Industrial property real-estate investment trust (Reit) Segro has successfully completed its £165m takeover of rival Brixton, and is now the biggest industrial property landlord in Europe. Analysts have welcomed the deal, which was struck at a 19 per cent discount to Brixton's May property valuation, but question whether 'bigger' automatically means 'better' for Segro.
Having successfully raised £241m through a placing and open offer to reduce Brixton's debt pile, the immediate challenge is the amalgamation of the two businesses. Brixton's property portfolio is a good strategic fit, mainly located around Segro's Heathrow and West London heartlands, but it has a worryingly high vacancy rate of 22 per cent. Combined with the current vacancy rate of 11.3 per cent on Segro's own portfolio, the empty space will attract an annual 'empty rates' charge of £13.5m.
"The attraction of buying Brixton was not just the price in relation to the assets, but the opportunities that exist in its portfolio," says chief executive Ian Coull. "We will be attacking that vacancy rate quite vigorously." In the past, Brixton had been criticised for turning down deals where rents did not meet its expectations, for fear this would damage the estimated rental value (ERV) of its wider portfolio. "Our attitude is that cash is king," adds Mr Coull. "A lot of Brixton's empty stock is high quality and recently developed, which we hope will let up well."
| SEGRO (SGRO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 353p | MARKET VALUE: | £2.6bn | |
| TOUCH: | 353-354p | 12-MONTH HIGH: | 862p | LOW: 135p |
| DIVIDEND YIELD: | 2.9% | TRADING STOCK: | £321m | |
| PREMIUM TO NAV: | 4% | |||
| INVEST PROPERTIES: | £3.61bn | NET DEBT: | 101% | |
| Half year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008* | 875 | -939 | -312 | 8.3 |
| 2009 | 341 | -493 | -113 | 4.6 |
| % change | -61 | - | - | -45 |
Ex-div: 30 Sep Payment: 21 Aug *2008 figures restated to reflect April's rights issue and July's share consolidation | ||||
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Segro's own half-year figures (which exclude Brixton) show the company is successfully letting space, but is having to work hard to maintain occupancy levels. New lettings were up 11 per cent year-on-year with deals signed in the period adding another £14m to the annual rent roll. Pleasingly, net rental income rose 8.7 per cent to £130m - and was achieved despite space with a rental income of £11.4m being returned in the period through lease expiry or tenant insolvency. The latter accounts for £2.4m of lost income, and a further £8.9m (2.8 per cent of the rent roll) is at risk from tenants currently in administration.
The reported loss in the period reflects valuation losses on its UK and European portfolios of over £500m, with the portfolios falling by 13.7 per cent and 7.2 per cent, respectively.
Broker forecasts are currently under review.
