ii view: record rental growth helps Segro up the dividend

In-demand warehouse properties and operations in Europe too. We assess prospects.

Full-year results to 31 December

• Adjusted pre-tax profit up 20% to £356 million
• Adjusted Net Asset Value (NAV) per share up 40% to 1137p
• Final dividend up 11% to 16.9p per share
• Total dividend for the year up 10% to 24.3p per share

Guidance:

• Expects rental growth to continue across its markets

Chief executive David Sleath said: 

“2021 was a highly successful year for Segro as reflected in our full-year results ,which include a £4.1 billion portfolio valuation uplift and record levels of rental growth. Investor and occupier supply-demand dynamics in the industrial and logistics sector remain very favourable, led by the long-term trends of digitalisation, supply chain resilience and an increasing focus on sustainability.”

ii round-up:

Warehouse and industrial property owner Segro (LSE:SGRO) today reported record rental growth in the year to the end of December, helping to drive a 11% increase in the final dividend payment to 16.9p per share.

Strong occupier demand fed into a one-fifth or £95 million increase in new rent commitments year-over-year. Increased online shopping under the pandemic and limited land supply also aided an above forecast 40% jump in the net asset value (NAV) to 1137p per share. The City had been expecting a figure closer to 1000p.

Segro shares jumped by more than 4% in early UK trading having already gained by over 80% since pandemic induced market low back in March 2020. Shares for rival warehouse owner Tritax Big Box (LSE:BBOX) have more than doubled. Shares for recently in the news GP surgery property owner Primary Health Properties (LSE:PHP) are little changed over that time. 

Segro owns or manages over nine million square metres (103 million square feet) of space in the UK and parts of continental Europe. Around two-thirds of its portfolio is in urban warehouse properties. Its tenants include the likes of Sainsbury (LSE:SBRY), Amazon (NASDAQ:AMZN) and Tesco (LSE:TSCO)-owned Booker. 

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Adjusted pre-tax profit for the year rose by a fifth to £356 million. The FTSE-100 company invested £1.5 billion during the year in asset acquisitions, development projects and land purchases, less disposals. That’s up from £1.3 billion in 2020. 

It currently has 1.1 million square metres of projects under construction or in advanced pre-let discussions, which equates to £82 million of potential future rent. 

The total dividend for the year of 24.3p per share compares to the 22.1p paid out over 2020. Unlike many Covid-19 disrupted shop-owning REITs such as British Land (LSE:BLND), where its tenants were forced to close, Segro’s dividend has continued to be paid. 

ii view:

Owner and developer of urban warehousing and light industrial property, Segro’s properties are spread between the Slough Trading estate, Heathrow, Park Royal and the Midlands. Just under 30% of its turnover is generated in Europe, with properties in France, Germany and Poland.  

For investors, a share price of around 1290p per share compares to this latest net asset value of 1137p per share. That leaves the shares trading at a premium and suggests the shares are not obviously cheap. An estimated future dividend yield of just over 2% also compares to an estimate yield of over 4% at fellow property owner Land Securities (LSE:LAND), for example.  

But the structural themes of e-commerce and urbanisation continue to underpin occupier demand. The pandemic has underlined the importance of supply chains. Exposure to potential growth in European online demand is also worth remembering. In all, and given likely ongoing growth in e-commerce, shares for this property giant are likely to remain well supported. 

Positives: 

• Diversity of both customer or tenant type and geographical location
• Over five years of consecutive dividend growth

Negatives:

• Some tenants did suffer Covid-19 disruption
• Valuation: trades at a premium to net asset value

The average rating of stock market analysts:

Buy