29th Aug 2007 07:00
Issued for immediate release: 29 August 2007
RESULTS ANNOUNCEMENT FOR THE SIX MONTHS TO 30 JUNE 2007 CONTINUING GROWTH ACROSS EUROPE
"We have delivered strong results, with profits up by 27 per cent and there is real momentum behind our successful growth in Continental Europe"
Ian Coull, Chief Executive Six months to Six months to Change 30 June 2007* 30 June 2006 %
Adjusted** profit before tax (‚£m) - continuing 68.8 45.6 50.9Adjusted** profit before tax (‚£m) - continuing & 86.5 68.1 27.0
discontinued
Profit before tax (‚£m) - continuing 196.2 275.7 (28.8)Adjusted** diluted EPS (p) - continuing & discontinued 17.0 12.3 38.2Basic EPS (p) - continuing & discontinued 48.0
55.2 (13.0)Interim dividend (p) 8.3 6.9 20.3 At 30 June 2007* At 31 Dec 2006
Adjusted** diluted NAV per share (p) 811 775 4.6Basic NAV per share (p) 756 718 5.3
* Note: SEGRO completed the disposal of its $2.9bn US business on 1 August 2007. Unless otherwise
stated all "continuing" numbers and the equivalent prior period comparatives exclude the US. ** Note: for definitions of "adjusted" items, see footnotes on page 3 of this press release.
Excellent performance - adjusted profit before tax up 27.0%
Good NAV growth - valuation surpluses of 9.1% in Continental Europe and 2.1% in UK
Continuing strong growth and successful capital deployment in Continental Europe
- Acquisitions of around ¢â€š¬430m announced so far in 2007
- Development completions 131,000 sq m (76% let/sold), construction in progress 263,000 sq m
- Excellent letting successes (59,000 sq m of new pre-lets),with strong occupier demand
Good progress in managing UK assets; tougher investment market, strong occupier market
- Prime quality portfolio, valued on a 4.7% initial yield
- 143,000 sq m of lettings, up by 46 per cent on H1 2006, resulting in ‚£8.4m of net new income
- Divestments of ‚£170.7m of investment properties, 2% premium over book value
- UK rent reviews deliver 2.9% growth over 2006 ERV, overall UK rental growth of 0.9%
Successful and well timed $2.9bn US disposal
Special dividend of ‚£250m (53p per share), payable 31 August
- Interim dividend up 20.3%, full year dividend anticipated to show similar increase
Strong financial position - post sale of US business
- 33 per cent debt to equity gearing - capacity to support significant growth programme
- ‚£1.6bn development investment set to increase size of Continental Europe to c50% of portfolio
- Diversified occupier base, over 1,600 customers, 8.6 years average unexpired income
- Weighted average cost of debt 5.7%, 88% at fixed rates, average maturity 11.7 years
Ian Coull, Chief Executive said:
In the first half of 2007, the Group delivered another strong financial and operational performance. Webenefited from yield compression across our portfolio (although modest in the UK) but our results havebeen driven primarily by management activity in all sectors of our business. NAV growth came fromour development activity, good asset management and our strong profitability, both in the UK and inContinental Europe.We also realised the significant value we had created in our biotechnology real estate business inCalifornia. Following the payment of the ‚£250 million special dividend, the remaining net proceeds fromthis well timed sale will be invested in our focused European business, with a growing number of primeassets located in key business centres.Our REIT status in the UK and our equivalent French SIIC status are facilitating our materiallyimproved tax efficiency across Europe. REIT status has also helped us to declare a substantial 20.3 percent increase in our interim dividend and in the absence of unforeseen events, the directors anticipatethat the full year dividend, including PID and regular dividend, will show a similar level of year onyear increase.Across the portfolio we remain confident about the opportunities for continuing growth, with a largeand strong development pipeline and with healthy occupier demand. Our business model is focused ongrowing cash flows from the underlying real estate assets by concentrating on our customers' needs, bydelivering growth from development and through earnings accretive acquisitions. We have an extremelyrobust income profile, serving a wide spread of customers and industries, a long average lease lengthand mostly fixed rate debt.We are continuing to find very attractive acquisitions in Continental Europe where we can exploit thestill very positive gap between investment and development yields and the cost of borrowing. OurGroup's 2.2 million sq m development pipeline dwarfs that of any other UK based industrial company.Our portfolio predominantly consists of good quality, well located, resilient prime property. Forthese reasons, whilst we have been and will continue planning our UK business on the prudent assumptionof a tougher investment market, we do so with confidence in our team's ability to deliver.
We are financially strong and have very good cash flow. I believe this places us in an excellent position to take advantage of the opportunities that will, undoubtedly, arise in the coming months.
ENDSSEGRO plc The Maitland ConsultancyMichael Waring Tel: +44 (0)7775 788 628 Colin Browne Tel: +44
(0)20 7379 5151
About SEGRO SEGRO is the leading provider of Flexible Business Space in Europe.Headquartered in the UK, SEGRO is listed on the London Stock Exchange and onEuronext in Paris. The company is a UK Real Estate Investment Trust ("REIT")with operations in ten countries (it completed the exit from its US business inAugust 2007), serving a diversified customer base of over 1,600 customersoperating in a wide range of sectors, representing both small and largebusinesses, from start ups to global corporations. With investment propertyassets of ‚£4.6 billion (‚£5.1 billion including trading properties anddevelopment assets) and around 3.6 million sq m of business space, SEGRO has anannual rental income in excess of ‚£200 million. www.segro.com
SEGRO PLC - 2007 INTERIM RESULTS DETAIL
SUMMARY FINANCIAL STATEMENT TABLES
INCOME STATEMENT Six months to Six months toContinuing Operations 30 June 2007 30 June 2006Net rental income(1) (‚£m) 96.9 93.7Property gains (‚£m) 126.3 224.5Profit before taxation (‚£m) 196.2 275.7Adjusted profit before taxation(2) (‚£m) 68.8
45.6
Underlying tax rate(4) (%) 2.0
23.0
Continuing and Discontinued OperationsProfit before taxation (‚£m) 237.1
338.1
Adjusted profit before taxation(2) (‚£m) 86.5
68.1
Basic earnings per share (p) 48.0
55.2
Adjusted diluted earnings per share(3) (p) 17.0 12.3Interim dividend (p) 8.3 6.9Total return(9) (%) 6.6 9.1BALANCE SHEET 30 June 30 June 31 December 2007 2007 2006 Pro-forma Excluding US (10)Total properties, including share of Joint 5,061.7 6,218.3 6,013.1Ventures (‚£m)Net assets excluding minority interests (‚£m) 3,429.4 3,547.2 3,372.7Adjusted net assets(5) (‚£m) 3,484.9 3,808.6
3,648.8
Net assets per share (p) 792 756
718
Adjusted diluted net assets per share(6) (p) 804 811 775Net debt (‚£m) 1,138.0 2,264.7 2,223.4Debt to equity(7) (%) 32.6 59.3 60.8Loan to value(8) (%) 23 38 38
At 30 June 2007 on a pro-forma basis post the sale of the US business - weighted average cost of debt 5.7%, 88% fixed, average maturity 11.7 yrs
1. Including rental income on trading properties.
2. Profit before tax excluding property revaluation surpluses and the gains and losses on derivative
instruments.
3. Earnings per share based on adjusted profit before tax, and reflecting the dilutive effects of
preference shares (in 2006 only) and shares held by the ESOP trust.
4. Tax charge, excluding deferred tax on valuation surpluses, as a percentage of adjusted profit
before tax.
5. Shareholders' funds adjusted to add back deferred tax associated with investment properties.
6. NAV per share adjusted to add back deferred tax associated with investment properties and to
reflect the dilution caused by shares held in the ESOP.
7. Net debt as a percentage of net assets adjusted to add back deferred tax associated with investment
properties.
8. Net debt as a percentage of the total property portfolio excluding joint ventures.
9. Adjusted NAV growth plus dividends paid in the period and after adding back the SIIC conversion
charge of ‚£14.2 million. 10. Balance sheet as at 30 June 2007 adjusted as if disposal of US business, share consolidation and
special dividend had occurred on that date.
2007 INTERIM REVIEWSUMMARY
SEGRO is pleased to report strong first half results and that the Group ismaking good progress against the priorities we had previously outlined for 2007.Across the Group we set out to execute our substantial development programme andto acquire new sites for further development, to build critical mass in our keymarkets through acquisition and development, and to recycle capital,particularly in the UK. In Continental Europe we targeted significant furtheracquisitions and corporate partnering transactions, and in the US we aimed tocomplete the disposal of our biotech business. Significant investments have beenmade in Europe and the disposal of the US business has been completed for aconsideration well above its pre-tax book value.The reported financial results still include the US business as the disposal wascompleted on 1 August, after the period end; however, the financial results ofthe US business are separately reported as "discontinued operations". Profit forthe period including continuing and discontinued operations was ‚£226.3 million(2006: ‚£243.8 million), down ‚£17.5 million as a result of the ‚£111.2 millionlower revaluation surplus in the first half of 2007. Adjusted profit before taxfrom our continuing business (that is, adjusted to exclude the now divested USbusiness) was up by a very strong 50.9 per cent, and by 27.0 per cent ifdiscontinued operations are included. This growth reflected a particularly high‚£16.9 million profit from the sale of trading properties. Although this washigher than normal, the realisation of trading profits is a recurring feature ofour results. Adjusted diluted earnings per share increased 38 per cent, with areduction in the underlying tax charge from 23 per cent in H1 2006 to 2 per centin H1 2007, reflecting the benefit of the Group's status as a REIT in the UK anda SIIC in France.Following the announcement of our new dividend policy in November 2006, thedirectors are, today, declaring an interim dividend of 8.3 pence per share, anincrease of 20.3 per cent from 2006, to be paid entirely as a Property IncomeDistribution ("PID"). The final dividend for 2007 will comprise both PID andregular dividend, the amount and split of which will be declared in March 2008.Following the US disposal, we will be paying a special dividend of 53 pence pershare.This disposal followed the strategic review of our US business, which comprisedspecialist biotech properties in California and was not core to our mainbusinesses in Europe. The successful sale of the business for $2.9 billionreflected a significant surplus over the net assets of Slough Estates USA at theend of 2006 - and consequently we are returning ‚£250 million to shareholders byway of the special dividend mentioned above. The remaining proceeds will bere-invested to fund our growth plans in Europe. Following this transaction,SEGRO is now shaped as we want it - strategically and structurally focused onour core business - investing in and developing Flexible Business Space inEurope.The yield gap in Continental Europe remains attractive both from acquisitionsand from development. Good progress has been made in undertaking successfulacquisitions and corporate partnering deals in Continental Europe, with afurther ‚£73 million and 112,000 sq m of acquisitions (including tradingproperties) in the first half of 2007. Since the end of the period, we announcedour largest corporate partnering transaction to date, the ¢â€š¬197 millionacquisition of an office and distribution campus in Frankfurt - from Neckermann,a subsidiary of KarstadtQuelle. This builds on SEGRO's 2005/06 corporatepartnering purchase of a warehousing portfolio across Germany from theKarstadtQuelle group. The Central European development programme has surpassedeven our more optimistic expectations in terms of the strength of the demand,with three quarters of the 90,000 sq m constructed in the first half let by theperiod end.In recent years, SEGRO has more actively recycled its capital and we havecontinued to make significant divestments in the UK. This programme has beenincreased partly because of REIT status, which means that we can now sell matureassets, realising value which has been created without incurring tax on capitalgains. Year-to-date we have sold ‚£170.7 million of investment properties in theUK, comprising 156,000 sq m. This has realised disposal profits of ‚£3.1 million,crystallised total gains on original investment of ‚£43.5 million and providedcapital for recycling into higher return opportunities. Although most of thisreinvestment is currently going into Continental Europe where the economics areat present more attractive, we are still finding attractive value-addingacquisition opportunities in the UK. A good example was our recent purchase ofthe Airlinks Trading Estate near Heathrow Airport, building on the extensivecluster of assets we own in that prime location.Our development programme continues to be a key driver of our returns. Duringthe period, we completed 200,000 sq m of construction, of which 80 per cent hadbeen let or sold at 30 June 2007. These completed developments have deliveredvaluation surpluses of ‚£24 million and when fully let should generate annualrents of approximately ‚£12 million. We have commenced 255,000 sq m ofconstruction during the first half of the year and expect to see this grow tomore than 572,000 sq m by year end. We have been actively adding to our landbank in order to provide future development opportunities with acquisitions ofsome 80 hectares in the first half of the year.Including potential developments due to commence in 2008 and beyond, we now havescope to develop approximately 2.2 million sq m of Flexible Business Space -almost 70 per cent of which is in Continental Europe. Good progress in lettingand pre-letting newly developed space combined with excellent locations withinour land bank gives us confidence to accelerate our construction programme. Wenow expect to increase our development expenditure in the UK andin Continental Europe to between ‚£300 million and ‚£350 million in 2007. Based onpresent market conditions, we would anticipate ‚£300 million to ‚£400 millionbeing spent in 2008.We are currently achieving average development surpluses on cost of typically 20per cent in the UK, and in excess of 25 per cent in Continental Europe.Development yields in the UK are delivering 6 per cent to 8 per cent, with 8 percent to 10 per cent in Continental Europe. Our development programme is gainingmomentum and has the potential to create significant value for our shareholdersin the years ahead. The current development pipeline has a book value atvaluation of ‚£800 million with future investment to completion forecast at ‚£1.6billion.
NB: These tables exclude the US business which was sold after the end of the period
Rental Data* Lettable space % of Passing rent
Market rental Gross rental Net rental
at 30.06.07 (sq m) at 30.06.07
Value (ERV) income income
Total at
30.06.07 for H1 2007 for H1 2007
(sq m) (‚£m) (‚£m) (‚£m) (‚£m)UK - by asset typeIndustrial 2,214.9 89.9 141.0 170.9 79.5 67.5Offices 192.3 7.8 24.6 36.2 14.8 9.7Retail 55.5 2.3 11.4 13.3 6.1 5.4Total UK 2,462.7 100.0 177.0 220.4 100.4 82.6Continental Europe - by asset typeIndustrial 1,031.0 90.6 30.8 36.1 14.7 12.1Offices 83.5 7.3 9.2 10.0 4.5 3.7Retail 23.0 2.1 1.4 1.5 0.7 0.6Total Continental Europe 1,137.5 100.0 41.4 47.6 19.9 16.4Continental Europe - by countryFrance 367.4 32.3 12.5 14.9 6.1 5.6Germany 354.7 31.2 9.3 11.5 4.4 3.4Belgium 201.9 17.7 13.6 15.0 6.2 5.5Netherlands 25.7 2.3 1.0 0.4 0.7 0.4Italy 36.5 3.2 1.2 1.3 0.6 0.5Spain 31.3 2.8 1.1 1.2 0.6 0.6Central Europe 120.0 10.5 2.7 3.3 1.3 0.4Total 1,137.5 100.0 41.4 47.6 19.9 16.4Group TotalsIndustrial 3,245.9 90.2 171.8 207.0 94.2 79.6Offices 275.8 7.7 33.8 46.2 19.3 13.4Retail 78.5 2.1 12.8 14.8 6.8 6.0Group Total 3,600.2 100.0 218.4 268.0 120.3 99.0 Vacancy Valuation Data* Rate by Valuation Valuation % Valuation
Valuation Initial Equivalent
Space 30.06.07 of total surplus surplus Yield yield % (‚£m) (‚£m) % % %UK - by asset typeIndustrial 11.7 2,924.7 77.3 37.8 1.3 4.8 5.4Offices 15.4 604.9 16.0 37.0 6.5 4.1 5.1Retail 3.9 252.9 6.7 4.1 1.6 4.5 5.2Total UK 11.7 3,782.5 100.0 78.9 2.1 4.7 5.4Continental Europe - by asset typeIndustrial 6.2 463.2 73.4 37.0 8.7 6.6 -Offices 16.0 149.6 23.7 14.3 10.6 6.2 -Retail 0.0 18.5 2.9 1.5 8.8 7.8 -Total Continental Europe 6.8 631.3 100.0 52.8 9.1 6.6 -Continental Europe - by countryFrance 0.3 195.3 30.9 17.1 9.6 6.4 7.2Germany 9.0 129.2 20.5 8.7 7.2 7.2 7.3Belgium 14.4 209.0 33.1 16.2 8.4 6.5 6.9Netherlands 4.4 18.9 3.0 0.3 1.6 5.3 7.4Italy 0.0 15.8 2.5 0.5 3.3 7.6 6.5Spain 0.0 17.0 2.7 1.1 6.9 6.5 6.7Central Europe 10.4 46.1 7.3 8.9 23.9 5.9 7.0Total 6.8 631.3 100.0 52.8 9.1 6.6 -Group TotalsIndustrial 10.0 3,387.9 76.8 74.8 2.3 5.1 -Offices 15.6 754.5 17.1 51.3 7.3 4.5 -Retail 2.8 271.4 6.1 5.6 2.1 4.7 -Group Total 10.2 4,413.8 100.0 131.7 3.1 4.9 -
* Including the Group's share of joint ventures' properties. Excluding land held
for investment and properties in the course of construction.
