ii view: Segro delivers solid operational progress

Segro – simply a warehouse owner or a play on e-commerce trends and urbanisation?

Third-quarter trading update to 15 October 2019

• Signed contracts worth £15.3 million of new headline rent, up 21%
• So far in 2019 completed 765,900 square metres, up 52% on 2018
• Vacancy rate was stable at 4.9%

Chief executive David Sleath said: 

"The third quarter has seen another period of strong operational delivery from Segro. We have continued to secure high levels of new rental income both from our existing portfolio and from our active development programme, in which we have over 1 million square metres of new space under construction or in advanced discussions. During the period we also added further land and assets in our core urban markets, including in London and Paris to support further growth.

"Segro continues to benefit from the structural trends of urbanisation and technological revolution, and despite the uncertain macro-economic backdrop at this time, we head into the final part of the year with confidence. Looking ahead, the combination of new rental income from the development programme, compounded with the benefits of active asset management of our existing portfolio, should enable us to drive sustainable growth in both earnings and dividends."

ii round-up:

Segro (LSE:SGRO), which owns, develops and manages around 7 million square metres of warehouses and industrial properties for its customers in the UK and Continental Europe, today reported another quarter of solid operational progress. 

Customers signing new unconditional pre-let agreements included Ocado (LSE:OCDO) in East London, home improvements retailer Leroy Merlin on the outskirts of Rome and consumer appliance retailer TERG in Wrocław, Poland.

The FTSE-100 Real Estate Investment Trust's (REIT) portfolio is split between roughly two thirds of urban warehouses most commonly used for urban distribution and one third in big box warehouses serving national and international logistics supply chains. 

Its customer vacancy rate remained stable at 4.9% with signed contracts worth over £15 million of new headline rent won during the quarter, taking the nine-month total to £48.6 million.

The group, whose customers include the Royal Mail (LSE:RMG), DHL, Sainsbury's (LSE:SBRY), Amazon (NASDAQ:AMZN) and Booker, invested £78 million in urban warehouse asset acquisitions and a further £77 million in its land bank, creating development opportunities in the urban markets of London and Paris. 

Management continued to highlight the structural trends of e-commerce and urbanisation in driving UK performance, factors which have become increasingly evident across its Continental European markets. 

ii view:

Segro is one of three Real Estate Investment Trusts which are current constituents of the FTSE 100 index. The company is underpinned by the structural themes of e-commerce and urbanisation driving occupier demand. The combination of its prime portfolio and its active approach to asset management is enabling it to grow rents and maintain high occupancy levels across its markets. 

For investors, the group's dividend paying abilities, emanating from its flow of rental payments, arguably provides the key attraction. A forward dividend yield of around 2.5% is currently on offer. 

Positives: 

• Enjoys geographical diversity
• A progressive dividend policy

Negatives:

• Brexit uncertainty may adversely impact performance
• Valuation: trades at a premium to NAV versus an average discount for the UK

The average rating of stock market analysts:

Buy