Segro making ‘good progress’ in 2010

Michael Hunt

Segro has said it has made encouraging progress in a number of areas despite challenging conditions in the occupier market.

Within an interim management statement released today, the company said net debt has unchanged from £2.4bn between 31 December 2009 and 31 March 2010.

The industrial property landlord, which controls 5.7m sq ft of warehouse space in the North West, said that while the UK economy is starting to recover, conditions in the occupational market remain challenging, although there are a number of encouraging signs.

Since 31 December last year, the group said it has completed or exchanged to date on disposals of non-core or stabilised assets for a gross consideration of £52m, including £30m completed or exchanged after 31 March 2010.

Segro said capital expenditure in the first three months of the year amounted to £21m. The group has also authorised four new pre-let developments since year end with aggregate capital expenditure of £34m. The aggregate remaining expenditure on all authorised or committed developments, all of which are fully pre-let, amounts to £40m, with annual rental income of £8.3m.

Segro said cash and undrawn bank facilities stood at £709m as at 31 March 2010.

Commenting on the company's performance in the first quarter of the year, Ian Coull, chief executive of Segro, said: "Whilst conditions in occupational markets remain challenging, we have made good progress on a number of fronts in the early part of 2010. Our priorities continue to be to stay close to our customers, to fill empty space, to manage our finances and other risks prudently, and to recycle our capital into suitable reinvestment opportunities, particularly pre-let development."

Segro said in the first quarter of 2010 the level and quality of new enquiries has improved and the group has a healthy leasing pipeline going into the second quarter.

The UK business secured £7.6m of annual rental income from new lettings in the first quarter of the year, including £2.8m in respect of pre-lets taken up in the quarter but signed in earlier periods with £3m of annual rental income being lost from space returned.

Segro, which acquired 3.2m sq ft at Trafford Park outside Manchester through the Brixton takeover in August last year, said the vacancy rate in the ex-Brixton portfolio was reduced from 22.1% at December 2009 to 20.7% at the end of the first quarter.

Segro said the overall UK vacancy rate has recorded a slight improvement to 14.6% at the end of the first quarter compared to 14.8% on 31 December 2009.

Segro added that the non-Brixton portfolio has also shown an underlying improvement in vacancy rate but the completion of a partly pre-let office development at Winnersh in Berkshire, which is currently not let, meant the headline rate increased slightly from 10.8% to 11.4%.

The industrial property landlord said rental levels have held up reasonably well with the average transactional rental value in the first quarter being 1.3% below the December 2009 estimated rental values offset by a reduction in average rent free incentives.

Segro has also announced that a joint venture between BAA Limited and clients of Aviva Fund Management has sold its stake in The Airport Property Partnership to the group for £244m today.

The transaction is part of BAA's strategy to dispose of non-core assets, and follows APP's sale of 33 assets to the Arora Family Trust for £309m in 2008.

The joint venture owns 18 industrial warehouses in or near Heathrow, Stansted, Edinburgh and Gatwick airports. The sale is expected to close by mid June.

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