REVERSIONARY POTENTIAL as at 30 June 2007
Reversion to
ERV on ERV of vacant properties
occupied properties (‚£m) (‚£m)UK- Industrial 3.0 18.5- Offices (2.2) 5.0- Retail 1.5 -Continental Europe 3.5 7.0Total 5.8 30.5LETTINGS ANALYSIS By area 000's sq m By rent(1) pa (‚£m) Lettings Space Returned Lettings Space Returned H1 2007 H1 2006 H1 2007 H1 2006 H1 2007 H1 2007UK - Lettings of new developments 62 20
8.6UK - Existing vacant 56 71 5.9UK- Licenses 25 7 0.3Total UK 143 98 101 84 14.8 6.4Continental Europe 168 87 28 55 5.0 1.5Total Group 311 185 129 139 19.8 7.9
(1) Annualised rent, after the expiry of any rent free periods
VACANCY ANALYSIS 30 June 31 December 2007 2006 (%) (%)UK 11.6 11.6Continental Europe 6.5 8.2Group Total 10.0 10.6Analysis of Underlying UK VacancyRecent acquisitions (less than 18 months) 0.6
2.5
Completed development sites (less than 18 months) 1.3
1.1Underlying UK vacancy 9.7 8.0Total UK 11.6 11.6Lease expiries & customersInvestment properties only Average Passing rent Passing rent lease length (at 30.06.07) of subject to to: leases which expire in: rent review in: Number of Break Expiry 2007 2008 2009 2007 2008 2009 customers (Years) (Years) (‚£m) (‚£m) (‚£m) (‚£m) (‚£m) (‚£m)UK- Industrial/Warehousing 1,177 6.2 8.7 4.7 5.8 12.2 3.4 10.1 9.1- Offices 120 5.2 8.5 0.3 0.4 0.8 2.0 3.2 0.8- Retail 91 11.7 11.8 0.1 0.0 0.0 - - -Total UK 1,388 6.3 8.7 5.1 6.2 13.0 5.4 13.3 9.9Continental Europe 213 5.9 8.3 0.4 0.4 1.7 - 2.3 4.0Group Total 1,601 6.2 8.6 5.5 6.6 14.7 5.4 5.6 13.9DEVELOPMENT PIPELINE SUMMARY Construction in
Potential starts Potential starts Total
progress in 2007 2008 & beyond programmeLand area ha 65 78 335 478Space:Industrial sq m 280,681 251,155 1,155,334 1,687,170Offices sq m 49,815 65,431 367,585 482,831Retail sq m 0 0 5,747 5,747 Total sq m 330,496 316,586 1,528,666 2,175,748Investment properties % 76 78 63 67Trading properties % 24 22 37 33Pre-Let % 26 6 1 5Planning status- fully approved % 100 19 6 22- zoned/outline approval % 0 67 72 60Rental value when completed ‚£m 20.3 32.0 120.8 173.1
Current book value - at valuation ‚£m 114.0 153.3 528.4 795.7Forecast future costs to completion ‚£m 153.6 280.5 1,130.2 1,564.3Further details of the investment portfolio and the development pipeline will bepublished on the Investors Relations section of our website http://www.segro.comAll amounts are indicative only and are liable to change. Certain propertiesincluded above are currently income producing and are expected to beredeveloped; such properties have a current book value of ‚£265 million andproduce current rental income of approximately ‚£15 million per annum.2007 INTERIM REVIEWUK BUSINESS REVIEWHIGHLIGHTS
In the UK, our asset management skills are again coming to the fore. Recordlevels of new leases delivered an annualised net increase in income of ‚£8.4million, with new lease income being well over twice income lost through spacereturned. A high proportion of expiring leases is being renewed; at almostseventy per cent, this is ahead of IPD, and key customers have been taking onadditional space. Major pre-lets have been delivered on time and within budget,with significant new pre-lets also signed; and we have reinforced our commitmentto capital recycling with an increased divestment programme in the UK.PROFILEThe UK Business:- 76 property holdings- gross land area of 822 hectares- developed business space of 2,499,616 sq m- current rent roll of ‚£182.8 million- ‚£4.1 billion of property (including land and trading properties)
The business focus covers the full range of Flexible Business Space products.
The UK properties are located mainly in the South of England, in proximity toareas with strong long term growth characteristics - such as Slough, the ThamesValley, Croydon, Chelmsford, Farnborough and Bristol. We also have someimportant locations outside the South East, including Cardiff, Portsmouth,Birmingham and Manchester. There are only around two hundred people employeddirectly, with functions not core to the property skill base - such asconstruction - being outsourced.
VALUATION
The portfolio is externally valued twice a year. At the end of June 2007,completed investment properties were valued at ‚£3,782 million (excluding land,including an apportionment for stakes in joint ventures). This represented a 2.1per cent net surplus over the book value. The 2.1 per cent (including ourindustrial, office and retail assets) was comfortably ahead of the IPD allproperty index at 1.9 per cent and of the IPD industrial index at 1.4 per cent.During a period in which yield compression was minimal, the uplift in valuationwas mainly as a result of successfully attracting and retaining occupiers -major wins included the pre-let to O2 and the retention and attraction of officeoccupiers at Slough. Core asset management skills have seen major pre-letsdelivered on time and within budget (for example, IX Europe on the SloughTrading Estate and Agilent at Winnersh). Important new pre-lets also contributed(see next section).LEASING
A record level of lettings started in the first half of the year, with theannualised income exceeding the impact of space returned by ‚£8.4 million. ‚£14.8million of new income was generated by leasing over 143,000 sq m of space(62,000 sq m of new space and 81,000 sq m of existing space). The new spaceincluded a major pre-letting to Thales - where the new buildings were completedin the first half of 2007.Significant new leases were completed with Rackspace Management (datacentre) andArgos Ltd (retail warehouse in Slough), Premier Cables (warehouse in Dunstable),and Red Hat (offices in Farnborough).Future revenue was secured by major office pre-lets agreed with Harris Systems -‚£1.8 million per annum for 6,735 sq m at Winnersh - and with O2 - ‚£3.0 millionper annum for 10,220 sq m at Slough. Pre-lets were also agreed with Barons atFarnborough and Wellman at Portsmouth. These pre-lettings are in addition to thelettings which started in H1 2007 - as detailed in the previous two paragraphs.
THE OCCUPIER MARKET
The reported headline vacancy at the end of June 2007 was 11.6 per cent -unchanged on the 11.6 per cent at the end of December 2006. In the UK an"underlying" vacancy is calculated by excluding recent acquisitions and newlycompleted developments (within the last eighteen months). The underlying vacancylevel at the end of June 2007 was 9.7 per cent, up from 8.0 per cent at the endof December 2006 and reflecting the inclusion of higher vacancy properties whichwere no longer "recent" (these include Heywood, where some large sites have beentaken back - in line with plans at the time of those acquisitions).The level of occupation remains broadly static despite a high volume oftransactions in the six month period. During the period a significant number ofnew developments have been completed, including for example almost 35,000 sq min Crawley and over 7,000 sq m at Heywood. Importantly these new propertiescoming on stream are generally being absorbed at a rate which is encouraging forour ambitious development programme. However as noted at our Annual GeneralMeeting in June, the impact of development completions and take backs is likelyto see this reported vacancy number rise by the end of 2007.The industrial/warehouse occupier market remains positive and there are healthysigns of the market for prime office space improving. Enquiries are generallycontinuing at good levels despite interest rate increases.From the UK vacancy and Estimated Rental Value (ERV) numbers it can becalculated that, as expected, the potential exposure to the new empty buildingrates legislation is likely to be in the region of ‚£8 million per annum. Astrategy for minimising exposure by demolishing redundant buildings andchallenging assessments is expected to reduce the actual impact. However, as nodeveloper would normally seek to have property which is unoccupied, it is notenvisaged that this legislation will itself have any impact on current vacancylevels - rather this will become a cost increase to be absorbed into thebusiness case for each proposed speculative development.
RENTAL GROWTH
Compared with the ERV at December 2006, the UK team delivered a strongperformance on rent reviews, with an increase of 2.9 per cent. Leases on over35,000 sq m of existing space were successfully renewed. These lease renewalswere achieved partly because of our flexible approach to occupier requirements.This contributed to rents on lease renewals being slightly down, by 0.5 per centoverall. New lettings delivered rent increases of 0.8 per cent, in line withoverall rental performance. Overall rent reviews (effective in 2007), leaserenewals and new lettings show an uplift of 0.9 per cent, ahead of IPDindustrial rental value growth of 0.6 per cent.
RECYCLING
Our programme of recycling investment properties is accelerating - we were netsellers in the UK in 2006 and have secured sales of ‚£170.7 million in the firsthalf of 2007 at 2 per cent ahead of book value. This acceleration of disposalshas been facilitated by the REITs related removal of capital gains taxconsiderations and is also driven by our assessment that market conditions inthe UK will see lower general levels of capital growth than those we haveexperienced in recent years. We have taken advantage of continuing demand forwell managed industrial/warehouses where we believe there are limitedopportunities for us to add value.We have also moved to dispose of those assets which have a weaker strategic fit,for example those which are not part of a critical mass of holdings in targetlocations. Conversely we continue to make acquisitions where SEGRO can addvalue, where the business case meets our hurdle rates and where the locationshelp us to consolidate our presence in key growth areas. Consequently weacquired property in Heston and Frimley, where there is natural synergy with ourexisting holdings.TRADING SALES
Sales of trading properties made a ‚£14.0 million positive contribution toprofitability in the period, including the ‚£17.9 million sale of five hectaresof land at Farnborough for residential development - improving the overallattractiveness of that estate. This is a good example of how we can be flexibleand add value to our estates by securing consent for an alternative morevaluable use that improves the value of the retained holdings. Other significanttrading sales in the period were the 100 per cent pre-sale of 21 individualindustrial units for ‚£12 million at Northpoint, Centennial Park, significantly ahead of programme and the sale of residential land at Elstree for ‚£1.5 million following successful planning appeal.
DEVELOPMENT
Our development programme continued apace with over 68,000 sq m of spacecompleted in the first half of the year of which over 80 per cent was either letor sold by the end of the period. Over 67,000 sq m of additional space was underconstruction at the end of the period. 146,000 sq m of construction starts werescheduled for H2 2007, with a further 461,000 sq m already scheduled in thedevelopment pipeline for 2008 and beyond. All of which represents a furtherinvestment to completion of ‚£877 million.
CUSTOMER ENGAGEMENT
The UK team is very focused on enhancing income by attracting new customers andby retaining existing customers. The team works closely with both existing andnew occupiers and are well placed to develop long-term commercial relationships- over 60 per cent of lettings secured during the first half of 2007 were toexisting customers.Our initiatives with occupiers address a wide range of business issues,including both security and environmental sustainability. We continue to measureoccupier satisfaction, sharing the results with our customers and taking firmaction in response to this feedback. External surveys are commissioned annuallyand we also measure customer perceptions when handling key events (handover,insurance claims, consents, managing service charges) to ensure we arecontinually improving how we meet occupier needs.
CURRENT MARKET CONDITIONS
We anticipate some softening of yields for secondary properties, but investordemand for quality prime located assets in our key markets remains strong. Theprime nature of SEGRO's portfolio and the steps taken to recycle underperformingassets should stand us in good stead. In this environment, activities in whichSEGRO has proven expertise will become ever more important. Improvements invalue will come from the successful implementation of our significantdevelopment pipeline and from securing customers.In the occupier market enquiry and viewing rates remain at the same encouraginglevels as at the beginning of the year, with similar conversion from heads ofterms into concluded transactions. Fundamentally our properties are located orclustered in regions which are well placed to take maximum benefit from economicgrowth drivers.
CONTINENTAL EUROPEAN BUSINESS REVIEW
HIGHLIGHTS
Following a significant further expansion through strategic acquisitions, ourContinental European assets achieved a valuation surplus of over 9 per cent. Atthe end of the period we had a land bank in Continental Europe of 303 hectares,and a development pipeline with planned investment of ‚£688 million. Constructionof over 131,000 sq m of developments was completed during the period, and incomestarted to flow from the occupiers of 168,000 sq m of new leases. 59,000 sq m ofpre-lettings were agreed and signed during the period.
PROFILE
The Continental European Business:
- gross land area of over 600 hectares- developed business space of 1,442,918 sq m- 110 property holdings- generates a rent roll of ‚£49.2 million per annum- ‚£0.9 billion of property (including land and trading properties)
The business focus covers the full range of Flexible Business Space product andwe directly develop 'big-box' warehouses which are a key part of our productoffering, particularly in Central Europe.The Continental European business is based in key locations in nine countries.As in the UK the business is located in specific areas with high economic growthpotential at key transport infrastructure inter modal hubs - often close toairports or major road intersections. Our locations include Brussels, Prague,Budapest, Poznan, Warsaw, Silesia, Paris, Dusseldorf, Frankfurt, Berlin,Amsterdam (Schiphol), and Madrid. As a result of the December 2006 agreement ofa major portfolio acquisition from Antalis, in 2007 SEGRO significantlyincreased its presence in its key existing markets of France, Germany and Belgium,and also moved into Spain and Italy for the first time.
VALUATION
As at 30 June 2007 the investment portfolio in Continental Europe has beenexternally valued at ‚£631.3 million (excluding land, including the Group's sharefrom joint ventures). This increase reflected ‚£44.2 milllion of acquisitions(excluding land of ‚£9.4 million) and a strong valuation surplus of 9.1 per cent.In addition the land bank was valued at ‚£83.4 million, up 45.6 per cent on the2006 year end, driven not only by the valuation uplift but by the significantscale of the acquisition programme.
