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Segro increases development capex

The group now expects to spend £500m on developing new property over the year
July 26, 2018

While fears over the health of the retail sector are wreaking havoc on many companies, Segro (SGRO) is reaping the rewards. With online retailers posing an existential threat to the high street, the real estate investment trust is benefitting from buying and developing the big-box warehouses required to get goods from online sales to people’s post boxes. The group’s portfolio was revalued 5.9 per cent higher at £8.78bn to reflect the dynamic.

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Online retailers accounted for around two-thirds of rentals in the half year, and the group is investing heavily in the opportunity they present. While traditionally Segro has expanded its portfolio through acquiring assets, management said the yield on an acquired property is around 5 per cent, compared with 7 per cent for one they develop themselves. For this reason, the expected development capital expenditure for the year has risen to £500m, from between £400-450m previously forecast.

In light of this, it is unsurprising to see an appetite for the group’s latest developments. The group contracted £40m of new headline rent in the period, up 45 per cent on the first half of 2017. Of this, £30m came from pre-let agreements – where tenancy is agreed before construction is completed – implying demand remains strong.

Analyst Numis is expecting an adjusted net asset value of 602p a share for 2018 (2017: 556p).

SEGRO (SGRO)    
ORD PRICE:662pMARKET VALUE:£ 6.69bn
TOUCH:661-662p12-MONTH HIGH:682pLOW: 519p
DIVIDEND YIELD:2.6%TRADING PROP:£34.4m
PREMIUM TO NAV:10%  
INVESTMENT PROP:£8.22bn*NET DEBT:35%
Half-year to 30 JunNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201750739741.35.25
201860157155.45.55
% change+19+44+34+6
Ex-div: 16 Aug   
Payment: 28 Sep   
*Includes joint ventures