Bank and Bondholder presentation 21 March 2012 0 Agenda - - PowerPoint PPT Presentation

Bank and Bondholder presentation

21 March 2012

1

Agenda

• Overview and Strategy
• 2011 Results and 2012 Outlook
• Funding and Treasury overview
• Summary and Q&A
• Appendices

2

Overview and strategy David Sleath, Chief Executive

3

SEGRO today – a strong platform for an income-focused REIT

A leading European REIT

• industrial specialist

an attractive asset class

Strong market positions with excellent quality assets

UK: London & SE England France/Germany/Poland

High quality, diversified customer base

£333m of annualised rental income; 1,600 customers

Experienced operational team

Leasing, customer & asset management, development Local expertise in each key market

68% 32% UK Continental Europe

* JVs included at 100%

54% 17% 21% 8%

Industrial Logistics Offices & other business space Development & land

6.4 Net initial yield (%) 7.8 Net true equivalent yield (%) 340 Adjusted NAV (per share) (pence) 50 Gearing (loan to value ratio %) 8.2 Weighted average lease term to expiry (years)

Key statistics at 31 December 2011

4

Industrial – an attractive asset class

2 4 6 8 10 12 14 16 1986-1995 1996-2004 2005-2010

Industrial Office Retail All Property

1 2 3 4 5 6 7 8 9 10 1986-1995 1996-2004 2005-2010

Industrial Office Retail All Property

2 4 6 8 10 12

Industrial Office Retail All Property

IPD Total Returns % by Economic Cycle (annualised to 2010) IPD Total Returns % from 1986 to 2010 (annualised to 2010) IPD Income Returns % by Economic Cycle (annualised to 2010)

1 2 3 4 5 6 7 8 9

Industrial Office Retail All Property

IPD Income Returns % from 1986 to 2010 (annualised to 2010)

5

Industrial and logistics focus – an attractive asset class

Logistics warehousing Logistics warehousing

Logistics

Large distribution warehouses – typically 10,000 sq m and above International, national and regional distribution Ports, airports and transportation corridors

Industrial

Multi occupier estates with buildings in various sizes Located in and around conurbations Light industrial and similar uses Urban logistics serving conurbations Good yield with the potential for rental growth & alternative use upgrade Higher yield with limited cost leakage & potential to scale up with 3rd party capital

6

Well-located industrial land provides potential to develop higher value uses

5 10 15 20 25 30 35 Older industrial Modern industrial Other high value uses Airport (landside) Data centres Airport (airside) Suburban Offices

Illustrative rental levels – South East England (Rent per sq ft)

£6-7 £9-12 £9-15 £12.5-15.5 £16 £24-25 £23-30

7

A strong platform to create a successful income-focused REIT

GOAL: STRATEGY TO CREATE VALUE FOR SHAREHOLDERS: A STRONG PLATFORM FOR SUCCESS:

High quality, progressive, sustainable dividends and NAV growth Industrial and logistics focus Strong market positions Experienced

• perational

team Diversified customer base

Disciplined Capital Allocation Operational Excellence

• Right Portfolio Shape
• Active Portfolio Management
• Right Capital Structure
• Leasing, Customer & Asset

nManagement

• Development
• Operational Efficiency

8

Disciplined capital allocation

• Critical mass in strongest

European markets

• Prime, modern assets
• Low vacancy, sustainable

portfolio

• Modest land holdings
• Moderate gearing levels
• 40% LTV target
• Focused use of third-party

capital

• Enhance risk-adjusted

returns

• Facilitate growth /

achieve competitive scale

Right portfolio shape Active portfolio management Right capital structure

9

Challenges with existing portfolio

*Based on December 2011 valuations with JVs @ 100% 9% 16% 75% Core Smaller non-core industrial holdings and land Large non strategic assets