NEW MARKETS & CORPORATE PARTNERING
The late 2006 Antalis acquisition has enabled us to gain a foothold in two newmarkets, Spain and Italy, and develop new business on the back of corporatepartnering. In Madrid we are in negotiations with Antalis about the possibilityof extending their main 19,700 sq m distribution facility by a further 5,000 sqm by the end of the year. We are also helping them in their requirements for newwarehousing facilities in both Madrid and Barcelona which will probably becarried out on a build-to-suit basis.Earlier this month SEGRO expanded outside of Paris into Lyon, with theacquisition of a well located prime quality modern warehousing and lightindustrial portfolio for ¢â€š¬42.5 million (6.7% yield, rising to 7.5% as vacancy isfully let up). We see the growth potential in the Lyon market as particularlystrong and plan to open up an office there in the near future.In Italy we are working on a number of acquisitions and, having now appointed aCountry Manager, we also plan to open an office in Milan before the year end tosupport the anticipated growth. We recently announced the ¢â€š¬84.5 millionacquisition (7.4% yield) of a business park North East of Milan, giving us areal foothold in the Italian market, combining strong development potentialunderpinned by a sound income stream.Elsewhere in Continental Europe we continue to benefit from the strong customerrelationships developed in the UK with international companies headquarteredwithin our portfolio. Building on these successes, we are currently working onfurther potentially significant off-market acquisitions, sale and leasebacks andother corporate partnering deals.
LEASING
The incremental annualised increase in rental income from leases which startedduring the period was ‚£3.5 million - net of space returned. ‚£5 million of newincome has been generated by the high level of leasing, with 168,000 sq m of newand existing space. A further 59,000 sq m of pre-lets were also signed duringthe period which will deliver additional rental income of ‚£2 million per annum.Most notably during the period we delivered 60,000 sq m of lettings in Poland,with almost another 58,000 sq m pre-lets signed.Germany also showed significant progress with the take-up of over 30,000 sq m ofspace leased up in 17 separate transactions. A significant new lease was alsosigned in France with Canal Toys for 18,100 sq m of logistics space at Marly LaVille, close to Charles de Gaulle airport for a five year lease at a rent of‚£607,000 per annum. A lease renewal has also been agreed with ODS at the 17,000sq m Mariniere I logistics building in Bondoufle to the south of Parisrepresenting rental income of ‚£613,000 per annum.
THE OCCUPIER MARKET
Rental conditions have remained stable across the board, apart from selectiverental growth in some French and German markets. Investment property vacancylevels have improved from 8.2 per cent at the end of December 2006 to 6.5 percent at the end of June 2007 mainly due to the low vacancy levels in theinvestment assets within acquisition portfolios. In terms of outlook, althoughrental levels remain generally unchanged in our markets, we continue to seesolid occupier demand and are generating high levels of enquiries in mostlocations.
DEVELOPMENT
In the first half of 2007 we completed 131,000 sq m of new construction of which76 per cent (100,000 sq m) is leased. At the period end we had 263,000 sq munder construction across Continental Europe of which 30 per cent had beenpre-leased. We have a number of pre-let build-to-suits underway acrossContinental Europe. At Pegasus Park in Brussels, we have started construction onthe new Ernst and Young office headquarters which totals 17,081 sq m and will beready in Autumn 2008. Also at Pegasus Park we are building 5,073 sq m of highquality offices, pre-leased to Canon, which will be completed and ready foroccupation by the end of 2007. This is a 50:50 joint venture with KBC bank andwe have agreed terms for a pre-sale to our partner.
171,000 sq m of construction starts are scheduled for H2 2007, with a further 1,067,000 sq m already scheduled in the development pipeline for 2008 and beyond. All of which represents a further investment to completion of ‚£688 million.
ACQUISITIONS
Acquisitions of ‚£73 million completed in the first half of the year. Havingopened an office in Silesia, Poland at the beginning of the year we have nowacquired a total of 19 hectares where we are building 58,000 sq m, of which 64per cent is pre-let (Decathlon and Pregis).At De Hoek area near Schiphol Airport, SEGRO has purchased two existing businessschemes, including a 20,982 sq m warehouse building for ‚£11 million (includingacquisition costs), on an initial yield of 7.5 per cent, let to Exel (DHL) untilthe end of the year. Furthermore, we have become the owner of a 4.62 hectareformer McCain site. These transactions are part of the planned site assembly forour 'S' Park (security park) concept, which now totals 36 hectares of land,further enhancing the Group's presence close to Schiphol Airport and providingsignificant development opportunities. Construction work on the former McCainsite is expected to start in early 2008. Since the period end at Almere, 37kilometres north of Amsterdam we acquired a light industrial building withoffices for ‚£11 million, on an initial yield of 7.7 per cent. The buildingstotalled 9,465 sq m and there is further development potential. They have beenleased back to HEMA, the Dutch department store, on a lease expiring in 2015.In Aachen, Germany a 6,644 sq m warehouse building has been bought at a yield ofcirca 9 per cent. The 1.01 hectare site has further development potential and weare now negotiating to acquire the adjacent site. A 13,800 sq m logisticsbuilding, fully let to Bermes Logistik on a long-term lease and circa 0.75 ha ofland for future development have been acquired for ‚£4 million atWillich-Munchheide on the main road between Dusseldorf and Monchengladbach.At Bondoufle to the south of Paris, we acquired 21,252 sq m and three hectaresof development land for a total investment of ‚£13.5 million showing a 7.3 percent initial investment yield including the development land where Evry Rotativehave signed a fixed nine year lease. At Gonesse, which is close to Charles DeGaulle airport, we also acquired land and plan to build a 56,500 sq m businesspark, the first 20,000 sq m phase of which has just started and is due tocomplete at the end of 2008. We plan to start the first 22,901 sq m phase of a50,000 sq m light industrial park at La Courneuve, on the existing Alstom siteacquired via a sale and leaseback in 2005 and the last three buildings of LeBlanc Mesnil, a 36,540 sq m light industrial park where the existing 26,192 sq mis 100 per cent leased up. Both of these schemes are located just off the A1motorway between Paris and CDG airport.
SIGNIFICANT PROGRESS IN GERMANY
In June SEGRO exchanged conditional contracts on its largest ever transaction inContinental Europe, the sale and leaseback from Neckermann (a KarstadtQuellegroup company) of a major office and distribution campus in Frankfurt forapproximately ‚£133 million including all acquisition costs, on an initial yieldof 7.9 per cent. This follows SEGRO's 2005/06 ‚£110 million acquisition of amajor logistics portfolio and land bank from the same group in a sale andleaseback corporate partnering transaction. Once the Neckermann portfolio hascompleted, Germany will represent 55 per cent of the total Continental Europeanportfolio by area (up from 47 per cent) and 41 per cent in terms of revenue (upfrom 27 per cent).A new office has been operational in Frankfurt since January, where SEGROcurrently has several live projects. This is already delivering good resultswith five additional units having already been let this year at the new AmMartinzehnten Business Park, including 1,200 sq m to PricewaterhouseCoopers andfurther units to Burkle, Pfeiffer, FRIMA and Otto Wolff.Construction is underway for new SEGRO Business Parks totalling 15,900 sq m atBerlin and Essen, where the first unit has already been pre-let. Constructionhas also started for 7,900 sq m of speculative logistics development on the nextphase of the scheme at Kapellen. We see very positive economic signs in Germanyand plan to open further offices there to support our continued growth with anoffice in Berlin planned within the next 12 months.
EXCELLENT PROGRESS IN CENTRAL EUROPE
In Poland a logistics pre-let has been signed at Strykow for 10,000 sq m toInvesta on a ten year lease. Construction is under way with delivery expected inQ3, 2007. In addition, the last remaining unit at Strykow, a 3,250 sq m unit inBuilding 3, has been let to Lidl, the German retailer, bringing occupancy of thepark to 100 per cent. Having opened an office in Silesia earlier this year, twologistics pre-lets have been signed, one to Pregis, the US manufacturer, for16,000 sq m and the other to the large European retailer Decathlon for 21,000 sqm. 19 hectares of land for industrial development have been acquired in thearea, adding to the Group's already substantial holdings in Poland. Constructionhas also started on two speculative warehousing buildings, 24,000 sq m inPoznan, and 25,000 square metres in Strykow. The first pre-lease has alreadybeen signed for the Poznan building with Masterlink taking 7,100 sq m.In Hungary the first phase of Vendel Park, a 13,000 sq m light industrial park,was completed in March this year and we have achieved our first letting to GEFCOfor 1,929 sq m on a five year lease. We now have good customer interest in theremaining units.In March this year we also completed the first building at Tulipan Park, closeto Prague airport in the Czech Republic. The first phase consists of 17,000 sq mof logistics space of which 4,800 sq m has been let to Kuhne and Nagel, andnegotiations are underway for the remaining phase 1 units. In June we started11,000 sq m of further construction with permitting process in hand for afurther 36,000 sq m.
CURRENT MARKET CONDITIONS
Yields on the Continent are continuing to see further compression. SEGRO is wellpositioned to secure good quality acquisitions, through our market leading, andgrowing, network of local offices and local expertise across the Continent. Thestrength of the market has facilitated our disposal of surplus and non-corestock, whilst generating higher returns.
Occupier demand remains strong with good take up in all our major markets continuing into H2 2007, especially in Germany where the economy is growing faster than we expected. Areas with slow take up are Hungary, which is recovering from the political and economic difficulties of last year, and Belgium where the office market remains slow.
Rental growth in the office sector has been healthy across the board - both inWestern and in Central Europe. We will harness this opportunity through moresuburban office developments in main markets such as Paris, Dusseldorf,Frankfurt, Amsterdam Brussels and Milan. Generally industrial sector rentalgrowth in real terms remains fairly flat, but we are experiencing consistentlystrong demand for product especially in Central Europe, most notable Poland.The trend for corporate occupiers to lease rather than own properties continues,especially in traditional owner occupier markets such as France and Germany. Wecontinue to build on this opportunity, in particular through the significantcorporate sale and leaseback deals, in which we now have a growing andsuccessful track record.3. FINANCIAL REVIEW
DISPOSAL OF SLOUGH ESTATES USA
The most significant financial event in the period was the agreement to disposeof the Group's US business to Health Care Property Investors, Inc., signed on 4June. The headline consideration before the deduction of debt transferred withthe business, taxes, transaction costs and certain estimated post-closingadjustments amounted to approximately $2.9 billion (‚£1.48 billion). The salecompleted on 1 August 2007 and a special dividend of ‚£250 million, payable outof the net proceeds, is due to be paid to shareholders on 31 August 2007.The special dividend has been accompanied by a share consolidation in August2007, the effect of which is to reduce the number of existing ordinary shares inissue by approximately 8 per cent, with the result that each shareholderreceives 12 new ordinary shares for every 13 existing ordinary shares held.Although following the share consolidation each shareholder holds fewer sharesthan before, his or her shareholding as a proportion of the total number ofshares in issue, and therefore his or her ownership in SEGRO is the sameimmediately after the share consolidation as it was before subject toadjustments to reflect fractional entitlements. The share consolidationfacilitates comparability of earnings per share and share prices before andafter payment of the special dividend.The results from our US business for the first half of the year are separatelyshown as discontinued operations in the interim accounts and the net assets at30 June 2007 of the business are shown within assets/liabilities held forresale.The estimated profit on sale which will be recorded in the second half of theyear is set out below and is subject to final adjustments according to the termsof the sale agreement.
ESTIMATED PROFIT ON SALE OF US BUSINESS
‚£mIFRS book value of US net assets as at 30 June 2007 437.8Less assets retained (21.6)Add estimated profits to date of completion 3.5Net assets disposed of (excluding deferred tax) 419.7Sales proceeds (net of selling expenses)1
852.9Exchange differences (21.3)Profit on sale, before tax 411.9Taxation (304.5)
Profit on sale after tax (excluding deferred tax) 107.4
1. Net sales proceeds are comprised of ‚£1,484.8m gross proceeds, less debt
settlement (‚£606.9m) and transaction costs (‚£25m).
A pro-forma statement showing the Group balance sheet as if the disposal of theUS and the subsequent share consolidation and special dividend had beeneffective on 30 June 2007 can be found below. The sale is expected to give riseto an increase in pro-forma basic NAV per share of 37p and to a reduction inadjusted diluted NAV per share of 7p.KEY FINANCIAL RESULTS 30 June 31 December Increase/ 2007 2006 (Decrease)NAV per share 756p 718p 5.3%Adjusted diluted NAV pershare 811p 775p 4.6% Six months to Six months to 30 June 2007 30 June 2006
Dividend paid in the period 12.1p
11.0p 10.0%Total return per share 51.1p* 62.0p (17.6%)Total return 6.6%* 9.1% ( 2.5%)
Adjusted profit before tax** ‚£86.5m ‚£68.1m 27.0%Diluted adjusted EPS** 17.0p 12.3p 38.2%
* After adding back the SIIC conversion charge of ‚£14.2m (3.0 pence per share). ** Continuing and discontinued operations
The principal drivers of the total return and the increase in adjusted diluted NAV are analysed further in the table below.
Pence ‚£m per shareAdjusted diluted equity attributable toshareholders at 31 December 2006 3,648.8 774.9Property gains 166.5 35.4Adjusted profit after tax 80.4 17.1SIIC conversion charge (14.2) (3.0)Currency translation differences (9.9) (2.1)Ordinary dividends paid (56.9) (12.1)Other items (6.1) (1.3)Dilution adjustment for movement in number ofshares - 1.9Adjusted diluted equity attributable toshareholders at 30 June 2007 3,808.6 810.8The total return and NAV movement were primarily driven by the property gains of‚£166.5 million (35.4 pence per share) and adjusted profits after tax of ‚£80.4million (17.1 pence per share). We have also provided for the one-off SIICconversion charge of ‚£14.2 million which has reduced NAV by 3.0 pence per share.
VALUATION MOVEMENTS
Property gains on continuing operations, including the Group's share ofcontinuing joint ventures, amounted to ‚£137.0 million (2006: ‚£228.9 million).Property gains on discontinued operations, including the Group's share of USjoint ventures, were ‚£29.5 million (2006: ‚£40.7 million). H1 2007 H1 2006Property valuation gains - continuing operations ‚£m ‚£mValuations gains in income statement 115.2 222.8Valuation gains in statement of recognised incomeand expense 10.7 4.4Share of joint ventures' valuation gains 8.0 2.5Total valuation gains from continuing operations 133.9 229.7Profits from the sale of investment properties 3.1 (0.8)Total property gains from continuing operations 137.0 228.9The strongest valuation gains experienced were in Central Europe, France andBelgium, driven by development activity and yield compression in the valuationof completed investment properties. As expected, valuation gains in the UK werelower than in 2006 due to the end of the yield compression with IPD UKindustrial initial yields at 30 June 2007 standing at 5.26% compared with 5.31%at 31 December 2006.Valuation uplifts (excluding land) - geographical H1 2007 H1 2006analysis % %UK - Industrial 1.3 7.0UK - Offices 6.5 5.4France 9.6 6.5Germany 7.2 2.8Belgium 8.4 0.2Central Europe 23.9 -Group 3.1 6.3
ADJUSTED PROFIT BEFORE TAX
Adjusted profit before tax of ‚£86.5million (2006: ‚£68.1 million) comprised ‚£68.8million (2006: ‚£45.6 million) from continuing operations and ‚£17.7 million(2006: ‚£22.5 million) from the discontinued operations in the US. Adjustedprofit before tax from continuing operations increased by 50.9 per centprimarily due to an increase in profits on sale of trading properties of ‚£16.7million to ‚£16.9 million (2006: ‚£0.2 million), with the gains mainly arising onthe sale of Farnborough residential land (‚£9.7 million) and other UK property(‚£4.2 million). Net property rental income which increased by 3.4% to ‚£96.9 million (2006: ‚£93.7 million) also contributed to this impressive performance, as did reduced finance costs of ‚£6.1 million. Finance costs benefited from the conversion of preference shares to ordinary shares in 2006 and interest earnedon receipt of a $285 million dividend from the US business paid in the second half of 2006 and a ‚£3 million US Dollar exchange gain.These gains were partly offset by an increase in administration expenses of ‚£4.4million to ‚£13.4 million (2006: ‚£9.0 million). The increase is mainlyattributable to additional, ongoing administration costs associated with thecontinued expansion of our Continental European business and also to a number ofone-off costs including professional fees in connection with consultancyprojects and with our rebranding. H1 2007Reconciliation of adjusted profit before tax - continuing ‚£m
operations
Adjusted profit before tax from continuing operations -first half of 2006 45.6Increase in net rental income 3.2Increased profits from sales of trading properties 16.7Reduced finance costs 6.1Increased administration expenses (4.4)Other changes 1.6Adjusted profit before tax from continuing operations -first half of 2007 68.8Adjusted profit and earnings per share are stated after adjusting for valuationgains/losses and similar items recommended by EPRA and exceptional items. Theonly exceptional items in the first half of 2007 were the SIIC conversion chargeof ‚£14.2 million, included within continuing operations, and a net repaymentpenalty cost of ‚£8.8 million in discontinued operations related to the earlyredemption of US debt incurred as part of the disposal (H1 2006: none). Fulldetails of all the EPRA and exceptional adjustments are provided in note 10 tothe attached interim financial statements.
