
million (H1 2020: £32 million, FY 2020: £66 million).
4. Cost ratio percentages have been
calculated using the figures presented in the table above in
millions accurate to one decimal place.
GLOSSARY OF TERMS
Completed portfolio: The completed investment properties
and the Group’s share of joint ventures’ completed investment
properties. Includes properties held throughout the period,
completed developments and properties acquired during the
period.
Development pipeline: The Group’s current programme of
developments authorised or in the course of construction at the
balance sheet date (current development pipeline), together with
potential schemes not yet commenced on land owned or controlled by
the Group (future development pipeline). Within the future
development pipeline are pre-let development projects which
management expects to approve over the next twelve months or which
have been approved but are subject to final planning approval or
other conditions being met (“near-term” development pipeline).
EPRA: The European Public Real Estate Association, a real
estate industry body, which has issued Best Practices
Recommendations Guidelines in order to provide consistency and
transparency in real estate reporting across Europe.
Estimated cost to completion: Costs still to be expended
on a development or redevelopment to practical completion,
including attributable interest.
Estimated rental value (ERV): The estimated annual market
rental value of lettable space as determined biannually by the
Group’s valuers. This will normally be different from the rent
being paid.
Gearing: Net borrowings divided by total shareholders’
equity excluding intangible assets and deferred tax provisions.
Gross rental income: Contracted rental income recognised
in the period in the Income Statement, including surrender premiums
and service charge income. Lease incentives, initial costs and any
contracted future rental increases are amortised on a straight line
basis over the lease term. Service charge expenses are captured in
“Property Operating Expenses”.
Headline rent: The annual rental income currently
receivable on a property as at the balance sheet date (which may be
more or less than the ERV) ignoring any rent-free period.
Hectares (Ha): The area of land measurement used in this
analysis. The conversion factor used, where appropriate, is 1
hectare = 2.471 acres.
Investment property: Completed land and buildings held
for rental income return and/or capital appreciation.
Joint venture: An entity in which the Group holds an
interest and which is jointly controlled by the Group and one or
more partners under a contractual arrangement whereby decisions on
financial and operating policies essential to the operation,
performance and financial position of the venture require each
partner’s consent.
Loan to value (LTV): Net borrowings divided by the
carrying value of total property assets (investment, owner occupied
and trading properties and excludes head lease ROU asset). This is
reported on a ‘look‑through’ basis (including joint ventures at
share) except where stated.
MSCI: MSCI Real Estate calculates indices of real estate
performance around the world.
Net initial yield: Passing rent less non recoverable
property expenses such as empty rates, divided by the property
valuation plus notional purchasers’ costs. This is in accordance
with EPRA’s Best Practices Recommendations.
Net rental income: Gross rental income less ground rents
paid, net service charge expenses and property operating
expenses.
Net true equivalent yield: The internal rate of return
from an investment property, based on the value of the property
assuming the current passing rent reverts to ERV and assuming the
property becomes fully occupied over time. Rent is assumed to be
paid quarterly in advance, in line with standard UK lease
terms.
Passing rent: The annual rental income currently
receivable on a property as at the Balance Sheet date (which may be
more or less than the ERV). Excludes rental income where a rent
free period is in operation. Excludes service charge income.
Pre-let: A lease signed with an occupier prior to
commencing construction of a building.
REIT: A qualifying entity which has elected to be treated
as a Real Estate Investment Trust for tax purposes. In the UK, such
entities must be listed on a recognised stock exchange, must be
predominantly engaged in property investment activities and must
meet certain ongoing qualifications. SEGRO plc and its UK
subsidiaries achieved REIT status with effect from 1 January
2007.
Rent-free period: An incentive provided usually at
commencement of a lease during which a customer pays no rent. The
amount of rent free is the difference between passing rent and
headline rent.
Rent roll: See Passing Rent.
SELP: SEGRO European Logistics Partnership, a 50-50 joint
venture between SEGRO and Public Sector Pension Investment Board
(PSP Investments).
SIIC: Sociétés d’investissements Immobiliers Cotées are
the French equivalent of UK Real Estate Investment Trusts (see
REIT).
Speculative development: Where a development has
commenced prior to a lease agreement being signed in relation to
that development.
Square metres (sq m): The area of buildings measurements
used in this analysis. The conversion factor used, where
appropriate, is one square metre = 10.7639 square feet.
Take-back: Rental income lost due to lease expiry,
exercise of break option, surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted
to include notional rent in respect of let properties which are
subject to a rent free period at the valuation date. This is in
accordance with EPRA’s Best Practices Recommendations.
Total accounting return (TAR): A measure of the growth in
Net Asset Value (NAV) per share calculated as change in Adjusted
NAV per share in the period plus dividend per share paid in the
period, expressed as a percentage of Adjusted NAV per share at the
beginning of the period.
Total property return (TPR): A measure of the ungeared
return for the portfolio and is calculated as the change in capital
value, less any capital expenditure incurred, plus net income,
expressed as a percentage of capital employed over the period
concerned, as calculated by MSCI Real Estate and excluding
land.
Total shareholder return (TSR): A measure of return based
upon share price movement over the period and assuming reinvestment
of dividends.
Trading property: Property being developed for sale or
one which is being held for sale after development is complete.
Yield on cost: The expected gross yield based on the
estimated current market rental value (ERV) of the developments
when fully let, divided by the book value of the developments at
the earlier of commencement of the development or the balance sheet
date, plus future development costs and estimated finance costs to
completion.
Yield on new money: The yield on cost excluding the book
value of land if the land is owned by the Group in the reporting
period prior to commencement of the development.
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