2012 Full Year Results 27 February 2013 Casino, Ile de France - - PowerPoint PPT Presentation

2012 Full Year Results

27 February 2013

Casino, Ile de France

Headlines

1

• A year of considerable progress
• Strategic portfolio reshaping ahead of plan
• Strong operational performance
• Net debt significantly reduced
• Well positioned for 2013 and beyond
• Good underlying earnings momentum
• Limited supply; attractive growth drivers
• Excellent land bank for future expansion

Creating the best owner-manager and developer of industrial properties and a leading income-focused REIT

Financial Results

Justin Read Group Finance Director

DB Schenker, Heathrow

3

Key financial highlights

P&L 2012 2011 Change % EPRA PBT (£m) 144.9 138.5 4.6 EPRA EPS (pence) 19.3 18.4 4.9 Dividend per share (pence) 14.8 14.8 Balance sheet 2012 2011 Change % EPRA NAV per share¹ (pence) 294 340 (13.5) Net borrowings (£m) 2,090.3 2,303.4 (9.3) LTV – including JVs at share (%) 51 / 502 49

1 EPRA NAV per share excludes fair value of interest rate derivatives and deferred tax provisions but includes trading property uplifts 2 Pro forma for £152m of disposals completed post year end

4

2012 £m 2011 £m Gross rental income 305.4 326.1 Property operating expenses (50.6) (54.9) Net rental income 254.8 271.2 Joint venture management fee income 7.4 5.9 Share of joint ventures’ EPRA profit1 20.2 16.6 Administration expenses (27.9) (32.1) EPRA operating profit 254.5 261.6 EPRA net finance costs (109.6) (123.1) EPRA profit before tax 144.9 138.5 Tax on EPRA profit (1.9) (1.9)

1 Net property rental income less administrative expenses, net interest expenses and taxation

Good underlying earnings momentum; 4.6% increase in EPRA PBT

Net rental income lower due to disposals; like for like net rental income up 1.9%

£271.2m £254.8m

£3.9m £8.1m £5.7m £(23.2)m £(4.6)m £(6.3)m 2011 Like for like net rental income Developments Acquisitions Disposals Surrender premiums & related rent lost Currency translation 2012

5

2011 2012

1 Net of rental income from properties taken back for re-development 1

Pro forma net rental income and vacancy

6

Net rental income £m Vacancy rate % Full Year 2012 255 8.2 Annualised incremental impact of: Disposals since Jan-121 (25) 0.3 Developments completed and let in 2012 7

• Acquisitions in 2012

7

• Neckermann takeback in Jan-13

(12) 1.1 Pro forma FY 2012 232 9.6

1 Including disposals completed post year end

Further reduction in the total cost ratio

7 1 Total costs as a percentage of gross rental income. Total costs include property operating expenses (net of service charge income and management fees) and recurring administration expenses

2012 £m 2011 £m Change % Property operating expenses 50.6 54.9 (7.8) Administrative expenses 27.9 32.1 (13.1) Total 78.5 87.0 (9.8) Total cost ratio1 (%) 30.4% 29.9% 28.1% 24.5% 22.9% 15 20 25 30 35 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

EPRA NAV per share bridge

340p 294p

19.3p (14.8)p (47.7)p (2.0)p (0.8)p EPRA EPS Dividend Realised and unrealised valuation movements Early close-out

• f bond and

bank debt Other

8

Core (7.5)p Non-core (40.2)p EPRA NAV per share as at 31 December 2011 EPRA NAV per share as at 31 December 2012

Like for like valuation down 5.9%; Core Industrial -1.2% (IPD UK Industrial: -3.8%)

9 1 Valuation including joint ventures at share (including land and development) 2 In relation to the completed properties only 3 Net true equivalent yield 4 Including disposals completed post year end 5 Excluding Neckermann

Value1 £m Movement2 % Yield2,3 % Core portfolio (excluding offices) 3,553.5 (1.2) 7.7 Suburban offices 376.9 (15.9) 8.4 Large non-strategic assets4 304.8 (29.5) 8.65 Smaller non-core assets 420.1 (10.6) 8.9 Total4 4,655.3 (5.9) 7.9