RENTAL INCOME
Gross rental income, excluding discontinued operations, increased by ‚£9.0 million (8.2 per cent) to ‚£119.1 million and net rental income, on the same basis, increased by 3.4 per cent to ‚£96.9 million.
The key drivers of the increase in net rental income are set out in the table below:
‚£mNet rental income from continuing operations H1 2006
93.7Acquisitions 5.9Disposals (5.3)
New developments, re-lettings & rent reviews 10.2Space returned (6.5)Increase in property operating expenses
(5.8)Lease surrender premiums 3.9Other 0.8
Net rental income from continuing operations H1 2007 96.9Acquisition led growth arose principally from the effect of acquisitions agreedin 2006, specifically Antalis properties (‚£1.7 million) and Hoofddorp,Netherlands, (‚£0.7m) in Europe and Treforest (‚£0.9m), Sunbury (‚£0.8m),Peterborough (‚£0.4m) and Pucklechurch (‚£0.5m) in the UK. This was offset by theloss of rents on disposals, including ‚£4.3 million in the UK.Strong lettings, particularly of new developments in Central Europe (‚£1.0m) andthe UK (‚£2.2 million) and strong income from re-lettings in the UK (‚£4.3million), contributed significantly to the growth in net rental income. Theincrease in property operating expenses arose mainly due to the expansion of ourContinental European portfolio.
TAX - CONTINUING OPERATIONS
The underlying tax charge on the adjusted profit before tax was 2 per cent (2006: 23 per cent) with the decrease primarily due to the effect of the Group's REIT and SIIC status in the UK and France, respectively.
The Group achieved UK Real Estate Investment Trust ("REIT") status with effectfrom 1 January 2007 and is paying the estimated conversion charge ofapproximately ‚£81.9 million in four equal, quarterly instalments commencing July2007. As a REIT, all eligible investment property income and capital gains aretax exempt.During the period the Group also elected for Societes d'InvestissementsImmobiliers Cotees ('SIIC') status in France, with effect from 1 January 2007.This means that income and capital gains on the Group's eligible Frenchinvestment activities will also be tax exempt. The SIIC conversion is animportant element in the creation of the Group's efficient internationalstructure with a low overall tax charge. The interim accounts already show thebenefits of this structure, with an underlying tax charge of just ‚£1.1 millionfor the period. The interim accounts also include a provision for the one-offSIIC conversion charge of up to ‚£14.2 million, which is payable in four annualinstalments commencing in December 2007 and which is more than offset by therelease of ‚£29.8 million of deferred tax no longer payable.
EARNINGS PER SHARE AND DIVIDEND
Basic earnings per share for the Group (including discontinued operations) were48.0 pence (2006: 55.2 pence) and diluted adjusted earnings per share (includingdiscontinued operations) increased 38.2% to 17.0 pence (2006: 12.3 pence).Diluted adjusted earnings per share for the continuing group increased by 69% to14.2 pence (2006: 8.4 pence) and basic earnings per share for the continuinggroup was 41.3 pence (2006: 46.4 pence). The 69% increase in diluted adjustedearnings per share for the continuing group is higher than the increase inadjusted profit before tax for the continuing group (50.9%) mainly due to thereduction in the underlying tax charge of ‚£9.1 million as explained above.The directors have proposed an interim dividend of 8.3 pence per share, anincrease of 20.3 per cent from 2006, which will be paid on 5 October 2007 tothose shareholders on the register on 7 September 2007. In the absence ofunforeseen events, the directors anticipate that the full year dividend,including PID and regular dividend, will show a similar level of year on yearincrease.Under the REIT regime SEGRO is required to make Property Income Distributions("PIDs") to shareholders, amounting to at least 90 per cent of the eligible UKproperty rental profits, after certain deductions. The Board would expect thetotal distribution for the year ordinarily to exceed the mandatory PID and toinclude a proportion of the additional profits from the Group's overseasrecurring property rental income, worldwide trading property profits and otherincome. The interim dividend of 8.3 pence (2006: 6.9 pence) is to be paidentirely as part of the mandatory PID. The final dividend for 2007 will compriseboth PID and regular dividend, the amount and split of which will be declared inMarch 2008.For UK shareholders who are eligible for exemption from the 22% withholding tax,an HM Revenue & Customs ("HMRC") Tax Exemption Declaration is available fordownload from the SEGRO website (www.SEGRO.com), or from HMRC. Validly completedforms must be received by the Company's registrars, Computershare InvestorServices PLC no later than the 14 September 2007,otherwise the dividend will bepaid after deduction of tax.Non-UK resident shareholders in countries with double tax treaties with the UKwhich provide for withholding tax on dividends at rates lower than 22%, may beable to make claims for repayment of the difference from HM Revenue & Customs.
The above does not constitute advice and shareholders should seek their own professional guidance. SEGRO does not accept liability for any loss suffered arising from reliance on the above.
CASH FLOW
A summary of the cash flow for the period is set out in the table below:
H1 2007 H1 2006 ‚£m ‚£mCash flow from operations 110.9 80.8Finance costs (net) (63.8) (59.9)Dividends received (net) 1.7 32.9Tax paid (net) (1.7) (6.6)Free cash flow 47.1 47.2Capital expenditure (266.7) (191.3)Property sales (including joint ventures) 203.9 51.7Ordinary dividends (56.9) (51.6)Other items 7.5 7.8Net funds flow (65.1) (136.2)Net increase in borrowings 41.5 72.7Net cash outflow (23.6) (63.5)Opening cash and cash equivalents 151.0 166.9Exchange rate changes (0.1) (0.3)Closing cash and cash equivalents 127.3 103.1Cash flows generated from operations for the period were ‚£110.9 million, anincrease of 37% from 2006 as a result of higher proceeds from the sale oftrading property developments. Cash flows generated from continuing operationswere ‚£76.9 million (2006: ‚£45.5 million) and from discontinued operations were‚£34.0 million (2006: ‚£35.3 million).Dividends received were significantly lower than in the first half of 2006,mainly due to a one-off dividend from the Group's joint venture with Tesco in2006 which was not repeated in 2007. Finance costs of ‚£63.8 million, net ofinterest income, were higher by ‚£3.9 million due to property acquisitions in2006 and 2007, partly offset by the interest paid in 2006 on the preferenceshares, which were converted into ordinary shares during 2006. Tax paid duringthe period of ‚£1.7 million was lower than in 2006 (‚£6.6 million) mainly due tolower payments in France under the SIIC regime.After payment of the dividend, there was a net funds outflow of ‚£65.1 million(2006 ‚£136.2 million). Allowing for the lower increase in borrowings in 2007,the net cash outflow for the period was ‚£23.6 million (2006 ‚£63.5 million).Capital expenditure of ‚£266.7 million (2006: ‚£191.3 million) includeddevelopment expenditure of ‚£143.5 million (2006: ‚£97.4 million) and investmentproperty acquisitions of ‚£90.1 million (2006: ‚£88.9 million). The Group expectsto continue to maintain its high rate of expenditure with between ‚£300 million and ‚£350 million of development expenditure expected for 2007 and ‚£300 million to ‚£400 million for 2008. We continue to have a good pipeline of acquisition opportunities in Europe and acquisition expenditure of some ‚£220 million is already committed on transactions we expect to complete in the second half of the year.
DISPOSALS AND ACQUISITIONS - INVESTMENT PROPERTIES (INCLUDING LAND)
DISPOSALS Gain Price over book value ‚£m %Juniper 1& 2 Basildon 29.9 -Huddersfield 29.7 12.9Haresfield 9.6 3.6Various properties sold to Legal and General 101.1 0.2ACQUISITIONS Price (inc costs) ‚£m UK Heston 32.7 Frimley 3.8 Belgium Kobbegem 12.4 Netherlands Hoofddorp 10.9 France Gonesse - land 7.2 Bondoufle 13.5 Germany Willich Munchheide 3.5 Aachen-Julich 3.9 Central Europe Silesia, Gliwice - land 2.2 FINANCIAL POSITION
Set out below is a pro-forma statement of the Group balance sheet at 30 June 2007, prepared as if the disposal of the US business and subsequent share consolidation and special dividend had occurred on that date.
Net assets Pro-forma at 30 June Continuing 2007 Group (as at 30 June reported) 2007 ‚£m ‚£mAssetsNon-current assets 4,928.8 4,928.8Current assetsTrading properties 149.1 149.1Cash and cash equivalents 128.9 773.5Non-current assets classified as held-for-sale
1,272.9 -Debtors and other assets 158.5 158.5 1,709.4 1,081.1Total assets 6,638.2 6,009.9LiabilitiesNon-current liabilitiesBorrowings 1,841.9 1,841.9
Provisions for liabilities and charges
81.1 81.1Trade and other payables 15.6 257.5 1,938.6 2,180.5Current liabilitiesBorrowings 69.6 69.6Creditors 325.8 325.8
Liabilities directly associated with assets classified as held-for-sale
752.4 - 1,147.8 395.4Total liabilities 3,086.4 2,575.9Net assets 3,551.8 3,434.0Net assets per share - basic 756p 792p - diluted 755p 791pAdjusted net assets per share - basic
812p 805p - diluted 811p 804p
At 30 June 2007, the Group's borrowings, including ‚£490.4 million relating tothe US group, totalled ‚£2,401.9 million (31 December 2006: ‚£2,384.8 million).Cash balances totalled ‚£137.2 million (2006: ‚£161.4 million), including ‚£8.3million relating to the US group, resulting in reported net debt amounting to‚£2,264.7 million (2006: ‚£2,223.4 million). The weighted average maturity of thedebt portfolio was 10 years (11.7 years on a pro-forma basis).
On a pro-forma basis excluding the US, the continuing Group's borrowings totalled ‚£1,911.5 million. Cash balances totalled ‚£773.5 million resulting in reported net debt amounting to ‚£1,138.0 million.
Unsecured borrowings represent 97 per cent of gross debt at the period end and97 per cent on a pro-forma basis. Secured debt totalled ‚£81.8 millionrepresenting some historical mortgage debt domiciled in the Group's overseasoperations. ‚£1,425.1 million of debt domiciled in the UK was unsecured and wasissued by the Parent Company without any supporting up-stream guarantees. ‚£895.0million of unsecured debt was issued by subsidiary companies located overseas.Reported financial gearing was 64 per cent (2006: 66 per cent) or 59 per cent(2006: 61 per cent) after adding back deferred tax of ‚£264.4 million (2006:‚£276.1 million). The loan to value ratio (net debt divided by property assets)of the Group at 30 June 2007 was 38 per cent (2006: 38 per cent). On a pro-formabasis reported financial gearing was 33 per cent or 32.6 per cent after addingback deferred tax of ‚£53 million and the loan to value ratio was 23 per cent.Interest cover based upon adjusted profit before interest and tax and adjustednet finance costs was 2.5 times (2006: 2.4 times), or 2.1 times (2006: 1.9times) if capitalised interest is included. The market value of borrowings ofthe Group at the end of June 2007 was ‚£1.6 million lower than the book value.Funds availability at 30 June totalled ‚£988.3 million, comprised of ‚£137.2million of cash deposits and ‚£851.1 million of undrawn bank facilities. On apro-forma basis, after payment of the special dividend and taxes arising on the sale of the US business, funds availability at 30 June was approximately ‚£1.3 billion. Only ‚£25 million of the Group's facilities is uncommitted overdraft lines with the balance of undrawn facilities being fully committed and with
‚£766 million remaining available to 2010/12.
HEDGING POLICIES
The Group has set policies on interest rate and foreign currency translationexposures, liquidity and funding. These policies state that around 85 per centof the Group's debt portfolio should attract a fixed or capped rate of interestand that between 75 per cent - 90 per cent of foreign currency assets should bematched with liabilities of the same currency.
INTEREST RATE EXPOSURE
As at 30 June 2007, 79 per cent (2006: 87 per cent) of the debt portfolioattracted a fixed or capped rate of interest at a weighted average rate of 6.0per cent (2006: 6.1 per cent). Much of this debt was in the form of fixed ratedebt issues raised through Sterling Eurobonds and US dollar private placements.Such fixed-rate debt issues are held in the balance sheet at amortised cost.Interest rate swaps, caps, collars and forward rate agreements are also used toconvert variable rate bank debt to fixed rate. The 21 per cent of debt remainingat a variable rate of interest brought the overall weighted average cost of debtdown to 5.9 per cent (2006: 5.8 per cent). The interest rate position was noncompliant with policy at 30 June 2007 because the Board was of the opinion itdid not make sense to enter new interest rate hedging transactions for any USdollar borrowings pending the sale of SEUSA.The Group has decided not to elect to hedge account its interest ratederivatives portfolio. Therefore movements in the fair value are taken to theIncome Statement but, in accordance with EPRA recommendations, these gains andlosses are eliminated from adjusted profit before tax and adjusted EPS.
FOREIGN CURRENCY TRANSLATION EXPOSURE
Due to the nature of the Group's business it has no cross-border tradingtransactions and therefore, foreign exchange transaction exposure is negligible.However, it does have operations located overseas which transact business in thedomestic currency of the country in which the business is located - mostly in USdollars and Euros. The Group's main currency exposure therefore is thetranslation risk associated with converting net currency assets back intosterling in the Group consolidated accounts at each balance sheet date. Asmentioned above, the policy is that between 75 per cent - 90 per cent ofcurrency denominated assets must be matched with liabilities of the samecurrency. At 30 June 2007, ‚£143.2 million or 4 per cent of currency denominatednet assets were exposed to exchange movements. A 10 per cent movement in thevalue of sterling against all currencies in which the Group operates wouldtherefore change net assets by ‚£14.3 million and net assets per share by 3
penceor 0.4 per cent.
Independent review report to SEGRO plc
Introduction
We have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the Group income statement,the statement of recognised income and expense, the Group balance sheet, theGroup cash flow statement and related notes 1 to 18. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation.This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed.
Directors' responsibilities
The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly,we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007.
