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Segro sees new headline rent decline year-on-year in first quarter but says overall business "continued to perform well"

In a trading update, the FTSE 250-listed property developer said it secured £21mln of new headline rent in the first quarter, down from £27.3mln a year earlier
Warehousing
However, Segro saw rent roll growth of £6.0mln on existing space, thanks to the re-gearing of a number of leases in its Heathrow portfolio

Segro PLC (LON:SGRO) saw its new headline rent roll decline year-on-year in its first quarter but said overall its business "continued to perform well" during the period.

In a trading update, the FTSE 250-listed property developer said it secured £21mln of new headline rent in the first quarter, down from £27.3mln a year earlier.

READ: Segro raises around £450mln in share placing to invest in project pipeline

However, it saw rent roll growth of £6.0mln on existing space, thanks to the re-gearing of a number of leases in its Heathrow portfolio, which management labelled as "particularly strong".

Segro said it also secured new pre-lets, worth £11.1mln, which although less than the £23.3mln secured in the first three months of 2018 was well above the three-year quarterly average of £7.0mln.

The warehousing firm pointed out that a total of 44 projects under construction were expected to generate £57mln of annualised rent and were already 72% leased, just down on the record 73% of pre-letting it reached in fiscal year 2018.

It said there were 1.0mln square metres of space under development or approved for development as of 31 March, up from 0.8mln as of 31 December.

The developer's vacancy rent, meanwhile, decreased to 4.4%, down from 5.2% as of year-end 2018 on the back of "strong" lettings of existing and recently-completed speculative space, together with the impact of disposals and low take-backs.

Segro’s net debt declined to £2.2bn at the end of the first quarter, following an equity placing in February, down from £2.7bn at the end of the fourth quarter of 2018 to £2.2bn.

David Sleath, Segro’s chief executive, commented: "The new equity raised in February provides the capacity to pursue further growth opportunities and we have a number of additional pre-let development projects at advanced stages of negotiation.

“Whilst we remain mindful of macroeconomic and political risks, we believe that our high-quality portfolio of assets in prime locations across the UK and Continental Europe positions us well to continue to benefit from the structural drivers of e-commerce and urbanisation."

Shares lower, Liberum keeps ‘buy’

In mid-morning trading, Segro shares were 1.2% lower at 673.80p.

In a note to clients, analysts at Liberum capital retained a ‘buy’ rating and 750p target price on Segro shares.

They said: “This Q1 performance was achieved despite moderating economic activity across Europe and an increasing supply response in the UK, highlighting Segro’s advantageous weightings to urban assets and a substantial development pipeline in major conurbations.

“We expect Segro to generate 8.8% total returns in FY19 and as a result, the shares trade at a justified premium on a CY19E P/NAV of 0.99x vs. the sector 0.89x with a DPS yield of 2.9%.”

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