transforming segro’s performance/media/files/s/segro/... · transforming segro’s performance...

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Transforming SEGRO’s performance

8 November 2011

1

Agenda

Park Royal and SloughBuses leave for site visit13.30

Lunch12.30

David Sleath (CEO), Justin Read (FD), Andy Gulliford

(COO) and Phil Redding (CIO)

Panel Q&A12.00 – 12.30

Andy Gulliford (COO)Expanding our logistics offering11.40 – 12.00

Phil Redding (CIO) and Gareth Osborn (BUD, Thames Valley

and Regions)

Focusing on key conurbations11.00 – 11.40

Break10.30 – 11.00

David Sleath (CEO)

David Sleath (CEO) and Justin

Read (FD)

Q3 IMS


09.30 – 10.30

2

Q3 IMS

3

Strong operational performance

� £11.9m of new annualised income secured (Q3 2010: £9.5m)

� Customer retention remains strong at 71%

� Group vacancy rate further reduced to 10.2% from 11.4% at 30 June

� 22 contracted or under construction development projects

- c.£19m of income and c.£174m of capex

- 76% pre-let

� Refinanced APP portfolio and SEGRO bank facilities maturing in 2013

� Impact of broader economic environment on occupier markets difficult to predict

but SEGRO well placed

4


David Sleath, Chief Executive

5

Delivering attractive shareholder returns

OUTCOME:

BUILDING ON EXISTING

STRENGTHS TO TRANSFORM

OUR PERFORMANCE:

SEGRO’S

PLATFORM:

High quality,

progressive,

sustainable dividends

and NAV growth

Industrial

focus

Strong

positionsin key markets

Experienced

operationalteam

Excellent

customer base

DISCIPLINED

CAPITAL

ALLOCATION

OPERATIONAL

EXCELLENCE

Right portfolio shape

Active portfolio management

Right capital structure

Appropriate corporate structure and lean cost base

Leasing

Customer and asset management

Development

Cost control

6

SEGRO’s strong platform

Industrial focus

Strong positions in key markets

Experienced operational

team

Excellent

customer base

•Attractive sector with potential to deliver attractive returns

•High yielding sector with opportunities to create value

•Leading position in key UK markets – West London & Slough

•Good platform in several attractive Continental European markets

•Expertise in leasing, customer and asset management

•Strong capability in multi-let industrial & logistics

•Good track record of development

•Long term relationships with a range of blue chip customers

•Diversified income stream

7

Drags on portfolio performance

� Vacant properties

� Management intensive secondary assets

� Pure suburban office parks

� Development land bank

� Some sub-scale or weaker markets

8

A clear plan to transform performance

� Continued focus on operational excellence to drive portfolio returns

� Recycle capital

• Opportunistically manage £640m of large non-strategic assets

• Recycle £1bn of smaller industrial holdings and land

� Reinvest in growth areas

• Prime industrial estates plus higher value uses in major conurbations

• Logistics/larger distribution warehouses in key markets

• Development and acquisition of portfolios

� Capital management

• Reduce borrowings: targeting 40% LTV over medium term

• Expand use of 3rd party capital

New management structure in place to support strategy

9

A strategy for success

10

Vision

To be the best

owner-

manager

and developer

of

industrial property in

Europe

DISCIPLINED CAPITAL ALLOCATION

• Right portfolio shape

• Active portfolio management

• Right capital structure

• Appropriate corporate structure and lean

cost base

OPERATIONAL EXCELLENCE

• Leasing

• Customer and asset management

• Development

• Cost control

How:

High quality, progressive,

sustainable dividends and

NAV growth

Result:What:

11

Operational excellence

•Efficiencies from adopting a consistent ‘One SEGRO’ approach

•Knowledge sharing and cross fertilisation of

business opportunities

•Realign KPIs and performance management around total property return

•Integration of Brixton

•Third party asset management – APP

•Increased customer retention rate

•Improved occupancy levels

•Successful development programme

•New property systems in Continental Europe

•Cost reductions

OpportunitiesRecent achievements

12

Vision

To be the best

owner-

manager

and developer

of


Europe


1. Right portfolio shape

2. Active portfolio management

3. Right capital structure

4. Appropriate corporate structure and

lean cost base


• Leasing

• Customer & asset management

• Development

• Cost control

How:



NAV growth

Result:What:

13


Right products (asset type)

Right markets(geographies)