Deloitte & Touche LLPChartered AccountantsLondon28 August 2007Group income statementFor the six months ended 30 June 2007 Half year to 30 June 2007 Half year to 30
June 2006 Year to 31 December 2006
-------------------------
------------------------- ------------------------
Adjusted Total Adjusted Total Adjusted Total income & Adjust- income & income & Adjust- income & income & Adjust- income & expense(1) ments(2) expense expense(1) ments(2) expense expense(1) ments(2) expenseContinuing operations Note ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ------ ----- ------ ------ ------ ------ ------ ----- ------Revenue 2 184.3 - 184.3 133.3 - 133.3 307.7 - 307.7 ------ ----- ------ ------ ------ ------ ------ ----- ------Gross propertyrental income 119.1 - 119.1 110.1 - 110.1 228.6 - 228.6Propertyoperatingexpenses (22.2) - (22.2) (16.4) - (16.4) (39.8) - (39.8) ------ ----- ------ ------ ------ ------ ------ ------ ------Net propertyrental income 96.9 - 96.9 93.7 - 93.7 188.8 - 188.8Profit on saleof tradingproperties 16.9 - 16.9 0.2 - 0.2 5.9 - 5.9Share ofprofits fromproperty jointventures andassociatesafter tax 4 1.2 6.0 7.2 0.4 2.5 2.9 5.5 4.2 9.7Net incomefrom utilities 0.8 - 0.8 0.5 - 0.5 2.1 - 2.1Otherinvestmentincome 6.2 - 6.2 5.7 - 5.7 8.5 - 8.5Administrationexpenses (13.4) - (13.4) (9.0) - (9.0) (25.5) - (25.5)Property gains 3 - 118.3 118.3 - 222.0 222.0 - 397.5 397.5 ------ ----- ------ ------ ------ ------ ------ ------ ------Operatingprofit 108.6 124.3 232.9 91.5 224.5 316.0 185.3 401.7 587.0Finance income 5 14.0 3.1 17.1 15.2 6.1 21.3 28.4 4.7 33.1Finance costs 6 (53.8) - (53.8) (61.1) (0.5) (61.6) (112.0) (0.5) (112.5) ------ ----- ------ ------ ------ ------ ------ ----- ------Profit beforetax 68.8 127.4 196.2 45.6 230.1 275.7 101.7 405.9 507.6Tax(charge)/credit - current (0.6) (14.2) (14.8) (3.1) - (3.1) (11.3) (71.1) (82.4) - deferred (0.8) 14.2 13.4 (7.4) (61.0) (68.4) (2.8) 391.1 388.3 ------ ----- ------ ------ ------ ------ ------ ----- ------Total tax 7 (1.4) - (1.4) (10.5) (61.0) (71.5) (14.1) 320.0 305.9 ------ ----- ------ ------ ------ ------ ------ ----- ------Profit fromcontinuingoperations 67.4 127.4 194.8 35.1 169.1 204.2 87.6 725.9 813.5 ------ ----- ------ ------ ------ ------ ------ ----- ------DiscontinuedoperationsProfit aftertax fromdiscontinuedoperations 18 13.0 18.5 31.5 19.3 20.3 39.6 27.3 78.3 105.6 ------ ----- ------ ------ ------ ------ ------ ----- ------Profit for theperiod 80.4 145.9 226.3 54.4 189.4 243.8 114.9 804.2 919.1 ------ ----- ------ ------ ------ ------ ------ ----- ------Attributableto equityshareholders 79.6 145.4 225.0 53.8 188.5 242.3 113.9 802.6 916.5Attributableto minorityinterests 0.8 0.5 1.3 0.6 0.9 1.5 1.0 1.6 2.6 ------ ----- ------ ------ ------ ------ ------ ----- ------ 80.4 145.9 226.3 54.4 189.4 243.8 114.9 804.2 919.1 ------ ----- ------ ------ ------ ------ ------ ----- ------Earnings per shareFrom continuing and discontinuedoperationsBasic earnings per share 9 48.0p 55.2p 201.8pDilutedearnings pershare 9 47.9p 52.5p 196.0pFromcontinuingoperationsBasic earningsper share 9 41.3p 46.4p 179.0pDilutedearnings pershare 9 41.3p 44.3p 174.0pNotes
1. 'Adjusted income & expense' relates to the Group's income and expense after EPRA adjustments and excluding
exceptional items.
2. EPRA adjustments arise from adopting the recommendations of the Best Practices Committee of the European Public Real
Estate Association ("EPRA") as appropriate. Exceptional items are disclosed separately due to their size or
incidence to enable a better understanding of performance. Both these types of adjustments are described in Note 10.
Statement of recognised income and expense (SORIE) For the six months ended 30 June 2007
Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006
Continuing and discontinued operations Note ‚£m ‚£m ‚£m --------
------- --------
Revaluation gains on propertiesin the course of development 3 2.3
5.2 22.3
Revaluation gains on propertiesin the course of development injoint ventures 3 0.5 - -Exchange movement arising ontranslation of internationaloperations (4.6) (23.3) (34.3)Actuarial gains on definedbenefit pension schemes 9.8 8.2 10.2Increase in value of
available-for-sale investments 5.0 2.1 7.5Tax on items taken directly toequity 0.1
(4.1) (10.9)
-------- --------
--------
Net gain/(loss) recogniseddirectly in equity 13.1
(11.9) (5.2)
Transfer to income statement onsale of available-for-saleinvestments (2.3) (2.7) (6.2)Profit for the period fromcontinuing operations 194.8 204.2 813.5Profit for the period fromdiscontinued operations 31.5 39.6 105.6 -------- ------- --------Total recognised income andexpense for the period 237.1 229.2 907.7 -------- ------- --------
Attributable to - equity shareholders 235.8 227.7 905.8 - minority interests 1.3 1.5 1.9 -------- ------- -------- 237.1 229.2 907.7 -------- ------- --------Group balance sheet 30 June 30 June 31 DecemberAs at 30 June 2007 2007 2006 2006 Note ‚£m ‚£m ‚£m ------- --------- ---------AssetsNon-current assetsGoodwill 0.7 0.7 0.7Investment properties 12 4,485.7 4,614.2 5,090.0
Development and owner occupied properties 12 272.6 482.6
469.7
Plant and equipment 48.3 45.7
48.1
Investments in joint ventures andassociates 13 70.7 79.0
84.5
Finance lease receivables 10.5 10.8
10.6
Available-for-sale investments 40.3 45.6
44.1 ------- --------- --------- 4,928.8 5,278.6 5,747.7Current assetsTrading properties 149.1 201.8 232.3Trade and other receivables 151.2 114.1 185.7Cash and cash equivalents 128.9 105.4 161.4Tax recoverable 5.2 8.4 5.1
Non-current assets held for sale 18 1,272.9 108.3
56.6Finance lease receivables 0.1 0.1 0.2Inventories 2.0 1.4 1.0 ------- --------- --------- 1,709.4 539.5 642.3Total assets 6,638.2 5,818.1 6,390.0 ------- --------- ---------LiabilitiesNon-current liabilitiesBorrowings 14 1,841.9 2,137.4 2,307.2
Provisions for liabilities and charges 15 81.1 735.4
316.2Trade and other payables 15.6 3.0 31.7 ------- --------- --------- 1,938.6 2,875.8 2,655.1Current liabilitiesBorrowings 14 69.6 47.8 77.6Tax liabilities 100.1 6.4 82.5Trade and other payables 225.7 156.1 192.4Liabilities directly associated with assetsclassified as held for sale 18 752.4 - - ------- --------- --------- 1,147.8 210.3 352.5Total liabilities 3,086.4 3,086.1 3,007.6 ------- --------- ---------Net assets 3,551.8 2,732.0 3,382.4 ------- --------- ---------EquityShare capital 118.0 117.8 118.0Share premium 368.0 364.7 367.3Own shares held (17.3) (10.3) (10.6)Revaluation reserve 2,240.4 1,605.0 2,129.3Other reserves 78.4 56.6 70.4Retained earnings 759.7 588.9 698.3 ------- --------- ---------Total shareholders' equity 3,547.2 2,722.7 3,372.7Minority interests 4.6 9.3 9.7 ------- --------- ---------Total equity 16 3,551.8 2,732.0 3,382.4 ------- --------- ---------Net assets per ordinary shareBasic 9 756p 581p 718pDiluted 9 755p 579p 716pGroup cash flow statement Half year to Half year to Year to
For the six months ended 30 June 2007 30 June 30 June
31 December 2007 2006 2006 Note ‚£m ‚£m ‚£m -------- ------- --------Cash inflow generated fromoperations 17(i) 110.9 80.8
137.6
Interest received on deposits andloans 3.7 5.9 13.1Dividends received 3.0 33.4 36.5Interest paid (67.5) (60.6) (130.7)Dividend paid to preferenceshareholders - (5.2) (5.2)Minority dividends paid (1.3) (0.5) (0.8)Tax paid (1.7) (6.6) (11.6) -------- ------- --------Net cash inflow from operatingactivities 47.1 47.2 38.9 -------- ------- --------Cash flows from investing activitiesPurchase and development ofinvestment properties (125.5) (125.5) (262.6)Sales of investment properties 194.4 51.6
158.3
Purchase and development ofproperty, plant and equipment (108.1) (60.8) (189.3)Sale of property, plant andequipment 0.4 0.1
5.8
Purchase of available-for-saleinvestments (0.4) (2.7) (4.7)Proceeds from disposal ofavailable-for-sale investments 8.7 11.9
15.7
Investment and loans to jointventures and associates (16.1) (5.0) (21.3)Repayment of loans by jointventures 9.1 - 9.2
Acquisition of minority interests (17.0) - -Transfer to restricted deposits (1.5) -
(3.9) -------- ------- --------Net cash used in investingactivities (56.0) (130.4) (292.8) -------- ------- --------Cash flows from financing activitiesDividend paid to ordinaryshareholders (56.9) (51.6) (84.0)Proceeds from new loans 23.6 - 66.9Repayment of loans (12.3) (9.4) (10.1)
Net increase in other borrowings 30.2 82.1
264.6
Proceeds from the issue of ordinaryshares 0.7 2.6 5.9Purchase of own shares - (4.0) (4.5) -------- ------- --------Net cash (used in)/from financingactivities (14.7) 19.7 238.8 -------- ------- --------Net decrease in cash and cashequivalents (23.6) (63.5) (15.1)Cash and cash equivalents at thebeginning of the period 151.0 166.9
166.9
Effect of foreign exchange ratechanges (0.1)
(0.3) (0.8)
-------- -------
--------
Cash and cash equivalents at theend of the period 127.3 103.1 151.0 -------- ------- --------Cash and cash equivalents perbalance sheet 128.9 105.4 161.4Cash and cash equivalents includedin the assets held for sale 8.3 - -Less restricted deposits (5.4) - (3.9) -------- ------- -------- 131.8 105.4 157.5Bank overdrafts (4.5) (2.3) (6.5) -------- ------- --------Cash and cash equivalents per cashflow 127.3 103.1 151.0 -------- ------- --------
Notes to the financial statements
Basis of preparation
The interim financial statements for the six months ended 30 June 2007 were approved by the Board of Directors on 28 August 2007.
