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SEGRO portfolio value falls as yields move out

SEGRO has posted an 11% decline in portfolio value on the back of widening yields and weakening values across the industrial sector.

The group made a near-£2bn IFRS loss before tax in the year ending December 2022, compared with £4.4bn profit in 2021, as a result of the fall in valuation.

The portfolio was valued at £17.9bn at the end of December 2022, falling by 11% year-on-year on the back of market-driven yield expansion. This was compounded by a 16.6% valuation decline during the second half.

Consequently, adjusted NAV per share fell by 15% to 966p, compared with 1,137p at the same point in the previous year. The group’s loan-to-value ratio rose to 32% amid the reduction in asset values, up from 23% in 2021.

However, SEGRO said its valuation declines were partly offset by estimated rental growth of 10.9%, as well as gains in asset management and development profit.

The results were underpinned by a record £98m of new headline rent commitments during the period, up from £95m in 2021.

Net rental income grew by 18.8% to £522m during the period. Adjusted pretax profit rose by 8.4% to £386m.

Soumen Das, chief financial officer of SEGRO, told EG that he is confident that rental growth will continue on its upward trajectory this year. He also underlined that the business has £2.2bn of available liquidity to spend on any potential opportunities.

“The occupier side has been very strong through 2022 and still into 2023, and we’re [still] seeing low vacancy levels in all the markets we’re operating in. Put those two together, and we’re confident we’re going to get good rental growth this year,” said Das.

“We’re going to keep growing the rent on our portfolio and keep developing… [so that we] capture occupier growth through the new spaces we’re bringing forward. Our balance sheet’s in great shape because we’ve kept our leverage low in the past few years, and we have £2bn of funding capacity.

“So in terms of strategy, frankly, we’re planning to do more of the same. And if the investment market throws up opportunities that we’re not yet seeing, we’ve got the capacity to buy.”

Chief executive David Sleath said: “SEGRO is today reporting strong operational results for 2022, including a record level of rent roll growth driven by our active asset management and a strong leasing performance. Our modern, well-located and highly sustainable warehouses continue to be in high demand from a diverse range of occupiers, underpinned by long-term structural drivers.

“Our strategy over the past decade has focused on cultivating a unique portfolio located in the most supply-constrained European urban and logistics markets, backed by a strong balance sheet to enable SEGRO to outperform through the property cycle. Our portfolio valuation fell in the second half of 2022 as investment yields rose and values weakened across the sector in response to macroeconomic conditions. However, the impact on our portfolio was mitigated by its high quality and the strong rental growth we delivered across all of our markets.”

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