Investor Presentation September 2012 0 2012 Half Year Results - - - PowerPoint PPT Presentation

Investor Presentation September 2012

1

2012 Half Year Results - Headlines

Further operational progress

• Good underlying earnings momentum with EPRA EPS up 5.3% to 9.9p
• Vacancy maintained at 9.1%; costs reduced; good progress with mainly pre-let development

programme

Encouraging start to the strategic reshaping of our portfolio

• £1,126m of capital recycling
• £281m reduction in net debt

NAV of 317 pence per share (from 340p)

• Impacted by the non-core and large, less liquid, non-strategic assets
• Core portfolio performing well – operationally and capital values

Re-affirming our intention to at least maintain the current level of dividend during the portfolio re-shaping exercise

Making good progress towards our goal of creating a leading, income-focused REIT

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SEGRO today – a unique platform

A leading European REIT with AUM of £5.4bn industrial and logistics specialist an attractive asset class Strong market positions with excellent quality assets UK: London & SE England France/Germany/Poland High quality, diversified customer base £308m of annualised rental income; 1,400 customers Experienced ‘in-house’ operational team Leasing, customer & asset management, development Local expertise in each key market

UK 70% Continental Europe 30%

JVs included at share

6.5 Net initial yield (%) 7.9 Net true equivalent yield (%) 8.5 Weighted average lease term to expiry (years)

Key statistics at 30 June 2012

Non-core 19% Core 81% Light Industrial 51% Logistics 20% Offices & other business space 20% Development & land 9%

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Industrial and logistics – An attractive asset class

Logistics warehousing Logistics warehousing

• Larger warehouses – typically >10,000 sq m
• Single-let and multi-occupier buildings
• Mainly serving international, national and

regional distribution markets

• Located in and around major ports, airports and

transportation corridors Big-box logistics

• Higher value use buildings on industrial land

developed to create enhanced rents and returns

• Data centres, suburban offices, trade counters,

car showrooms, research facilities and self- storage Higher Value Uses

• Multi occupier estates
• Located in and around major conurbations
• Standard buildings of varying sizes suitable for

many uses:

• Light industrial and similar uses
• Urban logistics: benefitting from growth in e-

retail and focus on ‘last mile’ solutions

• Support services/general storage

Light industrial / urban logistics

10.8 8.3 9.3 9.1 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Industrial Office Retail All P roperty

IPD Total Returns % from 1986 to 2011 (annualised to 2011)

8.2 6.9 6.1 6.7 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Industrial Office Retail All Property

IPD Income Returns % from 1986 to 2011 (annualised to 2011)

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Strategy to create a leading income-focused REIT

GOAL: STRATEGY: The best

• wner-manager

& developer of industrial property in Europe

Disciplined Capital Allocation Operational Excellence

Allocate capital to the markets and assets likely to produce the best risk-adjusted returns Deliver great customer service and optimise performance from our assets

Efficient Capital and Corporate Structure

Underpin our property performance with an efficient and prudent capital structure and lean support functions

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Creating the “Right Portfolio Shape” is a fundamental element of Disciplined Capital Allocation

Stabilised (vacancy <10%) 60% Opportunity (built; vacancy >10%) 31% Opportunity (land & development) 9%

Right asset class – industrial & logistics Right geographies – larger more liquid markets and where the demand/supply balance is most favourable Right portfolio balance – mainly prime, modern, standard buildings with moderate land holdings and “opportunity” assets Critical mass in each market – economies

• f scale

Supporting a relatively high income return, with low cost leakage and more resilient income and capital growth

Core 81% Non-core 19%

Total portfolio 30 June 2012 Core portfolio breakdown 30 June 2012

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Four strategic priorities to transform our performance

1. Re-shape the existing portfolio

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

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

• ‘Edge of town’ light industrial/urban logistics in the largest conurbations
• ‘Big-box’ logistics warehouses in major distribution corridors

Exploit opportunities to create higher value uses on industrial land 3. Reduce financial leverage over time and introduce third-party capital 4. Retain focus on operational excellence and driver further improvements

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H1 2012 - Encouraging progress with strategic priorities

• 3 significant UK portfolio sales and various smaller

deals in UK and Continental Europe - mainly secondary / regional industrial and office assets

• First of the “Big 6” assets sold (IQ Farnborough)
• Average exit yield of 7.0% / 7.6%
• Discount of 3.1% to Dec 2012 book values
• 12% reduction in net debt due to net disposal

activity

• Loan to value ratio marginally reduced to 49% -

long term target c40%

• Interest coverage ratio of 2.2 times
• Average debt maturity extended to 9.1 years
• UK Logistics Fund acquisition in partnership with
• Moorfield. Net equity investment £65.7m (entry

yield of 9.4% / 12.7%) – gross AUM of £314.7m (entry yield 6.3% / 7.7%)

• Acquisition of prime French logistics portfolio for

£130m. 8.4% initial yield, reverting to 7.7%.