Split of current portfolio

• Large, long-term development sites
• Sub-urban office parks
• Older & more secondary industrial estates
• Investments in smaller/weaker markets
• Sub-scale investments in certain locations

Mid-long term upside inadequate to justify short-term dilution and/or causes cost inefficiency

10

Four key strategic priorities to create a successful income-focused REIT

Re-shape the existing portfolio

• Divest assets which do not fit our strategic criteria
• Reduce land holdings and other non-income producing assets as a

proportion of the total portfolio

Re-invest – grow AUM in a smaller number of markets through development and acquisition

• Light industrial in the largest and most vibrant conurbations
• Logistics assets in major distribution markets
• Exploit opportunities to create higher value uses on industrial land

Reduce financial leverage over time and introduce third-party capital

• 40% mid-term LTV target

Retain focus on operational excellence and drive further improvements

2 3 4 1

11

Early progress with strategic priorities

New organisation structure announced and implemented

COO and CIO roles created

Non-core disposals

£111m smaller, secondary estates sold in 2011 £80m divestment of five estates to Ignis in February 2012 Guidance: £300-500m disposals in 2012

Acquisition of UK Logistics Fund in partnership with Moorfield

£314m portfolio of prime logistics warehouses

12

2011 Performance Justin Read, Finance Director

13

Operational excellence created strong earnings momentum for FY 2011

Leasing, Customer and Asset Management

£38.4m of new annualised rental income from existing space and pre-lets Transactional rental values 1.7% above December 2010 ERVs Lease incentives of 11% Retention rate up to 74%, takebacks down 28% to £21.0m Vacancy rate 9.1%

14 developments completed; £9m annualised rental income

20 developments under construction or contracted – 78% pre-let Current pipeline £117m capex and £19m annualised rental income

Total costs down by 15% year on year (£15m)

Cost ratio reduced to 24.3% New management and operating structure to drive further efficiencies in 2012 and beyond

Development Operational Efficiency

14

Key financial highlights

3.5 14.3 14.8 Dividend per share (pence) Change % 2010 2011 46 50 LTV (%) 4.5 2,203.2 2,303.4 Net borrowings (£m) (9.6) 376 340 EPRA NAV per share¹ (pence) 7.6 17.1 18.4 EPRA EPS (pence) 8.8 127.3 138.5 EPRA PBT (£m) Change % 2010 2011

• 1. EPRA NAV per share and excluding fair value of interest rate derivatives but including trading property uplifts

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Strong operating performance delivered 8.8% EPRA PBT growth

10.8 16.6 Share of joint ventures’ EPRA profit after tax1 (62.5) (54.9) Property operating expenses 282.1 271.2 Net rental income 1.9 5.9 Joint venture management fee (39.2) (32.1) Administration expenses 255.6 261.6 EPRA operating profit 127.3 138.5 EPRA profit before tax (128.3) (123.1) Net finance costs (excluding fair value movements on derivatives) 344.6 326.1 Gross rental income 2010 £m 2011 £m

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

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Good progress with cost reduction

24.3% 28.1% 29.9% 30.4%

20 25 30 35 2008 2009 2010 2011 (18.1) 39.2 32.1 Administration expenses (12.2) 62.5 54.9 Property operating costs Movement (%) 2010 (£m) 2011 (£m) Total cost ratio* (%)

*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.

17

FY 2011 EPRA PBT bridge (£m)

5.8 4.0 138.5 5.2 7.1 127.3 (10.9)

EPRA PBT 2010 Net rental income JV management fee Share of JV EPRA PBT Administrative expenses Net finance cost EPRA PBT 2011

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FY 2011 cash flow summary

23.4 (8.1) Net settlement of derivatives (193.5) (15.9) Investment in joint ventures 397.0 79.9 Investment property sales (including joint ventures) (82.8) (107.4) Dividends paid (61.1) (187.1) Capital expenditure (excluding trading properties) 193.7 (106.5) Net funds flow 4.1 7.9 Other items 106.6 124.2 Free cash flow (6.0) (4.9) Tax paid 8.8 10.4 Dividends received (net) (141.1) (120.3) Net finance costs 244.9 239.0 Cash flow from operations 2010 £m 2011 £m

