Investor Presentation September 2012 0
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 1
SEGRO today – a unique platform � A leading European REIT with AUM of £5.4bn � industrial and logistics specialist UK � an attractive asset class 70% Continental Europe 30% � Strong market positions with excellent quality assets � UK: London & SE England � France/Germany/Poland Logistics � High quality, diversified customer base 20% Light Industrial � £308m of annualised rental income; 1,400 customers 51% Offices & other business space � Experienced ‘in-house’ operational team 20% � Leasing, customer & asset management, development Development & land � Local expertise in each key market 9% Non-core Key statistics at 30 June 2012 19% Net initial yield (%) 6.5 Net true equivalent yield (%) 7.9 Weighted average lease term to expiry (years) 8.5 Core 81% 2 JVs included at share
Industrial and logistics – An attractive asset class IPD Total Returns % from 1986 to 2011 Light industrial / • Multi occupier estates (annualised to 2011) urban logistics • Located in and around major conurbations Logistics warehousing Logistics warehousing • Standard buildings of varying sizes suitable for 12.0 10.8 many uses: 10.0 9.3 9.1 8.3 - Light industrial and similar uses 8.0 - Urban logistics: benefitting from growth in e- 6.0 retail and focus on ‘last mile’ solutions 4.0 - Support services/general storage 2.0 0.0 Big-box logistics • Larger warehouses – typically >10,000 sq m Industrial Office Retail All P roperty • Single-let and multi-occupier buildings • Mainly serving international, national and IPD Income Returns % from 1986 to 2011 regional distribution markets (annualised to 2011) • Located in and around major ports, airports and 9.0 transportation corridors 8.2 8.0 6.9 6.7 7.0 6.1 6.0 Higher Value Uses • Higher value use buildings on industrial land 5.0 developed to create enhanced rents and returns 4.0 • Data centres, suburban offices, trade counters, 3.0 car showrooms, research facilities and self- 2.0 1.0 storage 0.0 Industrial Office Retail All Property 3
Strategy to create a leading income-focused REIT GOAL: The best owner-manager & developer of industrial property in Europe Disciplined Operational Capital Excellence Allocation STRATEGY: Allocate capital to the Deliver great customer markets and assets likely to service and optimise produce the best risk-adjusted performance from our assets returns Efficient Capital and Corporate Structure Underpin our property performance with an efficient and prudent capital structure and lean support functions 4
Creating the “Right Portfolio Shape” is a fundamental element of Disciplined Capital Allocation Total portfolio 30 June 2012 Right asset class – industrial & logistics Non-core 19% Right geographies – larger more liquid markets and where the demand/supply Core balance is most favourable 81% Right portfolio balance – mainly prime, Core portfolio breakdown 30 June 2012 modern, standard buildings with moderate Opportunity (land & development) land holdings and “opportunity” assets 9% Opportunity (built; vacancy >10%) Critical mass in each market – economies 31% Stabilised of scale (vacancy <10%) 60% Supporting a relatively high income return, with low cost leakage and more resilient income and capital growth 5
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 6
H1 2012 - Encouraging progress with strategic priorities 1. £503m of non-core disposals 3. £281m reduction in net debt • 12% reduction in net debt due to net disposal • 3 significant UK portfolio sales and various smaller activity deals in UK and Continental Europe - mainly • Loan to value ratio marginally reduced to 49% - secondary / regional industrial and office assets long term target c40% • First of the “Big 6” assets sold (IQ Farnborough) • Average exit yield of 7.0% / 7.6% • Interest coverage ratio of 2.2 times • Discount of 3.1% to Dec 2012 book values • Average debt maturity extended to 9.1 years 2. £374m reinvestment into core products and 4. Further operational progress markets • UK Logistics Fund acquisition in partnership with • Group vacancy rate maintained at 9.1% (8.8% Moorfield. Net equity investment £65.7m (entry in core portfolio) yield of 9.4% / 12.7%) – gross AUM of £314.7m • 126 new leases and 45 lease renewals – (entry yield 6.3% / 7.7%) retention rate of 63% (69% in core portfolio) • Acquisition of prime French logistics portfolio for • Strong momentum created with low risk £130m. 8.4% initial yield, reverting to 7.7%. development programme • Further cost reductions and operational • Development capital invested or committed of improvements £179m, producing an expected yield on investment of 9.7%, 81% let, 27 projects 7
H1 2012 Financial Results Earnings Net Asset Value Outlook Reaffirming our intention to at least EPRA NAV per share down EPRA EPS up 5.3% to 9.9 pence maintain the current level of dividend from 340p during the portfolio re-shaping exercise • 1.0% increase in like for like • £92m (21%) valuation • Good momentum with mainly pre-let net rental income reduction on “Big 5” non- development programme core assets; 47% attributable • £3.3m contribution from to Neckermann site in • Resilient core portfolio (81% of total) Frankfurt development completions • Income from 2012 acquisitions vs. disposals to flow through • Core portfolio values outperforming • £5.4m loss of income from IPD UK Industrial Index by 0.7% • Loss of income from Neckermann disposals, partially offset by site in 2013 interest savings of £4.2m Well positioned to make further • Further reduction in cost progress with portfolio re-shaping. ratio to 22.4% Disposals progress to be slower in H2 2012 8
Insolvency rates generally low as a result of our large and diversified customer base 3% Percent of annualised rental income lost through insolvencies Karstadt Quelle 2% 1.5% 1% 0.7% 1.1% 1.7% 0.7% 1.2% 0.6%* 0% 2007 2008 2009 2010 2011 H1 2012 9 *Excluding Neckermann which became insolvent on 18 July 2012
£816m of non-core assets remaining Valuation Income UK Europe Total Total (£m) (£m) (£m) (£m) Neckermann 0 43 43 12 Other ‘Big four’ assets 84 204 288 24 Smaller industrial assets 204 217 421 34 Other land holdings 10 54 64 - Total 298 518 816 70 Valuations as at 30 June 2012, including joint ventures at share 10 Income based on headline rental income as at 30 June 2012
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 11
Appendix I Financials 12
Good underlying earnings momentum; 5.3% increase in EPRA PBT H1 2012 H1 2011 £m £m Gross rental income 156.9 161.5 Property operating expenses (26.0) (26.0) Net rental income 130.9 135.5 Joint venture management fee income 2.9 1.8 Share of joint ventures’ EPRA profit after tax 1 10.1 9.7 Administration expenses (13.1) (15.8) EPRA operating profit 130.8 131.2 EPRA net finance costs 2 (55.9) (60.1) EPRA profit before tax 74.9 71.1 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 of committed debt facilities at a discount to face value 13
Further reduction in the total cost ratio 35 30.4% Total cost ratio* (%) 29.9% 30 28.1% 24.3% 25 22.4% 20 FY 2008 FY 2009 FY 2010 FY 2011 H1 2012 H1 2012 H1 2011 Movement (£m) (£m) (%) Property operating expenses (26.0) (26.0) - Administration expenses (13.1) (15.8) (17.1) *Total costs as a percentage of gross rental income. Total costs include property operating expenses 14 (net of service charge income and management fees) and recurring administration expenses.
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