• Development capital invested or committed of

£179m, producing an expected yield on investment

• f 9.7%, 81% let, 27 projects
• Group vacancy rate maintained at 9.1% (8.8%

in core portfolio)

• 126 new leases and 45 lease renewals –

retention rate of 63% (69% in core portfolio)

• Strong momentum created with low risk

development programme

• Further cost reductions and operational

improvements

• 1. £503m of non-core disposals
• 3. £281m reduction in net debt
• 2. £374m reinvestment into core products and

markets

• 4. Further operational progress

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H1 2012 Financial Results

EPRA EPS up 5.3% to 9.9 pence

• 1.0% increase in like for like

net rental income

• £3.3m contribution from

development completions

• £5.4m loss of income from

disposals, partially offset by interest savings of £4.2m

• Further reduction in cost

ratio to 22.4% EPRA NAV per share down from 340p

• £92m (21%) valuation

reduction on “Big 5” non- core assets; 47% attributable to Neckermann site in Frankfurt

• Core portfolio values outperforming

IPD UK Industrial Index by 0.7% Reaffirming our intention to at least maintain the current level of dividend during the portfolio re-shaping exercise

• Good momentum with mainly pre-let

development programme

• Resilient core portfolio (81% of total)
• Income from 2012 acquisitions vs.

disposals to flow through

• Loss of income from Neckermann

site in 2013 Well positioned to make further progress with portfolio re-shaping. Disposals progress to be slower in H2 2012

Earnings Net Asset Value Outlook

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Insolvency rates generally low as a result of our large and diversified customer base

0% 1% 2% 3% 2007 2008 2009 2010 2011 H1 2012

Percent of annualised rental income lost through insolvencies

Karstadt Quelle

0.7% 1.1% 1.7% 0.7% 1.5% 1.2% 0.6%*

*Excluding Neckermann which became insolvent on 18 July 2012

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£816m of non-core assets remaining

Valuations as at 30 June 2012, including joint ventures at share Income based on headline rental income as at 30 June 2012

12 43 43 Neckermann

Income Valuation

70

• 34

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Total (£m)

816 64 421 288

Total (£m)

518 298 Total 54 10 Other land holdings 217 204 Smaller industrial assets 204 84 Other ‘Big four’ assets

Europe (£m) UK (£m)

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Summary

Further operational progress – core portfolio performing well Encouraging start to the strategic reshaping of our portfolio Making good progress towards our goal of creating a leading, income-focused REIT

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Appendix I

Financials

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Good underlying earnings momentum; 5.3% increase in EPRA PBT

9.7 10.1 Share of joint ventures’ EPRA profit after tax1 (26.0) (26.0) Property operating expenses 135.5 130.9 Net rental income 1.8 2.9 Joint venture management fee income (15.8) (13.1) Administration expenses 131.2 130.8 EPRA operating profit 71.1 74.9 EPRA profit before tax (60.1) (55.9) EPRA net finance costs2 161.5 156.9 Gross rental income H1 2011 £m H1 2012 £m

• 1. Net property rental income less administrative expenses, net interest expenses and taxation
• 2. EPRA net finance costs exclude fair value movements on derivatives and a gain arising from the cancellation
• f committed debt facilities at a discount to face value

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Further reduction in the total cost ratio

22.4% 24.3% 28.1% 29.9% 30.4%

20 25 30 35 FY 2008 FY 2009 FY 2010 FY 2011 H1 2012 (17.1) (15.8) (13.1) Administration expenses

• (26.0)

(26.0) Property operating expenses Movement (%) H1 2011 (£m) H1 2012 (£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.

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£281m reduction in net debt: Solid financial position

84 88

Currency asset hedging (%)

2.2 2.2

Interest cover (x)

456.1 618.9

Available funds – cash & undrawn facilities (£m)

74 70

Fixed rate debt (%)

8.8 9.1

Average duration of debt (years)

4.8 5.1

Weighted average cost of debt* (%)

50 49

Loan to value ratio (%)

2,303.4 2,022.3

Net borrowings (£m)

31 December 2011 30 June 2012

*Excluding commitment fees and amortised costs

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Cash flow summary

(25.5) 45.8 Net settlement of derivatives (0.4) (50.8) Investment in joint ventures 21.8 352.5 Investment property sales (66.0) (65.9) Dividends paid (65.6) (64.6) Capital expenditure (excluding trading properties) (75.3) 264.9 Net funds flow 7.0 2.7 Other items 53.4 45.2 Free cash flow (2.1) (12.2) Tax paid (net) 3.3 2.3 Dividends received (net) (54.3) (52.3) Finance costs (net) 106.5 107.4 Cash flow from operations H1 2011 £m H1 2012 £m

