We consider the key leverage metric for SEGRO to be proportionately consolidated (“look-through) 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 31 December 2021 on this ‘look-through’ basis was 23 per cent (31 December 2020: 24 per cent).
SEGRO’s 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 31 December 2021, as defined within the principal debt funding arrangements of the Group, was 25 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 63 per cent from their 31 December 2021 values to reach the gearing covenant threshold of 160 per cent. A 63 per cent fall in property values would equate to an LTV ratio of approximately 62 per cent.
The Group has minimal 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 its foreign currency gross assets using either borrowings or derivative instruments. The Group targets a hedging range of between the last reported LTV ratio (23 per cent at 31 December 2021) and 100 per cent.
At 31 December 2021, the Group had gross foreign currency assets which were 62 per cent (31 December 2020: 61 per cent) hedged by gross foreign currency denominated liabilities (including the impact of derivative financial instruments).
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.
At 31 December 2021, including the impact of derivative instruments, 65 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. As interest rates have fallen, however, the gap between absolute fixed cover and the protection offered by caps has increased. The fixed only level of debt is 46 per cent at 31 December 2021 (31 December 2020: 44 per cent).