Rental growth and relatively stable valuations have handed SEGRO a solid first six months of the year.
Chief executive David Sleath said: “SEGRO has performed well during the first six months of 2023, delivering rental growth from our standing portfolio and from our largely prelet development programme.”
The £21bn AUM industrial REIT said it had nudged up adjusted pretax profit over the first six months of the year by 2.6% to £198m, compared with H1 2022’s £193m.
However, it made an IFRS pretax loss of £33m.
Adjusted NAV per share was also down 3% to 937p, driven by a 1.4% decrease in the valuation of the owned portfolio to £18.1bn. By contrast, the first half of last year saw an increase of 7.2%.
This year’s fall was mitigated by a 3.7% growth in estimated rental values. Like-for-like rental growth was 5.1%, with £44m of new headline rent commitments generated during the six-month period. Total rent for the period was £605m, which will rise to £660m once rent-free periods expire.
Sleath said: “Valuations have been relatively stable in the first half of this year, following the deep valuation correction in the latter part of 2022. The increased volume of transactions in the last quarter indicates that investors see value at the current levels of pricing for prime industrial and logistics assets, given the positive long-term outlook for our sector.”
He added: “We have made great progress in capturing reversion, delivering an average rental uplift of 20% at lease events during the period in addition to contracted indexation, whilst customer retention has increased significantly to 85%.”
SEGRO also delivered some 3.7m sq ft of development, with a rental value of £28m pa, of which 83% is already leased. Some 85% of the completions were rated BREEAM Excellent.
SEGRO also invested more than £600m in its development pipeline over the period, including £37m for infrastructure and a further £322m spent on land for future developments.
However, the actual development spend of £299m was down on £358m for H1 last year.
The development pipeline of 8m sq ft was also down on last year’s 9.85m sq ft, as was the potential rental value of £76m, as opposed to £86m.
Some 70% is associated with prelets signed or in advanced negotiations, substantially de-risking the 2023-24 pipeline. Yield on cost for these projects is 7.2%.
Sleath said: “We have significant opportunities to drive rent and create value both within our standing portfolio and through the execution of our profitable development programme. These factors give us confidence in our ability to deliver attractive growth and returns into the years ahead.”
LTV is also slightly up on last year at 34%, up from 32%. SEGRO has access to a further £1.7bn of cash and finance.
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