Segro plc Results for the Year-Ended 31st December 2021

SEGRO PLC

Results for the Year Ended 31 December 2021

Pan-european platform captures record demand to drive outperformance and support a positive outlook

Commenting on the results David Sleath, Chief Executive of SEGRO said:

“2021 was a highly successful year for SEGRO as reflected in our full year results which include a £4.1 billion portfolio valuation uplift and record levels of rental growth. Investor and occupier supply-demand dynamics in the industrial and logistics sector remain very favourable, led by the long-term trends of digitalisation, supply chain resilience and an increasing focus on sustainability.

“Our Responsible SEGRO ambitions have been received positively by our customers, employees and other stakeholders and are becoming well integrated into the way that we run and grow the business. During 2021 we made important progress with our three priority areas of Championing low-carbon growth, Investing in our communities and environments and Nurturing talent.

“Our established and experienced pan-European operating platform remains focused on delivering excellence in customer service which, when combined with the strong relationships and reputation that we have with our stakeholders, provides us with a distinct advantage in an increasingly competitive sector. These capabilities enabled us to invest almost £2 billion in 2021 to further expand our pipeline of opportunities to support future growth. This pipeline, alongside the high quality of our existing portfolio, the compounding effect of rental growth and the strong start we have made in 2022, gives us continued confidence in our ability to drive further sustainable growth in earnings and dividends over the coming years.”

HIGHLIGHTS^A:

• Adjusted pre-tax profit of £356 million up 20 per cent compared with the prior year (2020: £296 million). Adjusted EPS is 29.1 pence, up 15 per cent (2020: 25.4 pence) including 1.1 pence relating to recognition of performance fees from our SELP joint venture.
• Adjusted NAV per share up 40 per cent to 1,137 pence(31 December 2020: 814 pence) driven by portfolio valuation growth of 29 per cent, including ERV growth of 13.1 per cent (2020: 2.5 per cent), yield compression, portfolio asset management initiatives and development profits.
• Strong occupier demand, our customer focus and active management of the portfolio generated £95 million of new headline rentcommitments during the period,including £49 million of new pre-let agreements, and a 13 per cent average uplift on rent reviews and renewals (2020: £78 million)
• Net capital investment of £1.5 billion (2020: £1.3 billion)in asset acquisitions, development projects and land purchases, less disposals.
• Continued momentum in the development pipeline with 1.1 million sq m of projects under construction or in advanced pre-let discussionsequating to £82 million of potential rent, of which 70 per cent has been pre-let, providing growth in earnings this year and next.
• Balance sheet well positioned to support further, development-led growth with access to £1.1 billion of available liquidity and an LTV of 23 per cent at 31 December 2021 (31 December 2020: 24 per cent).
• 2021 full year dividend increased 10 per cent to 24.3 pence(2020: 22.1 pence). Final dividend increased by 11 per cent to 16.9 pence (2020: 15.2 pence).

Financial summary

1. A reconciliation between Adjusted profit before tax and IFRS profit before tax is shown in Note 2 to the condensed financial information.
   2. A reconciliation between Adjusted earnings per share and IFRS earnings per share is shown in Note 11 to the condensed financial information.
   3. Total Accounting Return is calculated based on the opening and closing adjusted NAV per share adding back dividends paid during the period.
   4. Percentage valuation movement during the period based on the difference between opening and closing valuations for all properties including buildings under construction and land, adjusting for capital expenditure, acquisitions and disposals.
   5. A reconciliation between Adjusted net asset value per share and IFRS net asset value per share is shown in Note 11 to the condensed financial information.
   6. Adjusted net asset value is in line with EPRA Net Tangible Assets (NTA) (see Table 5 in the Supplementary Notes for a NAV reconciliation).

^A Figures quoted on pages 1 to 19 refer to SEGRO’s share, except for land (hectares) and space (square metres) which are quoted at 100 per cent, unless otherwise stated. Please refer to the Presentation of Financial Information statement in the Financial Review for further details.

Operating summary & key metrics

Outlook

We enter 2022 with considerable confidence in the outlook for the business and its ability to deliver continued growth. The effects of the pandemic are ongoing, and we remain mindful of macroeconomic and geopolitical risks, but the world is adapting quickly and learning how to function alongside Covid-19 with the lasting impacts on the way that we live and work strengthening occupier demand. It has highlighted the importance of global supply chains facilitated by high-quality logistics space and we have positioned our business to take advantage of these structural tailwinds.

Against a backdrop of strong demand from an increasingly diverse range of businesses, combined with historically low vacancy rates across Europe, we expect rental growth to continue across our markets. We believe that the growth rate will be highest where developable land is in short supply, for example in urban markets such as London and Paris. This acute supply-demand imbalance delivered record rental growth during 2021, resulting in significant accumulated rental reversion in the portfolio which we will be working hard to capture during 2022 and the coming years.

Our record levels of capital investment over the past two years have resulted in a significant number of projects currently under construction, with a high level of pre-leasing, and a large pipeline of future projects. This allows us to both provide much-needed modern, sustainable space for our customers and to generate additional rental income. We continue to prioritise further opportunities to grow our development pipeline, positioning SEGRO to benefit from the long-term structural trends within the occupier market.

Inflationary pressures remain but we expect to be able to offset these in our existing portfolio by capturing the significant reversion in lease reviews and renewals, whilst benefiting from indexation provisions in our remaining leases which represent approximately 40 per cent of our rent roll. Rental growth has also allowed us to maintain the profitability of our development programme despite the additional cost pressures arising from increased construction and material costs.

The unique supply-demand dynamics of the industrial sector have attracted increasing competition from both investors and developers, but we are confident in our ability to source profitable new opportunities to grow. As evidenced during 2021, the combination of our significant portfolio of modern assets in the most desirable locations across Europe together with our well-established operating platform provides us with a clear competitive advantage. This, alongside the meaningful and lasting changes we are making through our Responsible SEGRO focus areas will help us to ensure that our business continues to prosper, creating shared value for our customers, employees, shareholders, local communities, investors and all of our other stakeholders.