February 27, 2013 11:07 pm

Segro eyes European expansion

Segro, the industrial property landlord, has announced plans to expand its European business as it continues to restructure its 57m sq ft portfolio of warehouses and sell off UK regional properties.

On Wednesday, the Slough-based company said it was ahead of schedule with its plans to dispose of £1.4bn worth of property, and expected to complete the sale of up to £500m worth of assets during 2013, mostly in the south of England.

“We want to get critical mass in the European markets we are focused on: France, Germany and Poland,” explained David Sleath, Segro chief executive. “In time, those markets could collectively represent an equal share of the portfolio value to the UK.”

Segro’s move to expand in Europe runs counter to the direction of travel in the commercial property industry, where companies are increasingly focused on retrenching to specialist sub-sectors and regions.

Updating the market on Segro’s full-year results, Mr Sleath said the company was also growing its share of warehouses and logistics parks close to London to meet demand driven by online retailing.

“There is a lot of uptake of space by parcel companies wanting a base from which to deliver goods bought over the internet – it’s the one area of retail that is really growing,” he noted.

Industrial property has become a popular asset class with private equity funds and some institutional investors in the past two years.

Supply in this sub-sector of the real estate market has been limited by a lack of speculative warehouse development since 2007, which has increased competition for well-located assets. Blackstone, the US private equity group, has been among the most active buyers of warehouses since 2010.

Segro, which owns £4.5bn of industrial property, said net income from rents had declined by 6 per cent during the year to December 31 to £254.8m.

The group posted revenue of £371m, down from £400.1m a year earlier, while its pre-tax loss widened to £202.2m, compared with £53.6m for 2011.

Across its portfolio, the vacancy rate improved slightly to 8.2 per cent, down from 9.1 per cent for the previous 12 months. The company has disposed of £700m of “non-core” assets since December 2011 at a 3.6 per average discount to book values.

Segro held its full-year dividend at 14.8p per share.

Alan Carter, property analyst at Investec, said the decision to hold the dividend was the right one, and “management were pursuing the right strategy”.

Shares in the FTSE 250 company fell 1.4 per cent on Wednesday to 249.1p. It now trades at a 14 per cent discount to 2012 net asset value.

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