Bank and Bondholder presentation

Transcription

1 Bank and Bondholder presentation 19 September Geopost, Enfield

2 Agenda Welcome and strategic overview (David Sleath, CEO) Operational and financial performance (Justin Read, Group Finance Director) Funding overview (Andrew Pilsworth, Head of Corporate Finance) Wrap-up (David Sleath, CEO) and Q&A Appendices 1

3 SEGRO attendees Andrew Pilsworth David Sleath Justin Read Head of Corporate Finance CEO Group Finance Director Octavia Peters Shilpa Mandalia Simon Clubbs Head of Tax & Corporate Treasury Dealer Group Tax Manager Finance Manager 2

4 Strategic Overview 3 Selig, Slough Trading Estate

5 A clear strategy to create a successful income-focused REIT GOAL THE BEST OWNER-MANAGER AND DEVELOPER OF INDUSTRIAL PROPERTIES AND A LEADING INCOME-FOCUSED REIT OUR STRATEGY 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 4

6 Progress against strategic priorities Strategic Priorities 1. Recycle capital out of non-core assets: 1.6bn - Older property or management intensive characteristics - Weaker or sub-scale markets Achievements 985m of disposals, including 4 of the Big Six non-strategic assets Average exit yield of c.7% Remaining non-core assets of 560m 2. Reinvest in growth areas - Edge of town warehousing & higher value uses in major conurbations - Larger bulk distribution warehouses in key markets for national / regional logistics Development expenditure incurred or committed since 2011 of 236m; typical yields on total development costs of 8% - 10% 379m spend on acquisitions; average yield of c.7% OPERATIONL EXCELLENCE Borrowing reduced by 725m (pro-forma), LTV from 48% to 44% ( look through basis) Creation of pan-european logistics property JV with PSP, 3. Capital Management - Reduce borrowings: targeting 40% LTV over medium term - Utilise 3 rd party capital to enhance returns and fund growth announced July 2013 ALLOCATE TO THE MARKETS AND DELIVER GREAT CUSTOMER 4. Operational excellence to drive portfolio ASSETS returns LIKELY TO PRODUCE THE Vacancy SERVICE rate reduced AND from OPTIMISE 11.4% to 8.9% BEST RISK-ADJUSTED RETURNS PERFORMANCE FROM OUR ASSETS - Leasing & development pre-lets - Customer relationship management of asset optimisation - Operational efficiency and cost reduction 33m of new annualised income generation since H (existing buildings only) 43 development projects completed or started with annualised rental income of 30m Cost ratio down from 30% to 23% EFFICIENT CAPITAL AND CORPORATE STRUCTURE UNDERPIN OUR PROPERTY PERFORMANCE WITH AN EFFICIENT AND PRUDENT CAPITAL STRUCTURE AND LEAN SUPPORT FUNCTIONS 5

7 Key trends supporting our strategy Attractive structural demand drivers Growth in internet retailing, convenience shopping and B2B distribution requiring local delivery/fulfilment solutions Limited supply of modern warehouse assets UK supply (millions sq ft) On-going supply chain improvements by retailers, manufacturers & third party logistics providers Increasing need for electronic data storage solutions driving demand for data centres Recovery in high-tech/engineering-led production H H H H H H H H Source: JLL 60 UK online retail sales ( billion) 2.5 UK e-commerce related parcel volume increase (billions of items) 40 Global data volume increase (zetabytes) Source: Forrester, European online retail forecast Source: IMRG, Source: Capital Science Corporation,

8 Land bank well located to capitalise on the favourable demand/supply dynamics Current land holdings by value (as at 30 June 2013) Residual land bank 86m (231 ha) Current projects 49m (31 ha) Potential development projects 200m (310 ha) Potential development projects 77m of potential future annual rent 608m estimated development costs 9.5% estimated yield on TDC % estimated yield on new money 7 1 Total development cost (including land)

9 1bn Continental European logistics JV to take advantage of growth opportunities 50/50 JV with PSP to create a leading Continental Europe logistics platform Seeded with SEGRO s 1 billion Continental European logistics portfolio, including 84 hectares of development land Provides access to long term capital to accelerate growth and take advantage of consolidation opportunities in Continental Europe Leverages SEGRO s asset management platform, generates management and development fees, improves risk adjusted returns In line with strategic objective to increase use of third party capital Net disposal that reduces on balance sheet leverage Built Assets Location Land Holdings Location 8

10 Summary Strong operational performance Significant progress with strategic portfolio repositioning Investment market strengthening Well positioned for future growth Creating the best owner-manager and developer of industrial properties and a leading income-focused REIT 9

11 Operational Performance Justin Read Finance Director 10

12 Strong operational performance Interim results for the 6 months to 30 June new lettings generating 16.7m of new rental income (up 30%) - 2.6m additional rental income in solicitors hands 53 lease re-gears and renewals, securing 7.5m of rental income - Retention rate of 75% (H1 2012: 63%) Group vacancy rate 9.5% (core: 8.1%), or 8.9% pro forma for after period end disposals 126 million invested or committed to developments; 9% yield on cost Further reduction in administrative expenses 11

13 Financial highlights Interim results for the 6 months to 30 June 2013 EPRA PBT down 5.9m despite 26.6m NRI impact of disposals/ Neckermann Further reduction in central costs and in cost ratio adjusted for Neckermann Dividend maintained Stable asset values Balance sheet strength significantly greater financial flexibility to reinvest 12