10

Robust financing metrics

Group level1 2012 2011 Net borrowings (£m) 2,090.3 2,303.4 Available funds - cash & undrawn facilities (£m) 449 456 Gearing (%) 93 89 Loan to value - including JVs at share (%) 51 / 502 49 Weighted average cost of debt3 (%) 4.6 4.8 Average duration of debt (years) 8.3 8.8 Interest cover4 (x) 2.3 2.2 Net debt / EBITDA 8.1 8.7

1 All metrics, except LTV, at Group level excluding JVs 2 Pro forma for £152m of disposals completed post year end 3 Excluding commitment fees and amortised costs 4 Net property rental income / net interest before capitalisation

Reducing net borrowings and financial leverage

11

• Net debt reduced by 9.3% to £2,090m
• LTV 50% (including post year end disposals); impacted by portfolio revaluation
• Key financing metrics remain solid
• A- bond rating reaffirmed by Fitch in September 2012
• Remain committed to reducing LTV over the longer term
• Will continue to assess opportunities for further profitable capital deployment

Significant future rental growth potential

12 1 Adjusted for post year end disposals and Neckermann takeback

Core £m Non-core £m Total £m Annualised gross passing rent1 250 46 296 Rent free on let properties 36 3 39 ERV of vacant/short let space 27 14 41 Reversion to ERV of occupied properties (12) (6) (18) Current development projects 7 4 11 Potential gross passing rent 308 61 369

Additional development projects represent a further £84m of annual rent

Financial Summary

• Progress against strategic priorities delivering positive results
• Good underlying earnings momentum, benefiting from reduced costs and

developments

• Balance sheet in good shape - reducing leverage remains a strategic priority
• ver the longer term
• Dividend maintained reflecting our confidence in the core business

13

Our Progress in 2012

David Sleath, Chief Executive

La Courneuve, Ile de France

Divesting non-core assets Improving utilisation of core assets (land & vacant assets)

Progress made against all four strategic priorities

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• 1. Re-shape the

existing portfolio Generating attractive returns by building a high quality, modern portfolio with critical mass in target markets; achieved through both development and acquisitions

• 2. Seek profitable

growth by reinvesting Reducing net debt and leverage over time Partnering with third party capital where appropriate

• 3. Reduce net debt

and introduce 3rd party capital Greater customer focus and market knowledge Capitalise on favourable growth drivers Efficiency improvements and cost reductions

• 4. Drive operational

performance across the business

16

Strong operational progress

• 21 developments completed; £16.4m annual rental income – 89% let
• >25% average profit on total development cost
• 14 active developments; £10.8m annual rental income – 70% pre-let
• 9.6% average development yield on completed and active projects
• 262 new lettings generating £35.3m of new rental income
• 72 lease renewals, securing £18.8m of rental income
• TRLs 2.9% above Dec 2011 ERVs; Lease incentives 8.2% (2011: 11.0%)
• Retention rate of 65% (core 74%); take-backs broadly flat at £21.5m
• Group vacancy rate 8.2% (core: 7.6%), lowest reported in last 10 years
• Average lease lengths increased from 7.7 yrs to 8.4 yrs since 2009
• Like for like net rental income up 1.9%
• 10% reduction in total costs
• 160bp improvement in total cost ratio to 22.9%
• Improved CRM, sustainability, procurement & property systems

Leasing, Customer and Asset Management Development Operational Efficiency

£700m of non-core asset disposals at 3.6% average discount to Dec-11 valuations

17

Thales, UK IQ Farnborough, UK MPM, Munich 24 further disposals in the UK and CE

£207m reinvested in acquisitions at 7.7% yield; expanding SEGRO’s UK and French logistics platform

18

UK logistics portfolio

• £315m portfolio acquisition, completed Jan 2012
• SEGRO equity contribution £65m
• 14 prime logistics warehouses, predominantly in the

Midlands and South

• Excellent customer base, including Tesco,

Sainsbury’s, Royal Mail, DHL, GKN, and Booker

• c.£18m of annual rent
• 6.3% net initial yield, rising to 7.7%
• Potential to add value through asset management