Right balance(mix of stabilised

and opportunity assets)

14

Right portfolio shape – right products

0

2

4

6

8

10

12

14

16

1986-1995 1996-2004 2005-2010

Industrial Office Retail All Property

0

2

4

6

8

10

12


IPD Total Returns % by Economic Cycle

(annualised to 2010)

IPD Total Returns % from 1986 to 2010


Industrial – an attractive asset class

15


0

1

2

3

4

5

6

7

8

9

10

1986-1995 1996-2004 2005-2010


IPD Income Returns % by Economic Cycle


0

1

2

3

4

5

6

7

8

9


IPD Income Returns % from 1986 to 2010


Industrial – an attractive asset class

16


0

2

4

6

8

10

12

14

16

1986-1995 1996-2004 2005-2010

To

tal R

etu

rn (

%)

Industrial London All Industrial

IPD Total Return % by Economic Cycle (annualised to 2010)

IPD Rental Value Growth % by Economic Cycle


-1

0

1

2

3

4

5

1986-1995 1996-2004 2005-2010R

en

tal

Gro

wth

(%

)

Industrial London All Industrial

17

Right portfolio shape - right products

Logistics warehousingLogistics warehousing

Logistics

•Larger distribution warehouses – typically 10,000 sq m and above

•Single and multi-occupier buildings

•International, national and regional

distribution

•Ports, airports and transportation corridors

Industrial

•Multi occupier estates and buildings in varying sizes

•Located in and around conurbations

•Light industrial and similar uses

•Urban logistics serving conurbations

18


Higher value uses within core industrial locations

Suburban offices

Data centres Car showrooms

Trade counters

Self storage

R & D facilities

0

5

10

15

20

25

30

35

Older

industrial

Modern

industrial

Other high

value uses

Airport

(landside)

Data

centres

Airport

(airside)

Suburban

Offices

Illustrative rental levels – South East England

(Rent per sq ft)

£6-7

£9-12

£9-15 £12.5-15.5 £16

£24-25

£23-30

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Right portfolio shape - right markets

� Attractive market fundamentals

– Size

– Economic growth prospects

– Liquidity, maturity and transparency of real estate investment market

– Occupier market fundamentals

– Supply/competitive environment

� Strong SEGRO market position

– Have critical mass - typically with >£500m assets under management

– Potential to achieve critical mass in 3-5 years

Key selection criteria

20

Right portfolio shape – right markets

London & South East

Paris/Ile de France

Frankfurt

Dusseldorf(Rhine-Ruhr)

Primary targets for industrial and higher value uses

21


Source: Jones Lang LaSalle

European Logistic Locations

22


UK – South/Central

France – Paris/Lyon

Germany – Dusseldorf/Frankfurt/Hamburg

Benelux – Randstadt/Belgium triangle

Poland – Warsaw/Poznan/Lodz/Silesia

Czech Republic - Prague

SEGRO’s primary target markets for logistics

23

Right portfolio shape - right balance

Opportunity assets

•Well located assets in key markets

•Potential for significant future income and capital upside

•Examples:

• Developments under construction

• Land holdings or options

• Good secondary assets with deliverable asset management opportunities

•Not:

• Large, long term development sites

• Secondary assets in secondary locations -“turnaround assets"

Opportunity assets Stabilised assets

Stabilised assets

•Modern, well located assets

•Structural vacancy rate of <10%

•Solid income returns, minimal “leakage”

•Low capex requirements

•Above average long term total return

Indicative portfolio split

24


Right products (asset type)

Right markets(geographies)

Right balance(mix of stabilised

and opportunity assets)

25

Right portfolio shape – SEGRO portfolio

*Based on June 2011 valuations with JVs @ 100%

72%

17%

11%

Core

Smaller non-core industrial holdings and land

Large non strategic assets

49%

7%

44%

Stabilised

Opportunity (built)

Opportunity (land & development)

Split of current portfolio (Value: £5.9 billion)

Split of current core portfolio by stabilised and opportunity assets

(Value: £4.3 billion)

26

Right portfolio shape - large non-strategic assets

Pegasus Park (Brussels)

Neckermann site

(Frankfurt)

Vimercate

(Milan)

IQ Farnborough

(Farnborough)

Total value: £640m

Total headline rent: £48m

Data as at 30 June 2011

MPM site(Munich)

Thales (Crawley)