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FY 2011 EPRA NAV per share bridge (pence)

376 (3) (15) (35) 19 (1) (1) 340

EPRA NAV per share as 31 Dec 2010 EPRA PBT Exchange rate movement Other Unrecognised valuation movement

• n trading properties

Dividends Realised and unrealised valuation movement (including JVs) EPRA NAV per share as 31 Dec 2011

20

FY 2011 core and non-core valuation movements*

• 200
• 150
• 100
• 50

50

Core Non-Core Valuation movement (£m)

(187.0) (33.6) Non-Core (54.6) 19.9 Core (241.6) (13.7) Total H2 2011 (£m) H1 2011 (£m) Property assets

*Valuation movement relates to the total portfolio (completed properties, land and development). Joint ventures shown at share.

21

Funding and Treasury Andrew Pilsworth, Head of Corporate Finance

22

Solid balance sheet

No significant debt maturities before 2014 £456m of funds available from cash balances and undrawn facilities Weighted average cost of debt now 4.8% 74% of net borrowings at fixed rates Net borrowings of £2.3bn; adjusted gearing of 89% and LTV of 50% SEGRO bonds rated A minus; reaffirmed by Fitch in December 2011

SEGRO debt maturity profile Average duration of debt 8.8 years

100 200 300 400 500 600 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+ Year

Bonds and Notes Bank Debt drawn Cash Undrawn facilities

£m

23

£954m of new Group and JV debt facilities arranged

SEGRO and Moorfield financing for UKLF JV

£186.6m five-year facility Acquisition completed January 2012 <4.25% p.a. all-in funding cost; 80% fixed for 5 years

SEGRO and Aviva Investors APP JV refinancing

£400m five-year debt refinancing package Refinanced maturing facility, due March 2012 c4.0% p.a. all-in funding cost on drawn debt

SEGRO Group refinancing

€440m of revolving, multi-currency, five-year bank facilities Refinanced £270m syndicated facility, due to mature Jan 2013 c2.75% p.a. funding cost on drawn debt under the facilities November 2011 September 2011 January 2012

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Well hedged against the Euro

2,004 566 1,030 105

Balance sheet as at 31 December 2011 Euro gross assets Euro debt Euro currency swaps Other Euro liabilities € million

• €1.20:£1 as at 31 December 2011
• € assets 85% hedged by € liabilities
• €303m (£252m) of residual exposure – 10% of Group NAV

113 79

Income statement year to 31 December 2011 Euro net income Euro costs (incl €67m interest) € million

• Average rate for year to 31 December 2011 €1.15:£1
• € income 70% hedged by € expenditure (including interest)
• Net € income for the period €34m (£30m) – 22% of Group

1,701

Annualised NAV sensitivity versus €1.20:

• +/- 10% (€1.32/€1.08) = +/- c£25m (c3.4p per share)
• Annualised net income sensitivity versus €1.15
• +/- 10% (€1.27/€1.03) = +/- c£3m (c0.4p per share)

25

Treasury Strategy Overview and priorities for 2012

Commitment retained to a relationship banking model

• We now have a relatively small, but balanced and high quality group of long-term partner banks
• Regular and open communication
• Will award ancillary business in a fair, transparent way that rewards innovation and excellence

Debt funding should be diversified, flexible, cost effective and on consistent terms

