Treasury Policy

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 risk.

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 2024 on this ‘look-through’ basis was 30 per cent (31 December 2023: 34 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 2024, as defined within the principal debt funding arrangements of the Group, was 35 per cent (31 December 2023: 45 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 52 per cent from their 30 June 2024 levels to reach the gearing covenant threshold of 160 per cent. A 52 per cent fall in property values would equate to an LTV ratio of approximately 62 per cent.

Interest cover is the Group’s other key financial covenant within its principal debt funding arrangements, requiring that net interest before capitalisation be covered at least 1.25 times by net property rental income. Calculated on a rolling 12-month basis, the ratio at 30 June 2023 was 2.9 times, comfortably ahead of the covenant minimum.

Net property rental income would need to fall by around 58 per cent from the 12 months ending 30 June 2024 levels, or the Group average interest rates would need to rise to in excess of 8 per cent to breach the interest cover covenant threshold.

Leverage is also monitored on a net debt/EBITDA basis of which the ratio was 8.5 times at 30 June 2024 (31 December 2023: 10.4 times).

FX Hedging

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 period-end Group LTV percentage and 100 per cent of its foreign currency gross assets through either borrowings or derivative instruments.

At 30 June 2024, the Group had gross foreign currency assets which were 78 per cent hedged by gross foreign currency denominated liabilities (including the impact of derivative financial instruments).

Interest Rate

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 and associates) should be at fixed or capped rates, including the impact of derivative financial instruments.

As at 30 June 2024, including the impact of derivative instruments, 104 per cent (31 December 2023: 95 per cent) of the net borrowings of the Group (including the Group’s share of borrowings within joint ventures and associates) were at fixed rates or protected by an active interest rate cap. This hedged debt percentage is currently greater than 100% due to a temporarily higher cash balance.