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Segro raises dividend almost 10% and says logistics property demand is booming

The group's UK logistics take-up hit record highs in the first six months of the year

Segro -
Data warehouses are in demand says Segro

Segro PLC (LON:SGRO), the industrial property specialist, has increased its dividend by almost 10% and said demand is strong for warehouses for data centres and online shopping fulfilment.

The FTSE 100-listed group said its net asset value rose by 2.7% to 716p in the six months to June 30, 2020, while the value of its portfolio climbed by 0.7% to £11.2bn. The interim dividend rises to 6.9p, up from 6.3p a year earlier.

"The impacts of the pandemic are accelerating the adoption of technology, particularly e-commerce, across society and have resulted in a renewed focus by many occupiers on the critical importance of efficient, resilient logistics supply chains,” David Sleath, Segro chief executive said in the interim results statement

“These factors play to the quality of our portfolio and should continue to support and enhance occupier and investor demand for our prime warehouses, both in the UK and, increasingly, on the Continent," he added.

Segro raised £1bn in June through a combination of new equity and debt to fund an expansion of its portfolio and the real estate group said it expects spending on capex and infrastructure this year to be more than £800mln.

The vacancy rate on the current portfolio rose to 5.2% (December 31, 2019: 4%) as newly developed speculative scheme cam on stream, said Segro while customer retention was 88% with an average 10.4% increase in rentals and reviews during the half year period.

Going forward, Segro noted that the structural trends that have been contributing to occupier demand for its space over recent years have strengthened as a result of the pandemic.

“This is already starting to show in elevated take-up levels: for example UK logistics take-up hit record highs in the first six months of the year, 44% higher than in the same period last year," it said.

eCommerce penetration has accelerated markedly across all our markets, it added,  there is a renewed focus on the efficiency and resilience of supply chains, and the demand for data centre space is increasing as a result of the need for additional data storage to support remote working and video streaming services.

These themes should drive both occupier and investor demand for high quality warehousing in core logistics and urban locations, the group added.

"Our development programme has increased during the period with over 800,000 sq m of developments under construction, the majority of which have been pre-let, and a near-term pipeline of potential pre-lets that is roughly twice the size as at the same stage last year," it concluded,

Broker Peel Hunt said the results were strong in the circumstances.

“We had expected to see some weakness in valuation and potentially earnings as a result of the company's exposure to Heathrow and Park Royal.

“Both estates are heavily exposed to industries that have seen a substantial decline in trade and account for c.30% of Segro’s portfolio by value.

“However, this has clearly not been the case, with both NAV and earnings growth.”

The broker, though, has a ‘reduce’ stance and said that even with today’s expected upgrades the shares sit on a 33% premium to NAV and yield 2.1%.

Shares rose 2% to 986p.

 

-- adds share price, broker comment --

Quick facts: Segro

Price: 942.4 GBX

LSE:SGRO
Market: LSE
Market Cap: £11.23 billion
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