• Core funding will come from the bond markets; but
• Unsecured revolving bank facilities remain vital for headroom and flexibility to recycle capital
• No significant debt maturities in 2012 or 2013, but may consider refinancing H1 2014 maturities

towards the end of the year

• Financing and derivative activity during the year will be largely driven by the capital recycling

programme

Optimise operational efficiency and make appropriate use of treasury technology

• Cash balances reduced by more than £80 million in the past 2 years to around £20 million
• Improving visibility of European cash balances and enhancing cash management processes to

further reduce Group cash holdings remains a priority for 2012

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Summary

A clear strategy to become a leading income-focused REIT

Early progress with portfolio reshaping

Strong FY 2011 operating results due to portfolio quality and

• perational focus

Further momentum to come from mainly pre-let development programme

A solid balance sheet position and favourable debt maturity profile

Target to reduce LTV to 40%

27

APPENDICES

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Significant improvement in retention reflects benefits of working closely with customers

% of customers retained year on year*

55% 75% 63% 69% 87% 74%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

UK Continental Europe Group 2010 2011

• Focus on customer satisfaction
• Proactive and commercial approach to upcoming lease events
• Reduced availability of modern space in most markets

*Leases renegotiated ahead of break or expiry

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Increased retention levels have contributed to the significant reduction in takebacks

£m annualised rental income lost £16.2m £20.2m £4.8m £9.1m

5 10 15 20 25 30 35 2010 2011

UK Continental Europe

• Low level of insolvencies (£4.0m versus £7.2m in 2010)
• £41m of income at risk from potential break or expiry in 2012, down from £50m

at June 2011

Down 28% in 2011

£29.3m £21.0m

30

Significant further improvement in Group vacancy from 12% to 9.1% – the lowest level since 2007

9.1% 11.4% 12.0% 14.0% 13.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% FY 2009 H1 2010 FY 2010 H1 2011 FY 2011

% vacant by rental value

• UK 10.2%, Continental Europe 6.4% (2011)
• Target for Brixton portfolio of 15% by end of 2012 already delivered (2011: 13.4%)

31

FY 2011 Group vacancy bridge

(0.5)% (2.6)% (0.4)% 12.0%

(12.7)%

9.1% 1.9% (0.1)% 11.5%

Vacancy rate as at 31 December 2010 Space returned Development completions Disposals Space made redundant Other (ERV changes) Development lettings Space let Vacancy rate as at 31 December 2011

32

Gliwice, Poland Selig UK, Slough

Geopost, Enfield

14 developments completed in 2011 – £9.0m of rent p.a

• 2 projects for logistics customers across 35,600 sq m

completed January & December 2011

• 3,500 sq m completed September 2011
• 15,900 sq m for logistics customer completed

September 2011

• 7,000 sq m completed December 2011

Tychy, Poland

33

Significant earnings momentum from current development programme

• 20 active projects, 78% pre-let
• £19m of annualised rental income and £117m of remaining capex

9,900 sq m at APP Portal, expected completion September 2012 5,600 sq m at Slough, expected completion February 2012 33,400 sq m at Vimercate, expected completion December 2013 5,500 sq m at Slough, expected completion May 2012 Data centre operator Alcatel Lonza DB Schenker

34

Land bank provides an attractive source

• f future developments

£170m £82m £171m

Estimated development costs £600m Estimated rental value £78m Indicative yield on TDC* 9-10%

Current land holdings by value (£m) Residual land bank Under construction Potential projects Potential projects Largest development sites

Current BV (£m) Hectares

5.7 14.2 Poznan Poland & Czech Rep 5.7 29.7 Prague 6.9 17.7 Warsaw 19.7 17.2 Amsterdam (Schipol) Netherlands 9.6 19.2 Berlin 9.7 8.8 Düsseldorf Germany 13.0 7.4 Slough 32.0 8.5 Park Royal UK 229 hectares

*Total development cost

49 hectares 363 hectares

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Our current development pipeline is 78% pre-let

UK Speculative developments 3,100 n/a Galvin Road, STE 1,200 Family Bargains Farnham Road, STE 42,100* Total 2,800 Under offer – data centre Galvin Road, STE 8,500 Rolls-Royce APP Portal at Heathrow, London 9,900 DB Schenker APP Portal at Heathrow, London Contracted projects 3,300 Ragus Sugars Yeovil Road, STE 5,500 Lonza Bath Road, STE 5,600 Data centre

