Segro income prospects improve further

UK rent collection is on course to improve further for Segro (SGRO) during the fourth quarter, as it continued to deploy £680m in funds raised for expansion in June.

Industrial and logistics landlords have outperformed other sectors within the commercial property market due to the acceleration in ecommerce in the wake of the pandemic, with fellow heavyweight LondonMetric (LMP) reporting a fourth quarter rent collection rate of 94 per cent earlier this month. 

Segro, now the largest real estate group listed in London, said it had collected 85 per cent of UK rent, ahead of the equivalent date after the second and third quarter payment deadlines. Continental European rents, which are paid monthly, are also tracking ahead of previous quarters. Total rent collection for the second and third quarters stands at 96 and 95 per cent, respectively.

The group also completed the £133m purchase of Electra Business Park in East London, from Schroders (SDR) and invested a further £29m in its land bank, in line with a target to invest more than £800m in its development pipeline this year. Increasing premiums demanded by logistics properties on the market mean the group can generate higher returns by developing its own assets, although that naturally comes with more risk.

Segro has not been entirely unaffected by the disruption imbued by Covid-19 on businesses, with rent roll growth from existing space standing at £7.9m, net of space handed back, behind £10.6m the same time last year. However, investors should take heed of the rate at which new headline rents have been agreed on review and renewal so far this year, which was 10 per cent higher than previous passing rent. While shares in Segro are trading at a near all-time high, the prospect of continued rental income and therefore dividend growth, warrant the premium baked in by the market. At 922p, buy. 

Last IC view: Buy, 993p, 5 Aug 2020