14 Net rental income lower due to net effect of capital recycling and Neckermann 7.0m (19.5)m 6.2m 2.1m (7.1)m (0.6)m (0.3)m 130.9m 118.7m H Currency Developments Acquisitions Disposals Neckermann Like for like net Surrender H1 H translation impact rental income premiums & other 13

15 Further cost savings achieved EPRA total cost ratio 1 (%) (including vacant property costs) % 29.9% 28.1% 24.5% 22.9% 23.5% 22.4% FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 H Excluding Neckermann H m H m Change % Gross rental income (inc. share of JVs) (6.3) Property operating expenses (25.9) (26.0) (0.4) Administrative expenses (12.1) (13.1) (7.6) Net JV costs (0.8) (0.6) 33.3 Total costs (38.8) (39.7) (2.3) 1 Total costs as a percentage of gross rental income. Total costs include vacant property costs 14

16 EPRA NAV per share unchanged 9.2p 1.8p (9.9)p (1.1)p 294p 294p EPRA NAV per share as at 31 December 2012 EPRA EPS FX movements Dividend Realised and unrealised valuation movements EPRA NAV per share as at 30 June

17 Positive portfolio valuation movements Core industrial +0.8% Offices 0.0% Non core (2.4)% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Logistics H Core warehouse portfolio by asset type Light industrial & urban distribution Data centres Other business space Total portfolio +0.3% 4.0% 3.0% H Core warehouse portfolio by geography 2.0% IPD UK Index - All property (0.4)% 1.0% 0.0% -1.0% -2.0% - Industrial 0.0% -3.0% -4.0% Heathrow Park Royal STE LPP Rest of Greater London Germany France Poland 16 Valuation including joint ventures at share (including land and development) and in relation to the completed properties only

18 Significant reduction in pro forma look through LTV ratio 855 million of net proceeds receivable in H Used to pay down net debt and pursue profitable reinvestment opportunities Pro forma on balance sheet net debt of 1.3bn 2 at 30 June 2013 (3)% (4)% (1)% 52% 44% LTV ratio at 30 June 2013 IQ Winnersh SELP Neckermann Pro forma LTV ratio at 30 June 2013 Gross proceeds 1, 5 ( m) Book value 1 ( m) , 4 39 Share of JV bank debt 1 ( m) n/a 166 n/a 1 Based on average and closing exchange rate for H of 1.17 / 1 2 Includes 129m of deferred consideration from PSP and 4m gain on sale from 7% coupon on deferred consideration. Net of SEGRO equity contribution to SELP and 3m of transaction costs incurred to date 3 50% of value of properties sold 4 Excludes 30m to acquire Belgian JV assets and capex 5 Gross proceeds before rent guarantees, top ups and transaction costs 17

19 Funding strategy Andrew Pilsworth Head of Corporate Finance 18 Geopost, Enfield

20 Strong financing metrics 30 June June 2013 Pro forma 1 31 Dec 2012 Group: Net borrowings ( m) 4 2,132 1,313 2,090 On balance sheet unencumbered property assets ,964 3,993 LTV on balance sheet 4 53% 44% 52% Available funds - cash & undrawn facilities ( m) 325 1, Gearing (%) Weighted average cost of debt 2, 5 (%) Average duration of debt (years) Interest cover 3 (x) Fixed interest cover 59% 87% 59% Including JVs at share: Net borrowings 4 ( m) 2,436 1,784 2,388 LTV ratio - including JVs at share 4 (%) Weighted average cost of debt 2, 5 (%) Pro forma for disposals completed after the period end and the SELP transaction 2 Excluding commitment fees and amortised costs 3 Net rental income / EPRA net finance costs (before capitalisation) 4 Includes deferred consideration from the SELP transaction 5 Based on gross debt 19

21 Treasury strategy and priorities Recently announced transactions have strengthened the balance sheet - Substantial increase in liquidity headroom; provides flexibility for future investment - May hold excess cash on balance sheet in the short-term; focus on security of capital - Will actively manage funding and hedging position to maintain a strong and prudent financial position whilst continuing to manage interest cost Consistent approach to funding strategy - Unsecured funding on-balance sheet; core bond debt supported by flexible bank facilities - Commitment to a relationship banking model; seek to award ancillary business to these banks - Funding in joint ventures with no recourse to the Group; likely to be secured on jv assets - Relatively high levels of currency and interest rate cover supporting stability of income Short-term priorities - Put in place 390 million secured bank facilities within SELP JV - Investment of surplus cash - Manage 2014 debt (c. 114 million) and interest rate swap maturities - Continue to support capital recycling activity whist managing Group interest cost 20

22 Summary Clear strategy and substantial progress in delivering strategic priorities Strong growth drivers Positive operational and financial performance in 2013 to date Balance sheet strength significantly greater financial flexibility to reinvest 21

23 Wrap-up and Q&A David Sleath Chief Executive 22

24 APPENDICES 23

25 Pro forma earnings EPRA PBIT m Reported H operating profit Pro forma impact of significant H transactions Disposals in H1 (1.1) Acquisitions in H1 0.8 Developments completed and let in H1 1.0 Net impact of Neckermann departure Pro forma impact of significant H transactions As occurring At 1 July IQ Winnersh sale (6.0) (7.2) SELP transaction (7.4) (14.7) Neckermann sale (0.2) - Developments completed and let in H (est.) Pro forma H2 operating profit Plus impact of 2014 development completions and further capital recycling activity 24

26 Group debt maturity profile 600m 500m 400m 300m 200m 100m 0m Bonds and Notes Bank debt drawn Cash Undrawn Facilities Average maturity of gross borrowings 7.8 years (31 December 2012: 8.3 years) 25

27 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. 26