Significant strategic progress in reshaping the portfolio, building critical mass in our target markets, reducing net debt and introducing third party capital
Substantial reshaping of the portfolio:
o £591 million of disposals, on average 4.7 per cent above 31 December 2012 book values and at a topped-up net initial yield of 7.2 per cent.
o £141 million of acquisitions of modern warehouse assets (net initial yield of 7.1 per cent) and land in our core markets.
o £108 million of capital spent on development projects; 15 projects completed and 85 per cent let at year-end; anticipated yield on cost of approximately 10 per cent.
Third party capital introduced:
o The SEGRO European Logistics Partnership ('SELP') joint venture completed in October 2013, providing capital for growth and enhancing our risk-adjusted returns on investment.
o Contracts exchanged since the year-end to purchase €472 million (our share: €236 million) of land and assets on behalf of SELP, further building critical mass in our key target markets.
Significant reduction in net debt:
o Group net borrowings reduced by £631 million through net disposals and the creation of SELP.
o 'Look-through' LTV reduced to 42 per cent (31 December 2012: 51 per cent).
Positive valuations drive increase in net asset value
6.1 per cent increase in EPRA NAV per share to 312 pence (31 December 2012: 294 pence; 30 June 2013: 294 pence); 316 pence before swap close-out costs.
Improving investor appetite for industrial and logistics assets, combined with asset management initiatives, contributed to a 4.1 per cent like-for-like growth in the value of our completed portfolio, almost all of which occurred in the second half (1H 2013: +0.3 per cent).
UK completed portfolio capital return of 7.0 per cent outperformed IPD Quarterly UK Industrial index (+5.7 per cent capital return), reflecting the quality and location of SEGRO's assets and the on-going benefits of the strategic portfolio reshaping programme, partly offset by 3.1 per cent decline in value of Continental European assets.
Stronger capital returns in the UK and from core assets in Germany and Central Europe, with weaker performance from non-core assets and properties in France and Benelux where economic growth continues to be subdued.
Encouraging operating performance
Positive asset management momentum:
o £29.6 million of new rent contracted during the year (2012: £25.2 million), including £7.3 million (SEGRO share) of pre-lets signed (2012: £3.9 million).
o Customer retention levels remained high at 69 per cent (2012: 65 per cent).
o Weighted average lease length increased to 6.7 years to break (31 December 2012: 6.4 years).
o Marginal increase in Group vacancy rate to 8.5 per cent (31 December 2012: 8.2 per cent) due mainly to the impact of disposals (but an improvement from the half year position of 9.5 per cent)
Net rental income reduced by 12.3 per cent, as expected, due to disposals, the creation of SELP and the insolvency of Neckermann; decline mitigated by increase in profits from joint ventures and a reduction in net finance costs and administrative expenses, leading to a 7.5 per cent reduction in EPRA profit before tax.
Well positioned for growth
Repositioned portfolio now well placed to benefit from both general economic recovery and specific structural drivers:
o Ongoing growth in online retailing and increasing occupier demand for 'last mile delivery'.
o Shortage of new space available in most of our key markets.
o Rental growth beginning to reflect supply-demand imbalance in some core occupier markets.
Strong momentum in our highly profitable development pipeline:
o 18 projects approved or underway, representing £16.9 million (our share) of potential future annualised rental income.
o Future developments on our land bank could total 1.5 million sq m of space with potential to deliver an additional £74 million (our share) of new rent over the next five years.
David Sleath, Chief Executive, said:
"2013 has been a strong year for SEGRO. We have made significant strategic progress in terms of reshaping the portfolio, building critical mass in our target markets, reducing Group net debt by 30 per cent and introducing third party capital through the creation of SELP.
"Our actions over the last two years have significantly improved the Group's property portfolio and financial position, and we have established a strong platform from which to deliver sustainable growth.
"The strategic portfolio reshaping programme will continue to have an earnings impact in 2014. However, we have started the year with good momentum from our acquisition, leasing and development programmes and we expect that the marked improvement in investor appetite for high quality warehouse and logistics assets, which has driven significant capital value growth in the second half of 2013, will be sustained in 2014."