The unaudited financial information contained in this report does not constitutestatutory accounts within the meaning of section 240 of the Companies Act. Thefinancial information for the year to 31 December 2006 is an abridged statementof the financial statements for that year which were prepared underInternational Financial Reporting Standards (IFRS) and were delivered to theRegistrar of Companies. The auditors' opinion on these accounts was unqualifiedand did not contain a statement made under S237(2) or S237(3) of the CompaniesAct 1985. The interim financial report has been prepared using policies set outin the financial statements for the year ended 31 December 2006 which areconsistent with IFRS.SEGRO plc
Notes to the financial statements (continued)
1(i) Analysis of profit before tax from continuing and discontinued operations Half year to 30 June 2007 Half year to 30 June 2006 Year to 31 December 2006 -------------- -------------- -------------- Adjusted Total Adjusted Total Adjusted Total income & Adjust- income & income & Adjust- income & income & Adjust- income & expense ments expense expense ments expense expense ments expenseContinuing ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£moperations ------ ------ ------ ------ ------ ------ ------- ----- ------
Net property rental income 96.9 - 96.9 93.7 - 93.7 188.8 - 188.8
Profit on saleof tradingproperties 16.9 - 16.9 0.2 - 0.2 5.9 - 5.9Share ofprofits frompropertyjointventures andassociatesafter tax 1.2 6.0 7.2 0.4 2.5 2.9 5.5 4.2 9.7Net incomefrom utilities 0.8 - 0.8 0.5 - 0.5 2.1 - 2.1Otherinvestmentincome 6.2 - 6.2 5.7 - 5.7 8.5 - 8.5Administrationexpenses (13.4) - (13.4) (9.0) - (9.0) (25.5) - (25.5)Property gains - 118.3 118.3 - 222.0 222.0 - 397.5 397.5 ------ ------ ------ ------ ------ ------ ------- ----- ------Operatingprofit 108.6 124.3 232.9 91.5 224.5 316.0 185.3 401.7 587.0Net financecosts (39.8) 3.1 (36.7) (45.9) 5.6 (40.3) (83.6) 4.2 (79.4)Profit beforetax from ------ ------ ------ ------ ------ ------ ------- ----- ------continuingoperations 68.8 127.4 196.2 45.6 230.1 275.7 101.7 405.9 507.6 ------ ------ ------ ------ ------ ------ ------- ----- ------Discontinued operations Net propertyrental income 33.8 - 33.8 28.3 - 28.3 58.4 - 58.4Profit on saleof tradingproperties - - - - - - 0.2 - 0.2Share ofprofits frompropertyjointventures andassociatesafter tax 0.8 1.2 2.0 0.9 0.1 1.0 1.5 2.1 3.6Administrationexpenses (1.7) - (1.7) (1.7) - (1.7) (3.4) - (3.4)Property gains - 36.2 36.2 - 39.8 39.8 - 139.5 139.5 ------ ------ ------ ------ ------ ------ ------- ----- ------Operatingprofit 32.9 37.4 70.3 27.5 39.9 67.4 56.7 141.6 198.3Net financecosts (15.2) (14.2) (29.4) (5.0) - (5.0) (15.8) - (15.8) ------ ------ ------ ------ ------ ------ ------- ----- ------Profit beforetax fromdiscontinuedoperations 17.7 23.2 40.9 22.5 39.9 62.4 40.9 141.6 182.5 ------ ------ ------ ------ ------ ------ ------- ----- ------Continuing anddiscontinued operations
Net property rental income 130.7 - 130.7 122.0 - 122.0 247.2 - 247.2
Profit on saleof tradingproperties 16.9 - 16.9 0.2 - 0.2 6.1 - 6.1Share ofprofits fromproperty jointventuresand associatesafter tax 2.0 7.2 9.2 1.3 2.6 3.9 7.0 6.3 13.3Net incomefrom utilities 0.8 - 0.8 0.5 - 0.5 2.1 - 2.1Otherinvestmentincome 6.2 - 6.2 5.7 - 5.7 8.5 - 8.5Administrationexpenses (15.1) - (15.1) (10.7) - (10.7) (28.9) - (28.9)Property gains - 154.5 154.5 - 261.8 261.8 - 537.0 537.0 ------ ------ ------ ------ ------ ------ ------- ----- ------Operatingprofit 141.5 161.7 303.2 119.0 264.4 383.4 242.0 543.3 785.3Net financecosts (55.0) (11.1) (66.1) (50.9) 5.6 (45.3) (99.4) 4.2 (95.2) ------ ------ ------ ------ ------ ------ ------- ----- ------
Profit beforetax fromcontinuinganddiscontinuedoperations 86.5 150.6 237.1 68.1 270.0
338.1 142.6 547.5 690.1 ------ ------ ------ ------ ------ ------ ------- ----- ------Tax -continuing anddiscontinuedoperations (6.1) (4.7) (10.8) (13.7) (80.6) (94.3) (27.7) 256.7 229.0 ------ ------ ------ ------ ------ ------ ------- ----- ------Profit aftertax 80.4 145.9 226.3 54.4 189.4 243.8 114.9 804.2 919.1 ------ ------ ------ ------ ------ ------ ------- ----- ------
Notes to the financial statements (continued)
1(ii) Segmental analysis
United Kingdom* Continental Europe Group ------------------------- ---------------------- -------------------------- Half Half Half Half Half Half year year Year year year Year year year Year 2007 2006 2006 2007 2006 2006 2007 2006 2006Adjusted ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mprofit - ------ ------ ------ ------ ------ ----- ------ ------ ------continuingoperations Segmentrevenue 155.3 113.7 237.7 29.0 19.6 70.0 184.3 133.3 307.7 ------ ------ ------ ------ ------ ----- ------ ------ ------ Net propertyrental income 79.9 79.0 160.6 17.0 14.7 28.2 96.9 93.7 188.8Profit on saleof trading properties 14.0 - - 2.9 0.2 5.9 16.9 0.2 5.9Net profitfrom utilities 0.8 0.5 2.1 - - - 0.8 0.5 2.1Share of profitsfrom propertyjoint venturesand associatesafter tax 1.2 0.3 5.0 - 0.1 0.5 1.2 0.4 5.5
Other income and expenses (3.9) (1.5) (12.4) (3.3) (1.8) (4.6) (7.2) (3.3) (17.0)
------ ------ ------ ------ ------ ----- ----- ------ ------Operatingprofit 92.0 78.3 155.3 16.6 13.2 30.0
108.6 91.5 185.3
Net financecosts (30.3) (41.4) (73.4) (9.5) (4.5)
(10.2) (39.8) (45.9) (83.6)
------ ------ ------ ------ ------ ----- ------ ------ ------Profit beforetax 61.7 36.9 81.9 7.1 8.7 19.8 68.8 45.6 101.7Taxation - current 0.3 (1.9) (8.7) (0.9) (1.2) (2.6) (0.6) (3.1) (11.3) - deferred (1.8) (7.3) (1.7) 1.0 (0.1) (1.1) (0.8) (7.4) (2.8) ------ ------ ------ --- ------ ------ -----
--- ------ ------ ------Adjustedprofit aftertax fromcontinuingoperations 60.2 27.7 71.5 7.2 7.4 16.1 67.4 35.1 87.6 ------ ------ ------ ------ ------ ----- ------ ------ ------EPRAadjustmentsProperty gains 64.7 212.6 374.9 53.6 9.4 22.6 118.3 222.0 397.5Other incomeand expenses 4.7 2.5 4.1 1.3 - 0.1 6.0 2.5 4.2Net financecosts 0.6 5.6 0.9 2.5 - 3.3 3.1 5.6 4.2Deferred - (56.7) 415.3 14.2 (4.3) (10.0) 14.2 (61.0) 405.3tax ------ ------ ------ ------ ------ ----- ------ ------ ------Total EPRAadjustments 70.0 164.0 795.2 71.6 5.1 16.0 141.6 169.1 811.2 ------ ------ ------ ------ ------ ----- ------ ------ ------ExceptionaladjustmentsCurrent tax - - (71.1) - - - - - (71.1)Deferred tax - - (14.2) (14.2) - - (14.2) - (14.2) ------ ------ ------ ------ ------ ----- ------ ------ ------Totalexceptionaladjustments - - (85.3) (14.2) - - (14.2) - (85.3) ------ ------ ------ ------ ------ ----- ------ ------ ------Totaladjustments 70.0 164.0 709.9 57.4 5.1 16.0
127.4 169.1 725.9
------ ------ ------ ------ ------ ----- ------ ------ ------Profit aftertax fromcontinuingoperations 130.2 191.7 781.4 64.6 12.5 32.1
194.8 204.2 813.5
------ ------ ------ ------ ------ ----- ------ ------ ------Summary balance sheetContinuingoperationsTotalproperty assets** 4,187.3 3,984.7 4,192.8 874.4 593.7 707.7
5,061.7 4,578.4 4,900.5
Other assets(excludingcash) 220.1 175.4 121.1 44.9 14.8 34.8
265.0 190.2 155.9
------ ------ ------ ------ ------ ----- ------ ------ ------Segment 4,407.4 4,160.1 4,313.9 919.3 608.5 742.5 5,326.7 4,768.6 5,056.4assetsDeferred taxliability (10.3) (472.0) (7.1) (55.9) (60.4) (70.8) (66.2) (532.4) (77.9)Otherliabilities(excludingborrowings) (371.9) (233.0) (261.0) (74.7) (27.4) (40.5) (446.6) (260.4) (301.5) ------ ------ ------ ------ ------ ----- ------ ------ ------Segmentliabilities (382.2) (705.0) (268.1) (130.6) (87.8) (111.3) (512.8) (792.8) (379.4) ------ ------ ------ ------ ------ ----- ------ ------ ------Net segmentassets 4,025.2 3,455.1 4,045.8 788.7 520.7 631.2
4,813.9 3,975.8 4,677.0
------ ------ ------ ------ ------ ----- ------ ------ ------Net externalborrowings (1,320.0) (1,533.9) (1,346.5) (462.6) (300.8) (366.0) (1,782.6) (1,834.7) (1,712.5)
Net
inter-segment
borrowings 153.0 91.2 72.9 (48.7) (12.7) (57.6) 104.3 78.5 15.3
------ ------ ------ ------ ------ ----- ------ ------ ------Net assetscontinuing 2,858.2 2,012.4 2,772.2 277.4 207.2 207.6
3,135.6 2,219.6 2,979.8
------ ------ ------ ------ ------ -----Net assets of discontinuedoperations(US) 416.2 512.4 402.6 ------ ------ ------Net assets 3,551.8 2,732.0 3,382.4 ------ ------ ------
* The figures for United Kingdom include income from US available-for-sale investments which are not part of the
disposal group. In prior periods, this income was classified in the US segment. ** Includes the Group's share of properties held by joint ventures (excluding those held in the US).
Notes to the financial statements (continued)
2. Revenue Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 ‚£m ‚£m ‚£m -------- ---------- ----------Rental income from investmentproperties 109.8 103.1 207.2Surrender premiums 4.1 0.2 5.2Interest received on financelease assets 0.4 0.4 0.8Service charge income 2.7 2.1 7.0 -------- ---------- ----------Investment and developmentproperty rental income 117.0 105.8 220.2Trading property rentalincome 2.1 4.3 8.4 -------- ---------- ----------Gross property rental income 119.1 110.1 228.6Proceeds from sale of tradingproperties 45.7 1.6 35.8Sale of utilities 19.5 21.6 43.3 -------- ---------- ----------Total revenue from continuingoperations 184.3 133.3 307.7 -------- ---------- ----------3. Property gains Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006Continuing operations ‚£m ‚£m ‚£m -------- ---------- ----------Income statement - valuation surpluses 115.2 222.8 392.7- profits/(losses) from the
sale of investment properties 3.1 (0.8)
4.8 -------- ---------- ----------Total property gains perincome statement 118.3 222.0 397.5Statement of recognisedincome and expense -valuation surpluses 10.7 4.4 15.6 -------- ---------- ----------Total property gains fromcontinuing operations 129.0 226.4 413.1 -------- ---------- ----------Discontinued operationsIncome statement - valuationsurpluses 36.2 39.8 139.5Statement of recognisedincome and expense -valuation(deficits)/surpluses (7.9) 0.8 6.7 -------- ---------- ----------Total valuation surplusesfrom discontinued operations 28.3 40.6 146.2 -------- ---------- ----------Total valuation surplusesfrom continuing anddiscontinued operations 154.2 267.8 554.5 -------- ---------- ----------The valuation surpluses/(deficits)arise on the following properties:Investment properties 155.8 263.4 535.5Development and owneroccupied properties (2.1) 4.4 19.0Investment in joint ventures(taken directly to equity) 0.5 - - -------- ---------- ---------- 154.2 267.8 554.5Net valuation surpluses of jointventures and associates includedwithin theGroup's share of theirprofits in the incomestatement - continuingoperations 8.0 2.5 7.2Net valuation surpluses of jointventures and associates includedwithin profitafter tax from discontinuedoperations 1.2 0.1 2.1 -------- ---------- ----------Total valuation surpluses 163.4 270.4 563.8 -------- ---------- ----------
Notes to the financial statements (continued)
4. Share of profits from joint ventures and associates after tax (continuing operations) Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 ‚£m ‚£m ‚£m -------- ---------- ----------Revenue 7.4 6.9 42.6 -------- ---------- ----------Gross property rental income 3.5 2.7 6.2Property operating expenses (0.7) (0.2) (1.5)Proceeds on sale of trading properties 3.9 4.3
36.4
Carrying value of trading properties sold (3.4) (4.4) (29.9)Finance costs (1.9) (2.0) (3.9) -------- ---------- ---------- 1.4 0.4 7.3Valuation surpluses 8.0 2.5 7.2 -------- ---------- ----------Profit before tax 9.4 2.9 14.5Current tax (0.2) - (2.0)Deferred tax (2.0) - (2.8) -------- ---------- ----------Group share of profit aftertax 7.2 2.9 9.7 -------- ---------- ----------Analysed between:Investment properties 7.2 3.2 5.9Trading properties - (0.3) 3.8 -------- ---------- ---------- 7.2 2.9 9.7 -------- ---------- ----------5. Finance income (continuing operations) Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 ‚£m ‚£m ‚£m -------- ---------- ----------Interest received on bankdeposits 2.9 3.4 8.3Fair value gains on interestrate swaps and otherderivatives 3.1 6.1 4.7Return on pension assets lessunwinding of discount onpension liabilities 0.3 0.2 0.5Exchange differences 10.8 11.6 19.6 -------- ---------- ----------Total finance income 17.1 21.3 33.1 -------- ---------- ----------
Notes to the financial statements (continued)
6. Finance costs (continuing Half year to Half year to Year tooperations) 30 June 2007 30 June 2006 31 December 2006 ‚£m ‚£m ‚£m -------- ---------- ----------Interest on overdrafts and loans 52.2 51.5 105.1Interest on convertibleredeemable preference shares - 4.1 4.1Unwinding of discount onthe pension liabilitiesless return on assets 0.1 - 0.2 -------- ---------- ----------Total borrowing costs 52.3 55.6 109.4Less amount capitalised on thedevelopment of:Trading properties (1.0) (0.8) (1.6)Investment anddevelopment properties (4.9) (5.9) (14.2) -------- ---------- ----------Net borrowing costs 46.4 48.9 93.6Fair value losses oninterest rate swaps andother derivatives - 0.5 0.5Exchange differences 7.4 12.2 18.4 -------- ---------- ----------Total finance costs 53.8 61.6 112.5 -------- ---------- ----------
7. Tax on profit (continuing operations)
Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 ‚£m ‚£m ‚£m -------- ---------- ----------Current taxUnited KingdomCorporation tax is charged at 30 percent (2006 30 per cent)REIT conversion charge - - 81.9(Over)/under provision inearlier years (1.4) 0.8 (2.9) -------- ---------- ---------- (1.4) 0.8 79.0 -------- ---------- ----------InternationalCurrent tax charge 2.0 2.3 4.4SIIC conversion charge 14.2 - -Over provision in earlieryears - - (1.0) -------- ---------- ---------- 16.2 2.3 3.4 -------- ---------- ----------Total current tax 14.8 3.1 82.4 -------- ---------- ----------Deferred taxRelease on conversion toSIIC / REIT in respect ofinvestment properties (29.6) - (416.1)Origination and reversalof timing differences 2.4 5.8 3.3Charged/(released) inrespect of propertydisposals in the period - 1.5 (0.4)On valuation surpluses 12.2 53.7 6.7 -------- ---------- ----------Total deferred tax inrespect of investmentproperties (15.0) 61.0 (406.5)Other deferred tax 1.6 7.4 18.2 -------- ---------- ----------Total deferred tax (13.4) 68.4 (388.3) -------- ---------- ----------Total tax on profit onordinary activities 1.4 71.5 (305.9) -------- ---------- ----------8. Dividends Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 ‚£m ‚£m ‚£m -------- ---------- ----------Ordinary dividends paidInterim dividend for the year ended 31 December 2006 @ 6.9p per share - -
32.4
Final dividend for the year ended 31 December 2005 @ 11.0p per share - 51.6
51.6
Final dividend for the year ended 31 December 2006 @ 12.1p per share 56.9 -
- -------- ---------- ---------- 56.9 51.6 84.0 -------- ---------- ----------
The board have proposed an interim dividend of 8.3 pence per ordinary share(2006 6.9 pence). A special dividend of 53 pence per existing ordinary sharewill be paid on 31 August 2007. These dividends have not been recognised in
thefinancial statements.
