UK net rental income slides at SEGRO

21st Feb 2012 07:19

Industrial property owner SEGRO sent out mixed messages with its 2011 results, with earnings per share up, net asset value (NAV) per share down and profits before tax turning into a loss.Reported loss before tax was £53.6m in 2011, versus a profit in 2010 of £197.2m, but on a European Public Real Estate Association (EPRA) basis profit before tax climbed to £138.5m from £127.3m the year before.EPRA earnings per share advanced to 18.4p from 17l.1p in 2010, while EPRA NAV per share declined 9.6% to 340p from 376p. Regular old-fashioned NAV per share dipped 5.7% to 345p from 366p in 2010.Net borrowings at the year end were £2,303.4m, little changed from the end 2010 net debt of £2,203.2m, and the group's gearing ratio was 89%, up from 80% at the end of 2010. The loan to value ratio ended 2011 at 50%, up from 46% at the end of 2010, but the total cost ratio - the fund's costs divided by its assets - narrowed to 24.3% from 28.1% in 2010, with improved vacancy rates and tight management of operating expenses. The group is targeting a cost ratio in the low twenties, so it is almost there, but the loan to value ratio is currently heading in the wrong direction if the group is to achieve its medium-term target of getting the ratio down to 40%.Net rental income (NRI) in 2011 eased to £271.2m from £282.1m in 2010, with a rise in NRI in continental Europe failing to offset a decline in the UK. UK NRI fell to £173.6m from £187.9m the year before, while continental Europe's number went up to £97.6m from £94.2m.Annualised new rental income, or take-up, fell to £33.5m in 2011 from £37.7m in 2010, excluding the value of agreements for pre-lets which will be delivered in future years. On the plus side, the group was a lot better at retaining tenants in 2011 and the vacancy rate fell substantially; the retention rate rose to 74% from 2010's 63% while the vacancy rate moved down to single figures at 9.1% from 12.0% the year before.The group also highlighted that its "strong lettings activity" had not come at the expense of overall rental lettings. In 2011, overall headline rents across the business on new lettings and lease renewals were 1.7% higher than the estimated rental values as at 31st December 2010. Lease incentives stood at 11.0% of the committed rents at the end of 2011, versus 10.0% a year earlier.A final dividend of 9.9p has been recommended, consisting of a property income distribution, or PID, of 7.0p and a cash dividend of 2.9p. UK property companies that convert to real estate investment trust (REIT) status are required to pay PIDs from their tax-exempted property rental business; the dividends are taxable for UK-resident shareholders at their marginal tax rate.The full year dividend is 14.8p, up from 14.3p in 2010, and better than the 14.71p the market was expecting."We expect the macro environment to remain unsettled for some time to come, both in the UK and Continental Europe. However, we have started the new year with good momentum in our letting activity and our 20 mainly pre-let development projects underpin future rental income," said SEGRO's Chief Executive, David Sleath. "Given the strengths of our operational teams and core assets, we are well-positioned to continue to capitalise on demand for newly-developed and well-located industrial space from a diverse range of customers and industries," Sleath explained.The shares fell back 7p to 229.7p in the first hour of trading following the results.jh