French logistics portfolio

• £130m portfolio acquisition; completed Sept 2012
• 13 prime logistics warehouses in the Ile de France and

Lyon

• Excellent customer base, including UPS, Geodis,

Saint-Gobain

• c.€14m of annual rent
• 8.4% net initial yield; reverting to 7.7%
• Potential to add value through asset management

£218m reinvested or committed to profitable development programme

19

21 Completed development projects

• 190,000 sq m of new space
• £151m total development cost
• £16.4m of annual rent (89% let)
• >25% average profit on total development cost

14 Current development projects

• 155,200 sq m of new space
• £129m total development cost
• £10.8m of annual rent (70% let)

DB Schenker, Heathrow

9.6% average development yield for completed and active projects

Karl Storz, Slough Trading Estate

SEGRO today

20

31% 69%

30 June 2011

Core Non-core

13% 87%

31 December 20121

Split of total portfolio by core and non-core assets

Stabilised (vacancy <10%) Opportunity (built; vacancy >10%) Opportunity (land & development)

6% 64% Split of core portfolio by stabilised and opportunity assets 30% 8% 43% 49%

1 Pro forma for £152m of disposals completed post year end

100%

Target

75% 20% 5%

2013 And Beyond

Infinity, Slough Trading Estate

Focused on modern ‘industrial’ properties

22

Larger logistics warehouses

£1.1bn portfolio; 2.1m sq m

• ‘Big box’ sheds (>10,000 sq m)
• Generic buildings; wide range of users
• Located near key ports/airports/roads
• Relatively long leases
• Let to large retailers & 3PL providers

Smaller warehouses & light industrial buildings

£2.2bn portfolio; 2.7m sq m

• Multi-occupier estates/urban logistics
• Generic buildings; wide range of users
• Located in/around key conurbations
• Lease terms more varied
• More management intensive

Data Centres

£0.3bn portfolio; 0.2m sq m

• Typically built on industrial land
• Generic ‘shells’
• Attract premium rents
• Long leases (>15 years)
• Industry specific locational needs

Attractive income-led returns from Industrial

3 6 9 5 years 10 years 30 years Retail Offices London Industrial Distribution

23

IPD UK Average Income Return

(%)

Source: IPD

3 6 9 12 5 years 10 years 30 years Retail Offices London Industrial Distribution

IPD UK Average Total Return

(%)

Attractive growth drivers

• Increasing global trade and supply chain improvements driving

demand for modern warehouse space

• On-going trend towards outsourcing, local distribution and growth in

support services

• Growth in niche manufacturing sub-sectors e.g. food production, high-

tech manufacturing and engineering services

• Trend towards on-line and convenience shopping
• Growth in TMT sector feeding data centre requirements

24

Favourable demand/supply dynamics

UK new warehouses available (2007 – 2012) (>100,000 sq ft) UK internet sales (2007 – 2012) 25

Capitalising on favourable trends

26

Parcel delivery & 3PLs Data centre providers Retailers ‘Hi-tech’ engineering and production

Land bank well positioned to capitalise on the favourable demand/supply dynamics

27

Potential development projects

£176m (296 ha)

Current projects

£58m (39 ha)

Residual land bank

£100m (239 ha)

Current land holdings by value

(as at 31 December 2012) Potential development projects

• £84m of potential future annual rent
• £685m estimated development costs
• 9.8% estimated yield on TDC1

Largest sites Hectares Value (£m) Slough, UK 12.0 19.9 Park Royal, UK 8.5 35.1 Düsseldorf, Germany 20.9 20.6 Berlin, Germany 23.4 11.5 Amsterdam, Neth. 11.2 13.3 Warsaw, Poland 12.9 3.8 Poznan, Poland 25.4 7.6 Gdansk, Poland 29.6 7.5 Gliwice, Poland 13.3 4.9 Prague, Czech Rep. 38.7 7.9

1 Total Development Costs

Industrial capital values and rents at undemanding levels

50 60 70 80 90 100 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 London Industrials All Industrials

28

IPD UK Industrial Capital Value Index

(June 2007 = 100)

