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David Sleath, Chief Executive, said:

“We have had a strong start to 2018, securing £27 million of new headline rent, a record level for a single quarter. Occupational demand remains encouraging across all our markets, particularly driven by the growth of online retailing. Our profitable and largely pre-leased development pipeline is expected to generate £55 million of new rent when fully built and leased, and there are further projects in advanced discussions which will add to this in the coming months.

“The combination of attractive yields and rental growth, resulting from limited supply and the enduring positive structural drivers of occupier demand, continues to appeal to investors. Consequently, the investment market remains active with evidence of some further yield compression in recent urban and big box warehouse transactions.”

Operational excellence: Delivering profitable growth from active asset management, development and a record level of pre-let agreements (Appendix 1)

  • In the first quarter, we contracted £27.3 million of new headline rent (Q1 2017: £16.3 million), including £23.3 million of pre-lets (Q1 2017: £10.6 million).
  • We completed 146,500 sq m of developments in the quarter, capable of generating £10.9 million of headline rent when fully let, of which £6.8 million (63 per cent) has been secured.
  • 1.0 million sq m of space was approved or under development at 31 March 2018 (31 December 2017: 693,900 sq m). These projects equate to potential future annualised headline rent of £55 million, 69 per cent of which has been secured (31 December 2017: £43 million, 50 per cent secured), reflecting an estimated, fully-let yield on total development cost of 7.3 per cent.
  • The development pipeline includes new pre-lets totalling 490,000 sq m, of which 270,000 sq m is to online retailers including to Zalando in Verona. It also includes the first two pre-lets at SEGRO Logistics Park East Midlands Gateway (SLPEMG): 122,000 sq m to a major online retailer and 60,000 sq m to a third party logistics provider. We have also agreed to construct a warehouse for Shop Direct at SLPEMG which it will acquire on completion. In Paris, we have secured a 50,000 sq m letting to IKEA at our two-storey warehouse in Gennevilliers, the inland port close to the centre of Paris, meaning this 63,000 sq m warehouse is now fully let six months prior to completion.
  • The vacancy rate has remained low at 5.0 per cent (31 December 2017: 4.0 per cent). The increase since December reflects the impact of development completions (+0.7 per cent), acquisitions and disposals (+0.1 per cent) and modest net take-back of existing space (+0.2 per cent).

Disciplined Capital Allocation: Investment focused on development (Appendices 2 and 3)

  • Net investment during Q1 2018 totalled £50 million, comprising £65 million of asset and land disposals, £24 million of asset acquisitions and £91 million of development capex and land purchases.
  • Our investment activity continues to focus on delivering our current development pipeline and securing land for near-term projects. We invested £63 million in development capex during the quarter (including £5 million of infrastructure expenditure) and continue to expect total development capex to exceed £350 million for 2018 as a whole. In addition, we acquired £28 million of development land in Italy, Germany, Spain and London, almost all of which is connected to pre-let agreements.
  • During the quarter we disposed of £65 million of land and assets, including a small industrial estate in Germany and £84 million of Continental European big box warehouses to our SELP joint venture (£42 million net disposal by SEGRO).
  • We took the opportunity to acquire an 18,600 sq m urban warehouse estate approximately 9km from Warsaw city centre and 6km from the international airport, helping to build scale in this attractive location.
  • In the UK, the CBRE Monthly Index reported 3.1 per cent growth in industrial property capital values during the first quarter, outperforming the All Property growth rate of 0.9 per cent.

Balance sheet remains in a strong position to support future growth

  • Net debt (including our share of debt in joint ventures) at 31 March 2018 remained stable at £2.4 billion (31 December 2017: £2.4 billion).
  • The look-through loan to value (LTV) ratio at 31 March 2018 (based on asset values at 31 December 2017, adjusted for development expenditure, acquisitions and disposals) was 30 per cent, unchanged from 31 December 2017.

Financial calendar

The 2018 interim results will be published on Thursday 26 July 2018.

1 In this statement, space is stated at 100 per cent, whilst financial figures are stated reflecting SEGRO’s share of joint ventures. Financial figures are stated for the three months to, or at, 31 March unless otherwise indicated. The exchange rate on 31 March 2018 was €1.14:£1 (31 March 2017: €1.18:£1; 31 December 2017: €1.13:£1).

This Trading Update, the most recent Annual Report and other information are available on the SEGRO website at 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.

Forward-looking statements: This announcement may contain 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 and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Certain statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Any forward-looking statements made by or on behalf of SEGRO speak only as of the date they are made. SEGRO does not undertake to update forward-looking statements to reflect any changes in SEGRO’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.

SEGRO is a UK Real Estate Investment Trust (REIT), and a leading owner, manager and developer of modern warehouses and light industrial property. It owns or manages 6.7 million square metres (72 million square feet) of space valued at £9.3 billion (as at 31 December 2017), 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 nine other European countries.

Click here to download this press release as a pdf.

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