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Euro currency management and hedging

1,887 286 1,270 117

Balance sheet (as at 30 June 2012) Euro gross assets Euro debt Euro currency swaps Other Euro liabilities € million

• €1.24:£1 as at 30 June 2012
• € assets 89% hedged by € liabilities
• €214m (£173m) of residual exposure – 7% of Group NAV

59 38

Income statement (six months to 30 June 2012) Euro net income Euro costs (incl €32m interest) € million

• Average rate for six months to 30 June 2012 €1.22:£1
• € income 65% hedged by € expenditure (including interest)
• Net € income for the period €21m (£17m) – 23% of Group

1,673

NAV sensitivity versus €1.24:

• +/- 10% (€1.36/€1.12) = +/- c£17m (c2.3p per share)
• Annualised net income sensitivity versus €1.22
• +/- 10% (€1.34/€1.10) = +/- c£3.4m (c0.5p per share)

Excludes US dollar/Zloty hedging

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317p 340p

(10)p (22)p 10p (1)p

NAV DECEMBER 2011 EPRA PBT Other Dividend Realised and unrealised valuation movements NAV JUNE 2012

EPRA NAV per share bridge

Non-core (19)p Core (3)p

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0.4 0.1 (1.0) (5.6) (1.7) (0.9) (0.5) (1.4) (11.6) (16.2) (22.5) (5.3) (6.2) (2.3)

• 25
• 20
• 15
• 10
• 5

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Core Non-core

Valuation movements support our strategic selection of assets and markets

*Valuation movement (%)

*Valuation movement relates to the completed properties, including joint ventures at share. Benelux & Other Poland & Czech Republic

TOTAL

France Germany Thames Valley & the Regions Greater London

Neckermann (16.6) (5.9)

IPD UK Industrial Index down 1.7%

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A diversified income stream

UK 70% Other 7% Poland & Czech Republic 7% Germany 8% France 8%

SEGRO has over 1,400 customers across eight countries and multiple sectors

Transport & distribution 26% Utilities 8% Other 15% Retail 15% Engineering 13% Finance & media 7% Food 5% Comms & technology 11%

Headline rent by customer geography Headline rent by customer type

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Top 20 customers represent 22% of the Group’s headline rent (excluding Neckermann)

Transport & distribution British Airways 5 Engineering & electrical Krauss-Maffei 3 Communications & technology Telefonica/O2 1 10 9 8 7 6 4 2 Communications & technology Alcatel-Lucent Chemicals & commodities UCB Retail Sainsbury Agriculture & food Mars Chocolate Transport & distribution Royal Mail Engineering & electrical Thales Transport & distribution Deutsche Post/DHL Type Customer Engineering & electrical Jacobs 11 Retail Tesco 16 Timber, paper & printing Antalis 14 Communications & technology Equinix 12 20 19 18 17 15 13 Communications & technology Cisco Transport & distribution DAHER Transport & distribution Federal Express Finance Barclays Chemicals & commodities Lonza Transport & distribution Ducros Express Type Customer

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Appendix II

Core and non core analysis

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Group 6.3 4.8 6.6 6.5 WAULT to break (yrs) (0.7) (0.3)

• (0.4)

Net absorption (£m) (2.9) (5.3) (21.7) (0.5) Valuation movement* (%)

(Entire portfolio)

7.9 8.6 8.8 7.7 True equivalent yield (%) 6.5 7.1 10.4 6.1 Net initial yield (%) 2.9 8.8 347.6 3,483.8 Core

• 6.3

33.6 296.8 Big five

• 13.0

63.4 527.3 Other non- core 2.9 9.1 444.6 4,307.9 Pre-lets signed (£m) Vacancy (%) Land and developments* (£m) Portfolio value* (£m)

(completed properties)

Overall performance of core portfolio supports our strategic selection of assets and markets

*Based on 30 June 2012 valuations including joint ventures at share

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£503m of non-core asset disposals; 3.1% average discount to Dec 2011 valuations

7.0 503.1 Total 7.6 15.3 Various Other CE non-core assets Various 6.9 10.9 Various Other UK non-core assets Various 8.4 111.0 UK institution 10 regional UK estates July 6.7 204.5 Harbert Four regional UK estates May 6.5 90.2 Harbert IQ Farnborough April 6.5 71.2 Ignis Four regional UK estates February