27

Right portfolio shape – SEGRO portfolio


72%

17%

11%

Core

Smaller industrial holdings and land for recycling

Large non-strategic assets

Split of current portfolio (Value: £5.9 billion)

28

Right portfolio shape - recycling capital

Joint ventures shown at 100%

0

0.5

1

1.5

2

2.5

London &

South

Thames Valley Midlands &

North

France Germany Poland &

Czech

Benelux &

Other

Large non-

strategic assets

Stabilised (core) Opportunity (core) Land Smaller industrial holdings and land for recycling

Valu

e £

bn

29

Right portfolio shape – stabilised versus opportunity


49%

7%

44%

Stabilised

Opportunity (built)

Opportunity (land & development)

Split of current core portfolio by stabilised and opportunity assets(Value: £4.3 billion)

30

Right portfolio shape - Re-invest in growth areas

UK – South/Central

France – Paris/Lyon

Germany – Dusseldorf/Frankfurt/Hamburg

Benelux – Randstadt/Belgium triangle

Poland – Warsaw/Poznan/Lodz/Silesia

Czech Republic - Prague

3. Expand LOGISTICS

business around major

commercial ports, airports

and logistic corridors

2. Exploit opportunities to

develop HIGHER VALUE

USES within core industrial

locations

UK – London & South East (inc Thames Valley)

France – Ile de France (Paris)

Germany – Dusseldorf and Frankfurt

1. Build on existing strengths

within core INDUSTRIAL

markets and gain critical

mass in key target markets

WHERE:WHAT:

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Right portfolio shape - development strategy

�Development a key element of ‘value add’

�Smaller overall land bank - more manageable scale of individual sites; more use of option agreements and JV’s

�Reduce excess holdings opportunistically

�Pre-let driven development programme

�Modest speculative development where local market conditions dictate

�Project level target returns-11% to 12% yield on cost (ex land)

-8% to 9% development yield (incl existing land values)

�Track record of successful development-Led by pre-lettings

�Last five years:-1.1 m sq m developed

-£0.8bn of capex spent

�By value:-43% logistics

-29% industrial

-28% higher value uses

�Attractive project level returns:-c.8% development yield

-c.11% yield on cost (ex land)

�Overall returns held back by size of land bank

FUTURE STRATEGYHISTORY

32

Right portfolio shape – indicative SEGRO portfolio

41%

16%10%

5%

11%

17%

Industrial

Logistics

Higher value uses

Development & land



44%

39%

13%4%

Industrial Logistics

Higher value uses Development & land

2011* Future shape

*Based on June 2011 valuations. Joint ventures shown at 100%

33

Vision






lean cost base

34


BUY SMARTCAREFUL AND

WELL TIMED ASSET

SELECTION

ADD VALUEDEVELOPMENT

AND/OR ASSET MANAGEMENT

SELL WELLCO-ORDINATE

INDIVIDUAL ASSET

STRATEGIES WITHMARKET CYCLE

TIMING

THE CYCLE

35

Vision






lean cost base

36


� Moderate gearing levels

- More defensive

- Increases opportunity to exploit future opportunities

- Medium term target to reduce LTV to c.40%

- Flex level over the cycle

� Focused use of third party capital to enhance risk-adjusted returns:

- Facilitate growth/achieve competitive scale

- Reduce capital intensity/concentration of risk

- Access capital with different risk/return profiles than public equity providers

- Leverage skills across a wider portfolio

37

Right capital structure - use of 3rd party capital

√

√

√√

√

√

√

√

Potential Future Opportunities:

Logistics

Slough Trading Estate (Higher

value uses)

√

√

√

√

√

√

√

√

√

Current:

Airport Property Partnership

Big Box

Earn asset

management

fees

Leverage

skills across

a wider

portfolio

Access

capital with

different risk /

return profiles

than public

equity

Reduce

capital

intensity /

risk

Facilitate

growth /

achievement

of competitive

scale

38

Vision






lean cost base

39

Primary operating offices

Slough

Paris

Amsterdam

Dusseldorf

Poznan

40


� Focus operations in key markets only

- critical mass to generate economies of scale

� Minimise empty property costs by managing a predominantly prime well let

portfolio

� Lean and efficient management structure to support operational teams

� Generate asset management fees from 3rd parties

� Operate an efficient tax structure – low effective tax rate

41

Vision

To be the best

owner-

manager

and developer

of


Europe






lean cost base


•Leasing

•Customer & asset management

•Development

•Cost control

How:



NAV growth

Result:What:

42

Financial Considerations

Justin Read, Group Finance Director

43

Financial considerations

� Asset recycling

� Work through large non-strategic assets - £640m

� Ongoing recycling of smaller industrial holdings and land - £1bn

� Re-invest in growth areas

� Reduce leverage

� Medium term target to reach 40% LTV

� Initial focus on paying down bank debt

� Earnings

� Manage recycling to mitigate earnings impact

� NAV

� Reshaped portfolio positioned to deliver NAV growth

44

Portfolio split by headline rent

Stabilised assets

£120m

Opportunity assets £130m

Smaller industrial holdings and land

£74m

Headline rent shown


£48m

Development(2011 -2015)

Committed Potential£19m £51m

+ income from

further

operational delivery

+ income generated

from acquisitions

CORE RECYCLE RE-INVEST

45

Key performance measures going forward

Efficient capital

structure

Cost effective admin

and tax structure

Total Property Return

NAV growth

EPS/DPS growth

Total Shareholder

Returns

46

Summary

47

Delivering attractive shareholder returns

OUTCOME:

BUILDING ON EXISTING

STRENGTHS TO TRANSFORM

OUR PERFORMANCE:

SEGRO’S

PLATFORM:

High quality,

progressive,

sustainable dividends

and NAV growth

Industrial

specialist

Strong

positionsin key markets

Experienced

operationalteam

Excellent

customer base

DISCIPLINED

CAPITAL

ALLOCATION

OPERATIONAL

EXCELLENCE





Leasing

Customer and asset management

Development

Cost control

48

Appendices

49

From Slough Estates to SEGRO

Exited retail portfolio2004 & 2008

Exited energy business 2007

REIT conversion2007

Disposal of US business

2007

Acquisition of Brixton2009

Acquisition of 50% of APP2010

Expanded in Continental Europe

2005-2007

Exited Canada2004

50

SEGRO today

� European industrial specialist

� £5.9bn of assets under management

� 5.7 m sq m of lettable space

� Passing rent of £371m

� Over 1,600 customers

NB: Joint ventures included at 100%

51

Continuing to drive down vacancy

10

12

14

Jun-1

0

Jul-1

0

Aug-1

0

Sep-1

0

Oct-1

0

Nov-1

0

Dec-1

0

Jan-1

1

Feb-1

1

Mar-1

1

Apr-1

1

May-1

1

Jun-1

1

Jul-1

1

Aug-1

1

Sep-1

1

Group vacancy

% b

y r

enta

l valu

e

14.0%

10.2%

12.1%12.0%

11.4%

13.4%

52

SEGRO’s strengths - portfolio

� Unique, largely irreplaceable core of prime industrial assets

� Leading position in key markets in UK

� Heathrow - £1.2bn AUM

� Slough - £995m AUM

� Rest of London - £907m AUM

� Good platform in several attractive Continental European markets

� Poland - £298m AUM

� France - £423m AUM

� Germany - £532m AUM

53

SEGRO’s strengths – operational team

� Expertise in leasing, customer and asset management

� Management of 209 light industrial estates with over 1,600 customers

� Group vacancy reduced from 14.0% in June 2010 to 10.2% today

� Retention rate year to date of 71%

� Customer satisfaction score of 73%

� Expertise in logistics

� Particular exposure in Continental Europe

� Strong relationships with key third party logistics providers

� Track record of successful development

� 1.1 m sq m developed over last 5 years

� Expertise in pre-let development

� Light industrial and logistics

� Higher value uses – offices, data centres, trade counters and car showrooms

54

SEGRO’s strengths – customer relationships

“Our decision to remain located on Slough

Trading Estate is not only down to our long-

standing history on the scheme but also because of the fast-tracking development

process that the landlord is able to undertake.”

Andy McLean, Executive Vice President,

Selig UK

“The close working partnership with SEGRO that has

developed through their good understanding of the aviation

industry enabled an agreement that worked for both sides.”Gwyn Powell, Chairman, Airworld

“We started out in the area as a sub-tenant in a very small unit, but have been fortunate to grow the

business and this is our third move which SEGRO

has helped facilitate. Our new unit, along with our

adjacent facility, will ensure we can provide our customers with a wide range of products and

services.”