90 95 100 105 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 London Industrials All Industrials

IPD UK Industrial Rental Value Index

(June 2007 = 100)

Source: IPD Quarterly Index Q4 2012

Outlook

29

• Macro-economic environment expected to remain challenging
• Investment market set to remain strong for the best industrial properties
• SEGRO focused on the strongest sub-markets where supply is limited, occupier

demand more robust and investment appetite healthy

• Existing core assets and land bank well positioned to benefit from attractive

underlying trends

30

• A year of considerable progress
• Strategic portfolio reshaping ahead of plan
• Strong operational performance
• Net debt significantly reduced
• Well positioned for 2013 and beyond
• Good underlying earnings momentum
• Limited supply; attractive growth drivers
• Excellent land bank for future expansion

Creating the best owner-manager and developer of industrial properties and a leading income-focused REIT

2012 Full Year Results 27 February 2013

Appendix I

Core and non-core analysis

Split of core portfolio by geography

32

• 1.7%
• 0.2%
• 1.5%

0.0%

• 1.7%
• 1.8%
• 0.5%

2.6% (7.5)% (5.0)% (2.5)% 0.0% 2.5% 5.0% 7.5% Heathrow Park Royal Slough Trading Estate Logistics Property Partnership Rest of Greater London Germany France Poland IPD UK Industrial Index (-3.8%)

Valuation movement (including joint ventures at share)1

(%)

1 In relation to the completed properties only

£583m of non-core assets remaining; including three large non-strategic assets

33

1 Including our share of joint venture assets and excluding assets disposed of in Jan/Feb 2013 2 Income based on headline rental income (after the expiry of rent free periods) and excluding any income from assets disposed of in Jan/Feb 2013 3 Excluding any income in respect of Neckermann

At 31 December 20121 Valuation Income2 UK £m Europe £m Total £m Total £m ‘Big 3’ assets

• 177

177 143 Other industrial assets 163 190 353 35 Other land holdings 6 47 53

• Total

169 414 583 49 Targeting £300m to £500m of disposals in 2013 (including £152m already completed in Jan/Feb)

34

Month Portfolio/Asset Acquirer Sale proceeds (£m) Net initial yield (%) 2012: February Four regional UK estates Ignis 71.2 6.3 / 7.01 April IQ Farnborough Harbert 92.1 6.4 / 6.81 May Four regional UK estates Harbert 204.5 6.7 / 7.41 July 10 regional UK estates UK institution 111.0 8.4 / 8.91 Various Other UK non-core assets Various 43.6 10.9 / 11.51 Various Other CE non-core assets Various 25.7 7.7 / 7.7 548.1 2013: January Thales in Crawley L&G Property 80.0 5.9 / 5.9 February MPM in Munich Private investor 56.0 7.9 / 7.9 Various Other non-core assets Various 16.3 7.7 / 7.7 Total 700.4 7.2 / 7.71

Disposals completed since 1 January 2012

1 Including the benefit of top-ups

35

At 31 December 20121 Core Industrial2 Offices (core) Large non- strategic3 Other non-core3 Group Portfolio value (£m) (completed properties) 3,297.3 376.8 154.3 352.6 4,181.0 Land & developments (£m) 256.3

• 22.6

53.4 332.3 Net initial yield (%) 6.2 7.3 10.84 7.5 6.8 Net true equivalent yield (%) 7.7 8.4 9.64 8.9 7.9 Valuation movement (%) (completed properties) (1.2) (15.9) (40.8) (10.7) (5.9)

Overall performance of core portfolio supports selections of assets and markets

1 Including JVs at share 2 Warehouses, Light Industrial and Data Centres 3 Adjusted for disposals completed post year end 4 Excluding Neckermann

36

Neckermann, Frankfurt

Key information:

• 309,000 sq m campus including offices

and bespoke distribution facilities for the German retailer, Neckermann

• Acquired in 2007 as a sale & leaseback to

Neckermann

• Neckermann filed for administration in July

2012, fully vacated the site in January 2013

• 15% of space re-let, including 45,000 sq m

leased to BLG Logistics

• Potential to re-lease remaining existing

space to new occupiers

• Potential change of use, re-development

and/or outright disposal under review

37

Pegasus Park, Brussels

Key information:

• High quality 82,000 sq m modern

suburban office park located 8km east

• f Brussels within close proximity to

the international airport

• First building acquired in 1984
• Site developed over a number of years
• Last development completed in 2009
• Vacancy 13.7% at 31 December 2012
• WAULT to expiry 6.2 years at 31

December 2012

• Customers include: Johnson Controls,

Bombardier, Stanley Black & Decker, Cisco, Sunguard

38

Energy Park, Vimercate (Milan)

Key information:

• 70,000 sq m office and R&D campus

located approximately 20km north-east

• f Milan, close to the A4 highway
• Acquired in 2007 as a long term

re-development opportunity

• First new building of 10,900 sq m

completed in 2009; 100% occupied (SAP principal tenant)

• 11,000 sq m multi-let office building

completed in 2012 (80% let)

• 34,000 sq m offices (let to Alcatel) under

construction for delivery in early 2014

• Further development projects likely to

span multiple years

• Vacancy 6.4% at 31 December 2012
• WAULT to expiry 5.8 years at 31

December 2012, will increase significantly with new developments

Appendix II

Operational performance

40

2012 2011 Group £m JVs £m Total £m Group £m JVs £m Total £m Gross rental income 305.4 40.0 345.4 326.1 33.0 359.1 Property operating expenses (50.6) (1.9) (52.5) (54.9) (2.8) (57.7) Net rental income 254.8 38.1 292.9 271.2 30.2 301.4 Joint venture management fee income 7.4 (4.6) 2.8 5.9 (3.3) 2.6 Administration expenses (27.9)

• (27.9)

(32.1)

• (32.1)

EPRA operating profit 234.3 33.5 267.8 245.0 26.9 271.9 EPRA net finance costs (109.6) (13.3) (122.9) (123.1) (10.5) (133.6) EPRA profit before tax 124.7 20.2 144.9 121.9 16.4 138.3 Tax on EPRA profit (1.9)

• (1.9)

(2.1) 0.2 (1.9) EPRA profit after tax 122.8 20.2 143.0 119.8 16.6 136.4

EPRA pro forma profit before tax: JVs proportionally consolidated

41

Movement in Group net borrowings

2012 £m 2011 £m Opening net debt (2,303.4) (2,203.2) Cash flow from operations 205.1 239.0 Finance costs (net) (103.9) (120.3) Dividends received (net) 18.7 10.4 Tax paid (net) (12.8) (4.9) Free cash flow 107.1 124.2 Dividends paid (109.7) (107.4) Acquisitions and development of investment properties (277.9) (187.1) Investment property sales (including joint ventures) 494.2 79.9 Net settlement of foreign exchange derivatives 56.0 (8.1) Net investment in joint ventures (51.8) (15.9) Other items (15.2) 7.9 Net funds flow 202.7 (106.5) Non-cash movements (5.3) (5.3) Exchange rate movements 15.7 (11.6) Closing net debt (2,090.3) (2,303.4)

EPRA PBT bridge

£138.5m £144.9m

£13.5m £4.2m £1.5m £3.6m £(16.4)m 2011 Net interest Admin expenses JV management fees EPRA JV PAT Net rental income 2012

42

Euro currency management and hedging

2,031

470 1,112 125 Other Euro liabilities Euro currency swaps Euro debt Euro gross assets

124 80

Euro income Euro costs (inc. €66m interest)

43

Balance Sheet (as at 31 December 2012) Income Statement (year ended 31 December 2012) €m €m

• €1.23: £1 as at 31 December 2012
• € assets 84% hedged by € liabilities
• €324m (£263m) of residual exposure – 12% of Group NAV
• NAV sensitivity versus €1.23:

+ 5% (€1.29) = -c.£14m (c.1.9p per share)

• 5% (€1.17) = +c.£15m (c.2.0p per share)
• LTV (on a look through basis1) at €1.23: £1 is 51%
• Sensitivity versus €1.23:£1 :