Notes to the financial statements (continued)
9. Earnings and net assets per ordinary share
9(i) Earnings per ordinary share
Basic Diluted -------------------- --------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 pence pence pence pence pence pence
Continuing and discontinued operations Earnings per ordinary share e1/a,f1/c 48.0 55.2 201.8 47.9 52.5 196.0 Adjusted earnings per ordinary share g1/a,h1/c 17.0 12.3 25.1
17.0 12.3 25.1 Continuing operations Earnings per ordinary share e2/a,f2/c 41.3 46.4 179.0 41.3 44.3 174.0
Adjusted earnings per ordinary share g2/a,h2/c 14.3 8.0 19.3 14.2 8.4 19.6 9(ii) Number of shares Weighted average in period In issue at period end ------------------------- ------------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 millions millions millions millions millions millions The number of shares used in calculating earnings and net
assets per share is: Shares in issue 472.0 441.1 456.4 472.2 471.0 472.0
Less shares held by the (3.3) (2.2) (2.2) (3.3) (2.2) (2.2) ESOP ------- ------- ------- ------- ------- -------Basic number of shares a,b 468.7 438.9 454.2 468.9 468.8 469.8 Dilution adjustment for - 28.9 14.3 - - - preference shares Dilution adjustment for share options 0.8 1.5 1.1 0.8 1.4 1.1 and save-as-you-earn schemes ------- ------- ------- ------- ------- -------Diluted number of shares c,d 469.5 469.3 469.6 469.7 470.2 470.9 ------- ------- ------- ------- ------- ------- 9(iii) Earnings Basic Diluted -------------------- --------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006
Earnings used in calculating ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m earnings per share are: Continuing and discontinued operations
Profit attributable to equity shareholders 225.0 242.3 916.5 225.0 242.3 916.5 Adjustment for interest on preference shares - - -
- 4.1 4.1 ------- ------- ------- ------- ------- ------- e1,f1 225.0 242.3 916.5 225.0 246.4 920.6 EPRA adjustments (note 10) (168.9) (189.4) (889.5) (168.9) (189.4) (889.5)
Minority interest on EPRA adjustments 0.5 0.9 1.6 0.5 0.9 1.6 Adjustments for exceptional items (note 10) 23.0 - 85.3 23.0 - 85.3 ------- ------- ------- ------- ------- -------Adjusted earnings g1,h1 79.6 53.8 113.9 79.6 57.9 118.0 ------- ------- ------- ------- ------- -------Continuing operations
Profit attributable to equity shareholders 193.7 203.6 813.1 193.7 203.6 813.1 Adjustment for interest on preference shares - - -
- 4.1 4.1 ------- ------- ------- ------- ------- ------- e2,f2 193.7 203.6 813.1 193.7 207.7 817.2 EPRA adjustments (note 10) (141.6) (169.1) (811.2) (141.6) (169.1) (811.2)
Minority interest on EPRA adjustments 0.5 0.6 0.6
0.5 0.6 0.6
Adjustments for exceptional items (note 10) 14.2 - 85.3 14.2 - 85.3 ------- ------- ------- ------- ------- -------Adjusted earnings g2,h2 66.8 35.1 87.8 66.8 39.2 91.9 ------- ------- ------- ------- ------- -------
9(iv) Net assets per ordinary share
Basic Diluted -------------------- --------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 Net asset values (NAV) are as follows: pence pence pence pence pence pence NAV i/b,i/d 756 581 718 755 579 716
Adjustment for deferred tax on
investment properties - capital allowances 18 50 20 18 50 20 - valuation surpluses 38 102 39 38 102 39 ------- ------- ------- ------- ------- -------Adjusted NAV j/b,j/d 812 733 777
811 731 775
Fair value of debt net of tax - (12) (17) - (12) (16) Deferred tax in respect of capital (18) (50) (20) (18) (50) (20) allowances Deferred tax in respect of valuation (38) (102) (39) (38) (102) (39) surpluses Unrecognised indexation allowances - 22 -
- 22 - ------- ------- ------- ------- ------- -------Triple net NAV (NNNAV) 756 591 701 755 589 700 ------- ------- ------- ------- ------- ------- 9(v) Net assets Basic and diluted ------------------------ Half Half Full year year year 2007 2006 2006
Equity used for the calculation of net assets per ‚£m ‚£m ‚£m ordinary share is: Total equity attributable to ordinary shareholders 3,564.5 2,733.0 3,383.3 Less shares held by the ESOP (17.3) (10.3) (10.6) --------- -------- -------- i 3,547.2 2,722.7 3,372.7 Deferred tax attributable to
investment and development properties 261.4 713.3
276.1
--------- -------- --------Adjusted equity attributable to j
ordinary shareholders 3,808.6 3,436.0 3,648.8 --------- -------- --------
Notes to the financial statements (continued)
10. Adjustments for EPRA, exceptional items and related tax
The Group has presented the income statement in a three-column format, so as topresent adjusted amounts to exclude the impact of EPRA adjustments, exceptionalitems and related tax. The Directors consider that the adjusted figures give auseful comparison for the periods shown in the consolidated financialstatements.EPRA adjustments arise from adopting the recommendations of the Best PracticesCommittee of the European Public Real Estate Association as appropriate.Exceptional items are items that are disclosed separately due to their size orincidence to enable a better understanding of performance. Continuing Discontinuing operations operations Total Details of adjustments Income statement ‚£m ‚£m ‚£m line Half year to 30 June 2007 EPRA adjustments Gains after tax on Share of profits from property valuations property joint ventures and associates 6.0 1.2 7.2 Revaluation surplus Property gains 115.2 36.2 151.4 Profit on sale of investment properties Property gains 3.1 - 3.1 Adjustments for fair value of derivatives Finance income 3.1 1.0 4.1 `` -------- -------- ------EPRA adjustments before tax 127.4 38.4 165.8 Deferred tax on investment and development property which does not crystallise unless sold Deferred tax 15.0 (10.7) 4.3 Other deferred tax Deferred tax (0.8) (0.4) (1.2) -------- -------- ------Total EPRA adjustments 141.6 27.3 168.9 after tax -------- -------- ------ Exceptional items Debt repayment penalty on early US loan redemption Finance costs - (15.2) (15.2) French SIIC conversion charge Current tax (14.2) - (14.2) -------- -------- ------Total exceptional items (14.2) (15.2) (29.4) before tax Tax effect of exceptional items Current tax - 6.4 6.4 -------- -------- ------Total exceptional items (14.2) (8.8) (23.0) after tax -------- -------- ------Total adjustments 127.4 18.5 145.9 -------- -------- ------ Half year to 30 June 2006 EPRA adjustments Gains after tax on Share of profits from property valuations property joint ventures and associates 2.5 0.1 2.6 Revaluation surplus Property gains 222.8 39.8 262.6 Loss on sale of investment properties Property gains (0.8) - (0.8) Adjustments for fair value Finance costs (0.5) - (0.5) of derivatives Adjustments for fair value of derivatives Finance income 6.1 - 6.1 -------- -------- ------EPRA adjustments before 230.1 39.9 270.0 tax Deferred tax on investment and development property which does not crystalliseunless sold Deferred tax (61.0) (19.6) (80.6) -------- -------- ------ Total EPRA adjustments 169.1 20.3 189.4 after tax -------- -------- ------ Total adjustments 169.1 20.3 189.4 -------- -------- ------ Year to 31 December 2006 EPRA adjustments Gains after tax on Share of profits from property valuations property joint ventures and associates 4.2 2.1 6.3 Revaluation surplus Property gains 392.7 139.5 532.2 Profit on sale of investment properties Property gains 4.8 - 4.8 Adjustments for fair value of derivatives Finance costs (0.5) (0.1) (0.6)Adjustments for fair value of derivatives Finance income 4.7 - 4.7 -------- -------- ------EPRA adjustments before 405.9 141.5 547.4 tax Deferred tax on investment and development property which does not crystallise unless sold Deferred tax 406.5 (63.2) 343.3 Other deferred tax Deferred tax (1.2) - (1.2) -------- -------- ------Total EPRA adjustments 811.2 78.3 889.5 after tax -------- -------- ------ Exceptional items UK REIT conversion charge Current tax (81.9) - (81.9) -------- -------- ------Total exceptional items before tax (81.9) - (81.9) Tax effect of exceptional items Current tax 10.8 - 10.8 Deferred tax (14.2) - (14.2) -------- -------- ------Total exceptional items (85.3) - (85.3) after tax -------- -------- ------ Total adjustments 725.9 78.3 804.2 -------- -------- ------ SEGRO plcNotes to the financial statements (continued)
11. Property assets
Properties are included in the balance sheet as follows:
Properties carried at valuation: 30 June 30 June 31 December 2007 2006 2006 ‚£m ‚£m ‚£m Investment properties 4,485.7 4,614.2 5,090.0
Development and owner occupied properties 272.6 482.6 469.7 Non-current assets held for sale 1,156.6 108.3
56.6
--------- --------
--------
Total assets externally valued 5,914.9 5,205.1
5,616.3 Group's share of investment properties within joint ventures and associates
128.6 114.3
137.3
-------- -------- --------Total properties carried at valuation 6,043.5 5,319.4 5,753.6 --------- -------- -------- Properties carried at cost: Trading properties 149.1 201.8
232.3 Group's share of trading properties within joint ventures and associates
25.7 38.4
27.2
--------- -------- --------Total properties carried at cost 174.8 240.2
259.5 --------- -------- -------- Total properties 6,218.3 5,559.6 6,013.1 Less US disposal group (1,156.6) (981.2) (1,112.6) --------- -------- --------Total properties continuing group 5,061.7 4,578.4
4,900.5
--------- --------
--------
The investment properties in the United Kingdom and Continental Europe wereexternally valued as at 30 June 2007 by CB Richard Ellis, DTZ Debenham TieLeung, Colliers CRE or King Sturge. The investment properties in the US werevalued as at 30 June 2007 by Walden-Marling Inc. The valuation basis is fairvalue, conforms to international valuation standards and was arrived at byreference to market evidence of the transaction prices for similar properties.All the valuers listed above are qualified valuers who hold a recognised andrelevant professional qualification and have recent experience in the relevantlocation and category of the properties being valued.
Notes to the financial statements (continued)
12. Investment and development properties
12(i) Investment properties Continental UK Europe US Total ‚£m ‚£m ‚£m ‚£m At 1 January 2007 3,798.2 406.2 925.6 5,130.0 Exchange movement - (4.0) (25.3) (29.3) Acquisitions 36.5 43.0 - 79.5 Additions 23.8 7.5 25.8 57.1 Disposals (167.2) - - (167.2)
Transfer from development properties 108.9 23.5 52.3 184.7 Transfer from trading properties - 91.0 - 91.0 Revaluation surplus during the period from continuing operations 66.9 51.4 - 118.3 Revaluation surplus during the period from discontinued operations - - 37.5
37.5
-------- -------- -------- --------At 30 June 2007 3,867.1 618.6 1,015.9 5,501.6 Less classified as non-current assets held for sale - - (1,015.9) (1,015.9) -------- -------- -------- -------- 3,867.1 618.6 - 4,485.7 -------- -------- -------- -------- At 31 December 2006 3,798.2 406.2 925.6 5,130.0 Less classified as non-current assets held for sale (40.0) - - (40.0) -------- -------- -------- -------- 3,758.2 406.2 925.6 5,090.0 -------- -------- -------- -------- At 30 June 2006 3,643.5 354.9 724.1 4,722.5 Less classified as non-current assets held for sale (108.3) - - (108.3) -------- -------- -------- -------- 3,535.2 354.9 724.1 4,614.2 -------- -------- -------- --------
12(ii) Development and owner occupied properties
Continental UK Europe US Total ‚£m ‚£m ‚£m ‚£m Cost or valuation At 1 January 2007 252.4 74.6 161.4 488.4 Exchange movement - (0.7) (3.7) (4.4) Acquisitions - 10.6 20.0 30.6 Additions 40.1 17.0 24.4 81.5 Disposals (0.4) - - (0.4) Transfer to investment properties (108.9) (23.5) (52.3) (184.7) Transfer from trading properties - 6.7 -
6.7 Surplus on valuation (3.6) 10.6 (9.1) (2.1) -------- -------- -------- -------At 30 June 2007 179.6 95.3 140.7 415.6 -------- -------- -------- ------- Depreciation At 1 January 2007 2.1 - - 2.1 Additions 0.2 - - 0.2 -------- -------- -------- -------At 30 June 2007 2.3 - - 2.3 -------- -------- -------- -------
Net book value at 30 June 2007 177.3 95.3 140.7 413.3 Less classified as non-current assets held for sale - - (140.7) (140.7) -------- -------- -------- -------At 30 June 2007 177.3 95.3 - 272.6 -------- -------- -------- -------
Net book value at 31 December 2006 250.3 74.6 161.4 486.3 Less classified as non-current assets held for sale (16.6) - - (16.6) -------- -------- -------- -------At 31 December 2006 233.7 74.6 161.4 469.7 -------- -------- -------- -------
Net book value at 30 June 2006 217.1 33.5 232.0
482.6
Land for or under development and owner occupied buildings are valued on the same basis as investment properties. The valuers are detailed within note 11.
Notes to the financial statements (continued)
13. Investments in joint ventures and associates
The Group's investments in joint ventures and associates and their results areaccounted for using the equity method of accounting. Under the equity method ofaccounting, the Group accounts for its share of the joint ventures' andassociates' profits and losses after tax in the income statement. 30 30 31 June June December 2007 2006 2006 ‚£m ‚£m ‚£m Cost or valuation at 1 January 84.5 100.1 100.1 Exchange movement (0.7) (1.4) (2.8) Additions 4.2 8.0 17.8 Movement on loans 2.7 - (9.2) Dividends received (3.0) (31.6) (34.7)
Valuation surpluses (through income statement) 9.2 2.6 9.3 Valuation surpluses (through SORIE) 0.5 - - Deferred taxation on valuation surplus (2.1) - (3.0) Share of profits net of tax 2.1 1.3 7.0 -------- -------- --------Cost or valuation at end of period 97.4 79.0 84.5 Less classified as non-current assets held for sale (26.7) -
-
-------- -------- --------Cost or valuation at end of period 70.7 79.0 84.5 -------- -------- -------- Analysed as follows: Cost 45.5 30.3 48.1 Valuation surplus net of deferred tax 50.8 53.7 56.6 Share of retained losses (25.6) (5.0) (20.2) -------- -------- -------- 70.7 79.0 84.5 -------- -------- --------
Summarised financial information of Group's share of joint ventures and associates
30 30 31 June June December 2007 2006 2006 ‚£m ‚£m ‚£m Balance sheet Investment properties 126.4 114.3 137.3 Development properties 2.2 - - -------- -------- --------Total non-current assets 128.6 114.3 137.3 -------- -------- -------- Trading properties 25.7 38.4 27.2 Other receivables 7.6 13.7 10.6 Cash 8.1 8.4 9.4 -------- -------- --------Total current assets 41.4 60.5 47.2 -------- -------- -------- Total assets 170.0 174.8 184.5 -------- -------- -------- Mortgages and loans 71.0 76.6 74.5 Deferred tax 21.0 11.7 14.6 Other liabilities 0.1 1.9 0.5 -------- -------- --------Total non-current liabilities 92.1 90.2 89.6 -------- -------- -------- Other liabilities 7.2 5.6 10.4 -------- -------- --------Total current liabilities 7.2 5.6 10.4 -------- -------- -------- Total liabilities 99.3 95.8 100.0 -------- -------- -------- Group's share of net assets 70.7 79.0 84.5 -------- -------- -------- Group's share of revenue for the period 7.4 8.4 45.0 -------- -------- -------- Group's share of profit after tax for the period 7.2 2.8 9.7 -------- -------- -------- The Group has consolidated its interest in joint ventures and associates usingthe equity method of accounting, even where its interest is greater than 50 percent, as the terms of the venture agreements prevent the Group from exercisingcontrol over the individual ventures.
