Disposals, Valuation and Trading Update
8 January 2013
Disposals, valuation and trading update
· £159 million of additional disposals announced, including two large non-strategic assets;
· Core industrial portfolio like-for-like capital values expected to have outperformed the IPD UK Industrial Index; non-core and suburban office values have weakened, leading to an overall valuation reduction of approximately £180 million in the second half of the year. EPRA NAV at 31 December 2012 expected to be around 295 pence per share;
· Good operational performance. EPRA EPS for the year to 31 December 2012 expected to be close to the top-end of the range of analysts' estimates. Group vacancy expected to be below 8.5 per cent.
SEGRO, Europe's leading owner-manager and developer of industrial property, is today announcing progress on disposals, together with a valuation and trading update ahead of its full year results for the year ended 31 December 2012, which will be published on 27 February 2013.
Disposals update
Recent disposal progress includes the sale of two large non-strategic assets and a small portfolio of non-core regional assets, as follows:
· Thales campus in Crawley for £80 million - sale completed in January 2013 to a large UK institutional investor;
· MPM site in Munich for £531 million - contracts exchanged with a private German investor with completion expected in March 2013;
· Four regional UK industrial estates for £26 million - sale completed in December 2012 to a joint venture between two UK/Swedish pension funds.
The Thales campus is fully let and comprises two offices and a bespoke industrial building, totalling approximately 35,000 sq m of lettable space.
The MPM site is also fully let and is a 155,000 sq m engineering and manufacturing facility, acquired by SEGRO as part of a sale and lease back agreement with Krauss Maffei (formerly named MPM) in 2007. This is the first of the large non-strategic assets (identified as non-core at SEGRO's Investor Day in November 2011) to be sold in Continental Europe.
The four regional UK industrial estates are located in Runcorn, Lymedale, Pucklechurch and at East Midlands Airport and total 84,000 sq m. At 30 September 2012, the portfolio had a vacancy rate of 8.1 per cent.
Combined sale proceeds for the assets of £159 million are 2.4 per cent below 30 June 2012 book values, net of rental top-ups. As part of the MPM site disposal, SEGRO has committed to manage and fund a roof refurbishment programme at the facility during 2013 which is estimated to cost approximately £6 million; these costs have been allowed for in the comparison of its net sale price to the June valuation, above. Based on the disposal prices, the combined net initial yield of these transactions is 8.0 per cent, or 8.2 per cent including rental top-ups.
Since 1 January 2012, SEGRO has now announced or completed approximately £680 million of non-core disposals, including three of the 'big six' assets.
Based on the preliminary portfolio valuation at 31 December 2012, and taking into account the disposals announced today, SEGRO has approximately £610 million of non-core assets remaining, of which approximately £175 million relates to the three remaining large non-strategic assets: Pegasus Park in Belgium, Vimercate in Italy and Neckermann in Germany.
Valuation update
Investment market demand for prime industrial assets in the strongest markets has remained robust in the second half of the year, whilst demand for secondary industrial and office assets (particularly those with shorter leases) has continued to weaken both in the UK and in Continental Europe. This trend has impacted the valuation of the Group's portfolio at 31 December 2012, whereby the valuation yields applied to some of the Group's non-core and South East UK suburban office assets have increased.
Based on the preliminary results of the independent year end portfolio valuation, the overall value of the Group's property portfolio is expected to have declined by approximately £180 million in the second half of the year. Approximately £75 million of this reduction relates to South East UK suburban offices, approximately £50 million relates to the Pegasus Park and Vimercate office campuses in Continental Europe and approximately £25 million relates to other non-core assets.
The value of the Group's remaining property assets, which are principally core industrial/logistics/data centre properties and which represent approximately 76 per cent of the total portfolio by value at 31 December 2012 (and approximately 78 per cent adjusting for today's announced disposals), is expected to have remained resilient with a fall in value of approximately £30 million, or down 1 per cent like-for-like, in the second half of 2012. This compares with the UK All Industrial Index, which declined by 2.0 per cent from 1 July to 30 November 2012.
According to CBRE estimates, the full year movement in SEGRO's South East UK suburban office portfolio is broadly consistent with the expected movement in the South East UK office market for similar assets, as reflected in the relevant IPD index.
Factoring in the total valuation reduction, and the 2 pence per share impact of the £113 million bond buyback completed in December, EPRA NAV per share at 31 December 2012 is currently expected to be around 295 pence (30 June 2012: 317 pence).
Net borrowings at 31 December 2012 were £2.1 billion, representing an £0.2 billion reduction year-on-year, excluding sale proceeds from the Thales campus and MPM site which are receivable in 2013. The LTV ratio at 31 December 2012 is expected to be approximately 53 per cent, or approximately 51 per cent on a pro forma basis, taking into account the disposals announced today which will complete after 31 December 2012 (30 June 2012: 49 per cent).
Trading update
Since the Interim Management Statement in October 2012, SEGRO has continued to deliver a good operational performance and currently expects EPRA EPS for the year to 31 December 2012 to be close to the top-end of the range of analysts' estimates2.
At 31 December 2012, the Group vacancy rate is expected to be below 8.5 per cent (30 June 2012: 9.1 per cent).
Development activity has also continued to progress well, with 21 developments completed during 2012 and 10 pre-let developments currently in progress, providing good underlying earnings momentum going forward.
Commenting on the announcement, David Sleath, Chief Executive Officer of SEGRO, said:
"We are pleased with the progress made over the last year in advancing our strategy to create a leading income-focused REIT. We have made good progress in disposing of our non-core assets, including the first significant disposal in Continental Europe. Our operational performance remains strong, with development activity healthy and our vacancy rates continuing to improve.
Although challenging investment market conditions have meant a decline in the value of our remaining non-core and suburban office assets, the valuation of our core industrial, logistics and data centre properties has remained resilient. We expect 2013 to be another year of progress, both operationally and with the reshaping of our portfolio."
All figures disclosed in this announcement are unaudited. SEGRO's audited results for the year ended 31 December 2012 will be published on 27 February 2013.
1Exchange rate at 31 December 2012: £1 / €1.23
2The current range of 18 sell-side analysts' estimates for EPRA EPS for the year ended 31 December 2012 is 14.9 pence to 19.2 pence, with an average of 17.8 pence.
- ENDS -
CONFERENCE CALL FOR INVESTORS AND ANALYSTS
There will be a conference call at 08.00 hours (UK time) today on the following number:
Toll-free number: + 44 (0) 808 237 0030
Toll number: + 44 (0) 203 139 4830
Access code: 38007477#
A playback facility will also be available on the following number shortly after the call:
Toll-free number: + 44 (0) 808 237 0026
Toll number: + 44 (0) 203 426 2807
Access code: 635854#
For further information please contact:
SEGRO
Justin Read (Group Finance Director): + 44 (0) 207 451 9110
Kate Heseltine (Investor Relations Manager): + 44 (0) 207 451 9042
Tulchan
John Sunnucks/David Shriver: + 44 (0) 207 353 4200
About SEGRO:
SEGRO is Europe's leading owner-manager and developer of industrial property. The Group is a Real Estate Investment Trust (REIT), listed on the London Stock Exchange. SEGRO's portfolio comprises £4.8 billion (as at 30 June 2012) of predominantly industrial and warehouse assets concentrated in and around major business centres and transportation hubs such as ports, airports and motorway intersections. The Group serves over 1,400 customers spread across many geographies and different industry sectors. It has 5.2 million sq m of built space and a passing rent roll of £308 million (as at 30 June 2012). For further information see www.SEGRO.com
This information is provided by RNS
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