• perator

Ajax Avenue, STE 11,400 Infinity STE Pre-let projects under construction Space to be built (sq m) Customer Project 7,600 OPEK Lodz, Poland 11,200 Esprinet (72%) /speculative Vimercate, Italy CONTINENTAL EUROPE Speculative developments 8,200 n/a Paris, France 12,200 Various – 50% let Berlin, Germany 11,300 Wir Packens (80%) /speculative Krefeld, Germany 162,400 Total 12,200 n/a Dusseldorf, Germany Contracted projects 1,200 Eurocash Poznan, Poland 14,300 Pro Tex (30%) /speculative Frankfurt, Germany 18,900 Zabka Tychy, Poland 31,300 Sports retailer Gliwice, Poland 34,000 Alcatel-Lucent Vimercate, Italy Pre-let projects under construction Space to be built (sq m) Customer Project

£19m of annualised rental income and £117m of capex

*Includes APP Portal contracted projects at Group share

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1.2 11.3 0.3 6.5 0.9 4.8 Net absorption (£m) (13.0) (0.4) (16.3) 0.9 (10.5) (0.8) Valuation movement (%) 8.4 7.6 8.2 8.1 8.6 7.5 True equivalent yield (%) 7.0 6.1 7.9 7.5 6.4 5.7 Net initial yield (%)

• 12.4

767.6

Non-core

6.0 9.5 2,586.3

Core UK

3.1 4.0 814.4

Core Continental Europe

4.9 9.6 515.4

Non-core

9.1 8.2 3,400.7

Core Group

4.9 11.2 1,283.0

Non-core

Pre-lets signed (£m) Vacancy (%) Portfolio value (£m)

(completed properties)

Performance of core versus non-core

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Large non-strategic assets

Pegasus Park (Brussels) Neckermann site (Frankfurt) Vimercate (Milan) IQ Farnborough (Farnborough)

Total value: £515m Total headline rent: £45m

Data as at 31 December 2011

MPM site (Munich) Thales site (Crawley)

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50/50 JV partnership with Moorfield Real Estate Fund 14 prime logistics warehouses, located predominantly in the Midlands and South Excellent customer base, including Tesco, Sainsbury’s, Royal Mail, DHL, GKN, Booker High-quality income stream – c £18m in 2011; average 13 years to lease expiry 9.4% cash running yield on SEGRO share of equity investment, rising to 12.8%; 6.3% ungeared net initial yield rising to 7.7% Potential to add further value through active asset management

UKLF acquisition significantly increases

• ur presence in logistics

Sainsbury’s, Hoddesdon Booker, Booker, Hatfield

In line with strategy to grow logistics with third-party capital

Royal Mail, Birmingham

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FY 2011 net rental income bridge (£m)

271.2 0.3 0.7 1.6 2.1 5.3 282.1 (6.5) (9.3) (5.1)

Net rental income 2010 Development (lettings net of takebacks) Like-for-like rent Currency translation Acquisitions Other income Disposals to APP Disposals (excluding to APP) Lease surrenders (premium net of rent lost) Net rental income 2011

40

FY 2011 EPRA pro forma profit before tax: JVs proportionally consolidated

(65.2) (57.7) Property operating expenses 303.2 301.4 Net rental income 1.0 2.6 Joint venture management fee (39.2) (32.1) Administration expenses 265.0 271.9 EPRA operating profit 127.3 138.5 EPRA profit before tax (137.9) 0.2 (133.6) 0.2 Net finance costs (excluding fair value movements on derivatives) Joint venture tax 368.4 359.1 Gross rental income 2010 £m 2011 £m

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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.

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Bank and Bondholder presentation

21 March 2012