Net initial yield (%) Sale proceeds (£m) Acquirer Portfolio/Asset Month

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Thales, Crawley

Key information:

A 35,000 sq m bespoke office and R&D campus for French defence contractor, Thales, located close to Gatwick airport in Crawley

Pre-let development agreed in 2005; completed in 2007 Total development cost £60m Vacancy 0.0% at 30 June 2012 WAULT to break 13.5 years at 30 June 2012

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Neckermann, Frankfurt

Key information:

A 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

Asset valued at £43m at 30 June 2012 Neckermann filed for administration on 18 July 2012 Potential to re-lease existing space to new occupiers Potential change of use, re-development and/or outright disposal under review

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Energy Park, Vimercate (Milan)

Key information:

A 70,000 sq m office and R&D campus located c.20km north-east from central 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)

• Two further pre-let developments under construction, totalling 45,200

sq m for Alcatel-Lucent and Esprinet. Total capex of £65.9m, annual rental income of £5.6m (89% pre-let)

• Further development projects likely to span multiple years

Vacancy 0.0% at 30 June 2012

• WAULT to break 3.2 years at 30 June 2012 will increase significantly

with new developments

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Pegasus Park, Brussels

Key information:

A high quality 82,000 sq m modern suburban office park located approximately 8km east of 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 16.3% at 30 June 2012 WAULT to break 4.8 years at 30 June 2012 Customers include: Johnson Controls, Bombardier, Stanley Black & Decker, Cisco, Sunguard

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MPM/Siemens, Munich

Key information:

A large 155,000 sq m engineering and manufacturing facility leased by Krauss-Maffei (formerly MPM) and Siemens (as a sub-tenant).

Acquired in 2007 as a sale & leaseback to MPM Vacancy 0.0% at 30 June 2012 WAULT to break 10.6 years at 31 March 2012

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Appendix III

Reinvestment: Development and acquisitions

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£179m of development capex invested or committed in H1; 9.7% average expect yield

Parc des Damiers in Ile de France Due to be completed September 2012 DB Schenker at the Portal Site, Heathrow Due to be completed August 2012 Zabka in Tychy, Poland Completed January 2012 Gyron at the Slough Trading Estate Completed June 2012

Logistics Data centre Industrial Industrial

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Significant earnings momentum from the current development pipeline

4,100 Karl Storz (63%)/spec Montrose & Perth Avenue, STE 9,900 DB Schenker APP Portal at Heathrow, London 8,500 Rolls-Royce APP Portal at Heathrow, London UK Speculative developments 3,100 n/a Galvin Road, STE 36,800* Total 3,200 Warmup (28%)/spec Tudor Estate, Park Royal Contracted projects 5,600 Data centre operator Ajax Avenue, STE 11,600 Infinity STE Pre-let projects under construction Space to be built (sq m) Customer Project 4,800 Azymut Strykow, Poland 4,900 Investa Strykow, Poland 5,200 DB Schenker Gdansk, Poland 11,300 Wir Packens (80%)/spec Krefeld, Germany 34,000 Alcatel-Lucent Vimercate, Italy 31,300 Decathlon Gliwice, Poland 7,600 OPEK Lodz, Poland 11,200 Esprinet (72%)/spec Vimercate, Italy CONTINENTAL EUROPE Speculative developments 8,200 45% let Paris, France 6,900 DPD Wroclaw, Poland 164,100 Total 12,200 10% let Dusseldorf, Germany Contracted projects 12,200 Flexlink Poznan, Poland 14,300 Pro Tex (30%)/spec Frankfurt, Germany Pre-let projects under construction Space to be built (sq m) Customer Project

£18.2m of annualised rental income £84.9m of future capital expenditure 81% pre-let

*Includes APP Portal contracted projects at Group share

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£315m portfolio acquisition in a 50/50 JV partnership with Moorfield Real Estate Fund (SEGRO’s equity contribution £65m) 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 12.7%; 6.3% ungeared net initial yield rising to 7.7% Potential to add further value through active asset management

£65m acquisition of the UK Logistics Fund

Sainsbury’s, Hoddesdon Booker, Booker, Hatfield

Significantly enhancing our logistics platform in the UK

Royal Mail, Birmingham

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£130m acquisition of French logistics assets

£130m acquisition, due to complete September 2012 13 prime logistics assets in the Ile de France and Lyon; close to our existing assets Strong customer line-up: UPS, Geodis, Saint-Gobain €14.2m of high quality annualised rental income 8.4% net initial yield, reverting to 7.7% Potential to add value through active asset management

Genas, Lyon Saint Witz, Ile de France Ris Orangis, Ile de France

Significantly enhancing our logistics platform in France

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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.