Dominic Worley, National Electrical Wholesale

”Working with SEGRO has allowed us to find

a development which suits our current and

longer-term needs, as our product range is

getting larger all the time.”Brett Owen, All Pond Solutions

“ We are delighted to be based at IQ Winnersh. This office

development has been built to a very high standard and we

were particularly attracted by the innovative, sustainable and

energy conscious accommodation which is exactly what we need for our operations. We favoured IQ Winnersh due to its

excellent transportation links and the ease of access for

employees getting to and from the office. We are pleased to

have worked with SEGRO in securing this location.”

Geraint Williams, UK & Ireland Real Estate Director, Atos

“Savvis and SEGRO formed an excellent working relationship that helped us to deliver a world-class datacentre on time and on budget.

SEGRO demonstrated a clear understanding of our business needs

and ensured that these were met through attention to detail,

flexibility and a desire to meet our expectations.”Mike Bennett, Vice President of Operations EMEA, Savvis

55

OverviewSEGRO’s strengths – diversified income stream

24%

14%

12%11%

9%

6%

5%

5%5%

4% 5%

Transport Retail

Engineering & Electrical IT

Utilities & Services Finance & Media

Agriculture & Food Automotive

Building & Construction Chemicals & Commodities

Other

Selected large customersTopped up net rent by customer sector

Data as at 30 June 2011

56

SEGRO strengths – recent acquisitions

� Acquisition of Brixton in August 2009

� 1.4 million sq m of space valued at £1.1bn

� Implied net initial yield on acquisition of 8.7%

� Integrated within 6 months

� Delivered £12.8m of cost synergies

� Reduced Brixton vacancy rate from 22.1% to 13.4%

� Ungeared IRR of 14.1%

� Acquisition of 50% of APP joint venture in June

� Acquired share of unique air related assets for £111.5m

� Sold £237m of assets into JV – net cash proceeds to SEGRO of £55.3m

� Asset management base fee of c.£3.2m per annum

� Capital value of portfolio increased by 5.3% (including SEGRO assets injected)

� Ungeared IRR of 15.2%

57

� Total land bank of 624.7 hectares valued at £483.0m

35%

22%13%

10%

8%

5%3% 2% 2%

UK Germany Poland

Belgium Netherlands France

Czech Republic Italy Hungary

Development – analysis of current land bank

Geographical split by value

58

Development pipeline

0

5

10

15

20

25

H2 2011 2012 2013 2014 2015

Net rental income - current projects Net rental income - potential projects

0

20

40

60

80

100

120

140

160

180

200

H2 2011 2012 2013 2014 2015

Capex - current projects Capex - potential projects

Net rental income by year of completion (£m) Capex by year of completion (£m)

59

Management structure to deliver the strategy

CEO*

DAVID SLEATH

Group Finance Director*

JUSTIN READ

Chief Operating Officer

ANDY GULLIFORD

Chief Investment Officer

PHIL REDDING

Finance and IT Teams Property Teams Investment Teams

* Board member

60

Right portfolio shape - indicative SEGRO portfolio

0

0.5

1

1.5

2

2.5

London &

Sout

hTham

es Val

ley

Mid

lands

& N

orth

France

Ger

man

yPola

nd & C

zech

Ben

elux

& O

ther

Large

non-st

rate

gic a

ssets

0

0.5

1

1.5

2

2.5

London &

South

Thames

Valley

Midlands &

North

France Germany Poland &

Czech

Benelux &

Other

Current portfolio shape (£5.9bn) Target portfolio shape – indicative

Joint ventures shown at 100%

Valu

e £

bn



Development and land

Higher value uses

Logistics

Industrial

Valu

e £

bn

61

Forward-looking statements

This presentation may contain certain forward-looking statements with respect to

SEGRO’s expectations and plans, strategy, management’s objectives, future

performance, costs, revenues and other trend information. These statements and

forecasts involve risk and uncertainty because they relate to events and depend

upon circumstances that may occur in the future. There are a number of factors

which could cause actual results or developments to differ materially from those

expressed or implied by these forward looking statements and forecasts. The

statements have been made with reference to forecast price changes, economic

conditions and the current regulatory environment. Nothing in this presentation

should be construed as a profit forecast. Past share performance cannot be relied on

as a guide to future performance.

62


8 November 2011

transforming segro’s performance/media/files/s/segro/... · transforming segro’s performance...

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