+ 5% (€1.29) = LTV -0.4%

• 5% (€1.17) = LTV +0.6%
• Average rate for 12 months to 31 December 2012 €1.23: £1
• € income 65% hedged by € expenditure (including interest)
• Net € income for the period €44m (£36m) – 25% of Group
• Annualised net income sensitivity versus €1.23:

+ 5% (€1.29) = -c.£1.7m (c.0.2p per share)

• 5% (€1.17) = +c.£1.9m (c.0.3p per share)

1 Including JVs at share

1,707

A diversified income stream

Food 5% Engineering 15% Finance & media 4% Comms & technology 13% Retail 14% Transport & distribution 25% Utilities 8% Other 16%

44

SEGRO has over 1,300 customers across eight countries and multiple sectors Headline rent by customer type

UK 61% Germany 11% France 13% Poland & Czech Republic 8% Other 7%

Headline rent by customer geography

45

Customer Type 1 Deutsche Post (DHL) Transport & distribution 2 Telefonica (O2) Communications & technology 3 IAG (BA/BMI) Transport & distribution 4 Infinity Communications & technology 5 Royal Mail Transport & distribution 6 Mars Chocolate Food 7 Sainsbury’s Retail 8 Alcatel-Lucent Communications & technology 9 UCB SA Chemicals & Commodities 10 Tesco Retail Customer Type 11 Jacobs Engineering Engineering & electrical 12 Equinix Communications & technology 13 DAHER International Transport & distribution 14 FedEx Transport & distribution 15 Antalis Timber, paper & printing 16 Savvis UK Limited Communications & technology 17 Ducros Express Transport & distribution 18 Lonza Biologics Chemicals & commodities 19 Barclays Bank Financial 20 Booker Belmont Wholesale Retail

1 Excluding Neckermann (lease surrender in January 2013) and post year end disposals

Top 20 Customers represent 22% of the Group’s headline rent1

Improved rental income profile

46

2009 2010 2011 2012 Portfolio vacancy rate 13.5% 12.0% 9.1% 8.2% Weighted average lease length 7.7 years 8.3 years 8.2 years 8.4 years

• 2012 vacancy rate lowest reported in the last 10 years
• Pro forma vacancy (inc. Neckermann and post year end disposals) would be 9.6%
• Retention rate of 65% (core 74%)
• Average lease length increased from 7.7 years to 8.4 years since 2009

Appendix III

Financing

Group debt maturity profile

£0m £100m £200m £300m £400m £500m £600m 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+ Bonds and Notes Bank debt drawn Cash Undrawn Facilities

48

Average maturity of gross borrowings 8.3 years (2011: 8.8 years)

Appendix IV

Development

50

Current development pipeline

Project Customer Space to be built (sq m) UK Pre-let projects under construction Montrose & Perth Avenue, STE Karl Storz (63%)/spec 4,100 Contracted projects Tudor Estate, Park Royal Warmup (28%)/spec 3,200 Southern Approach, Feltham (joint venture) Freight Forwarder (62%)/spec 8,000 Speculative developments Cambridge Avenue, STE Spec 3,300 Advent Way, Edmonton Spec 7,800 Total 22,400* Project Customer Space to be built (sq m) CONTINENTAL EUROPE Pre-let projects under construction Vimercate, Italy Alcatel-Lucent 34,000 Wroclaw, Poland DPD 6,900 Lodz – Strykow, Poland Valeo, Cat 10,600 Gdansk, Poland DB Schenker 5,200 Lodz – Strykow, Poland Azymut 4,800 Nardarzyn – Warsaw, Poland Zabka 23,800 Tychy, Poland Car parts manufacturer 18,400 Speculative developments Krefeld, Germany Spec 11,900 Frankfurt, Germany Spec 17,300 Total 132,900

• £10.8m of annualised rental income
• £71.4m of future capital expenditure
• 70% pre-let

* Includes Southern Approach project at Group share

London industrial land

51 Source: Deloitte/ONS

52

Forward-looking statements

This presentation may contain certain forward-looking statements with respect to SEGRO’s expectations and plans, strategy, management’s objectives, future 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. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in this presentation should be construed as a profit forecast. Past share performance cannot be relied on as a guide to future performance.