Notes to the financial statements (continued)
14. Borrowings 30 30 31 June June December 2007 2006 2006 ‚£m ‚£m ‚£m
The maturity profile of borrowings is as
follows: In one year or less 272.4 47.8 77.6 In more than one year but less than two 25.9 35.6 30.7 In more than two years but less than five 905.2 722.1 991.0 In more than five years but less than ten 186.0 312.8 272.8 In more than ten years 1,012.4 1,066.9 1,012.7 -------- -------- ---------Total debt 2,401.9 2,185.2 2,384.8 Less transferred to liabilities directly associated with assets classified as held for sale (490.4) - - -------- -------- --------- Total debt per balance sheet (continuing operations) 1,911.5 2,185.2 2,384.8 -------- -------- ---------
Total debt is split between secured and unsecured borrowings as follows: Secured (on land and buildings) 81.8 77.8 77.1 Unsecured 2,320.1 2,107.4 2,307.7 -------- -------- ---------Total debt 2,401.9 2,185.2 2,384.8 -------- -------- ---------
Currency profile of total borrowings
Sterling 1,285.3 1,285.4 1,286.1 US dollars 538.2 514.5 581.4 Canadian dollars 11.7 12.1 10.9 Euros 566.7 373.2 506.4 -------- -------- ---------Total debt 2,401.9 2,185.2 2,384.8 -------- -------- ---------
Maturity profile of undrawn borrowing
facilities In one year or less 343.5 47.8 37.1 In more than one year but less than two 2.8 17.4 11.1 In more than two years 504.8 601.1 461.7 -------- -------- ---------Total available undrawn facilities 851.1 666.3 509.9 -------- -------- ---------
Fair value of financial instruments
Book value of debt 2,401.9 2,185.2 2,384.8 Derivatives (17.3) (8.1) (6.3) -------- -------- ---------Book value of debt including derivatives 2,384.6 2,177.1 2,378.5 Net fair market value 2,382.3 2,254.6 2,462.2 -------- -------- ---------Pre-tax mark to market adjustment 2.3 (77.5)
(83.7) Tax relief due on early redemption/termination (0.7) 23.2 5.5
-------- --------
---------
After tax mark to market adjustment 1.6 (54.3) (78.2) -------- -------- --------- 15. Provisions for liabilities and charges, retirement benefit schemes anddeferred tax Retirement benefit Deferred Other schemes tax liabilities Total ‚£m ‚£m ‚£m ‚£m Balance at 1 January 2007 17.5 298.5 0.2 316.2 Exchange movement (0.1) (6.0) - (6.1) Charge/(credit) to income statement - continuing operations 1.5 (13.4) 9.4 (2.5) Charge to income statement - discontinued operations 0.1 10.5 - 10.6 (Credit)/charge to SORIE - continuing operations (9.4) 2.2 - (7.2) Credit to SORIE - discontinued operations (0.4) (3.4) - (3.8) Paid (2.0) - - (2.0) -------- -------- -------- ---------Balance at 30 June 2007 7.2 288.4 9.6 305.2
Less amounts shown as liabilities (2.0) (222.1) -
(224.1) relating to assets held for sale -------- -------- -------- ---------
Balance at 30 June 2007 (continuing 5.2 66.3 9.6
81.1 operations) -------- -------- -------- ---------Balance at 30 June 2006 19.5 715.7 0.2 735.4 -------- -------- -------- ---------The other liabilities relate principally to provisions for onerous leases onrented properties, being the estimated liability of future rentals anddilapidation costs less sub-letting receipts over the length of the contract. 30 30 31 June June December 2007 2006 2006
Deferred taxation is in respect of: ‚£m ‚£m
‚£m Investment properties 264.4 713.3 276.1 Pension scheme (0.8) (5.8) (1.0) Deferred tax assets (4.8) - (9.0) Others 29.6 8.2 32.4 -------- -------- --------- 288.4 715.7 298.5
Less amounts shown as liabilities relating to (222.1) -
- assets held for sale -------- -------- --------- 66.3 715.7 298.5 -------- -------- ---------
Notes to the financial statements (continued)
16. Summary of changes in equity
Retained Other Balance profit items Balance 1 Jan Exchange for in Shares Dividend Reserve 30 June 2007 Movement Period SORIE(1) issued Other paid transfers 2007 ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m
Revaluation reserve(2) 2,129.3 (6.7) - 4.7 -
- - 113.1 2,240.4 Share based payments reserves 4.5 - - - - 1.7 - (0.1) 6.1 Fair value reserve for AFS(3) 7.4 (0.1) - 1.1 - - - - 8.4 Translation 58.5 - - 5.4 - - - - 63.9 -------- ------- ------ ------ ------ ------ ------ ------ -------- Total revaluation and other reserves 2,199.7 (6.8) - 11.2 - 1.7 - 113.0 2,318.8 Retained earnings 698.3 (3.0) 225.0 9.4 - - (56.9) (113.1) 759.7
Ordinary share capital 118.0 - - - -
- - - 118.0 Share premium 367.3 - - - 0.7 - - - 368.0 Own shares held (10.6) - - - - (6.8) - 0.1 (17.3) -------- ------- ------ ------ ------ ------ ------ ------ --------Total equity attributable to equity shareholders 3,372.7 (9.8) 225.0 20.6 0.7
(5.1) (56.9) - 3,547.2 -------- ------- ------ ------ ------ ------ ------ ------ --------Minority interests 9.7 (0.1) 1.3 - - (5.0) (1.3) - 4.6 -------- ------- ------ ------ ------ ------ ------ ------ --------Total equity 3,382.4 (9.9) 226.3 20.6 0.7 (10.1) (58.2) - 3,551.8 -------- ------- ------ ------ ------ ------ ------ ------ --------
1. SORIE is the term used for the "Statement of recognised income and expense".
Items in the SORIE are net of tax.
2. The revaluation reserve is shown net of deferred tax.
3. AFS is the term used for "Available-for-sale investments" and is shown net of
deferred tax.
Notes to the financial statements (continued)
17. Notes to the Group cash flow statement
17(i) Reconciliation of cash generated from operations
Half Half year year Year to to to 30 30 31 June June Dec 2007 2006 2006 Continuing operations ‚£m ‚£m ‚£m Operating profit 232.9 316.0 587.0 Adjustments for:
Depreciation of property, plant and equipment 2.5 2.3 4.7 Share of profits from joint ventures and associates (7.2) (2.9) (9.7) (Profit)/loss on sale of investment properties (3.1) 0.8 (4.8) Revaluation surplus on investment properties (115.2) (222.8) (392.7) Other income reallocated (6.2) (5.7) (8.5) Other provisions (1.0) - (2.0) -------- ------- ------- 102.7 87.7 174.0 Changes in working capital: Increase in trading properties (22.9) (53.4)
(108.8)
(Increase)/decrease in inventories (1.0) 0.2 0.6 (Increase)/decrease in debtors (22.4) 16.2 (11.7) Increase/(decrease) in creditors 20.5 (5.2)
31.1
-------- -------
-------
Net cash inflow generated from continuing operations 76.9 45.5 85.2 -------- ------- ------- Discontinued operations Operating profit 70.3 67.4 198.3 Adjustments for:
Share of profits from joint ventures and associates (2.0) (1.0) (3.6) Revaluation surplus on investment properties
(36.2) (39.8) (139.5) Other provisions - - 0.9 -------- ------- ------- 32.1 26.6 56.1 Changes in working capital: (Increase)/decrease in debtors (1.7) 11.6 (2.2) Increase/(decrease) in creditors 3.6 (2.9)
(1.5)
-------- -------
-------
Net cash inflow generated from discontinued operations 34.0 35.3 52.4 -------- ------- ------- Net cash inflow generated from operations 110.9 80.8
137.6
-------- -------
-------
17(ii) Cash flows from discontinued operations
The net cash flows after tax of the US disposal group are as follows:
Net cash flows from operating activities 15.5 23.9 20.8 Net cash flows from investing activities (89.1) (39.7)
(116.3)
Net cash flows from financing activities 76.8 15.3
97.9 -------- ------- --------Net cash inflows/(outflows) 3.2 (0.5) 2.4 -------- ------- -------17(iii) Issue of shares Ordinary share Share capital premium Total ‚£m ‚£m ‚£m Balance at 1 January 2007 118.0 367.3 485.3
Ordinary shares issued for cash - 0.7
0.7 -------- ------- ------Balance at 30 June 2007 118.0 368.0 486.0 -------- ------- ------SEGRO plcNotes to the financial statements (continued)
17(iv) Reconciliation of net cash flow to movement in net debt
Half Half year year Year to to to 30 June 30 June 31 Dec 2007 2006 2006 ‚£m ‚£m ‚£m Decrease in cash in the period (23.6) (63.5) (15.1) Increase in debt (53.8) (82.1) (331.5) Repayment of debt 12.3 9.4 10.1 Restricted deposit 1.5 - 3.9 --------- --------- --------
Change in net debt resulting from cash flows (63.6) (136.2) (332.6) Translation difference
23.2 42.8 96.2 Conversion of preference shares - 106.5 106.5 Non-cash adjustments (0.9) (0.6) (1.2) --------- --------- --------Movement in net debt in the period (41.3) 12.5 (131.1) Net debt brought forward (2,223.4) (2,092.3) (2,092.3) --------- --------- --------Net debt (2,264.7) (2,079.8) (2,223.4) --------- --------- --------17(v) Analysis of net debt At At 1 January Cash Non-cash Exchange 30 June 2007 flow adjustment** Movement 2007 ‚£m ‚£m ‚£m ‚£m ‚£m Bank loans and loan capital (2,378.3) (41.5) (0.9) 23.3 (2,397.4) Bank overdrafts (6.5) 2.0 - - (4.5) --------- -------- -------- -------- --------Total borrowings (2,384.8) (39.5) (0.9) 23.3 (2,401.9) Cash in hand and at bank * 157.5 (25.6) - (0.1) 131.8 Restricted deposits * 3.9 1.5 - - 5.4 ---------- -------- -------- -------- --------Net debt (2,223.4) (63.6) (0.9) 23.2 (2,264.7) ---------- -------- -------- -------- --------
* Cash and deposits per balance sheet of ‚£128.9 million and ‚£8.3 million
included within the disposal group.
** The non-cash adjustment relates to the amortisation of issue costs offset
against borrowings.
18. Disclosures of the disposal group
The disposal group comprises the Group's US property business operations. Theagreement to dispose of the US business was signed on 4 June 2007 and thedisposal completed on 1 August 2007. The assets and liabilities of the USbusiness have been reclassified into a disposal group and presented as currentassets and liabilities on the balance sheet in accordance with IFRS 5.
Notes to the financial statements (continued)
18. Disclosure of the disposal group (continued)
Income statement details of the disposal group
The profit for the period from discontinued operations in the Group incomestatement is analysed below. Half Half year year Year to to to 30 June 30 June 31 December 2007 2006 2006
Summarised income statement of disposal group ‚£m ‚£m
‚£m Revenue 45.4 35.8 76.4 -------- -------- ----------Profit before tax 40.9 62.4 182.5 Tax credit/(charge) - current 1.1 (2.0) (6.8) - deferred (10.5) (20.8) (70.1) -------- -------- ----------Profit after tax 31.5 39.6 105.6 -------- -------- ----------
Statement of recognised income and expense (SORIE) of the disposal group
Half year to 30 June 2007 ‚£m Revaluation gains on properties in course of development (7.9) Exchange movement arising on translation of international (11.0) operations Other items taken directly to equity
3.5
--------
Net loss recognised directly in equity (15.4) Profit for period from discontinued operations
31.5
--------
Total recognised income and expense for the period 16.1 -------- As at 30 June 2007
Summarised balance sheet of the disposal group ‚£m Investment properties 1,015.9 Development and owner occupied properties 140.7 Investments in joint ventures and associates 26.7 Other assets 89.6 ---------Total assets classified as held for sale 1,272.9 --------- Borrowings 490.4 Deferred tax provision 222.1 Other liabilities 39.9 ---------Liabilities directly associated with assets classified as held for sale - per balance sheet 752.4 Loan from SEGRO plc 104.3 ---------Liabilities directly associated with assets classified as held for sale 856.7 ---------Net assets of disposal group 416.2 ---------GLOSSARY OF TERMSAdjusted earnings per share:EPS based on adjusted profit before tax and excluding deferred tax on investmentproperties.
Adjusted net asset value per share: NAV per share adjusted to add back deferred tax associated with investment properties, as recommended by EPRA.
Adjusted profit before tax: Reported profit before tax, after reflecting EPRA adjustments and excluding items which are exceptional by virtue of their size or incidence.
Book value:The amount at which assets and liabilities are reported in the accounts.Combined portfolio:The investment, development and trading properties of the Group, including therelevant share of joint ventures' properties.Continuing operations:The remaining ongoing operations of the group after excluding the operations ofthe Group's USA business.Development pipeline:The Group's current programme of developments authorised or in the course ofconstruction at the balance sheet date, together with potential schemes not yetcommenced on land owned or controlled by the Group or its joint ventures.
Diluted figures: Reported amounts adjusted to reflect the dilutive effects of convertible preference shares and of shares held by the employee share ownership plan trusts.
Discontinued operations:The operations of the Group's US business (disposal group) which was sold on 1August 2007. On 4 June 2007 the Group entered into a conditional contract tosell the US operations. Under IFRS 5, these operations are required to beaccounted for as discontinued and disclosed separately in the income statementand balance sheet.Dividend cover:Adjusted earnings per share divided by the ordinary dividend per share.
Earnings per share (EPS): Profit after taxation attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year.
EPRA adjustments:Adjustments to income statement and balance sheet amounts reported under IASarising from adopting the recommendations of the Best Practices Committee of theEuropean Real Estate Association ("EPRA"). The adjustments to income statementamounts principally relate to the exclusion of valuation gains and losses,whilst the balance sheet adjustments relate to the exclusion of deferred tax oninvestment properties.Equivalent yield:The internal rate of return from an investment property, based on the value ofthe property assuming the current passing rent reverts to ERV and assuming theproperty becomes fully occupied over time.Estimated rental value (ERV):The estimated annual market rental value of lettable space as determinedbiannually by the Company's valuers. This will normally be different from therent being paid.
Estimate to complete (ETC): Costs still to be expended on a development or redevelopment to practical completion (not to complete lettings), including attributable interest.
Finance lease:A lease that transfers substantially all the risks and rewards of ownership fromthe lessor to the lessee.Gearing (net):Total borrowings, including bank overdrafts, less short-term deposits, corporatebonds and cash, at book value, plus non-equity shareholders' funds as apercentage of equity shareholders' funds.Gross rental income:Contracted rental income recognised in the period, including surrender premiums,interest receivable on finance leases and service charge income. Leaseincentives, initial costs and any contracted future rental increases areamortised on a straight line basis over the lease termHectares (ha):The area of land measurement used in this report. The conversion factor used,where appropriate, is 1 hectare = 2.471 acres.
Initial yield: Annualised current passing rent expressed as a percentage of the property valuation.
IPD:Investment Property Databank.Joint venture:An entity in which the Group holds an interest and which is jointly controlledby the Group and one or more partners under a contractual arrangement wherebydecisions on financial and operating policies essential to the operation,performance and financial position of the venture require each partner's consentNet asset value (NAV) per share:Equity shareholders' funds divided by the number of ordinary shares in issue atthe period end.Net rental income:Gross rental income less ground rents paid, service charge expenses and propertyoperating expenses
Over-rented:
Space that is let at a rent above its current ERV.
Passing rent:The annual rental income currently receivable on a property as at the balancesheet date (which may be more or less than the ERV - see over-rented andreversionary).
Pre-let:
A lease signed with an occupier prior to completion of a development.
REIT:
A qualifying entity which has elected to be treated as a Real Estate InvestmentTrust for tax purposes. In the UK, such entities must be listed on a recognisedstock exchange, must be predominantly engaged in property investment activitiesand must meet certain ongoing qualifications. SEGRO plc and its UK subsidiarieselected for REIT status with effect from 1 January 2007.Reversionary or under-rented:Space where the passing rent is below the ERV.Reversionary yield:The ERV of a property, expressed as a percentage of the property's valuation. Inthe case of portfolio data, the reversionary yield assumes all properties arefully occupied.
SIIC:
(Societes d'Investissements Immobiliers Cotees). A qualifying entity which haselected to be a French Real Estate Investment Trust. In France, such entitiesmust be listed on a recognised stock exchange, must be predominantly engaged inproperty investment activities and must meet certain ongoing qualifications.SIICs are exempt from corporation tax. SEGRO plc, whose shares are listed onEuronext Paris, and its eligible French subsidiaries elected for SIIC statuswith effect from 1 January 2007.Square metres (sq m):The area of buildings measurements used in this report. The conversion factorused, where appropriate, is 1 square metre = 10.639 square feet.Total development cost:All capital expenditure on a project including the opening book value of theproperty on commencement of development, together with all finance costscapitalised during the development.Total property return:The valuation surplus, profit/(loss) on sale of investment properties and netrental income in respect of investment properties, expressed as a percentage ofthe closing book value of the investment property portfolio.Total return:Dividends per share plus annual growth in diluted adjusted net asset value pershare, expressed as a percentage of the opening diluted adjusted net asset valueper share.Trading properties:Properties held for trading purposes and shown as current assets in the BalanceSheet.
Voids:
The area in a property or portfolio, excluding developments, which is currently available for letting.
SEGRO PLCRelated Shares:
Segro